AGREEMENT ON SOUTH ASIAN FREE TRADE AREA (SAFTA)

The Governments of the SAARC (South Asian Association for Regional Cooperation) Member
States comprising the People’s Republic of Bangladesh, the Kingdom of Bhutan, the Republic of
India, the Republic of Maldives, the Kingdom of Nepal, the Islamic Republic of Pakistan and the
Democratic Socialist Republic of Sri Lanka hereinafter referred to as "Contracting States"

Motivated by the commitment to strengthen intra-SAARC economic cooperation to maximise the

realization of the region’s potential for trade and development for the benefit of their people, in a
spirit of mutual accommodation, with full respect for the principles of sovereign equality,
independence and territorial integrity of all States;

Noting that the Agreement on SAARC Preferential Trading Arrangement (SAPTA) signed in
Dhaka on the llth of April 1993 provides for the adoption of various instruments of trade
liberalization on a preferential basis;

Convinced that preferential trading arrangements among SAARC Member States will act as a
stimulus to the strengthening of national and SAARC economic resilience, and the development
of the national economies of the Contracting States by expanding investment and production
opportunities, trade, and foreign exchange earnings as well as the development of economic and
technological cooperation;

Aware that a number of regions are entering into such arrangements to enhance trade through
the free movement of goods;

Recognizing that Least Developed Countries in the region need to be accorded special and
differential treatment commensurate with their development needs; and

Recognizing that it is necessary to progress beyond a Preferential Trading Arrangement to move

towards higher levels of trade and economic cooperation in the region by removing barriers to
cross-border flow of goods;

Have agreed as follows:

Article -1

Definitions

For the purposes of this Agreement:

I. Concessions mean tariff, para-tariff and non-tariff concessions agreed under the Trade
Liberalisation Programme;

2. Direct Trade Measures mean measures conducive to promoting mutual trade of Contracting
States such as long and medium-term contracts containing import and supply commitments in
respect of specific products, buy-back arrangements, state trading operations, and government
and public procurement;

3. Least Developed Contracting State refers to a Contracting State which is designated as a

.’Least Developed Country" by the United Nations;

4. Margin of Preference means percentage of tariff by which tariffs are reduced on products
imported from one Contracting State to another as a result of preferential treatment.
5. Non-Tariff Measures include any measure, regulation, or practice, other than .’tariffs" and
"para- tariffs".

6. Para-Tariffs mean border charges and fees, other than "tariffs", on foreign trade transactions of
a tariff-Iike effect which are levied solely on imports, but not those indirect taxes and charges,
which are levied in the same manner on like domestic products. Import charges corresponding to
specific services rendered are not considered as para-tariff measures;

7. Products mean all products including manufactures and commodities in their raw, semi-
processed and processed forms;

8. SAPTA means Agreement on SAARC Preferential Trading Arrangement signed in Dhaka on

the 11th of April 1993;

9. Serious injury means a significant impairment of the domestic industry of like or directly
competitive products due to a surge in preferential imports causing substantial losses in terms of
earnings, production or employment unsustainable in the short term;

10. Tariffs mean customs duties included in the national tariff schedules of the Contracting
States;

11. Threat of serious injury means a situation in which a substantial increase of preferential
imports is of a nature to cause "serious injury" to domestic producers, and that such injury,
although not yet existing, is clearly imminent. A determination of threat of serious injury shall be
based on facts and not on mere allegation, conjecture, or remote or hypothetical possibility.

Article -2

Establishment

The Contracting States hereby establish the South Asian Free Trade Area (SAFTA) to promote
and enhance mutual trade and economic cooperation among the Contracting States, through
exchanging concessions in accordance with this Agreement.

