At a time when Indo-Pak trade ties had just taken off, Islamabad has played spoilsport by refusing to undertake the first trade liberalisation programme (TLP) with India under South Asian Free Trading Area (SAFTA).

The SAFTA agreement came in to effect from July 1. Islamabad says SAFTA does not say that trade relations between Pakistan and India would function on the MFN basis. And hence, it is not going to extend the first TLP with India.
 
Earlier, all other SAFTA signatories had agreed to extend duty concessions on a reciprocal basis. India says Pakistan's stand on this issue goes against the spirit of SAFTA, because SAFTA provides for only one negative list.
 
A no-MFN status to India means it gets preferential access only on the 773 items, which are currently mentioned in the positive list. Since Pakistan trades with India on the basis of a positive list, it disallows import of all items that are not on the list.
 
India's bilateral trade with Pakistan has been growing fast in the last couple of years with exports from India to Pakistan amounting to $681.85 million in 2005-06 as against $521.05 million during 2004-05, a growth of 31 percent. India's imports from Pakistan amounted to $177.48 million in 2005-06 as against $94.97 million in 2004-05, showing a good 87 percent growth.
 
Under the present arrangement, while Pakistan has notified tariff concessions on import of 4,872 items for imports from other SAARC countries, imports from India would be restricted to only 773 items. India is now taking up the issue with the SAARC Secretariat in Kathmandu. The Indian Commerce Minister has written a letter to the SAARC Secretary-General, Chenkyab Dorji, asking him to convene the SAARC Ministerial Council to settle this issue.
 
Now as the bitterness grows, India has refused to extend tariff concessions to 884 sensitive items. Also, import of select textiles and textile articles from Pakistan and Sri Lanka would be subject to 12.5 percent duty whereas their imports from Nepal, Bangladesh, Bhutan and Bangladesh would invite only 9.5 percent duty. Imports from all these countries would also be subject to minimum import value at half or less than half of what is prescribed for imports from other countries.
 
Tariff concessions for some other items are listed in 126 entries, where some manufactured items attract 9.5 percent duty for imports from Pakistan or Sri Lanka as against 6.67 percent duty for imports from Nepal, Bhutan, Maldives or Bangladesh.
 
On many other items where the duty rates have been retained at 12.5 percent for imports from Pakistan and Sri Lanka, they have been cut to 10 percent for imports from Nepal, Bhutan, Maldives or Bangladesh. In case of most farm products too, duty rates for imports from Nepal, Bhutan, Maldives and Bangladesh are about two-thirds of the duty rates for imports from Pakistan or Sri Lanka.
 
In plain terms, this means going at least 25 years back in terms of trade relations. In the past two-three years, India and Pakistan had taken some giant leaps in trade terms with Pakistan opening its markets for duty-free import of live animals, meat, garlic, onions, potatoes, tomatoes and sugar from India and New Delhi turning to its neighbour for onions and opening the borders for textile yarns, leather products, surgical instruments, sports goods, vegetables and fruits.
 
In fact, in the wake of the normalisation of ties between the two nations India's imports from Pakistan had increased by a whopping 86% while India's exports to Pakistan increased by 10% in the first five months of 2005-06. But now, these trade ties lay in tatters as the two nations gear up for a prestige battle at the SAARC forum.