2. Table of Contents
• Background of South Asia
• Evolution of Economic Integration in South Asia
• Introduction to SAARC
• Introduction to SAPTA
• Movement from SAPTA to SAFTA
• Why SAFTA?
• Objectives, Provisions and Limitations of SAFTA
• Barriers to Implementation of SAFTA
• Agreement of SAFTA
• Conclusion 2
3. Background of South Asia
• In 1980s Countries of South Asian experienced
economic stagnation
• South Asian countries had lagged behind in economic
development and regional cooperation than that of
East Asia
• South Asia today is home to almost two-thirds of the
world’s poor. Nearly one out of every three people, or
over 600 million people, struggle to survive on
income of less than one dollar a day. Wide income
disparities existed within and between countries 3
4. Evolution of Economic Integration in
South Asia
SAARC
SAFTA SAPTA
Liberalization
Policy
4
5. Evolution of Economic Integration in
South Asia
• First South Asia Foreign Secretaries’ Meeting, 1981
• First South Asia Foreign Ministers’ Meeting, 1983
• Establishment of SAARC, 1985
• South Asian Preferential Trading Arrangement
(SAPTA), 1995
• Three rounds of tariff cut under SAPTA
• Working toward a Free Trade Area (SAFTA) by 2001
5
6. SAARC (South Asian Association for
Regional Cooperation)
• In 1980s, Bangladesh has taken the initiative to
establish regional cooperation
• This led to first South Asian foreign sectaries meeting
held in April 1981 in Colombo
• Initially, five selected areas (agriculture,
telecommunication, rural development, meteorology,
and health and population) were selected for technical
co-operation, while more complex issues were left
out.
6
7. SAARC…. Contd….
• The first foreign ministers meeting held in 1983 formally
launched the Integrated Programs of Actions (IPA)
through the adoption of South Asian Regional
Cooperation(SAARC)
• Since then the foreign ministers of seven member
countries began to meet on a regular basis
• These meetings and technical co-operations led to the
establishment of the SAARC
• Its Charter was adopted in 1985 and the first summit was
held in the Bangladesh capital of Dhaka in December
1985. 7
8. SAARC…. Contd….
• Formed on December 7, 1985
• Member countries: Bangladesh, Bhutan, India,
Maldives, Nepal, Pakistan and Sri lanka
• In April 2007, Afghanistan became the eighth
member
• A manifestation of the determination of the people of
South Asia to work together towards finding solution
to their common problems
8
9. SAARC…. Contd….
• To improve regional cooperation in economic
development
• To promote the welfare of the people of South Asian
and improve their quality of life
• To provide all individual to live in dignity and realize
their full potential
• To contribute to mutual trust, understanding and
appreciation of one another’s problems
• To strengthen cooperation with other developing
countries
9
10. Liberalization Policy
• The activities of SAARC were limited to soft areas
such as health, population, culture, etc at its initial
stage
• The fourth SAARC summit held in Islamabad in Dec
1988 emphasized the need to include trade,
manufacture and services as new areas of cooperation
• The idea of liberalizing trade among SAARC
countries was first considered by Sri Lanka at the
sixth SAARC summit held in Colombo in Dec 1991
10
11. SAPTA (SAARC Preferential
Trading Agreement)
• An outcome of SAARC summit
• The CEC (Committee on Economic Cooperation) at
its meeting in New Delhi in November 1991
recommended a draft agreement on SAPTA
• The Heads of State at the Colombo summit in
December 1991 approved the establishment of the
Inter-Governmental Group (IGG) to examine the
institutional framework for South Asian Preferential
Trading Arrangement (SAPTA).
