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IBE/U4 Topic 12 South Asian Free Trade Area (SAFTA)

The South Asian Free Trade Area or SAFTA is an agreement reached on 6th January 2004 at the 12th SAARC summit held in Islamabad of 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 increased to 1.8 billion).

The seven foreign ministers of the region signed a framework agreement on SAFTA in order to reduce customs duties of all traded goods to zero by the year 2016. The process of establishing a free trade area like SAFTA has been delayed due to India-Pakistan differences on Kashmir issue.

The SAFTA agreement came into force on 1st January, 2006 and become operational following the ratification of the agreement by the seven governments of the region. SAFTA requires the developing countries in South Asia (India, Pakistan and Sri Lanka) to bring their duties down to 20 per cent in the first phase of the two year period ending in 2007.

In the final five year phase ending 2012, the 20 per cent duty will be reduced to zero in a series of annual cuts. The least developed nations of South Asia (Nepal, Bhutan, Afghanistan and Maldives) have an additional three years to reduce tariffs to zero. India and Pakistan ratified the treaty in 2009, whereas Afghanistan as 8th number state of SAARC ratified SAFTA protocol on 4th May, 2011.

The objective of SAFTA 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 aimed to benefit the people of the country by bringing transparency and integrity among the nations.

Moreover, SAFTA came into existence in order to increase the level of trade and economic cooperation among the SAARC nations by reducing the tariff and barriers and also for providing special preference to the Least Developed Counties (LDCs) among the SAARC nations.

The main instruments involved in SAFTA are:

  1. Trade Liberalisation Programme
  2. Rules of Origin
  3. Institutional Arrangements
  4. Consultations and Dispute Settlement Procedures
  5. Safeguard Measures
  6. Try other instrument that may be agreed upon.
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