Trade Blocs / Regional Trade Agreements(RTAs) TOPIC-4
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Trade Blocs / Regional Trade
Agreements(RTAs)
TOPIC-4
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SUB TOPICS
Economic Integration,
European Union, ASE AN, S AARC, APEC, MERCOSUR,
IBS A, ANDE AN
Implications of trade Blocs for Business
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REGIONAL ECONOMIC GROUPINGS
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MAJOR ASPECTS OF RTAs
1. TRADE CRE ATION : ie. GENERATION OF NEW MARKETS
FOR NEWER PRODUCTS & INCRE ASED TRADE FLOWS IN THE
EXISTING PRODUCT LINES
2. TRADE DIVERSION: SHIFT OF TRADE FROM THE MEMBER
PARTNER COUNTRIES TO MORE EFFICIENT NON-MEMBER
COUNTRIES
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RTAs- DEVELOPMENT
- DURING 1948-94, GATT RECEIVED 124 NOTIFICATIONS OF
RTAs, RELATING TO TRADE IN GOODS
- WTO IN 1995- RECEIVED OVER 130 ADDITIONAL
AGREE
ME
NTS
COVE
RING TRADE
IN GOODS
&SE
RVICES
IMPORTANT: WTO MEMBERS HAVE TO INFORM , TO WHICH
RTA THEY ARE PARTICIPATING
RTAs- ARE EXCEPTION TO WTO ARTICLE 14, WHERE TARIFF AND OTHER TECHNICAL BARRIERS CAN BE REDUCED ON A
PREFERENTIAL BASIS BY THE COUNTRIES UNDER A
REGIONAL AGREEMENT
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CONCEPTU AL FRAMEWORK OF
INTERNATIONAL INTEGRATION
TWO MAIN RE ASONS:
1.COMMON HISTORY/ CULTURE SHARING
- CONSUMER TASTES LIKELY TO BE SIMILAR/DISTRIBUTION CHANNEL E ASY TO ESTABLISH
2.DISTANCES ARE SHORT
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REGIONAL INTEGRATION IN GLOBALISATION
Integration between countries - An
Important feature.
Integration may be either Political or Economic
Economic integration involves links between
- The economies of a group of countries, and
- are often known as Trade Blocks or Regional Economic
Groupings.
Some regional economic groupings are well established eg. European
Union.
Proliferation of such groupings in recent years.
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Preferential Trading Agreement
- loose form of economic integration.
- regarded as merely a trading agreement
among group of countries for allowing eachothers goods to b traded on preferential
terms
- lacks the more formal institutional
arrangements that tend to accompany other
forms of integration.
- designed primarily to support developing countries¶
economic development, e.g., Lome Agreement between ACP rou s of countries and EU.
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Free Trade Area
- a permanent arrangement between
neighbouring countries
- complete removal of tariffs on goods traded
between the members ± barring agriculture and
fishing or to services, in general
- member countries free to levy their own
external tariff on goods outside the FTA
- main difficulty ± goods outside the area findeasiest point of entry where external tariff
lowest and can cross any of internal borders
without incurring further tariffs
- to overcome above, members usually resort
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to controls on the country of origin for goods
crossing their internal frontiers
- this involves extensive border checks n
procedures
- NAFTA is the best known examples, others include
EFTA and ASEAN FTA (AFTA)
Customs Union
- to sort out problem of entry of goods from
non-member countries to FTA, a custom union
with common external tariff for each type of
product is formed- the external tariff revenues collection
concerns the ownership and may be resolved by
treating the same as common property of
customs union
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- requires a higher degree of political
cooperation that within a free trade area
- requires agreement on the level of commonexternal tariff and on the administration of
the tariff revenues
Common Market
- A common market is a customs union where
internal tariff barriers have also been removed
- Theoritically free movement of goods, services, people and capital is allowed across internal
frontiers
- Thus removal of all tariff and non-tariff barriers
allows all firms access to the entire internal
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- fiscal policy coordination include the
harmonization of tax rates, especially VAT, Excise
duties and other taxes on goods and some degree
of control over govt. budgets and budget
deficits
- also likely to be coordination of other economic
policies such as regional, industrial and agricultural
policies
- thus in terms of policy making there will be a
high degree of political integration as well
as economic integration barring defence and foreign policy
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Political Union
- political union implies more formal political
links between countries
- in its fullest form it involves unification of previously separate nations, e.g., reunification
of east and west Germany in 1990
