The South Asian Free Trade Area (SAFTA)

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 of 1.6 billion people in Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka (as of 2011, the combined population is 1.8 billion people). 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.

The SAFTA agreement came into force on 1 January 2006 and is operational following the ratification of the agreement by the seven governments. SAFTA requires 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. 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. India and Pakistan ratified the treaty in 2009, whereas Afghanistan as the 8th memberstate of the SAARC ratified the SAFTA protocol on the 4th of May 2011.

The basic principles underlying SAFTA are as under;

1. overall reciprocity and mutuality of advantagesso 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;

2. Negotiation of tariff reformstep by step, improved and extended in successive stages through periodic reviews;

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

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