South Asian Free Trade Area (SAFTA)

The most significant aspect of the 12th SAARC Summit (Jan 4-6, 2004) at Islamabad, the capital city of Pakistan, was the signing of a historic Agreement on Free Trade. The leaders of India, Pakistan, Bangladesh, Bhutan, Maldives, Nepal, and Sri Lanka have agreed upon to create a "South Asian Free Trade Area".

SAFTA has come into force since January 1, 2006 replacing South Asian Preferential Trade Agreement (SAPTA) which was operative among SAARC countries since December 7, 1995. SAPTA was the success of 9th SAARC conference held in New Delhi in 1995 where this new concessional trade system SAPTA was approved. SAPTA was the factor which really opened all positive possibilities to to establish SAFTA.

SAFTA presupposes abolition of all kind of trade and tariff restrictions. Ultimately it will pave the way for the creation of common market with common currency.

Seven SAARC member countries agreed upon to reduce tariff between 0-5% by 2016. The SAFTA agreement allows any states to pull out of any treaty at any time.

• Formation of sensitive lists.
• Outlining the products whose tariffs will not be reduced.
• Rules of origin.
• Revenue loss compensation mechanism for LDCs. (Bangladesh, Bhutan, Maldives and Nepal) by comparatively developed nations (India, Pakistan, and Sri Lanka).
• An arbitration council or dispute settlement body.
• India and Pakistan will reduce their tariffs 0-5% level within 7 years, while Sri Lanka gets 8 years, and LDCs like Nepal, Bangladesh, Bhutan and Maldives in 10 years.
• Each of the countries will create two sensitive lists, one of more developed countries and other for less developed countries. 
• A SAFTA Ministerial council with membership of commerce/trade ministers.
• A committee of Exports for the administration and implementation of treaty.
• Removal of barriers to the intra-SAARC investment, harmonisation of custom facilities transit facilities for intra-SAARC trade and simplification of procedure for visa.