- another example of political union is soviet
union bringing integration among various
republics
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Major Regional Economic Groupings
EU (European Union)
NAFTA (North American Free Trade Agreement)
LAIA (Latin American Integration Association)
MERCOSUR (Common Market Of South)
CACM (Central American Common Market)
ASEAN (Association Of South East Nations)
APEC (Asia Pacific Economic Cooperation)
EAC (East African Cooperation)
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EUROPE AN UNION(EU)
MAASTRITCHT TRE ATY 1992
FIRST PROPOSED BY FRENCH FOREIGN MINISTER,ROBERTSCHUMAN ON 9 MAY 1950, ALSO KNOWN AS EUROPE¶S DAY
- INITIALLY EU CONSISTED OF JUST SIX MEMBERS-BELGIUM,GERMANY, FRANCE, ITALY, LUXEMBOURG & THE NETHERLANDS
-1973- DENMARK, IRELAND & UK JOINED
1981-GREECE
1986-SPAIN & PORTUGAL
1995- AUSTRIA, FINLAND& SWEEDEN JINED
2004- 10 NEW COUNTRIES JOINED
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EU
-ISSUES- NOT ONLY TRADE & ECONOMY BUT ALSO,
CITIZEN¶S RIGHTS- ENSURING FREEDOM, SECURITY & JUSTICE;
REGIONAL DEVELOPMENT; ENVIRONMENTAL PROTECTION; &
PROMOTING GLOBALIZATION
FIVE EU INSTITUTIONS:
-EUROPE AN PARLIAMENT( ELECTED BY THE PEOPLES OF THE
MEMBER STATES)
COUNCIL OF EUROPE AN UNION;( REPRESENTING GOVT OF
MEMBER STATES).
EUROPE AN COMMISSION; COURT OF JUSTICE;
COURT OF AUDITORS
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PRESENTATION ON
ASEAN( ASSOCIATION OF SOUTH E AST ASIAN NATIONS)
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ASSOCIATION OF SOUTHEAST
ASIAN NATIONS (ASEAN)
"Today, ASEAN is not only a well-
functioning, indispensable reality in theregion. It is a real force to be reckoned
with far beyond the region. It is also a
trusted partner of the United Nations inthe field of development´
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ESTABLISHMENT
The Association of Southeast Asian Nations or ASE AN was established on 8 August 1967 inBangkok by the five original Member Countries,namely, Indonesia, Malaysia, Philippines,Singapore, and Thailand.
Br unei Dar ussalam joined on 8 January 1984,Vietnam on 28 July 1995, Lao PDR andMyanmar on 23 July 1997, and Cambodia on 30
April 1999.
The ASE AN region has a population of about500 million, a total area of 4.5 million squarekilometers, a combined gross domestic productof almost US$ 700 billion, and a total trade of
about US$ 850 billion.
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OBJECTIVE
The ASE AN Declaration states that the aims and
purposes of the Association are:
To accelerate economic growth, social progress
and cultural development in the region and
To promote regional peace and stability through
abiding respect for justice and the r ule of law in
the relationship among countries in the regionand adherence to the principles of the United
Nations Charter .
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ASE AN VISION 2020
Adopted by the ASE AN Leaders on the 30th Anniversaryof ASE AN.
Agreed on a shared vision of ASE AN as a concert of Southeast Asian nations, outward looking, living in
peace, stability and prosperity, bonded together inpartnership in dynamic development and in a communityof caring societies
In 2003, the ASE AN Leaders resolved that an ASE ANCommunity shall be established comprising three pillars,namely, ASE AN Security Community, ASE AN EconomicCommunity and ASE AN Socio-Cultural Community.
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FUNDAMENTAL PRINCIPLES
Mutual respect for the independence,sovereignty, equality, territorial integrity, and
national identity of all nations;
The right of every State to lead its national
existence free from external interference,subversion or coercion;
Non-interference in the internal affairs of one
another ;
Settlement of differences or disputes by peacef ul
manner ;
Renunciation of the threat or use of force; and
Effective cooperation among themselves.
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MEMBER COUNTRIES
Br unei Dar ussalam
Cambodia
Indonesia
Laos
Malaysia
Myanmar
Philippines Singapore
Thailand
Vietnam
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ASEAN COMMUNITIES
1. ASEAN SECURITY COMMUNITY
It aims to ensure that countries in the region
live at peace with one another and with the
world in a just, democratic and harmoniousenvironment.
Committee members pledge to rely on
peacef ul processes in the settlement of
intra-regional differences and regard their security as f undamentally linked to one
another and bound by geographic location,
common vision and objectives.
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CONTD«.
It has the following components:
1. political development;
2. shaping and sharing of norms;
3. conflict prevention & conflict resolution;
4. post-conflict peace building; and
5. implementing mechanism
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CONTD«.
