South Asian Free Trade Area Agreement (SAFTA Agreement)

Introduction to SAFTA

In the 1980s, seven South Asian nations established the South Asian Association for Regional Cooperation (SAARC) for regional development. The founding members were Bangladesh, India, Bhutan, the Maldives, Nepal, Pakistan, and Sri Lanka.

With Afghanistan joining SAARC in 2007, the number of member states increased to eight. In 1993, at the seventh SAARC summit held in Dhaka, Bangladesh, the SAARC Preferential Trading Arrangement (SAPTA) was signed to address the economic and trade problems among member states, leading to the establishment of SAPTA.

Later, in 1998, the tenth SAARC summit held in Colombo, Sri Lanka, proposed transforming the SAPTA into the South Asian Free Trade Area (SAFTA) Agreement. The twelfth SAARC summit held in Islamabad, Pakistan, in 2004, approved this proposal, and SAFTA came into force and was implemented from January 6, 2006.

Objectives of SAFTA

1. To eliminate trade barriers and provide facilities for the free movement of goods between the concerned countries.
2. To promote healthy competition in the free trade area and ensure equitable benefits for all nations, considering their economic development patterns and related levels.
3. To establish effective mechanisms for the implementation of the agreement and to implement the consensus, as well as to create joint administration and effective mechanisms for resolving mutual disputes and implementing the consensus.
4. To prepare the necessary framework for further regional cooperation by enhancing and expanding mutual benefits.

Importance of SAFTA

Nepal's economy is based on agriculture. Its industries are small and in their infancy. Natural resources are underutilized. The country's energetic youth have gone abroad for employment. Most of the goods consumed in the country are imported from neighboring countries. 

In such a situation, Nepal importing necessary goods from neighboring countries can have both positive and negative effects. 

SAFTA can help Nepal adopt modern technology and develop the production capacity of its industries. It also paves the way for the possibility of importing foreign goods at concessional rates. In this sense, Nepal can benefit from SAFTA in the following ways:

1. Daily consumer goods become easily and affordably available.
2. Opportunities for technical assistance to develop the capacity of infant industries are available.
3. Technology exchange between SAARC nations can support the industrialization of member states.
4. Nepali products can be exported freely among SAARC nations.
5. Cordial relations are established between neighboring countries.
6. Investment and employment opportunities increase, reducing poverty.

Challenges of SAFTA

Just as there are benefits for Nepal in being affiliated with SAFTA, there are also challenges. The challenges it faces are as follows:

1. Nepali goods produced using more labor may become less competitive and may not be exported.
2. Goods produced by Nepal's traditional domestic industries may find it difficult to compete with the products of modern industries.
3. The dominance of foreign goods may increase, leading to the collapse of domestic industries.
4. The increasing consumption of foreign goods and the outflow of domestic currency remain challenges.
5. For a least developed country like Nepal, it can have long-term effects on production, capital investment, and employment.