SAFTA relies on the provisions of SAPTA. SAFTA expands SAPTA`s scope with commercial facilities and converts the tariff liberalization process from a positive approach to a negative list approach. SAFTA pays particular attention to compensating for revenue losses for small countries in the event of tariff reductions (Baunsgaard and Keen, 2005). For these countries, SAFTA proposes that “pending the formulation of alternative national provisions to deal with this situation, States Parties agree to put in place an appropriate compensation mechanism for the least developed States Parties… (SAARC Secretariat, 2006b). SAFTA is expected to increase regional trade (trade creation), but may do so at the expense of more efficient non-regional supplier trade flows (trade diversion). Baysan and others (2006) argue that it is unlikely that the most efficient suppliers from member countries will be in the region. On this basis, and on the limitation of SAFTA`s sensitive lists and rules of origin, it concludes that the economic benefits of SAFTA are “quite small”. Using the static method of general equilibrium, Bandara and Yu (2003) find that the total removal of barriers to trade between South Asian countries would increase India`s level of well-being (by 0.2%) Sri Lanka (by 0.03%), 9 The extension of the agreement to ASEAN would reduce the well-being of all South Asian countries, but would reduce Bangladesh`s well-being (by 0.1%). 9 Extending the ASEAN agreement would reduce the well-being of all South Asian countries, but reduce Bangladesh`s well-being (by 0.1%).9 Extending the ASEAN agreement would reduce the well-being of all South Asian countries. NAFTA or the EU would be increased (with the exception of the rest of South Asia, which loses if extended to the EU). Srinivasan (1994) also predicts the effects of SAFTA. The dependent variable is all bilateral trade flows (exports and imports).

Due to data restrictions, analysis is limited to Bangladesh, India, Nepal, Pakistan and Sri Lanka. It concludes that Bangladesh and Nepal would benefit most from the total abolition of tariffs among South Asian members. India, Pakistan and Sri Lanka would have only marginal advantages, but would be more beneficial if there were a liberalisation agreement with the European Economic Community. This paper uses an approach to the gravitational equation and relies on Srinivasan (1994). In particular, it allows the response to trade barriers to vary depending on the origin of the goods; deals independently, regardless of the pairs of countries involved; and the seven MEMBERS of SAFTA are involved in the analysis. As Bandara and Yu (2003) and Gilbert have shown, Scollay and Bora (2001), well-being and trade volume do not necessarily follow a monotonous relationship and the results of the gravitational equation can be misleading as a description of desire or well-being.15 Nevertheless, by providing three different criteria: trade flows, trade balance and customs revenues, the document can provide information on the relative benefits of alternative agreements. RTAs provide benefits and constraints. By reducing the number of participants in the negotiations, they can help extend the debate to other dimensions of economic integration. In relation to unilateral liberalisation, political support for ATRs also seems to be more important given the perception of reciprocity of other Member States. However, since the beginning of Viner`s work (1950), these benefits have been weighted by biases that can cause RTAs. Because of de facto discrimination against non-members, ATRs distort resource allocation and favour regional producers to the potential detriment of local consumers. Recent research also highlights the global impact of several overlapping RTAs on the transaction costs they impose (Feridhanusetyawan, 2005).

As an example of such a restriction, literally, implies the level of seriousness