Free Trade Agreement In South Asian Countries

There are several agreements to facilitate trade in the region. The SAARC Preferential Trading Arrangement (SAPTA) was signed in 1994, followed by the South Asian Free Trade Area (SAFTA) agreement a decade later in 2004 (which came into force in 2006). India`s bilateral trade with Myanmar is governed by the 1994 Indo-Myanmar-border trade agreement and the 2009 ASEAN-India Trade Agreement (AITGA). In addition, India and Sri Lanka signed the Indo-Sri Lanka Free Trade Agreement (ISFTA) in 1998. The agreement came into force in 2000. China`s strong economic relations with Pakistan, unlike India`s minimal formal trade with its western neighbour, widen the gap in the volume of trade between the two countries. Although China`s trade volume is consistently larger, the gap without Pakistan (as shown in Figure 2) is narrowing to almost half. This gap is attributed to the 2006 China-Pakistan Free Trade Agreement (CPFTA), which significantly increased trade between the two countries (Figure 5). The gap between India`s trade with the region is much smaller, given that Pakistan`s official trade share is relatively small (Chart 3).

With the exception of Pakistan, the gap between India and China`s trade with South Asia (N7) is relatively narrow in 2018 ($12.87 billion) (Chart 2). Improved cross-border infrastructure, such as integrated checkpoints (IDPs), road, air and rail links, is essential to facilitate trade in the region. Improved infrastructure will improve connectivity and strengthen production networks and value chains in the region. Over the past decade, several measures have been taken to improve infrastructure, including the modernization of land customs posts to ICPs, the development of rail networks such as the Agartala-Akhaura rail link (Bangladesh) and the Jogbani-Biratnagar railway line (Nepal) or the opening of the second border checkpoint between India and Myanmar (Zokhawthar-Rikhawdar). Such improvements in cross-border connectivity are the best incentives to boost intra-regional trade. The South Asian Free Trade Area (SAFTA) agreement has been in force since 2006 – with little success. This is in stark contrast to the ASEAN Free Trade Area (AFTA), which began in 1992 with six countries and then added other members and closed the ASEAN Ten until 1999. Between 1992 and 2017, intra-regional imports as a share of world imports to ASEAN rose from 17% to 24% and exports from 21% to 27%. In South Asia, since SAFTA came into force, these shares have stagnated with 3% for intra-regional exports and 6 to 7% for intra-regional exports. Indeed, intra-regional trade in South Asia has for some time been the lowest among the regions of the world and accounts for about 5% of its total trade with the world.

The agreement was signed in 2004 and came into force on 1 January 2006, with the wishes of ASAC Member States (Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka) to promote and maintain mutual trade and economic cooperation within the ASARC region by exchanging concessions. Strengthening trade in the South Asian region is not only economically beneficial, but also strategic for India`s integration into the global economy.