2.

0 Introduction & Background

The South Asian Free Trade Area, commonly known as SAFTA is the free trade arrangement
of the South Asian Association for Regional Cooperation (SAARC). The agreement was
signed in 2004 & came into force in 2006, following the 1993 SAARC Preferential Trading
Arrangement (SAPTA).

Countries such as Afghanistan, Bangladesh, Bhutan, India,

the Maldives, Nepal, Pakistan and Sri Lanka are involved here with the vision of increasing
economic cooperation and integration.

“The South Asian Free Trade Area in Global Map”

SAFTA involves the free movement of goods between countries through the elimination of
tariffs and non-tariffs restrictions on the movement of goods and any other equivalent
measures. The objective is to promote good competition in the free trade area and to provide
equitable benefits to all the countries involved in the contracts. It also aims to benefit the people
of the country by bringing transparency and integrity among the nations.

There are mainly 25 articles regarding the agreement. So, SAFTA works with the issues such
as trade liberation, rules of origin, consultation & so on.

2.1 Bangladesh in South Asian Free Trade Area (SAFTA)

In 1980, Bangladesh had suggested a regional cooperative body of South Asian leaders, which
then led to the establishment of the South Asian Association for Regional Cooperation
(SAARC) in 1985, the adoption of the SAARC Preferential Trading Arrangement (SAPTA) in
1993, and the agreement on the South Asian Free Trade Area (SAFTA) in 2004.
There are some aspirations among the policy makers and business community in Bangladesh
about the impacts SAFTA regarding the Bangladesh economy. It is expected that the SAFTA
mechanism, when fully implemented, will provide Bangladesh improved market access, help
boost its exports to the region, and improve the country's intra-regional trade balance.

2.2 Trade under SAFTA

SAARC, the first formal agreement on regional cooperation, was designed to reduce conflict,
engender cooperation, and promote social progress and peace among South Asian countries.
The past decade, though, has seen notable initiatives for greater integration, including
implementation of preferential trade agreements by member countries of the South Asian
Association for Regional Cooperation (SAARC) and the decision by the Secretariat of the
South Asian Free Trade Agreement (SAFTA) to phase out customs duties on nearly all goods
traded between countries in the region. SAFTA has accelerated liberalization. While issues
associated with tariffs have been addressed to some extent, many non-tariff barriers did not
receive adequate attention. SAFTA’s agenda now includes emphasis on these non-tariff
barriers, including improvements in trade facilitation by enhancing border logistics and
negotiation. Nevertheless, much needs to be done in terms of strategic planning and actual
implementation of appropriate policies that can mitigate these trade-reducing effects in the
eight countries within the region of South Asia— Afghanistan, Bangladesh, Bhutan, India,
Maldives, Nepal, Pakistan, and Sri Lanka—are still characterized by unusually low volumes
of intraregional trade in goods and services. The total of such trade is less than 2% of gross
domestic product (GDP), compared to East Asia’s 20% (World Bank 2006). Nonetheless,
South Asia’s economy has grown by an annual average of 6% during the last 10 years. The
high growth rate was primarily attributed to global integration, macroeconomic stabilization,
and economic deregulation, and to South Asia’s success in capturing large shares of the markets
for textiles and clothing (T&C) in the United States (US) and European Union (EU).
Considering the exports of textile products from Bangladesh to Europe, these exports may
increase because of improved export facilitation but they may also benefit from improved
import facilitation. Since Bangladesh can now import intermediate inputs of yarn and cotton
from India at lower cost—owing to import trade facilitation reforms in Bangladesh and export
reforms in India— Bangladeshi exports to Europe will receive a boost.
 “Impact of Trade Facilitation Reforms on Changes in Exports in South Asia (%)”

Sector Bangladesh India Pakistan Sri Lanka Rest of

South Asia
Agriculture 0 0 0 0 0
Extraction and 0 0 0 0 0
Mining
Textiles and 33 12 31 34 39
Clothing
Automobiles 54 19 50 55 64
and Parts
Other 52 19 48 54 62
Manufacturing

“Impact of Trade Facilitation Reforms on Changes in Imports in South Asia (%)”

