SAPTA ( South Asian preferential Trade Agreement)

The Agreement on SAARC Preferential Trading Arrangement (SAPTA) which provides for
establishment of a Preferential Trading Area among the seven member states of the SAARC,
namely Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka was signed in
Dhaka in April 1993. The idea of liberalizing trade among SAARC countries was first
Proposed by Sri Lanka at the sixth Summit of the South Asian Association for Regional Co-
operation (SAARC) held in Colombo in December 1991. It was agreed that SAPTA is a
stepping stone to higher levels of trade liberalization and economic co-operation among the
SAARC member countries.
Four rounds of negotiations were held under SAPTA. SAPTA was envisaged primarily as the
first step towards the transition to a South Asian Free Trade Area (SAFTA) leading
subsequently towards a Customs Union. Accordingly SAPTA was superseded with the
implementation of SAFTA. Product coverage was limited under SAPTA and usage of tariff
preferences under the SAPTA has been gradually decreasing.

Objective of Treaty:-
The main objective of this agreement is to promote and sustain mutual trade and the
economic cooperation among the Contracting States, through exchanging concessions in
accordance with this Agreement.

Principles of this Treaty

1. It shall be based and applied on the principles of overall reciprocity and mutuality of
advantages in such a way as to benefit equitably all Contracting States, taking into
account their respective levels of economic and industrial development, the pattern of
their external trade, trade and tariff policies and systems.
2. Step by step negotiation will take place to under this agreement to further the purpose
of this agreement.
3. The needs of Least developed countries will be recognised and their measure will be
agreed by contracting states.
4. It shall include all products, manufactures and commodities in their raw, semi-
processed and processed forms. It is not applicable to services.

Subject- Matter of agreement

According to article – 4 of SAPTA which provides that the arrangement be made upon:-
a) tariffs;
b) para tariffs; (Border charges other than tariffs which levied upon foreign trade and
have tariff like effect which are solely levied upon import)
c) nontariff measures;
d) direct trade measures (means measures conducive to promoting mutual trade of
Contracting States such as long and medium term contracts containing import and
supply commitments in respect of specific products and others)
Approaches of negotiation
The Contracting States may conduct their negotiations for trade liberalisation in accordance
with any or a combination of the following approaches and procedures:
A. Product by product basis;
B. Across the board tariff reductions;
C. Sectoral basis;
D. Direct trade measures

Important aspects of SAPTA

Rules of origin
Rules of origin is the criteria used for ascertaining the origin of a product. The rules are
important in the context of ensuring that there is substantial transformation happening in the
SAPTA country of export and the chances of diversion of 3rd party products is minimal.
To qualify for preference, products must:
 Fall within a description of products eligible for preference in the list of concessions of a
SAPTA country of destination;
 Comply with SAPTA rules of origin. Comply with the consignment conditions specified by
the SAPTA rules of origin.

Originating products
The key criteria for ensuring that products are originating in a country are
i. Wholly obtained: this occurs in the case where all products and their inputs are
originating in the exporting country.
ii. Substantial transformation: for goods not wholly obtained, these criteria are
applicable and could include various parameters like change in tariff classification
(CTC), value addition, technical specifications etc.

SOUTH ASIAN FREE TRADE AREA (SAFTA)

The Agreement on SAARC Preferential Trading Arrangement (SAPTA) was signed on April
11, 1993, and entered into force on December 7, 1995, with the desire of the Member States
of SAARC :India ,Pakistan , Nepal, Bangladesh, Bhutan, Afghanistan and the Maldives) to
promote and sustain mutual trade and economic cooperation within the SAARC region
through the exchange of concessions. The establishment of an Inter-Governmental Group
(IGG) to formulate an agreement to establish a SAPTA by 1997 was approved in the Sixth
Summit of SAARC held in Colombo in December 1991.The SAFTA is an agreement reached
on 6th January 2004, at the SAARC summit in Islamabad
The basic principles underlying SAFTA are as under;
 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, improved and extended in successive stages
through periodic reviews;
 Recognition of the special needs of the Least Developed Contracting States and
agreement on concrete preferential measures in their favour;
 The Contracting States affirm their existing rights and obligations with respect to each
other under Marrakesh Agreement Establishing the World Trade Organization and
other Treaties/Agreements to which such Contracting States are signatories.
OBJECTIVE OF THE AGREEMENT
 The purpose of SAFTA is to promote and enhance mutual trade and economic
cooperation between contracting state.
 Eliminating barriers to trade and facilitating cross-border movement of goods between
the territories of contracting states.
 To promote fair competition in free trade area and ensuring equitable benefits of
member states, in consideration of their economic condition .
 And at last, to create effective mechanism to implement the provision of the
agreement and for resolutions of disputes.
In this agreement, the contracting states will grant national treatment to other member states
in accordance with provision of GATT in that respect.
INSTRUMENTS(Article-4)
Following are the instrument involved in SAFTA:
 Trade Liberalization Programme.
 Rule of Origin,
 Institutional Arrangements
 Consultations and Dispute Settlement Procedures
 Safeguard Measures
 Any other instrument that may be agreed upon.

Trade Liberalization Programme

According to the Trade Liberalization Programme Contracting countries must follow the
following tariff reduction schedule. There should be a fall to 20% tariff from the existing
tariff by the Non Least Developing Countries and 30% reduction from the existing tariff by
the Least Developing Countries. But trade liberalization scheme is not to be applied for the
sensitive list because this list is to be negotiated among the contracting countries and then to
be traded. Sensitive list will involve common agreement among the contracting countries
favoring the least developed contracting countries. SAFTA Ministerial Council (SMC) will be
participating to review the sensitive list in every four years with a view of reducing the list.

Rules of origin
The SAFTA agreement has specific requirements to ensure that goods exported from member
countries are produced, grown or extracted from the member countries. These requirements
are called Rules of Origin. Goods produced in third countries, for example, Iran or Japan
cannot be repacked and sold to India as goods from Afghanistan.
Institutional Arrangements
The contracting states hereby establish the SAFTA Ministerial Council (SMC). The SMC
shall be the highest decision making body of SAFTA and shall be responsible for the
administration and implementation of this agreement and all decisions and arrangements
made within its legal framework. The SMC shall consist of the Minister of Commerce /Trade
of the contracting states.
Dispute Settlement Procedure
Any disputes that may arise among the contracting countries regarding the interpretation and
application of the provisions of this agreement on any instrument adopted within its
framework concerning the rights and obligations of the contracting states will be amicably
settled among the parties concerned through a process initiated by a request for bilateral
consultation.
Safeguard Measures
If any product, which is the subject matter of a concession under this agreement is imported
to the territory of a contracting state in such a manner or in such quantities as to cause or
threaten to cause serious injury to producers of like or directly competitive products in the
importing contracting country, the importing contracting country may, pursuant to an
investigation by the competent authority of that contracting country, conducted in accordance
with the provisions set out in the article ,suspend temporarily the concession granted under
the provisions of the Agreement.