11
12. SAPTA…. Contd….
• Signed during 7th
SAARC summit in Dhaka held in
April 1993
• Entered into force on 7 December 1995
• Provides each other the preferential treatment to
reduce import tariffs on preferential items
• First step towards the transition of South Asian free
trade
12
13. Objectives of SAPTA
• Promoting cooperation for the benefit of their people
• Bringing awareness about the expansion of trade
• Providing greater opportunities of employment
• Strengthening intra-regional economic cooperation
• Increasing the share in the total volume of South
Asian trade
13
14. SAPTA…. Contd….
• After its launch, 3 round of preferential tariff
reductions have been implemented
• SAPTA 1- concluded in 1995
• SAPTA 2- concluded in 1997
• SAPTA 3- concluded in 1998
• Tariffs reduction have offered on the basis of two
categories of members: LDC and non-LDC
14
15. Components (Article 4)
• SAPTA may consist of arrangements relating to:
Tariffs
Para tariffs
Non tariff measures
Direct trade measures
15
16. SAPTA…. Contd….
• SAPTA focuses on preferential items:
• all products
• Manufactures
• Commodities in their raw, semi-processed and
processed forms
16
17. Measures of SAPTA
• Dealt exclusively with trade in goods and constituted
the first step in establishing an economic union
• Member countries extended concessions to each other
on tariff, para- tariff and non- tariff measures
• Free to liberalize trade at their own pace
• Included several provisions extending special
treatment to LDCs
• Allowed countries to withdraw from the agreement in
the event they faced balance of payment difficulties
17
18. Limitations
• Gives access to only certain goods
• PTA is done by reducing tariffs, but it does not
abolish them completely
• Unable to handle trade related disputes
• More powerful members were unwilling to accept
legal mechanisms for dispute settlement
• Many measures were not included in the SAPTA such
as: harmonization of customs clearance, import
licensing, registration and banking procedures,
removal of barriers to intra- SAARC investment, etc
18
19. SAPTA to SAFTA
• The Sixth Summit (1991), held in Colombo approved
the establishment of an Inter-Governmental Group
(IGG) to formulate an agreement to establish a
SAARC Preferential Trading Arrangement (SAPTA)
by 1997
• The framework Agreement on SAPTA was finalized
in 1993, and formally came into operation in
December 1995, well in advance of the date
stipulated by the Colombo Summit.
• Provides each other the preferential treatment to
reduce import tariffs on preferential items
20. Movement Towards SAFTA (South
Asian Free Trade Area)
• After 4 round of trade negotiation were held under
SAPTA to liberalize trade, the last 4th
round of
negotiation was focused on the creation of SAFTA
• 9th
SAARC Summit (Male 1997) – Head of
States/Governments recognized the importance of
achieving a free trade area by the year 2001.
• 10th
Summit (Colombo 1998) – reiterated the mandate
of 9th
Summit and decided to constitute a Committee
of Experts (CoE) to draft treaty.
22. Movement…. Contd….
• 11th
Summit (Kathmandu 2002)
• the Leaders agreed to accelerate cooperation in the
core areas of trade, finance and investment to
realize the goal of an integrated South Asian
economy, gradually.
• the Leader directed the Council of Ministers to
finalize the text of the Draft Treaty Framework by
the end of 2002.
23. Movement…. Contd….
• 12th
summit (Islamabad 2004)
• Head of sates endorsed the framework agreement of
SAFTA.
• “The Islamabad Declaration” aims to launch the
SAFTA on January 1, 2006
24. Movement…. Contd….
• 1 January 2006: SAFTA into Operation
• Implementation of SAFTA enhance trade within the
region by
reduction of tariff rates
elimination of non-tariff and para-tariff barriers,
Focus on trade and investment facilitation measures.
25. Movement…. Contd….
• 16th
summit is going to held at Thimphu, Bhutan
• There is a need to revisit and upgrade Safta into a
Comprehensive Economic Partnership Agreement
(CEPA) in order to create a dynamic instrument for
promoting regional integration in South Asia.
26. Movement…. Contd….
Measures focused by 16th
summit :
• Combining liberalisation of trade in goods with
liberalisation of trade in service, as well as
investment liberalization;
• Substantially reducing the sensitive list
• Encouraging various national and regional
stakeholders to set up goals
27.