Article -3

Objectives and Principles

1. The Objectives of this Agreement are to promote and enhance mutual trade and economic
cooperation among Contracting States by, inter-alia:

a) eliminating barriers to trade in, and facilitating the cross-border movement of goods between
the territories of the Contracting States;

b) promoting conditions of fair competition in the free trade area, and ensuring equitable benefits
to all Contracting States, taking into account their respective levels and pattern of economic
development;

c) creating effective mechanism for the implementation and application of this Agreement, for its
joint administration and for the resolution of disputes; and

d) establishing a framework for further regional cooperation to expand and enhance the mutual
benefits of this Agreement.
2. SAFTA shall be governed in accordance with the following principles:

a) SAFTA will be governed by the provisions of this Agreement and also by the rules, regulations,
decisions, understandings and protocols to be agreed upon within its framework by the
Contracting States;

b) The Contracting States affirm their existing rights and obligations with respect to each other
under Marrakesh Agreement Establishing the World Trade Organization and other
Treaties/Agreements to which such Contracting States are signatories;

c) SAFTA shall be based and applied on the principles of overall reciprocity and mutuality of
advantages in such a way as to benefit equitably all Contracting States, taking into account their
respective levels of economic and industrial development, the pattern of their external trade and
tariff policies and systems;

d) SAFTA shall involve the free movement of goods, between countries through, inter alia, the
elimination of tariffs, para tariffs and non-tariff restrictions on the movement of goods, and any
other equivalent measures;

e) SAFTA shall entail adoption of trade facilitation and other measures, and the progressive
harmonization of legislations by the Contracting States in the relevant areas; and

f) The special needs of the Least Developed Contracting States shall be clearly recognized by
adopting concrete preferential measures in their favour on a non-reciprocal basis.

Article -4

Instruments

The SAFTA Agreement will be implemented through the following instruments:-

1. Trade Liberalisation Programme

2. Rules of Origin

3. Institutional Arrangements

4. Consultations and Dispute Settlement Procedures

5. Safeguard Measures

6. Any other instrument that may be agreed upon.

Article- 5

National Treatment

Each Contracting State shall accord national treatment to the products of other Contracting
States in accordance with the provisions of Article ill of GATT 1994.

Article -6

Components
SAFTA may, inter-alia, consist of arrangements relating to:

a) tariffs;

b) para-tariffs;

c) non-tariff measures;

d) direct trade measures.

Article- 7

Trade Liberalisation Programme

1. Contracting States agree to the following schedule of tariff reductions:

a) The tariff reduction by the Non-Least Developed Contracting States from existing tariff rates to
20% shall be done within a time frame of 2 years, from the date of coming into force of the
Agreement. Contracting States are encouraged to adopt reductions in equal annual installments.
If actual tariff rates after the coming into force of the Agreement are below 20%, there shall be an
annual reduction on a Margin of Preference basis of 10% on actual tariff rates for each of the two
years.

b) The tariff reduction by the Least Developed Contracting States from existing tariff rates will be
to 30% within the time frame of 2 years from the date of coming into force of the Agreement. If
actual tariff rates oIl the date of coming into force of the Agreement are below 30%, there will be
an annual reduction on a Margin of Preference basis of 5 % on actual tariff rates for each of the
two years.

c) The subsequent tariff reduction by Non-Least Developed Contracting States from 20% or
below to 0-5% shall be done within a second time frame of 5 years, beginning from the third year
from the date of coming into force of the Agreement. However, the period of subsequent tariff
reduction by Sri Lanka shall be six years. Contracting States are encouraged to adopt reductions
in equal annual installments, but not less than 15% annually.

d) The subsequent tariff reduction by the Least Developed Contracting States from 30% or below
to 0-5% shall be done within a second time frame of 8 years beginning from the third year from
the date of coming into force of the Agreement. The Least Developed Contracting States are
encouraged to adopt reductions in equal annual installments, not less than 10% annually.

2. The above schedules of tariff reductions will not prevent Contracting States from immediately
reducing their tariffs to 0-5% or from following an accelerated schedule of tariff reduction.

3.

a) Contracting States may not apply the Trade Liberalisation Programme as in paragraph I above,
to the tariff lines included in the Sensitive Lists which shall be negotiated by the Contracting
States (for LDCs and Non-LDCs) and incorporated in this Agreement as an integral part. The
number of products in the Sensitive Lists shall be subject to maximum ceiling to be mutually
agreed among the Contracting States with flexibility to Least Developed Contracting States to
seek derogation in respect of the products of their export interest; and

b) The Sensitive List shall be reviewed after every four years or earlier as may be decided by
SAFTA Ministerial Council (SMC), established under Article 10, with a view to reducing the
number of items in the Sensitive List.

