From SAPTA to SAFTA: The Evolution of Trade Agreements in South Asia

South Asia is home to nearly a quarter of the world’s population, yet it remains one of the least economically integrated regions on the planet. For decades, the countries that share this neighbourhood have tried to trade more with each other and lean less on distant markets. Two agreements sit at the heart of that effort: the SAARC Preferential Trading Arrangement (SAPTA) and the South Asian Free Trade Area (SAFTA). The journey from one to the other tells us a great deal about both the ambition and the obstacles of regional cooperation in this part of the world.

The backdrop: why South Asia needed a trade framework 🔗

Before the 1990s, most South Asian economies followed inward-looking, protectionist policies. Tariffs were among the highest in the world. In 1989-90, the average unweighted applied tariff across the region was roughly 76 percent, which made cross-border trade expensive and discouraged regional commerce. The South Asian Association for Regional Cooperation (SAARC), formed in 1985, was meant to accelerate economic and social development, but for its first several years it did little on the trade front.

The push for a trade framework came at the 1991 SAARC Summit in Colombo. Sri Lanka first floated the idea of liberalising trade among SAARC countries at that sixth summit, and the members agreed that a formal arrangement was needed. That decision laid the groundwork for the region’s first multilateral trade agreement.

SAPTA: the first step (1993-1995) 🔗

The Agreement on SAARC Preferential Trading Arrangement was signed in Dhaka on 11 April 1993 by the seven member states at the time: Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. Although it was signed in 1993, SAPTA only came into force in December 1995, after the negotiation of national schedules of concessions.

What SAPTA tried to do 🔗

SAPTA was a preferential trading arrangement, not a free trade area. The difference matters. Under a preferential system, member countries lower tariffs on specific listed products for each other, but they do not aim to eliminate tariffs altogether. The stated objective was to promote and sustain mutual trade and economic cooperation through the exchange of trade concessions. It was always described as a stepping stone, a first move towards deeper integration and, eventually, a customs union.

Negotiations under SAPTA happened in rounds. Four rounds of trade negotiations were concluded, covering over 5,000 commodities, with each round expanding the product coverage and deepening tariff concessions. The early rounds negotiated concessions product by product, while later rounds moved to a chapter-wise approach.

Special treatment for weaker economies 🔗

SAPTA recognised that not all members were equally developed. Least Developed Countries (LDCs) in the group were given additional benefits such as deeper tariff reductions and relaxed non-tariff barriers. The agreement also set up a Committee of Participants to review progress annually and resolve disputes, along with Rules of Origin to ensure that only genuinely South Asian products received preferential treatment rather than goods simply rerouted from outside the region.

Why SAPTA fell short 🔗

The fundamental weakness of SAPTA was its product-by-product approach. Lowering tariffs on a few thousand individually negotiated items, often with modest concessions, simply did not move the needle on overall regional trade. Coverage was limited, the concessions were not substantial enough to change trade flows, and the slow, item-by-item bargaining meant progress was painfully incremental. SAPTA came to be seen as an interim platform rather than a real engine of integration. Recognising these limits, member governments committed in the late 1990s to creating a full free trade area, setting the stage for a more ambitious successor.

SAFTA: from preference to free trade (2004-2006) 🔗

The Agreement on South Asian Free Trade Area was signed at the Twelfth SAARC Summit in Islamabad on 6 January 2004. After ratification by all members, SAFTA came into force on 1 January 2006, succeeding the 1993 SAPTA. By this point Afghanistan had also joined SAARC, bringing the membership to eight: Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.

How SAFTA was different 🔗

SAFTA marked a real shift in approach. Instead of negotiating concessions on individual products, it adopted a comprehensive Trade Liberalisation Programme covering nearly all goods. The aim was not just to lower tariffs but to phase them down to near zero across the board. The first round of customs duty reduction began in mid-2006, with the free trade area meant to be completed by 1 January 2016.

The timeline was tiered to account for different levels of development. Non-LDC members such as India, Pakistan, and Sri Lanka were to bring tariffs down to the 0-5 percent range within about seven years, while LDC members were given roughly ten years to reach similar levels. This staggered schedule reflected one of SAFTA’s core principles, recognising the special needs of the least developed contracting states.

