ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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SAFTA: Myth of Free Trade

The South Asian Free Trade Agreement has begun with an even more limited approach to liberalising trade than anticipated. Nearly 53 per cent of import trade amongst south Asian countries, by value in 2004, is excluded from the liberalisation of tariffs proposed under SAFTA. The relevance of the treaty is likely to become even more diluted over time as bilateral free trade agreements in the region that are already more liberal are implemented earlier.

A Single Currency for South Asia

The loss of monetary independence arising from a common currency in south Asia will have non-negligible costs for SAARC economies, according to optimal currency criteria, given the absence of closely synchronised exogenous shocks across the region. But the absence of synchronised real shocks in the past is not necessarily a reason for rejecting moves towards a common currency. In fact, with the weight of global empirical evidence, it seems clear that a common currency will facilitate greater economic integration within the south Asian region. But the potential risks of a common currency regime should not be underestimated, particularly because trade, investment and factor market linkages are still at a low level. Major policy induced barriers to the movement of goods, capital and people in the region remain. Moves towards closer monetary cooperation would be more credible if they were combined with rapid progress in these areas.

Does SAFTA Have a Future?

Even as the SAARC agenda languishes in the aftermath of the 1998 nuclear tests, recent trends point to a space of bilateral agreements in the offing. This has serious implications for the future direction of economic cooperation under the proposed South Asian Trade Agreement (SAFTA). Bilateral deals may undermine commitment to SAFTA and also result in a tangle of overlapping deals causing further confusion.

Indo-Sri Lanka Free Trade Agreement

Prospects of bilateral trade between India and Sri Lanka seem to have been boosted by the Free Trade Agreement of 1998. The vast Indian consumer market could serve as an entry point for Sri Lankan exports as 'first movers' before other potential competitors. The perceived advantages of this claim will depend on the pace of tariff reforms in India and the necessary export surplus that Sri Lanka can generate.

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