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South Asian Association for Regional Cooperation (SAARC) was established in 1985 and South Asian Preferential Trading Arrangement (SAPTA) came into existence in 1995. By 2002, four rounds of trade negotiations have been concluded under SAPTA. SAARC countries have signed the framework agreement on South Asian Free Trade Area (SAFTA) in 2004 and SAFTA will come into effect at the start of 2006. Intra regional trade among SAARC countries has remained very low despite the preferential trading arrangements in place for over ten years and continuous efforts to boost trade in the region. This paper evaluates the role of trade preferences in boosting intra regional trade in South Asia and prospects for SAFTA in the light of trade performance over the past few years in the region. Gravity model analysis with panel data estimates for the period 1990 – 1992.were used. The results do not support the hypothesis that there is a significant trade creation effect under the South Asian Regional Trade Agreement (RTA). This may be due to the depth and coverage of concessions, poor trade facilitation and transport infrastructure in the region and concentration on only a fraction of potential markets in the region.

Keywords: Free Trade, Gravity Model, Regional Trade Agreement


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Author Biography

S.W. Hirantha

Senior Lecturer and Head, Dept. of Commerce, University of Sri Jayewardenepura, Nugegoda, (Sri Lanka)