SAFTA

By: EconomyWatch   Date: 30 June 2010

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SAFTA or South Asian Free Trade Area agreement was formulated on January 6th, 2004 at the 12th SAARC summit held in Pakistan. The agreement envisages the creation of a model of free trade zone in its seven member nations. The seven member nations consisting of approximately, 1.4 billion people, include the following countries:
  • India
  • Nepal
  • Pakistan
  • Bangladesh
  • Bhutan
  • Maldives
  • Nepal.

    The SAFTA agreement was introduced with a view of levying zero customs duty for trading any product by the year 2012. The SAFTA agreement was implemented only after confirmation of compliance by the governments of the seven member nations. If the SAFTA agreement is religiously and judiciously followed, the agreement is likely to bring about economic stability in the member nations. The agreement may also facilitate healthy trade as well as investment relationship across borders thereby bringing about many structural reforms in the economy of the seven countries. However, there are certain obstacles, which hinders trade across South Asian countries as a result of, which trade across borders of the South Asian countries account for only 5% of the total trade. The reason can be attributed to two prominent factors. They are political reasons and too much protectionism.

    Political causes: During the late 1940s, majority of the South Asian nations were part of British India, which was a common political entity. During that period, there was considerable amount of trade between the different South Asian countries. However, in the year 1947, when India and Pakistan became independent, Pakistan imported most of its essential commodities from India. Pakistan also exported bulk of its export products to India (approximately 2/3rd of the total export commodities). Due to conflicts in different spheres, trade activities declined sharply between India and Pakistan.

    Protectionism: Most of the South Asian countries, laid stress on import activities instead of promoting export activities. This tendency lowered productivity in different sectors of the economy. However, things are changing for the better. The different economies are gearing up to extend cooperation among themselves. This is evident by the fact that both Pakistan as well as India lowered trade tariffs in the year 2005.


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