4. The Contracting States shall notify the SAARC Secretariat all non-tariff and para-tariff
measures to their trade on an annual basis. The notified measures shall be reviewed by the
Committee of Experts, established under Article 10, in its regular meetings to examine their
compatibility with relevant WTO provisions. The Committee of Experts shall recommend the
elimination or implementation of the measure in the least trade restrictive manner in order to
facilitate intra- SAARC trade1.

5. Contracting Parties shall eliminate all quantitative restrictions, except otherwise permitted
under GA1T 1994, in respect of products included in the Trade Liberalisation Programme.

6. Notwithstanding the provisions contained in paragraph I of this Article, the Non-Least

Developed Contracting States shall reduce their tariff to 0-5% for the products of Least
Developed Contracting States within a timeframe of three years beginning from the date of
coming into force of the Agreement.

Article - 8

Additional Measures

Contracting States agree to consider, in addition to the measures set out in Article 7, the adoption
of trade facilitation and other measures to support and complement SAFfA for mutual benefit.
These may include, among others: -

a) harmonization of standards, reciprocal recognition of tests and accreditation of testing

laboratories of Contracting States and certification of products;

b) simplification and harmonization of customs clearance procedure;

c) harmonization of national customs classification based on HS coding system;

d) Customs cooperation to resolve dispute at customs entry points;

e) simplification and harmonization of import licensing and registration procedures;

f) simplification of banking procedures for import financing;

g) transit facilities for efficient intra-SAARC trade, especially for the land-locked Contracting
States;

h) removal of barriers to intra-SAARC investments;

i) macroeconomic consultations;

j) rules for fair competition and the promotion of venture capital;

k) development of communication systems and transport infrastructure;

I) making exceptions to their foreign exchange restrictions, if any, relating to payments for
products under the SAFfA scheme, as well as repatriation of such payments without prejudice to
their rights under Article XVIII of the General Agreement on Tariffs and Trade (GATT) and the
relevant provisions of Articles of Treaty of the International Monetary Fund (IMF); and
m) Simplification of procedures for business visas.

Article - 9

Extension of Negotiated Concessions Concessions agreed to, other than those made exclusively
to the Least Developed Contracting States, shall be extended unconditionally to all Contracting
States.

Article -10

Institutional Arrangements

1. The Contracting States hereby establish the SAFTA Ministerial Council (hereinafter referred to
as SMC).

2. The SMC shall be the highest decision-making body of SAFTA and shall be responsible for the
administration and implementation of this Agreement and all decisions and arrangements made
within its legal framework.

3. The SMC shall consist of the Ministers of Commerce/Trade of the Contracting States.

4. The SMC shall meet at least once every year or more often as and when considered
necessary by the Contracting States. Each Contracting State shall chair the SMC for a period of
one year on rotational basis in alphabetical order.

5. The SMC shall be supported by a Committee of Experts (hereinafter referred to as COE), with
one nominee from each Contracting State at the level of a Senior Economic Official, with
expertise in trade matters.

6. The COE shall monitor, review and facilitate implementation of the provisions of this
Agreement and undertake any task assigned to it by the SMC. The COE shall submit its report to
SMC every six months.

7. The COE will also act as Dispute Settlement Body under this Agreement.

8. The COE shall meet at least once every six months or more often as and when considered
necessary by the Contracting States. Each Contracting State shall chair the COE for a period of
one year on rotational basis in alphabetical order.

9. The SAARC Secretariat shall provide secretarial support to the SMC and COE in the discharge
of their functions.

10. The SMC and COE will adopt their own rules of procedure.

Article -11

Special and Differential Treatment for the Least Developed Contracting States

In addition to other provisions of this Agreement, all Contracting States shall provide special and
more favorable treatment exclusively to the Least Developed Contracting States as set out in the
following sub-paragraphs:

a) The Contracting States shall give special regard to the situation of the Least Developed
Contracting States when considering the application of anti-dumping and/or countervailing
measures. In this regard, the Contracting States shall provide an opportunity to Least Developed
Contracting States for consultations. The Contracting States shall, to the extent practical,
favourably consider accepting price undertakings offered by exporters from Least Developed
Contracting States. These constructive remedies shall be available until the trade liberalisation
programme has been completed by all Contracting States.