2. ASEAN ECONOMIC COMMUNITY It¶s the end-goal of economic integration
measures as outlined in the ASE AN Vision
2020.
Its goal is to create a stable, prosperous and
highly competitive ASE AN economic region.
Free flow of goods, services, investment and a
free flow of capital, equitable economicdevelopment, and
Reduced poverty and socio-economic
disparities by the year 2020.
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CONTD«.
To establish ASE AN as a single market and
production base, turning the diversity that
characterizes the region into opportunities for
business complementation.Making the ASE AN a more dynamic and
stronger segment of the global supply chain.
The strategy will consist of the integration of
ASE AN and enhancing ASE AN¶s economic
competitiveness.
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ASE AN Has Agreed The Following Terms:
Institute new mechanisms and measures tostrengthen the implementation of its existing economic
initiatives including the ASE AN Free Trade Area(AFTA), ASE AN Framework Agreement on Services(AFAS) and ASE AN Investment Area (AIA);
Accelerate regional integration in the following prioritysectors by 2010: air travel, agro-based products,automotives, e-commerce, electronics, fisheries,healthcare, r ubber-based products, textiles andapparels, tourism, and wood-based products.
Facilitate movement of business persons, skilled
labour and talents; and Strengthen the institutional mechanisms of ASE AN,
including the improvement of the existing ASE ANDispute Settlement Mechanism to ensure expeditiousand legally-binding resolution of any economic
disputes.
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3. ASEAN SOCIO-CULTURAL COMMUNITY
The ASE AN Socio-Cultural Community, in
consonance with the goal set by ASE AN Vision 2020,
envisages a Southeast Asia bonded together in
partnership as a community of caring societies andfounded on a common regional identity.
To foster cooperation in social development aimed at
raising the standard of living of disadvantaged groups
and the r ural population, and shall seek the active
involvement of all sectors of society, in particular
women, youth, and local communities.
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It ensures that its work force shall be prepared
for, and benefit from, economic integration byinvesting more resources for basic and higher
education, training, science and technology
development, job creation, and social protection.
It also intensify cooperation in the area of publichealth, including in the prevention and control of
infectious and communicable diseases.
The development and enhancement of human
resources is a key strategy for employment
generation, alleviating poverty and socio-
economic disparities, and ensuring economic
growth with equity.
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Among the on-going activities of ASE AN in this
area, it also includes the following:
ASE AN Work Programme for Social Welfare,Family, and Population;
ASE AN Work Programme on HIV/AIDS;
ASE AN Work Programme on Community-Based
Care for the Elderly;
ASE AN Occupational Safety and Health
Network;
ASE AN Work Programme on Preparing ASE ANYouth for Sustainable Employment and Other
Challenges of Globalisation;
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ASE AN University Network (AUN)
promoting collaboration among seventeen
member universities ASE AN;
ASE AN Students Exchange Programme,
Youth Cultural For um, and the ASE AN
Young Speakers For um; The Annual ASE AN Culture Week,
ASE AN Youth Camp and ASE AN Quiz;
ASE AN Media Exchange Programmed; and
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The ASEAN Free Trade Area
(AFTA) ASE AN Member Countries have made
significant progress in the lowering of intra-regional tariffs through the Common EffectivePreferential Tariff (CEPT) Scheme for AFTA.
More than 99 percent of the products in theCEPT Inclusion List (IL) of ASE AN-6, comprisingBr unei Dar ussalam, Indonesia, Malaysia, thePhilippines, Singapore and Thailand, have beenbrought down to the 0-5 percent tariff range.
The signing of the Protocol to Amend the CEPT- AFTA Agreement for the Elimination of ImportDuties on 30 January 2003, ASE AN-6 hascommitted to eliminate tariffs on 60 percent of
their products in the IL by the year 2003.
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CONTD«.
ASE AN¶s exports had regained its upward trendin the two years following the financial crisis of 1997- 1998 reaching its peak in 2000 when totalexports was valued at US$ 408 billion.
After declining to US$ 366.8 billion in 2001, as aresult of the economic slowdown in the UnitedStates and Europe and the recession in Japan,
ASE AN exports recovered in 2002 when it wasvalued at US$ 380.2 billion.
The upward trend for ASE AN-6 continued up tothe first two quarters of 2003. Intra-ASE AN tradefor the first two quarters of 2003 registered anincrease of 4.2 and 1.6 percent for exports and
imports respectively.
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CONTD«.
To improve and strengthen the rules the CEPT Rules of Origin and its Operational Certification Procedures have been revised and implemented since 1 January 2004.
