What are the impediments in the development of South Asian Free Trade Area (SAFTA)? (2017, 10 Marks)
The South Asian Free Trade Area, signed at the Islamabad summit on 6 January 2004 and in force from 1 January 2006, replaced the positive-list SAPTA with a programme to cut tariffs to 0–5% on staged timetables. Tariffs largely fell; trade did not follow: intra-regional trade is still barely 5% of the region’s total. The World Bank’s A Glass Half Full (2018), edited by Sanjay Kathuria, shows why.
Design impediments
- Sensitive lists: members exempt whole tariff lines, and almost 35% of the value of intra-regional trade sits under them. Smaller members keep the longest lists (Nepal and Bangladesh near 1,000 lines each even after the first round of cuts), while India cut its list for least developed members to 25 lines in 2011.
- Para-tariffs: regulatory and supplementary duties, cesses and levies on imports alone lie outside SAFTA’s schedule. Bangladesh’s regulatory duty covers 45% of tariff lines and Sri Lanka’s port levy about 84%: tariffs under another name.
- Rules of origin: 40% value addition (30% for least developed members) with weak cumulation deters import-dependent industries such as Bangladeshi garments.
- Narrow coverage: goods only; the services agreement (2010) never acquired working schedules, and there is no investment pact.
- Weak institutions: dispute settlement is little used, and the SAARC machinery needs unanimity.
Economic impediments
- Limited complementarity: all members specialise in labour-intensive manufactures. Yet disaggregated data show unexploited scope in specific goods and above all in services and energy.
- Trade costs: testing, congested land ports and no transit regime; trading with Brazil is about a fifth cheaper for an Indian firm than trading with a neighbour.
- Trade diversion fears: in Jacob Viner’s terms, preferences among high-tariff economies risk diverting purchases to costlier regional producers, which makes members cautious.
- Asymmetry: India’s surplus with almost every neighbour makes liberalisation read as dependence.
Political impediments
- India–Pakistan hostility: Pakistan never extended MFN status to India; trade was suspended in 2019, and after Pahalgam Pakistan halted all trade (24 April 2025) and India barred all imports (2 May 2025).
- Trade as a lever: India’s April–May 2025 curbs on Bangladeshi transhipment and land-port entry showed access can be withdrawn by executive order.
- Summit paralysis: no SAARC summit since 2014, so the ministerial process that should prune lists is dormant.
Conclusion
Amita Batra (2013) reads South Asian integration as “trapped in conflict”, while the trade-cost school sees technical frictions negotiable without a settlement. Both hold: SAFTA’s impediments lie less in its tariff schedule than in what it never reached. Commercial stakes create constituencies for stability, which is the functionalist case for persevering.