Thursday, August 3 2006 17:20 Hrs (IST) - World Time -

Islamabad: Uncertainty over the application of the South Asia Free Trade Agreement (SAFTA) to Pakistan-India economic ties has put a halt to a joint venture by Bajaj Auto to launch a motorcycle and auto-rickshaw assembling project in Lahore.

The Pune-based Bajaj, the world's largest producer of two-wheelers, is to collaborate with Pakistan's Saigol Group.

"Under the existing trading rules between the two countries, we are not clear about the investment policy of India," Nasim Saigol, chairman of Saigol Group, told sources.

Industry officials in Karachi said that the two sides had anticipated SAFTA coming into effect in the middle of this year so as to execute their production plans.

However, the uncertainty over the application of SAFTA in Pakistan has sidelined the two players to just 'wait and see'.

"SAFTA doesn't define investment strategy by any Indian firm in Pakistan; therefore our project has come to a standstill," Saigol said.

"We are in close touch with the government quarters concerned to get the policy cleared," he said.

Though the seven signatory nations of the SAFTA implemented the first tariff cut from July 1, 2006, Pakistan and India have not yet allowed each other to be facilitated under the accord in dealing with each other. The issue figured on top of the agenda at this week's South Asian Association for Region Cooperation (SAARC) ministers' meeting in Dhaka.

Saigol toes the Pakistan government's line of Kashmir-before-everything else in Indian-Pakistan relations. He said, "We fully support our government, which wants key issues resolved first before implementing SAFTA, as they are much more important than trade and industrial joint ventures."

The two groups, Saigol and Bajaj, signed the deal in 2004 to introduce Indian auto products in Pakistan with an aim of enhancing bilateral industrial cooperation.

Both the partners had agreed to assemble two- and three-wheelers initially and expand operations as the venture grows.

Bajaj Group is among the top 10 business houses in India, involved in a wide range of business activities, spanning automobiles (two-wheelers and three-wheelers), home appliances, lighting, iron and steel, insurance, travel and finance.

The group's flagship company, Bajaj Auto is a brand known in over a dozen countries in Europe, Latin America, the US and Asia.

However, ambiguity over SAFTA may now delay the group's expansion to Pakistan, as analysts don't see the joint venture feasible amid current trade relations between the two countries.

Free trade agreement depends on give and take rule," said Farhan Aziz Khan, an analyst at Noman Abid and Company Limited, a local brokerage house.

He said the project could benefit the local industry if Bajaj Auto went beyond an assembling line in Pakistan and offered transfer of technology.

However, Khan added, Pakistan was not likely to offer full-fledged trade facilitation to India under SAFTA soon.

Under SAFTA from July 1, 2006, the developing members of the agreement including Pakistan, India and Sri Lanka are to cut tariffs to between zero and five percent within seven years of the start of the agreement.

The agreement was set to create the world's largest free trade deal comprising a population of 1.4 billion.