Sector Bangladesh India Pakistan Sri Lanka Rest of

South Asia
Agriculture 46 17 43 48 55
Extraction and 53 19 49 55 63
Mining
Textiles and 36 14 34 38 43
Clothing
Automobiles 5 2 5 5 6
and Parts
Other 23 9 21 23 27
Manufacturing
Changes in Intraregional versus Interregional Trade in South Asia, by Country and Sector
(%)

Changes in Intraregional Exports in South Asia, by Country and Sector ($ million)

Changes in Intraregional Imports in South Asia, by Country and Sector ($ million)

 Impact on Total Export Values in South Asia, by Sector ($ million)

Impact on Total Import Values in South Asia, by Sector ($ million)

2.3 Benefits from SAFTA

International trade is based on the principle of mutual benefit. Together, we can accomplish
anything. The Regional trade agreements (RTA) aims to a cooperative trading environment
between a restricted number of nations that are physically close to one another. Increasingly,
regional trade blocs have been formed throughout the world (Abdin,2009). SAFTA agreement
implements to work as a unified force to exert significant pressure on South Asia to eradicate
poverty by promoting conditions of fair competition in the free trade area, ensuring equitable
advantages for all, and building a framework for additional regional collaboration to broaden
the mutual benefits of the agreement are all ways to promote and enhance mutual trade and
economic cooperation (FE,2005).
2.4 Reduction of trade barriers
According to the article- 3, SAFTA agreement facilitates the elimination of the trade barriers
to ensure the free flow of trade among the territories of the contracting regional members. The
agreement promotes conditions that foster fair competition in the free trade area and assures
that all Contracting States receive advantages equally, while taking into consideration their
various rates and patterns of economic growth. The Treaty Agreement also permits the LDC
members to lower or remove their tariffs over longer periods of time. The Treaty also calls for
non-LDC partners to quickly reduce or eliminate tariffs on goods coming from LDCs.

2.5 Special and Differential Treatment for the Least Developed Contracting States:
As per the article- 11 of Agreement on SAFTA, the Least Developed Contracting states like
Bangladesh, are enjoying special and differential benefits in addition to the provisions of the
agreement. The member Nations will get benefits regarding anti-dumping and countervailing
measures. They are getting greater discretion in how the Least Developed Contracting States
sustain quantitative or other constraints on imports from other Contracting States, without
discrimination, in emergency conditions. Furthermore, special consideration is also given to
enhance sustainable exports from LDCs and technical support and cooperation agreements are
created to help them increase trade with other Contracting States.

2.6 Dispute settlement mechanism:

SAFTA agreement as per article – 20, works as a dispute settlement mechanism. Any kind of
dispute or disagreement among the contracting nations in terms of implementations and
interpretation is settled through a process of bilateral consultations. Requested consultation is
also being provided to the members states. Hence in this peace and equity is ensured among
the member nations.

2.7 Enhancement of Foreign investment:

The Agreement has facilitated free trade by eliminating different kinds of trade barriers among
the regional contracting countries. This has accelerated foreign investment among the
contracting countries and has resulted better country relationship among the countries specially
in the LDCs. According to World Bank studies, emerging nations that adopted open-market
policies during the previous ten years have expanded significantly more quickly than those that
did not.

2.8 Market access facilities:

Bangladesh is getting Duty Free Quota Free (DFQF) market access to different markets
because of SAFTA agreement. Bangladesh is getting Generalized System of Preferences (GSP)
from 38 countries (Export Promotion Bureau,2016). This has facilitated Bangladesh a lot in
the export sector and has contributed to a great extent to the GDP.
2.9 Trade Highlights of SAFTA with neighboring Countries

The export volume of Bangladesh with SAFTA member countries is expected to increase in
future as all countries have reduced numbers of commodities in the sensitive categories. But
trade with India will be extremely beneficial as the number of restricted category products has
been reduced considerably over previous lists. And trade relationship with India and Pakistan
is highly significant for several reasons, such as, Bangladesh has a recurring negative balance
of trade with both countries. They are major sources of imports, and it is also their geographical
proximity and cultural similarity that make them significant. Intraregional trade for Bangladesh
is 15 per cent of its total trade, of which exports accounts for 95 per cent and imports 75 per
cent, coming mainly from India and Pakistan in the SAFTA region. As a consequence, a
perennial trade deficit has been exhibited between Bangladesh and these two countries.

