Two decades after the formation of the South Asian Association for Regional Cooperation (SAARC), and 10 years after the proposal was cleared at a summit of its leaders, the South Asia Free Trade Area (SAFTA) has come into force on January 1, 2006. The process of integrating the trade and economies of the seven founding members of the region has been painfully slow. Of course, it is not an easy task when many of the countries remain in the `Least Developed' category and two or three of them have moved on to a much higher level of growth and development. More important, the political differences between the two major countries in SAARC - India and Pakistan - have held the regional grouping to ransom all these years. Because of the undue delay in implementing SAFTA, India went ahead and signed a bilateral FTA with Sri Lanka in this region and a few other countries as well. With the neighbouring Southeast Asian forum, the ASEAN, already having an FTA in operation, it was high time a South Asian version got off to a start. Implementing SAFTA is going to be a two-stage process. In the first stage, India, Pakistan, and Sri Lanka are to bring their tariffs in line by 2013, and, in the second, the rest of the region will follow suit by 2018.
Aside from the bilateral and political differences, the South Asian Governments have been under tremendous pressure from domestic industry to stall the process so that it can protect itself from cheaper goods entering the country through the FTA route. Even now, this protectionism can be seen at work with the Governments drawing up separate "sensitive lists" for the least developed and non-least developed countries within SAARC. During the negotiations, the Governments have paid particular attention to the Rules of Origin to ensure that goods that are not manufactured or do not undergo value addition in one of the member-States is not "dumped" on the neighbouring country. India has also responded to the demands of Bangladesh with a special Tariff Rate Quota regime to provide limited access to the textiles sector which comes under the `sensitive list.' With all this, India's trade with the rest of South Asia is a mere $5 billion. It makes so much more sense for SAARC countries to look at ways and means of substantially increasing intra-regional trade by sourcing some of their requirements from the neighbours. At a time when India's trade with South East Asia has risen to $15 billion, such a low volume of transactions within South Asia reflects poorly on the state of SAARC. SAFTA is bound to change the picture and provide a springboard for boosting intra-regional trade. But the three `more developed' countries have also the responsibility to compensate the less developed ones in South Asia for the loss in revenue they will suffer on account of tariff reductions. The new regime can succeed only through a process of consensus and compromise.