South Asian Free Trade Area (SAFTA)

INTRODUCTION

• The South Asian Free Trade Area or SAFTA is an agreement reached on 6 January 2004 at the 12th SAARC summit in Islamabad, Pakistan

• It created a free trade area between all the then member countries

• The SAFTA agreement came into force on 1 January 2006 • The purpose of SAFTA is to encourage and elevate

common contract among the countries such as medium and long term contracts.

• It involves agreement on tariff concession like national duties concession and non-tariff concession.

COUNTRIES IN SAFTA

The SAPTA experience…

• Signed in Dec 1993, came into force in 1995• Objective was to create and sustain mutual trade &

economic cooperation through exchange of concession• Distinction between LDC & developing countries• 3 rounds of PTA• In the first round 226 tariff lines included & No discussion

on NTB• Despite tariff reductions under Sapta, intra-regional trade in

South Asia did not register any noticeable growth in percentage terms

Reasons for failure of SAPTA

• Tariff cuts by the Saarc countries were not deep• Majority of the items offered concessions were not relevant to

the trade interest of other member countries• Sapta was negotiated on product-by-product basis • Tariff concessions alone could not generate any significant

gains in the intra-Saarc trade.• The stringent rules of origin prescribed under Sapta were also

partly responsible for its failure

• The seven foreign ministers of the region signed a framework agreement on SAFTA to reduce customs duties of all traded goods to zero by the year 2016

• SAFTA required the developing countries in South Asia (India, Pakistan and Sri Lanka) to bring their duties down to 20 percent in the first phase of the two-year period ending in 2007.

• It was decided that in the final five-year phase ending 2012, the 20 percent duty will be reduced to zero in a series of annual cuts.

• The least developed nations in South Asia (Nepal, Bhutan, Bangladesh, Afghanistan and Maldives) have an additional three years to reduce tariffs to zero.

Some Statistics at a glance…

• The SAARC countries house 23.4% of world population in

just 2.96% land area.  

• The total GDP (PPP) is only 6.66% of the world GDP.  .

• Total GDP-US$ 4,382,700 million 

• Per capita - US$ 2,779 

• Total Area - 5,130,746 km2 

• Population (2009 estimate) 1,600,000,000 

• Density - 304.9/km2

Objectives • To eliminate barriers to trade in, and to facilitate the

cross- border movement of goods between the territories of the Contracting States

• To promote conditions of fair competition in the free trade area, and to ensure equitable benefits to all Contracting States, taking into account their respective levels and pattern of economic development

• To increase the level of trade and economic cooperation among the SAARC nations

• To create effective mechanism for the implementation and application of this Agreement

• To establish a framework for further regional cooperation to expand and enhance the mutual benefits of this Agreement

Principles

• SAFTA will be governed by the provisions of this Agreement and also by the rules, regulations, decisions, understandings agreed by the Contracting States

• Overall reciprocity and mutuality of advantages so as to benefit equitably all Contracting States, taking into account their respective level of economic and industrial development, the pattern of their external trade, and trade and tariff policies and systems

• Negotiation of tariff reform step by step

• Inclusion of all products, manufactures and commodities in their raw, semi-processed and processed forms

• SAFTA shall involve the free movement of goods, between contracting states

• Recognition of the special needs of the Least Developed Contracting States and agreement on concrete preferential measures in their favour

SAFTA-INSTRUMENTS

• Trade Liberalization Programme

• Non Tariff Barriers

• Sensitive List

• Rules of Origin

• Special and Differential treatment Provision for LDC

Trade Liberalization Programme

• Phase 1- 2006-2008

a) LDC’s

b) NLDC’s

• Phase 2- a) NLDC’s 2008-2013

b) LDC’s 2008-2016

Non Tariff Barriers (NTB’s)

• Further divided into two:

1) Technical NTB’s

2) Non Technical NTB’s

• SAFTA has divided into

a) Infrastructure

b) Procedural

c) Standardization

d) Para tariff barriers

Sensitive List

• Sensitive list is a list with every country which does not include tariff concession.

• Bangladesh has 1,233 products on the sensitive list for the Least Developing countries and 1,241 for the non-Least developing countries under the SAFTA.

• India has 480 items on the sensitive list for the LDCs and 868 for the non-LDCs.

• Bhutan has 150 items for both the LDCs and non-LDCs and has no plan of shortening its list.

• Nepal has 1,257 for the LDCs and 1,295 for the non-LDCs.

• The Maldives has 681 for all seven SAFTA nations.

• Pakistan had 1,169 in its sensitive list but has cut its sensitive list by 20%.

• Sri Lanka has 1,042 and Afghanistan has 1,072 items on the negative list

Issues

• Lack of commitment by Government• Self centeredness of the countries in the bloc• Political issues between member nations

1) India – Pakistan

2) China-India-Bhutan

3) India-Nepal• Dual Framework with more importance to bilateral agreements.• Lack of proper framework.• India –ASEAN and Pakistan-Middle east

Thank You