South Asian Free Trade Area and Indo-Pakistan Trade

Preferential trading is one of the mildest forms of an integrative arrangement. Under the arrangement, the Contracting States (CS) offer a preferential margin with respect to trade barriers in relation to their MFN rates. CS having disparate levels of development as well as trade regimes, find this an acceptable instrument for initiating regional trade liberalisation. Such an arrangement nevertheless provides the building blocks towards accelerated regional trade liberalisation culminating in a free trade area within a defined time frame. Under a free trade area the CS eliminate all trade restrictions on their mutual trade, while maintaining restrictions in their trade with non-CS at a level they deem appropriate. When all CS decide on a common external tariff, then the arrangement translates itself in a more cohesive customs union. The arrangement translates to a common market when all CS agree not only to allow free movement of goods and services, but all the factors of production including capital and labour. Finally, the most comprehensive form of an integrative arrangement results from an economic union, which integrates national economic policies of CS and leads to the adoption of a common currency. The Agreement on South Asian Preferential Trading Arrangement (SAPTA), which became operational since December 7th, 1995 thus, symbolises the beginnings of the very first stage of an integrative arrangement among the member countries of SAARC. The decision made at the Twelfth SAARC Summit at Islamabad in January 2004 to launch South Asian Free Trade Agreement (SAFTA) from January 2006 would mark the second stage of the process of integration in the region. The main focus of this paper is to assess the impact of SAPTA on Indo-Pak trade.