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South Asian Countries to Establish Free Trade Area - 2004-01-11

A new South Asia free trade agreement aims to boost economic growth in a region that is home to nearly half the world's poor people.

The decision by the South Asian Association for Regional Cooperation to establish a free trade area in the region comes nearly two decades after the seven-member group was formed.

Starting in 2006, the agreement will slash or eliminate tariffs among India, Pakistan, Sri Lanka, Nepal, Bangladesh, Bhutan and the Maldives.

The bigger and more developed countries will lower tariffs faster than less developed ones, such as Nepal and Bangladesh.

Trade among South Asian countries is now $4 billion, or five percent of the region's total trade. In contrast, the European Union does more than 60 percent of its trade with member countries.

Economists believe South Asia could see regional trade surge to $14 billion once restrictions are removed.

A trade analyst at the Confederation of Indian Industries, Taban Bhaumik, says that the combined South Asian market is huge.

"Inter-regional cooperation and a combined market of 1.5 billion people will definitely result in larger markets for all the economies of the region," said Taban Bhaumik. "So there will be a direct impact on the growth of South Asian economies as a whole."

Economists say smaller countries such as Bhutan, Bangladesh and Nepal, once fearful their markets would be overwhelmed by larger economies like India, agreed to join the free trade zone after seeing the benefits.

For example, trade between India and China has jumped seven-fold since they signed a free trade pact five years ago. And Sri Lanka has doubled its exports to India since a similar agreement was signed two years ago.

The region's two largest economies, India and Pakistan, stand to benefit the most if the nuclear-armed rivals can solve the political differences that have plagued them for decades.

Official trade between the two rivals is only $250 million, but illegal trade is estimated at $1.5 billion, nearly six times higher.

One barrier to the rewards of free trade in the region is transport links, which economists say need improvement before trade can physically take place.

Nevertheless, economists say they are hopeful that free trade will help the region, which is home to half of the world's poor.