S.Asia Trade Deal to Improve India-Pakistan Ties(SAFTA)

Reuters ^ | 01/02/04 | Simon Denyer

[Pikamax]

S.Asia Trade Deal to Improve India-Pakistan Ties Fri January 02, 2004 08:16 AM ET

By Simon Denyer ISLAMABAD (Reuters) - Foreign ministers from South Asia agreed Friday to create a regional free trade area, a deal that India said would help improve ties with bitter rival Pakistan.

The deal augurs well for Saturday's visit of Indian Prime Minister Atal Behari Vajpayee to the Pakistani capital, which comes less than two years since the nuclear-armed rivals came perilously close to war.

"It was in the informal consultations among the foreign ministers that an agreement was reached on SAFTA (South Asian Free Trade Area)," Indian foreign secretary Shashank said.

Ministers from seven South Asian nations also agreed on measures to combat terrorism and on a social charter meant to raise living standards in a region home to nearly a quarter of the world's people with average annual income of $450.

"In the long term all this will contribute to achieving bilateral progress," Shashank, who only uses one name, told reporters.

The meeting of foreign ministers from the South Asian Association for Regional Cooperation (SAARC) continues on Saturday to prepare for a three-day summit of heads of government beginning Sunday.

As the meeting opened, India and Pakistan's foreign ministers greeted each other with a warm embrace. It was their first meeting since the middle of 2002.

India's Yashwant Sinha and Pakistan's Khursheed Mehmood Kasuri posed for the cameras smiling and with an arm around each other's backs.

Speaking to reporters with Kasuri at his shoulder, Sinha did not rule out ice-breaking, one-on-one talks between Vajpayee and his Pakistani counterpart Zafarullah Khan Jamali or President Pervez Musharraf on the summit sidelines.

"We have said that it has not been decided yet," he said before the meeting. "Let the prime minister come tomorrow."

Sinha said the leaders would in any case be meeting at the summit. "They will be meeting socially," he said.

Discussion of bilateral issues at the SAARC summit is forbidden by its charter, but Musharraf and Vajpayee may use the occasion to advance the shaky reconciliation process.

A breakthrough in their dispute over the Himalayan region of Kashmir is seen as unlikely, but the very fact Vajpayee is visiting Pakistan is seen as a sign of progress.

At best, diplomats say, there is a chance the two sides might quietly agree to open lower-level dialogue between foreign ministry bureaucrats.

In an interview published Friday, Vajpayee said he was optimistic the dispute could be solved in his lifetime, but only if Islamabad gave up its insistence that Kashmir belonged to Pakistan because of its Muslim majority.

"I remain optimistic about it. But there has to be a fundamental change in Pakistan's perspectives," he said.

"Until it changes its perception about Jammu and Kashmir -- that because it is a Muslim-majority state, it should be a part of Pakistan -- no meaningful discussions can take place on this matter."

HUGE SYMBOLISM

Earlier, business leaders said Pakistan and India's $1.5 billion trade through unofficial channels and third countries could double with a trade deal and better relations.

But there are concerns around the region about dismantling trade barriers that would allow cheap Indian goods to flood markets. Even after a trade deal is signed it is far from clear it will be implemented, analysts say.

One Western diplomat said the immediate economic benefits of a free trade agreement might be limited. "But in terms of symbolism and politics it's huge," he told Reuters.

A million troops were massed on the India-Pakistan border in 2002 after an attack on parliament in New Delhi that India blamed on Pakistani-backed militants.

Ties slowly improved last year after Vajpayee announced he wanted to make one last bid for peace in his lifetime. But the process seemed to be limping to a halt until Musharraf's government announced a cease-fire along the front line in Kashmir in November.

Pakistan has deployed 10,000 police and soldiers in its normally sleepy capital for the summit, in an unprecedented security operation that follows two attempts to kill Musharraf in the past month that have been blamed on Islamic militants.

Analysts warn that the peace process remains fragile, and could fall apart under the weight of overblown expectations and divergent views.

And violence has continued in Indian Kashmir despite the cease-fire. Friday police said at least eight civilians were wounded when rebels threw a grenade at an army patrol.

Indian army chief N.C. Vij said infiltration by militants from Pakistan had fallen since the cease-fire, but it was too early to say if it would hold when the snow melts on the mountain passes.

"We can have a real assessment only in summer when the infiltration attempts increase in Kashmir, " Vij told reporters in India.

"A lot of instructions still keep coming from across the border as we keep intercepting them regularly," he said. "We are not complacent in Kashmir because of the ongoing cease-fire."