28. Conditions to be met for trading
• To qualify for preference, products must:
fall within a description of products eligible for
preference in the schedule of concessions of SAFTA
country of destination;
comply with SAFTA Rules of Origin. Each Article in
a consignment must qualify separately in its own
right; and
comply with the consignment conditions specified by
the SAFTA Rules of Origin
29. Objectives of SAFTA
• Elimination of trade barriers
• Promoting conditions of fair competition
• Creation of effective mechanism
• Framework for regional cooperation
29
30. Why SAFTA?
• South Asian exports have lagged other developing
countries
• Growth of intra-regional trade in South Asia has lagged
behind other regions
• South Asia is among the least integrated of all regions
• Tariffs, though lower now, remain high relative to other
regions
• Trade between India and Pakistan has been abnormally
low
30
31. SAFTA: Major Provisions
Instruments (Article 4): The Agreement will be
implemented through:
1. Trade liberalization Program
2. Rules of Origin
3. Sensitive List
4. Non-tariff and Para-tariff
5. Institutional Arrangement
6. Consultation and Dispute Settlement Procedure 31
32. Trade Liberalization Program (Article 7)
A. Non-LDCs
• First Phase (2006-2007)
• for tariffs higher than 20 per cent, reduction of
tariffs to 20 per cent within 2 years.
• for tariffs lower than 20 per cent, annual 10 per
cent reduction.
• Second Phase (2008-2012)
• from 20 per cent or below to 0-5 per cent within 5
years, Sri Lanka 6 years.
32
33. Trade Liberalization…. Contd….
B. LDCs
• First Phase (2006-2007)
• for tariffs higher than 30 per cent, reduction of tariffs
to 30 per cent within 2 years.
• for tariffs lower than 30 per cent, annual 5 per cent
reduction.
• Second Phase (2008-2012)
• from 30 per cent or below to 0-5 per cent within 8
years. 33
34. Rules of Origin
• Products with at least 40% domestic value addition
will enjoy the tariff reduction preferences under the
SAFTA
• Special and differential treatment is provided for
products of LDCs (30% value addition is required for
LDCs to qualify tariff reductions)
34
35. Sensitive List
• To protect some relevant domestic industries, member
countries may maintain Sensitive Lists, i.e. lists of
products, which will not be covered by SAFTA
• The number of products in the list shall be subject to
a maximum ceiling to be mutually agreed among the
Contracting States with flexibility to LDCs
• Members may have two lists- one for the non-LDCs
and the other, a more permissive one for the LDCs
35
36. Non-Tariff and Para-Tariff barriers
• All quantitative restrictions, not compatible with
GATT 1994 shall be eliminated (Article 7.5)
• The COE reviews the non-tariff and para-tariff
barriers in its regular meeting to make
recommendations for their elimination to facilitate
intra- SAARC trade and make it non-restrictive
(Article 7.4)
36
37. Institutional Arrangements (Article 10)
• SAFTA Ministerial Council (SMC) consists of
Ministers of Commerce, responsible for the
administration and implementation of agreement
• SMC will be supported by a committee of experts
(COE)
37
38. Consultation and Dispute Settlement
Procedure
• Any dispute between or among the contracting states
regarding the application of provisions will be settled
through bilateral consultations
• If they fail to settle such disputes, COE looks the
matter following its own procedures
38
39. Barriers to Implementation of SAFTA
• Indo-Pak relationships
• India is looking for bigger market outside the
SAARC region
• Every member country of SAARC has listed its
product in the negative list
39
41. Limitations for Promoting Trade and
Investment
• 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 41
42. Conclusion
• The determination of the people of South Asia to
work together towards finding solution to their
common problems
• Liberalize services can be beneficial for member
countries
• SAARC member countries are labor-abundant, there
is a huge potential to gain from the supply of labor
42
43. Conclusion…. Contd….
• Provides each other the preferential treatment to
reduce import tariffs on preferential items
• SAFTA will enhance trade within the region by
progressive reduction of tariff rates, non-tariff and
Para-tariff barriers, and putting in place trade and
investment facilitation measures
• In order to capitalize on the inclusion of services
within SAFTA, an initiative to increase services
availability in less developed parts of the LDCs is
desirable
43
44. Conclusion…. Contd….
• SAFTA is governed by the provisions of this
agreement and also by rules, regulations, decisions,
understanding and protocols to be agreed upon within
its framework by the contracting states.
• The implementation of SAFTA provide an
institutional framework for the liberalization of
mutual trade in the region.
44
45. Conclusion…. Contd….
• When SAFTA comes into force, Indian goods will
start flowing across the border without any tariff
walls. so, Nepal will lose customs revenue
• The unrestricted and untaxed inflow of Indian goods
means a debilitating impact on domestic industries.
45