The effect of bilateral trade on member states cannot always be assessed by the result of the
balance of trade only. In line with the logic of a natural trading partner each country will form
blocs with its neighbor. As such, reducing the number of sensitive categories SAFTA has
created a wider foray for the trade of a range of commodities among members. Thus, a negative
balance of trade might not be as harmful as estimated by several empirical studies. Because
Bangladesh could import more raw materials, inputs, chemicals, accessories, machineries and
technologies to support its key industries. If those are imported from distant sources that could
be more costly, at least transportation costs and time are saved. This would enhance
competitiveness of the country both in trading inside and outside the bloc.

Trade across the borders of South Asian countries is only 5 per cent, which is very insignificant.
India, Pakistan, Sri Lanka and Bangladesh are major players in the bloc. Interestingly all these
four member countries are highly dependent on the EU market for the majority of their
exporting, which is eventually making them competitors of each other abroad. That will create
tremendous pressure on Bangladesh in the EU markets. Despite this pressure Bangladesh
would become more competitive in the EU markets at least for two reasons. First, under the
revision of the sensitive list, which has been effective since 2012, India has approved the duty
and quota free import of cotton, yarn, chemicals, machinery and accessories of garments and
textiles. Second, in the wake of industrialization and the rapid economic development, these
countries’ labor costs have been increasing quickly wherein Bangladesh is still more
competitive in the region. As readymade garments are the major export items of Bangladesh to
the EU markets that would make it still more competitive. Because of low labor costs (on
average a worker in Bangladesh earns $40 whereas in India that is $200), the duty free import
of raw materials and accessories, and shorter movement times would certainly enhance its costs
competitiveness. But at the same time, in order to put more fruits into the export basket,
Bangladesh has to improve product quality, variety, novelty and diversity of product lines with
more sophisticated products. Otherwise in the long run keeping up competitiveness will be
challenging.

SAFTA has created a wider market space in the region for Bangladeshi products as all major
trading partners have excluded almost 15-95% from the previous sensitive categories. In
addition, India since 2011 has approved duty and quota free access to all items except tobacco
and alcohol to SAARC LDCs including Bangladesh. The case of readymade garments will
justify this argument. In 2001, just before the withdrawal of import licensing from textiles and
garments, the Indian government imposed specific duties on garment commodities in order to
protect domestic firms from low cost imports from LDCs. As such, RMG despite being a key
export item for Bangladesh due to a high protection level (65.5%), market penetration was
difficult as until 2003-04 total export was recorded as only $4.57 million (World Bank, 2006).
But the situation kept changing after the formation of SAFTA in 2006 following the reduction
of the lists of sensitive categories and announcement of duty free and quota free access of 46
textile items in 2011.

Under the preferential treatment Bangladeshi readymade garments (RMG), over time have
become competitive with Indian domestic manufacturers. RMG exports in India reached
$563.9 million in 2012-13 which represents a 123 per cent increase over the 2003-04 fiscal
year. In addition, the former president of Bangladesh Garments Manufacturers and Exporters
Association (BGMEA) has noted that due to cost competitiveness Bangladesh is creating a
growing interest among Indian investors. Indian firms have already invested around $80
million in 35 garment factories in Bangladesh. That has unleashed an opportunity for
Bangladesh to explore the third largest export destination for its garment commodities
following the EU and the USA. As India has a total US$ 30 billion market for RMG of which
US$ 450 million is in the middle class market wherein Bangladesh has core competency. In
addition to the RMG, pharmaceutical is another rising sector of the country which would be
tremendously benefitted from SAFTA. Bangladesh as an LDC country enjoys a special
treatment until 2015 on generic medicines under the agreement of trade related aspects of
intellectual property rights (TRIPS) of WTO. As India has improved much in the
pharmaceuticals thus, the duty free import of chemicals and machineries from India can
immensely help achieve the adequate competitive strengths essentially required for open
market competition after 2015. The establishment of a reciprocal trade therefore would not hurt
the counterpart (India) as long as Bangladesh will continue to import raw materials, inputs,
machineries and accessories. Access to proximate sources of raw materials would increase
productivity, improve lead time management capability by reducing raw materials and product
movement time and result in a decline in production costs through economies of scale. And
low transportation costs, cultural similarities along with preferential treatment would help raise
competitiveness.

