SAFTA

 A trade agreement between which promotes trade and economic growth in South Asia
by reducing custom duties for exports between member countries.
 It includes countries such as Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan,
Sri Lanka and Afghanistan
 One way for South Asian countries to work together to build their own and the
region’s economies
 Focus is on reciprocity and building mutual trade advantages across the South Asia
region.

Why SAFTA
 South Asian exports have lagged other developing countries
 Growth on intra-regional trade in South Asia has lagged behind other regions
 South Asia is among the least integrated of all regions
 Tariffs, through now remain high relative to other regions

History
The South Asian free trade agreement (SAFTA) signed by the members of the SAARC and
implemented in July 2006, it has been a matter of concern for the countries involved,
regarding how effective it is in increasing the economic wellbeing of the region in general.
When it was initially signed, the goals included forming a common currency for the region
and forming a customs union (CU) which would evenly lead to economic
Total Economic Integration. The first stage of the agreement has been successful for only
certain countries, and Sri Lanka only to some extent. Recently a survey was conducted on the
quantification of the benefits of the SAFTA to the region as a whole was undertaken by The
ADB and the United Nations Conference on Trade and Development (UNCTAD). The
findings were discussed at a forum hosted by the Institute for Policy Studies, with the hope
that some of the feedback could be included in the results, which in turn could be presented to
the member governments to better their trade policies.

Objectives
The objectives of the SAFTA are to promote and enhance mutual trade and economic co-
operation among the SAARC countries:

 Promoting conditions of fair competition in the free trade area and ensuring equitable
benefits to all contracting states, taking into account their respective levels and pattern
of economic development
 Eliminating barriers to trade and facilitating the cross-borders movement of goods
between the territories of the contracting states
 Creating an effective mechanism for the implementation and application of this
agreement, for its joint administration and for the resolution of disputes
  Establishing a framework for further regional co-operation to expand and enhance the
mutual benefits of this agreement

Principles
SAFTA shall be governed in accordance with the following principles

 Principles of Governance
 Principles of Obligation
 Principles of Reciprocity and Mutuality
 Principles of Removal of Trade Barriers
 Principle of Facilitation and Harmonisation

Benefits of SAFTA

 The Indo-Sri Lankan Free Trade Agreement, one of the first bilateral agreements
within South Asia, is a vivid illustration of two countries working together to
overcome these challenges. The agreement has 5already brought economic benefits to
both countries, contributed to greater cooperation, and created a sense of shared
fortunes
 The SAFTA framework agreement carries the great promise of sustainable regional
economic growth and development. It also promises to add momentum to the Doha
development global trade negotiations, which the World Bank estimates can lift more
than 300 million people out of poverty

Disadvantages
 The region has diversity in socio-political and economic conditions
 Political considerations and geographical disadvantages for some countries,
which are responsible for affecting intra-regional trading
 Informal trade in the borders of the countries has been increasing
 Intra-regional flow of capital and technology is very limited
 Weaker trade links among SAARC countries

Future direction
GTAP Simulation Design for Different SAFTA Scenarios
With the aim of estimating the welfare effects of the SAFTA on different member
countries of the world two different scenarios in the GTAP model are simulated.
Following Table presents the simulation scenarios. In the scenario SAFTA1 all
member countries eliminate their intra-regional tariffs and keep their tariffs with the
rest of the world unaffected. In the scenario SAFTA2, in addition to SAFTA1,
Bangladesh eliminates her tariffs for the rest of the world by 50 percent.
Name Explanation India Bangladesh Pakistan Rest of
the
countries
SAFTA Full 100% 100% 100% 100%
1 implementation
of SAFTA.
100% tariff cut
for safta
countries
SAFTA Full 100% for 100% 100% 100%
2 implementation SAFTA+
50% for
of SAFTA.
MFN
100% tariff cut Tariff
for safta
countries and
Bangladesh
reduces it MFN
tariff by 50%