An eminent politician and a former external affairs minister of India once summed up the SAARC negotiations by saying, in his inimitable Bengali accent, “Shark should get some teeth.”

If all goes well, the 12th SAARC summit in Islamabad may see that happening. An agreement seems likely in Islamabad to set up a South Asian Free Trade Area (SAFTA) from January 1, 2006.

South Asia is the only large regional entity which is not a trading bloc. If that happens, it will lead to the formation of a larger Asian market. Vajpayee’s statement about a common currency and visa-free travel has enthused ordinary folk and economists alike. In Bali recently, he had also envisioned a larger trading block including the ASEAN — an Asian Economic Community of which SAFTA would be a part.

All eyes are, therefore, on the Islamabad SAARC summit to see how co-operation in trade progresses. But whatever happens in Islamabad is unlikely to satisfy the people. As Pakistani economist Syed Akabar Zaidi says, “SAPTA (South Asian Preferential Trade Agreement) is nothing. It is not enough. We should have free trade in South Asia. There should be no positive lists or negative lists or tariff reduction on a few goods. We need totally free trade. If all the South Asian countries are part of the World Trade Organisation, then there is no reason for them not to trade.”

SAARC meetings often get overshadowed by India-Pakistan tensions. However, this time around, a thaw in bilateral ties has paved the way for a summit that may prove to be momentous for the region. Two things have started happening simultaneously — there is progress in preferential trade between India and Pakistan under SAPTA; and both India and Pakistan are in agreement on creating SAFTA.

Up to the third round of SAPTA in 1999, only 18 items were included by either side for preferential trade. That was nothing more than tokenism. Now, after the latest round of talks, India has offered 262 items and Pakistan 223 for concessional trade. Commendable progress has been made in the commerce secretary-level talks on December 24 and 25 this year on SAFTA. Some thorny issues, however, remain and are likely to be sorted out on December 31 when the SAARC foreign secretaries meet.

These relate to the trade liberalisation programme. At the heart of all free trade agreements are two issues: reducing tariffs and the product coverage. The demand of the least developed countries (LDCs) of South Asia, especially of Bangladesh, is that the other countries of the region should open up their markets for their products in three years’ time. India is agreeable to this, others have suggested a time period of seven years. Pakistan wants a five-year framework.

On the products covered by SAFTA, Bangladesh wants several concessions for the LDCs of South Asia. It does not want their exports to be covered by any sensitive or negative lists meant to protect domestic industry. It also does not want LDC exports to be subject to any anti-dumping action and says there should be no action to protect domestic producers against LDC exports.

These are controversial issues and attempts are being made to find half-way houses. India, for example, has suggested that the negative lists be shorter for LDC exports or that their export products be given special reduced tariffs (Tariff Rate Quotas). India is also proposing that the LDCs be offered a process of consultation during the anti-dumping proceedings to resolve the issue before any action is taken. Similarly, compatibility with WTO is being proposed in the case of safeguard action for domestic producers.

Hopefully, these issues will be resolved. Or else, Bangladesh would have ensured that “Shark” remains toothless.