Apart from that, Bangladesh can be the supreme beneficiary of SAFTA from spillover effects.
Studies have indicated that when a major economy coexists beside smaller countries, spillover
effects of the major economy’s growth on the smaller economies is often high. Bhutan, the
Maldives and Nepal are the nearest competitors of Bangladesh but have capacity constraints in
terms of population, infrastructure and level of economic development. The next big force is
Sri Lanka but it will not severely affect Bangladesh as it is fairly advanced in terms of level of
education, infrastructure and economic progress. Thus Sri Lanka will capture more
sophisticated parts of the value chain that to some extent will relieve the agony. Ding &
Masha’s (2012) study looks into how India’s growth affects the growth of its immediate
neighbors. The study concludes that the spillover effects of India’s growth to other SAARC
countries were positive, but at a low level. The findings of the study can be traced by the recent
incremental trend of Indian companies’ interest in investment in apparel, footwear, power
plants, steel, coal, construction, and the automobile assembling sectors of Bangladesh. The
spillover effect by adopting the ‘flying-geese-model’ that further justifies that trade and
investment led growth can be rationalized by integration. It assumes that in the wake of
industrialization low value adding upstream activities such as; manufacturing and assembling
are likely to shift from advanced countries to less advanced countries. Now the question rises
whether that would create a win-win situation for both partners engaged in trade. The Flying-
geese type of development describes that both will be benefitted from the trade. Because
advanced nations can leverage less advanced countries comparative advantages of low labor
costs that will stimulate the industrialization of the less advanced countries and consequently,
create a market for the machinery and technologies of the more advanced countries. Least
Developed Countries (LDCs) have the possibility of losing customs revenue by the progress of
SAFTA. Recognizing the importance of the issue SAFTA keeps a provision of special
treatment for LDCs in that they will be compensated by their developing countries’ counterpart.
So that LDCs can withstand the shock of tariff loss which otherwise may inspire them to trade
more with non-members instead of members. Because of the export led growth strategy,
constraints of land surface area, a huge population, the shortage of raw materials, machinery,
technologies and capital items, imports are dominant over exports in the economy of
Bangladesh. This has created a trade deficit with all member states of SAFTA except Sri Lanka.
Therefore, being an import driven economy Bangladesh under the compensation scheme has
managed the loss of tariffs. Let’s take a look at problems both at the regional and the country
level that may diminish all potentials if adequate care is absent. SAFTA has created a platform
to reduce tariff barriers through dialogue. Now the success of this nascent bloc is largely
depending on to what extent members are willing to remove nontariff barriers. India being the
dominant player should take the lead in making SAFTA an effective economic bloc.

Most of the member countries have reached a bilateral trade agreement beyond the SAFTA.
For instance, between Pakistan and Afghanistan and India and Sri Lanka there are bilateral
agreements. And Nepal and Bhutan have a bilateral free trade agreement with India that gives
duty-free access of products to the Indian market. With these agreements countries could be
more interested to trade more with bilateral trade partners than with the other member countries
of SAFTA. That may increase the possibility of trade diversion for Bangladesh. Turning from
the regional level to the country level, Bangladesh has an acute crisis of power, weak
infrastructure and communication systems, and inefficient port management, a bureaucratic
mind-set in the public administration that increases the cost of doing business, business startup
time and reduces competitiveness. These problems are hardly possible to solve with private
level initiatives. Thus the government has to set policies keeping the long term benefits in mind
of increasing electricity production, and improving the communication systems by furnishing
all modes of transportation as well as enhancing bandwidth capacity to facilitate online
communication. Further, there is a need to improve port management efficiency and above all
the quality of service standards must be improved in all departments concerned so that the
entire process can work faster. Around 90 per cent of organizations are of small and medium
size that lack sufficient capital and have limited access to external sources (e.g. banks and other
financial institutions). As a consequence they cannot allocate sufficient budget for promotion
and market research in order to explore market opportunities and threats. So the government
has to promote Bangladeshi products both at the government to government (G2G) level and
at the business to business (B2B) level by organizing and participating trade fairs. Most
companies are doing well because of their strong entrepreneurial dynamism but in many
instances lack adequate formal education and training. Therefore businesses run on a trial and
error process that results in the dying out of hundreds of prospective ventures at birth or in the
growth stages. To overcome this problem, initiatives to establish a link among government-
organizations-universities can be an ideal approach wherein government will take charge of
developing infrastructure, and organizations in collaboration with the government and
development partners will provide funding to the universities for research. The research output
will remit back to the organizations for decision-making. That will ensure more informed
decision-making and reduce the chance of die out and buy out.
2.10 Major export and import items from SAFTA member countries