b) Greater flexibility in continuation of quantitative or other restrictions provisionally and without

discrimination in critical circumstances by the Least Developed Contracting States on imports
from other Contracting States.

c) Contracting States shall also consider, where practical, taking direct trade measures with a
view to enhancing sustainable exports from Least Developed Contracting States, such as long
and medium-term contracts containing import and supply commitments in respect of specific
products, buy-back arrangements, state trading operations, and government and public
procurement.

d) Special consideration shall be given by Contracting States to requests from Least Developed
Contracting States for technical assistance and cooperation arrangements designed to assist
them in expanding their trade with other Contracting States and in taking advantage of the
potential benefits of SAFTA. A list of possible areas for such technical assistance shall be
negotiated by the Contracting States and incorporated in this Agreement as an integral part.

e) The Contracting States recognize that the Least Developed Contracting States may face loss
of customs revenue due to the implementation of the Trade Liberalisation Programme under this
Agreement. Until alternative domestic arrangements are formulated to address this situation, the
Contracting States agree to establish an appropriate mechanism to compensate the Least
Developed Contracting States for their loss of customs revenue. This mechanism and its rules
and regulations shall be established prior to the commencement of the Trade Liberalisation
Programme (TLP).

Article- 12

Special Provision for Maldives

Notwithstanding the potential or actual graduation of Maldives from the status of a Least
Developed Country, it shall be accorded in this Agreement and in any subsequent contractual
undertakings thereof treatment no less favourable than that provided for the Least Developed
Contracting States.

Article -13

Non-application Notwithstanding the measures as set out in this Agreement its provisions shall
not apply in relation to preferences already granted or to be granted by any Contracting State to
other Contracting States outside the framework of this Agreement, and to third countries through
bilateral, plurilateral and multilateral trade agreements and similar arrangements.

Article -14

General Exceptions

a) Nothing in this Agreement shall be construed to prevent any Contracting State from taking
action and adopting measures which it considers necessary for the protection of its national
security.
b) Subject to the requirement that such measures are not applied in a manner which would
constitute a means of arbitrary or unjustifiable discrimination between countries where the similar
conditions prevail, or a disguised restriction on intra-regional trade, nothing in this Agreement
shall be construed to prevent any Contracting State from taking action and adopting measures
which it considers necessary for the protection of :

(i) public morals;

(ii) human, animal or plant life and health; and

(iii) articles of artistic, historic and archaeological value.

Article- 15

Balance of Payments Measures

I. Notwithstanding the provisions of this Agreement, any Contracting State facing serious balance
of payments difficulties may suspend provisionally the concessions extended under this
Agreement.

2. Any such measure taken pursuant to paragraph 1 of this Article shall be immediately notified to
the Committee of Experts.

3. The Committee of Experts shall periodically review the measures taken pursuant to paragraph
1 of this Article.

4. Any Contracting State which takes action pursuant to paragraph 1 of this Article shall afford,
upon request from any other Contracting State, adequate opportunities for consultations with a
view to preserving the stability of concessions under SAFTA.

5. If no satisfactory adjustment is effected between the Contracting States concerned within 30

days of the beginning of such consultations, to be extended by another 30 days through mutual
consent, the matter may be referred to the Committee of Experts.

6. Any such measures taken pursuant to paragraph 1 of this Article shall be phased out soon
after the Committee of Experts comes to the conclusion that the balance of payments situation of
the Contracting State concerned has improved.

Article -16

Safeguard Measures

I. If any product, which is the subject of a concession under this Agreement, is imported into the
territory of a Contracting State in such a manner or in such quantities as to cause, or threaten to
cause, serious injury to producers of like or directly competitive products in the importing
Contracting State, the importing Contracting State may, pursuant to an investigation by the
competent authorities of that Contracting State conducted in accordance with the provisions set
out in this Article, suspend temporarily the concessions granted under the provisions of this
Agreement. The examination of the impact on the domestic industry concerned shall include an
evaluation of all other relevant economic factors and indices having a bearing on the state of the
domestic industry of the product and a causal relationship must be clearly established between
"serious injury" and imports from within the SAARC region, to the exclusion of all such other
factors.
2. Such suspension shall only be for such time and to the extent as may be necessary to prevent
or remedy such injury and in no case, will such suspension be for duration of more than 3 years.

