South Asia's intra-regional trade, as a percentage of its total trade volume, has
remained around 2 percent since 1980. The trade volume for East Asia, by comparison,
was approximately 15 percent (excluding Japan). On the other hand, trade with the
ROW, relative to a predicted value of trade, was similar: 1.1 and 1.3 percent in South
Asia and East Asia, respectively. South Asia has been engaged in trade with major
industrialized countries, most importantly, with the EU, the USA, and Japan. In reality
however, the distances from these major markets impose significantly higher
transportation costs for exporters in South Asia
South Asia's poor trade performance might reflect both tariff and non-tariff barriers.
Concerning the tariff barriers, however, South Asia has substantially reduced their
tariff rates over the past few decades; the region has adopted more open trade policies
since the late 1980s
In 1985, India, Pakistan, Bangladesh, Sri Lanka, Maldives, Nepal, and Bhutan
formed the South Asia Association for Regional Cooperation (SAARC), which began
with the SAARC Preferential Trading Agreement (SAPTA). The SAARC member
countries signed the South Asian Free Trade Area (SAFTA) pact in January 2006
Under SAFTA, India, Pakistan, and Sri Lanka were required to cut their import
duties by 20 percent by 2007, and reduce tariffs to zero by the end of 2012. The least
developed South Indian nations (Nepal, Bhutan, Bangladesh, Afghanistan, and
Maldives) have an additional three years to reduce tariffs to zero
The progress in tariff reduction has turned the member countries' attention to non
tariff barriers and trade facilitation measures. Among other steps, this shift includes
plans to integrate transport systems more closely and harmonize standards in the
region. Some experts expect the SAFTA to be "a step towards better physical,
industrial and communication
infrastructure development in the region" (Nayar, 2004)
However, others argue that SAFTA lacks any specific, actionable, or time-bound
requirements with respect to trade facilitation, and as a result, represents little more
than an understanding that non-tariff barriers will be subject to continuous
negotiations (Roy and Banerjee, 2010)