Country Export Items Import Items

Bhutan Knit Wear, Melamine, Woven Live animals, Vegetables Products,
Garments, Biscuits, Jute Mineral Products, Prepared Food
Manufacture and Footwear Stuffs, Beverages, Plastics &
Articles, Boilers Machinery
India Chemical fertilizers, pharmaceutical All types of cotton, yarn, fabrics,
products, Chemical products, Raw cereals, mineral fuels and oils,
jute, Frozen food, Agro-products, bituminous substances & waxes,
Jute goods, Woven garments and boiler machinery & appliances,
knitwear. Vehicles railway, iron & steel,
prepared animal fodder, edible
vegetables, plastic & rubber, man-
made staple fibers, Paper and pare
board etc.
Maldives
Nepal Pharmaceutical products, fertilizers, Edible vegetable & certain roots and
textile and textile article, electrical tubers, Residues and waste from
machinery and equipment. food industries.
Pakistan Raw jute, tea, chemical products, Cotton, cereals, sugar and sugar
agro products, jute goods. confectionary, manmade filament,
staple fibers, special woven, knitted
or crocheted fabrics, machinery
appliances, chemical products.
Sri Lanka Chemical products, jute goods, agro Plastic and plastic products, rubber
products, knitwear, woven garments. products, manmade filament,
transport equipment, electric and
machinery equipment.
2.11 Product Specific Rules for Highest Exporting Products of Bangladesh in SAFTA
Countries

SL.NO Description Product Specific Rules

1. Other nuts fresh or dried CTSH & 60% DVA

2. Soy bean oil and fractions CTSH & 30% DVA

3. Vegetable fats and oils CTSH & 30% DVA

4. White cement, whether or not CTSH & 30% DVA
artificially coloured

5. Aluminous cement CTSH & 30% DVA

6. Surface-covered with CTSH & 30% DVA
melamine-impregnated paper
7. Textile ONLY CTSH
8. Wearing Apparels ONLY CTSH
9. Leather CTSH & 30% DVA
10. Chemicals CTSH & 30% DVA
11. Mineral water CTSH & 30% DVA
12. Machineries CTSH & 30% DVA
13. Other Manufacturing CTSH & 30% DVA
14. Service
15. Agricultural product CTSH & 30% DVA
16. Other primary cells and CTSH & 30% DVA
primary batteries
17. Parts of other primary cells CTSH & 30% DVA
and primary batteries
2.12 Product Specific Rates for Highest Exporting Products of Bangladesh in SAFTA
Countries

SL.NO Description Product Specific Rules

1. Other nuts fresh or dried 9.38

2. Soy bean oil and fractions 0

3. Vegetable fats and oils 1.35

4. Surface-covered with melamine- 5.18
impregnated paper
5. Jute Textile 9.38
6. Wearing Apparels 5.18
7. Leather 1.35
8. Chemicals 0
9. Mineral water 9.38
10. Machineries 5.18
11. Other Manufacturing 5.18
12. Service 5.18
13. Agricultural product 0
14. Unbleached woven fabrics of jute 9.8
15. Copper waste and scrap 1.35
16. Other primary cells and primary batteries
17. Parts of other primary cells and primary 1.35
batteries
2.13 The Summary of The Sensitive Lists is as Under:

Sl.No. Name of the No of tariff lines No of tariff lines Consolidated

Contracting States for LDCS for non-LDCS list
1 Bangladesh 1249 1254 -------
2 Bhutan ----- ----- 137
3 India 744 865 ------
4 Maldives ----- ----- 671
5 Nepal ----- ----- 1335
6 Pakistan ----- ----- 1183
7 Sri Lanka ---- ------ 1065
2.14 A List of the Reductions Proposed Under is Shown in Table 1.