3. No safeguard measure shall be applied again by a Contracting State to the import of a product
which has been subject to such a measure during the period of implementation of Trade
Liberalization Programme by the Contracting States, for a period of time equal to that during
which such measure had been previously applied, provided that the period of non-application is at
least two years.

4. All investigation procedures for resorting to safeguard measures under this Article shall be
consistent with Article XIX of GATT 1994 and WTO Agreement on Safeguards

5. Safeguard action under this Article shall be non-discriminatory and applicable to the product
imported from all other Contracting States subject to the provisions of paragraph 8 of this Article.

6. When safeguard provisions are used in accordance with this Article, the Contracting State
invoking such measures shall immediately notify the exporting Contracting State(s) and the
Committee of Experts.

7. In critical circumstances where delay would cause damage which it would be difficult to repair,
a Contracting State may take a provisional safeguard measure pursuant to a preliminary
determination that there is clear evidence that increased imports have caused or are threatening
to cause serious injury. The duration of the provisional measure shall not exceed 200 days,
during this period the pertinent requirements of this Article shall be met.

8. Notwithstanding any of the provisions of this Article, safeguard measures under this article
shall not be applied against a product originating in a Least Developed Contracting State as long
as its share of imports of the product concerned in the importing Contracting State does not
exceed 5 per cent, provided Least Developed Contracting States with less than 5% import share
collectively account for not more than 15% of total imports of the product concerned.

Article- 17

Maintenance of the Value of Concessions

Any of the concessions agreed upon under this Agreement shall not be diminished Or nullified, by
the application of any measures restricting trade by the Contracting States, except under the
provisions of other articles of this Agreement.

Article -18

Rules of Origin

Rules of Origin shall be negotiated by the Contracting States and incorporated in this Agreement
as an integral part.

Article- 19

Consultations

1. Each Contracting State shall accord sympathetic consideration to and will afford adequate
opportunity for consultations regarding representations made by another Contracting State with
respect to any matter affecting the operation of this Agreement.
2. The Committee of Experts may, at the request of a Contracting State, consult with any
Contracting State in respect of any matter for which it has not been possible to find a satisfactory
solution through consultations under paragraph 1.

Article -20

Dispute Settlement Mechanism

1. Any dispute that may arise among the Contracting States regarding the interpretation and
application of the provisions of this Agreement or any instrument adopted within its framework
concerning the rights and obligations of the Contracting States will be amicably settled among the
parties concerned through a process initiated by a request for bilateral consultations.

2. Any Contracting State may request consultations in accordance with paragraph 1 of this Article
with other Contracting State in writing stating the reasons for the request including identification of
the measures at issue. All such requests should be notified to the Committee of Experts, through
the SAARC Secretariat with an indication of the legal basis for the complaint.

3. If a request for consultations is made pursuant to this Article, the Contracting State to which the
request is made shall, unless otherwise mutually agreed, reply to the request within 15 days after
the date of its receipt and shall enter into consultations in good faith within a period of no more
than 30 days after the date of receipt of the request, with a view to reaching a mutually
satisfactory solution.

4. If the Contracting State does not respond within 15 days after the date of receipt of the request,
or does not enter into consultations within a period of no more than 30 days, or a period
otherwise mutually agreed, after the date of receipt of the request, then the Contracting State that
requested the holding of consultations may proceed to request the Committee of Experts to settle
the dispute in accordance with working procedures to be drawn up by the Committee.

5. Consultations shall be confidential, and without prejudice to the rights of any Contracting State
in any further proceedings.

6. If the consultations fail to settle a dispute within 30 days after the date of receipt of the request
for consultations, to be extended by a further period of 30 days through mutual consent, the
complaining Contracting State may request the Committee of Experts to settle the dispute. The
complaining Contracting State may request the Committee of Experts to settle the dispute during
the 60-day period if the consulting Contracting States jointly consider that consultations have
failed to settle the dispute.

