chapter  4
14 Pages

Preferential trading agreements in South Asia

South Asia’s attempts at bilateral and regional trade agreements date back to 1949-50 when India signed the Trade and Transit treaties with both Nepal and Bhutan, though as part of an overall developmental strategy of the smaller nations. The trade treaties have since been renewed and revised with additional and sometimes more stringent new-age components. As the spirit of regionalism gathers momentum in the rest of the world, the bilateral FTA between India and Sri Lanka implemented in 2000 has been the first to herald the trend of bilateral preferential trade agreements (PTAs) in South Asia. This was later followed by a bilateral FTA between Sri Lanka and Pakistan in 2005. At the regional level, preferential trade agreements were initiated with the South Asian Preferential Trade Agreement (SAPTA) in 1993 and then the South Asia Free Trade Area (SAFTA) in 2004. The former was suspended in 1999 on account of, among other reasons, domestic political changes in Pakistan and the ensuing worsening of India-Pakistan bilateral relations. As tensions between India and Pakistan started to ease out, the heads of the SAARC member nations agreed to launch the SAFTA at the Islamabad Summit in 2004. The agreement on SAFTA that was restricted to trade in goods only, entered into force on January 1, 2006. An agreement for liberalization of services in South Asia was signed in 2010 at the 16th SAARC summit held in Thimpu, Bhutan, and the agreement towards investment liberalization among the member countries is under negotiation.