Countries Existing tariff rate Proposed SAFTA Timeline

Reduction
India, Pakistan, Sri- First phase 2 years
Lanka
Bangladesh, Bhutan, >20% Reduced to 20% 2years
Maldives, Nepal <20% Further annual
reduction
>30% Reduced to 30% 2years
<30% Further annual
reduction
India, Pakistan, Sri- >30% Reduced to 30% 2years
Lanka <30% Further annual
reduction
Second phase Reduced to 0-5% 2 years

<20%

Bangladesh, Bhutan, ≤ 30% ≤30% 3 years (primary

Maldives, Nepal Reduced to 0-5% product)
5 years (other
product)
The conclusion of about 20 years of collaboration between Bangladesh, Bhutan, India,
Maldives, Nepal, Pakistan, and Sri Lanka will be the realization of the South Asian Free Trade
Agreement.

India, Pakistan, and Sri Lanka must lower their tariff rates to 20% in the first phase of SAFTA
(which must be finished by January 2008), while Bangladesh, Bhutan, Nepal, and the Maldives
(the least developed countries or LDCs) must reduce their tariff rates to 30%.

For Pakistan and India by January 2013, Sri Lanka by January 2014, and the LDCs by January
2015, tariffs would be further decreased to 0 to 5 percent. A list of sensitive goods for which
tariffs won't be decreased will be created and kept up to date by each member state.

Surprisingly, Nepal's share of regional commerce was higher than Pakistan's in the majority of
years for which data are available. Naturally, Bhutan and the Maldives only account for a
relatively modest percentage of trade within South Asia, contributing only 1 to 4 percent yearly
on average.
2.15 Bangladesh’s Bilateral Trade, Export and Import Potential within SAFTA

Partner Countries Actual Trade Potential Trade Potential/Actual

(Million US$) (Million US$)
Trade Model
Bhutan 6.22 4.25 0.68
India 1549.56 1268.82 0.82
Maldives 0.40 0.26 0.64
Nepal 7.84 24.49 3.12
Pakistan 138.19 81.45 0.59
Sri Lanka 15.04 13.34 0.89
South Asia 1717.25 0.89 0.81

Partner Countries Actual Trade Potential Trade Potential/Actual

(Million US$) (Million US$)
Export Model
Bhutan 2.38 0.87 0.37
India 55.34 163.74 2.96
Maldives 0.01 0.11 27
Nepal 2.98 4.44 1.49
Pakistan 42.7 16.08 0.38
Sri Lanka 5.8 3 .38 0.58
South Asia 109.21 188.63 1.73
 Partner Countries Actual Trade Potential Trade Potential/Actual
(Million US$) (Million US$)
Import Model
Bhutan 3.84 43 7.43
India 1494.22 449.78 449.78
Maldives 0.40 1.00 1.00
Nepal 4.86 26.23 5. 26.23
Pakistan 95.49 62.59 0.66
Sri Lanka 9.24 17.06 1.85
South Asia 1608.05 564.09 0.3
We can see that Bangladesh has imported more than it might have from SAFTA members.
However, it can be claimed from the research above that by removing all forms of trade
barriers, Bangladesh's import from member countries might also be increased.

If non-tariff barriers are present, even though bilateral import tariffs have been reduced under
SAPTA, exports from Bangladesh to South Asian nations have not improved. This trade
potential can only be realized by removing both tariff and non-tariff barriers. This could be the
main cause of the RTA variable's lack of significance in describing the trade, export, and import
flows of Bangladesh inside the SAFTA region.

2.16 SAFTA Policy discount and its effect on Bangladesh trade:

The existing SAFTA Treaty is predominantly centered on ‘trade in goods. We can assume that
Bangladesh won’t be able to gain a significant amount of growth from the existing treaty. There
is a need for some sort of "SAFTA-Plus" agreement that will incorporate regional co-operation
mechanisms in the fields of investment, finance, services trade, trade facilitation, and
technology transfer. The SAFTA Treaty should go beyond the mere Agreement in "trade in
goods for Bangladesh to enhance its trade position. The "SAFTA-Plus" Agreement will also
improve Bangladesh's chances of attracting more investment inflows from the region's more
advanced partner nations.

Bangladesh has faced negative trade relation with India and Pakistan but this relation is
expected to change with the reduction of the number of commodities in the sensitive list
categories. Intraregional trade for Bangladesh is 15 per cent of its total trade, of which exports
accounts for 95 per cent and imports 75 per cent, coming mainly from India and Pakistan in
the SAFTA region. In this situation, SAFTA can significantly contribute to closing the trade
imbalance, especially with India. Bangladesh was able to narrow the margin from 20 times in
2001 to 9 times in 2011.SAFTA has opened up new opportunities for members to trade a
variety of commodities.