7. The Committee of Experts shall promptly investigate the matter referred to it and make
recommendations on the matter within a period of 60 days from the date of referral.

8. The Committee of Experts may request a specialist from a Contracting State not party to the
dispute selected from a panel of specialists to be established by the Committee within one year
from the date of entry into force of the Agreement for peer review of the matter referred to it. Such
review shall be submitted to the Committee within a period of 30 days from the date of referral of
the matter to the specialist.

9. Any Contracting State, which is a party to the dispute, may appeal the recommendations of the
Committee of Experts to the SMC. The SMC shall review the matter within the period of 60 days
from date of submission of request for appeal. The SMC may uphold, modify or reverse the
recommendations of the Committee of Experts.
10. Where the Committee of Experts or SMC concludes that the measure subject to dispute is
inconsistent with any of the provisions of this Agreement, it shall recommend that the Contracting
State concerned bring the measure into conformity with this Agreement. In addition to its
recommendations, the Committee of Experts or SMC may suggest ways in which the Contracting
State concerned could implement the recommendations.

11. The Contracting State to which the Committee’s or SMC’s recommendations are addressed
shall within 30 days from the date of adoption of the recommendations by the Committee or SMC,
inform the Committee of Experts of its intentions regarding implementation of the
recommendations. Should the said Contracting State fail to implement the recommendations
within 90 days from the date of adoption of the recommendations by the Committee, the
Committee of Experts may authorize other interested Contracting States to withdraw concessions
having trade effects equivalent to those of the measure in dispute.

Article -21

Withdrawal

I. Any Contracting State may withdraw from this Agreement at any time after its entry into force.
Such withdrawal shall be effective on expiry of six months from the date on which a written notice
thereof is received by the Secretary-General of SAARC, the depositary of this Agreement. That
Contracting State shall simultaneously inform the Committee of Experts of the action it has taken.

2. The rights and obligations of a Contracting State which has withdrawn from this Agreement
shall cease to apply as of that effective date.

3. Following the withdrawal by any Contracting State, the Committee shall meet within 30 days to
consider action subsequent to withdrawal.

Article -22

Entry into Force

1. This Agreement shall enter into force on 1st January 2006 upon completion of formalities,
including ratification by all Contracting States and issuance of a notification thereof by the SAARC
Secretariat. This Agreement shall supercede the Agreement on SAARC Preferential Trading
Arrangement (SAPTA).

2. Notwithstanding the supercession of SAPTA by this Agreement, the concessions granted

under the SAPTA Framework shall remain available to the Contracting States until the completion
of the Trade Liberalisation Programme.

Article - 23

Reservations

This Agreement shall not be signed with reservations, nor will reservations be admitted at the
time of notification to the SAARC Secretariat of the completion of formalities.

Article - 24

Amendments

This Agreement may be amended by consensus in the SAFTA Ministerial Council. Any such
amendment will become effective upon the deposit of instruments of acceptance with the
Secretary General of SAARC by all Contracting States.

Article - 25

Depository

This Agreement will be deposited with the Secretary General of SAARC, who will promptly furnish
a certified copy thereof to each Contracting State.

IN WITNESS WHEREOF the undersigned being duly authorized thereto by their respective
Governments have signed this Agreement.

DONE in ISLAMABAD, PAKISTAN, On This The Sixth day Of the Year Two Thousand Four, In
Nine Originals In The English Language All Texts Being Equally Authentic.

1/ The initial notification shall be made within three months from the date of coming into force of
the Agreement and the COE shall review the notification in its first meeting and take appropriate
decisions.

M. MORSHED KHAN Minister for Foreign Affairs People’s Republic of Bangladesh

NADO RINCHHEN Officiating Minister for Foreign Affairs Kingdom of Bhutan

YASHWANT SINHA Minister of External Affairs Republic of India

FATHULLA JAMEEL Minister of Foreign Affairs Republic of Maldives

DR. BHEKH B. THAPA Ambassador-at-large for Foreign Affairs His Majesty’s Government of
Nepal

KHURSHID M. KASURI Minister of Foreign Affairs Islamic Republic of Pakistan

TYRONNE FERNANDO Minister of Foreign Affair Democratic Socialist Republic of Sri Lanka