Among the features of the revised CEPT Rules of Originand Operational Certification Procedures include:
(a) a standardized method of calculatinglocal/ASEAN content;
(b) a set of principles for determining the cost of ASEAN origin and the guidelines for costing
methodologies;
(c) treatment of locally-procured materials; and
(d) improved verification process, including
on-site verification.
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EXTERNAL RELATIONS ASE AN has develop cooperative relations with
Australia, Canada, China, the European Union, India,Japan, the ROK, New Zealand, the Russian Federation,the United States of America, and the United NationsDevelopment Programme. ASE AN also promotescooperation with Pakistan in some areas of mutual
interest. ASE AN maintains contact with other inter-governmental
organisations, namely, the Economic CooperationOrganisation, the Gulf Cooperation Council, the RioGroup, the South Asian Association for Regional
Cooperation, etc. Most ASE AN Member Countries also participate actively
in the activities of the Asia-Pacific Economic Cooperation(APEC), the Asia-Europe Meeting (ASEM), and the East
Asia-Latin America For um (E ALAF).
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Introduction
The North American Free Trade Agreement (NAFTA) isa trilateral trade bloc in North America created by the
governments of the United States, Canada, and Mexico.
It superseded the Canada-United States Free Trade
Agreement between the US and Canada.
Following diplomatic negotiations dating back to 1990
between the three nations, the leaders gathered together
in San Antonio Texas on December 17, 1992 to officially
sign NAFTA. U.S. President George H.W. Bush,
Canadian Prime Minister Brian Mulroney and Mexico'sPresident Carlos Salinas, each responsible for
spearheading and promoting the agreement, made
history that day when they ceremoniously signed the
agreement.
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Contd«
The agreement was signed into law in the U.S. on
December 8, 1993 by President Bill Clinton and wentinto effect on January 1, 1994.
In terms of combined purchasing power parity GDP of its
members, as of 2007 the trade block is the largest in the
world and second largest by nominal GDP comparison. Italso is one of the most powerf ul, wide-reaching treaties
in the world.
The North American Free Trade Agreement (NAFTA)
has two supplements, the North American Agreement on
Environmental Cooperation (NAAEC) and the North
American Agreement on Labour Cooperation (NAALC).
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Impact
Trade- According to Isaac (2005), NAFTA has notcaused trade diversion, aside from a few selectindustries such as textiles and apparel, in which r ules of origin negotiated in the agreement were specificallydesigned to make U.S. firms prefer Mexicanmanufacturers. The World Bank also showed that the
collected NAFTA imports' percentage growth wasaccompanied by an almost similar increase of non-NAFTA exports.
Industry- Maquiladoras (Mexican factories which take inimported raw materials and produce goods for export)have become the landmark of trade in Mexico. Theseare plants that moved to this region from the UnitedStates, hence the debate over the loss of American jobs. Hufbauer's (2005) book shows that income in themaquiladora sector has increased 15.5% since the
implementation of NAFTA in 1994
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Contd«
Environment- The Commission for Environmental
Cooperation created a framework for conductingenvironmental analysis of NAFTA, one of the first ex postframeworks for the environmental assessment of tradeliberalization. The framework was designed to produce afocused and systematic body of evidence with respect tothe initial hypotheses about NAFTA and theenvironment, such as the concern that NAFTA wouldcreate a ³race to the bottom´ in environmental regulationamong the three countries, or the hope that NAFTAwould pressure governments to increase their environmental protection mechanisms.
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Contd..
Mobility of persons- According to the Department of
Homeland Security Yearbook of Immigration Statistics,during fiscal year 2006 (i.e., October 2005 throughSeptember 2006), 74,098 foreign professionals (64,633 Canadians and 9,247 Mexicans) were admitted into theUnited States for temporary employment under NAFTA .
Additionally, 17,321 of their family members (13,136
Canadians, 2,904 Mexicans, as well as a number of third-country nationals married to Canadians andMexicans) entered the U.S. in the treaty national'sdependent (TD) status.