Bangladesh would increase its competitiveness in the EU markets notwithstanding this

pressure for at least two reasons because Bangladesh could import additional machinery,
technologies, accessories, chemicals, and raw materials to support its major industries.
India has approved the duty- and quota-free import of cotton, yarn, chemicals, machinery, and
accessories for clothing and textiles under the amendment of the sensitive list, which has been
in place since 2012.
SAFTA has expanded the market space for Bangladeshi products in the region, as all major
trading partners have excluded nearly 15-95 percent of the previously sensitive products.
Furthermore, India has granted SAARC LDCs, including Bangladesh, duty and quota-free
access to all items except tobacco and alcohol since 2011. (BGMEA, 2013). This argument
will be supported by the example of readymade garments.

To protect domestic firms from low-cost imports from LDCs, the Indian government imposed
specific duties on garment commodities in 2001.As a result, despite being a key export item
for Bangladesh due to its high protection level (65.5 percent), market penetration was difficult,
as total exports were only recorded in 2003-04.

Apart from that, Bangladesh can be the supreme beneficiary of SAFTA from spillover effects.
Studies have indicated that when a major economy coexists beside smaller countries, spillover

Beyond SAFTA, the majority of member countries have reached bilateral trade agreements.
Bilateral agreements exist, for example, between Pakistan and Afghanistan and India and Sri
Lanka. In addition, Nepal and Bhutan have a bilateral free trade agreement with India that
allows duty-free access to the Indian market. With these agreements, countries may be more
interested in trading with bilateral trade partners than with SAFTA's other members. This may
increase Bangladesh's chances of trade diversion.
In the scenario SAFTA2, in addition to SAFTA1, Bangladesh eliminates her tariffs for the

rest of the world by 50 percent. Box 5 provides the results of this exercise. It appears that

Bangladesh would incur a net welfare loss from the SAFTA1 scenario. Though, for

For Bangladesh there was a positive trade creation effect, the negative trade diversion effect

would be large enough to offset the positive gain. However, all other South Asian countries

would gain from SAFTA1. The gain for India would be the largest as far as any individual

country is concerned. In contrast to SAFTA1 under SAFTA2, the negative trade diversion

effect of SAFTA1 for Bangladesh would be eliminated to a large extent, and the trade

creation effect would be large enough to offset the trade diversion effect. As a result, there

would be a net welfare gain for Bangladesh.

3.0 Conclusion:

The conclusion of about 20 years of collaboration between Bangladesh, Bhutan, India,

Maldives, Nepal, Pakistan, and Sri Lanka will be the realization of the South Asian Free Trade
Agreement. According to the findings of this study, Bangladesh has a huge potential to increase
intra-regional exports in SAFTA member countries. According to the results, Bangladesh has
the potential to triple its current exports to India. This new Bangladesh-India export will be
generated if India reduces its import tariff under SAFTA and other restrictions in line with the
rest of the world. If all trade barriers are removed, the expected export will be much higher. A
similar situation can be anticipated if Bangladesh exports to the Maldives and Nepal. In terms
of export to countries such as Bhutan, Pakistan, and Sri Lanka, a positive effect in terms of
export generation may be achieved if all trade barriers are removed under SAFTA. It is worth
repeating that the expected results can only be obtained through true free trade, in which goods
and services can freely move across borders without any tariff or non-tariff barriers.

Unfortunately, previous SAPTA attempts did not result in a significant increase in Bangladeshi
exports due to much tougher non-tariff barriers faced by Bangladeshi exports, particularly in
the Indian market. Eventually, the anticipated outcomes are entirely dependent on the
successful implementation of the SAFTA agreement, which is dependent on political stability
in the region, particularly between India and Pakistan.

3.1 Recommendation:

1. Successful implementation of SATA agreements should be achieved. Additional

agreements of SAFTA plus policy mush implemented as well
2. All types of trade barriers should be removed including non- tariff barriers to achieve
the potential export and import size of Bangladesh
3. The size of the sensitive list should be shortened
4. Transit facilities between SAFTA member countries should be increased
5. Bangladesh should focus on diversifying its product and market for increasing export
and import
6. Last but not least political issues must be solved among member countries to increase
trade potential
 Reference

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3. https://www.un.org/ldcportal/content/bangladesh-graduation-status
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