The role of sensitive lists 🔗

SAFTA contained one feature that would later prove to be its biggest loophole: the Sensitive List. Each country was allowed to keep a list of products exempt from the tariff reduction programme, typically to protect sensitive domestic sectors like agriculture or key industries. These lists were supposed to be reviewed every four years with a view to reducing the number of items over time. In practice, the lists stayed long, and they significantly narrowed the share of trade that actually benefited from liberalisation.

Rules, institutions, and compensation 🔗

SAFTA also strengthened the institutional machinery. It created the SAFTA Ministerial Council as the top decision-making body, supported by a Committee of Experts and the SAARC Secretariat. It tightened the Rules of Origin to prevent trade deflection, and it built in a mechanism to compensate LDCs for revenue lost from cutting customs duties. LDCs also benefited from less stringent rules of origin and smaller sensitive lists in some markets, giving them duty-free access to a wider range of products.

The reality check: why SAFTA has underdelivered 🔗

On paper, SAFTA should have transformed regional trade. In reality, the results have been modest. Intra-regional trade in South Asia still hovers around just 5 percent of total trade, a striking contrast with ASEAN, where intra-regional trade is far higher. Several deep-rooted problems explain this gap.

Long sensitive lists shrink the real coverage 🔗

The sensitive lists turned out to be SAFTA’s Achilles’ heel. According to a World Bank analysis, the sensitive lists exempt a wide band of products, ranging from roughly 6 to 45 percent of a country’s imports from other South Asian nations. When such a large portion of regional imports is walled off from tariff cuts, the agreement’s practical impact is sharply reduced.

Non-tariff barriers do the damage that tariffs no longer can 🔗

Even where tariffs came down, other obstacles remained. Business surveys point to non-tariff measures such as cumbersome regulatory requirements as among the biggest barriers to trade in the region. Complex customs procedures, inconsistent technical standards, and bureaucratic delays often make it harder to ship goods across a South Asian border than to send them halfway around the world.

High trade costs and weak connectivity 🔗

South Asia’s poor physical connectivity makes regional trade expensive. Intra-SAARC trade costs have been estimated at as much as 114 percent of the value of the goods, and trading between India and Pakistan has been calculated to be around 20 percent costlier than India trading with Brazil, a country many times farther away. Inadequate roads, congested border crossings, limited transit arrangements, and weak trade finance all add to the bill.

Political tensions and a consensus trap 🔗

Perhaps the most visible obstacle is political. Political suspicion, particularly tensions between India and Pakistan, repeatedly disrupts regional summits and slows operational momentum, while SAARC’s consensus-based decision-making structure makes deadlock easy and progress hard. When one bilateral relationship can stall the entire regional process, the whole framework suffers. This is partly why countries have increasingly turned to bilateral free trade agreements instead, such as the India-Sri Lanka and Pakistan-Sri Lanka arrangements.

Limited focus on services 🔗

SAFTA was built mainly around trade in goods. Services, which are an increasingly important part of modern economies, received limited attention in the original agreement. A separate framework for services trade came later, but the goods-centric design left a significant gap in a region where service exports are growing fast.

So was the SAPTA-to-SAFTA journey worth it? 🔗

It would be too harsh to call SAFTA a failure. It represented a genuine intellectual leap from a narrow, product-by-product preferential scheme to a comprehensive free trade framework with clear timelines, stronger institutions, and explicit safeguards for weaker economies. It established the legal and procedural architecture for regional integration that simply did not exist under SAPTA.

At the same time, the agreement has consistently underperformed its potential. Studies suggest substantial untapped gains remain. One assessment found that applying regional trade preferences to a set of high-potential products currently on sensitive lists could deliver close to two billion dollars in annual savings for South Asian buyers and boost intra-regional trade volume by roughly half. The benefits are real and large; the obstacles are political and institutional rather than economic.

The story from SAPTA to SAFTA is ultimately a story of ambition outrunning execution. The frameworks evolved impressively on paper, but trust deficits, protective instincts, and physical bottlenecks kept the promise from being fully realised. Whether SAFTA’s vision can ever be completed depends less on signing new agreements and more on the willingness of members to shorten their sensitive lists, dismantle non-tariff barriers, invest in connectivity, and insulate trade from political rivalry.

What do you think? If economic logic so clearly favours deeper regional integration, why do you think political and institutional barriers continue to outweigh it in South Asia? And should the region keep investing in a multilateral framework like SAFTA, or is a web of bilateral agreements a more realistic path forward?

References

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