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South Asian Association for Regional Cooperation
S AARC
ang a es u an n a a ves
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ang a es , u an, n a, a ves,
Nepal, Pakistan, Sri Lanka
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South Asian Association for
Regional Cooperation formally came into existence in 1985 with
the adoption of its Charter at the first
Summit in Dhaka (7- 8 December 1985).
seven South Asian countries Bangladesh,
Bhutan, India, the Maldives, Nepal,
Pakistan and Sri Lanka
Other regional experiences highly
successf ul
strengthen their competitive position
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Areas of Cooperation(21 - 23 April, 1981)
first meeting of Foreign Secretaries in
Colombo
pursue cooperation in five broad areas
Agriculture
r ural development
Telecommunications
meteorology, and
health and population services
identify other areas of possible cooperation
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Objective
acceleration of economic growth,
social progress and cultural developmentin the region,
promotion of active collaboration andmutual assistance in the economic, social,cultural, technical and scientific fields and
strengthening of cooperation among theMember States in international for um onmatters of common interest
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The S AARC Secretariat
established in Kathmandu on 16 January
1987.
coordinate and monitor the implementationof S AARC activities, service the meetings
of the Association and serve as the
channel of communication between
S AARC and other internationalorganisations
comprises the Secretary General, seven
Directors and the General Services Staff .
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Administrative setup
Summits held annually, represented by head of thestates
The Council of Ministers comprising Foreign Ministers,meets at least twice a year
formulating policy, reviewing progress of regionalcooperation, identifying new areas of cooperation
The Standing Committee comprising ForeignSecretaries, monitors and coordinates S AARCprogrammes of cooperation, approves projects includingtheir financing and mobilizes regional and externalresources. It meets as often as necessary and reports tothe Council of Ministers
The Committee on Economic Cooperation consisting of Secretaries of Commerce oversees regional cooperationin the economic field
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DIVISIONS OF S AARC
Agriculture and Rural DevelopmentDivision
Environment and Science and Technology
Division Economic, Trade and Finance Division
Social Affairs Division
Information and Publications Division Energy, Tourism Division
Human Resource Development, Transport
and Treaty Division
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Committee on Economic
Cooperation (CEC) implementation of specific measures, policies
and programmes to strengthen and enhanceintra-regional cooperation in the fields of tradeand economic relations.
Its specific f unctions include analysing inter-regional and global
developments
evolving joint strategies and common
approaches at international for ums; and recommending policies and measures for promoting intra-regional trade,
joint ventures, industrial complementarity andinvestments.
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S APTA
South Asian Preferential Trade Arrangement
Deals with Tariffs, Non-Tariff Measuresand Direct Trade Measures
In December 1991, the Sixth Summit heldin Colombo member countires agreed to
formulate an agreement to establish aS AARC Preferential Arrangement(S APTA) by 1997.
Agreement on S APTA was signed on 11
A ril 1993 and entered into force on 7
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S APTA
The basic principles underlying S APTA are:
overall reciprocity and mutuality of advantages so as tobenefit equitably all Contracting States, taking intoaccount their respective level of economic and industrial
development, the pattern of their external trade, andtrade and tariff policies and systems;
negotiation of tariff reform step by step, improved andextended in successive stages through periodic reviews;
recognition of the special needs of the Least DevelopedContracting States and agreement on concretepreferential measures in their favour ; and
inclusion of all products, manufactures and commoditiesin their raw, semi-processed and processed forms.
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Trade Concessions Number of Products covered and the Depth of Preferential Tariff
Concessions agreed to by S AARC Member States in the first three rounds of trade
negotiations under S APTA
Country # Products Depth of concessions
Bangladesh 572 10% -15%
Bhutan 266 10-20%
India 2402 10-100%
Maldives 390 5-15%
Nepal 425 10-15%
Pakistan 685 10-30%
Sri Lanka 211` 10-75%
TOTAL 4951
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South Asian Free Trade Area
(S AFTA) S APTA first step towards the transition to a South Asian Free
Trade Area (S AFTA) leading subsequently towards aCustoms Union, Common Market and Economic Union.
The Agreement on South Asian Free Trade Area (S AFTA)was signed on 6 January 2004 during the Twelfth S AARCSummit in Islamabad.
The Agreement into force from 1 January 2006
Trade Liberalisation Programme scheduled for completion inten years by 2016,
the customs duties on products from the region will be
progressively reduced. under an early harvest programme for the Least Developed
Member States, India, Pakistan and Sri Lanka are to bringdown their customs duties to 0-5 % by 1 January 2009 for theproducts from such Member States.
The Least Developed Member States are expected to benefit
from additional measures under the special and differential
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South Asian Economic Union
Eleventh Summit (Kathmandu, 4-6
January 2002) - economic cooperation
Leaders agreed to accelerate cooperation
in the core areas of trade, finance and
investment to realise the goal of an
integrated South Asian economy in a step-
by-step manner .
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Current Issues
Working toward creation of S AFTA
Leading subsequently, towards a Customs
Union, Common Market and Economic Union.
Technical Committee on Transport
Agreement on Investment
Agreement on avoidance of double taxation
Standards, quality and control group