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Last Updated: Thursday, 29 December 2005, 13:47 GMT
India clears regional free trade
Leaders of SAARC nations at the inaugural session in Dhaka in November
The seven nations decided to start cutting tariffs in November
India has cleared a trade pact that will promote free trade, reduce tariffs and strengthen economic ties between South Asian countries.

The South Asian Free Trade Association (Safta) is due to come into effect from 1 January 2006.

Indian Finance Minister P Chidambaram made the announcement in the national capital Delhi.

Seven South Asian countries had agreed to start lowering tariffs in an annual meet in Dhaka in November.

Under the agreement, customs duties on various items will be progressively reduced over a 10-year period.

Lower tariffs

The idea of a free trade zone was first proposed in 1995 and the Safta pact was signed in January last year during the 12th summit of the South Asian Association for Regional Cooperation (Saarc) by Bangladesh, Bhutan, Nepal, India, Pakistan, Maldives and Sri Lanka.

A board at the 13th SAARC summit venue in Dhaka
SAARC members decided on the trade pact in January last year

"Implementation of Safta will further strengthen our trade relations with member-countries," said India's Commerce Minister, Kamal Nath.

He said that India would initially lower customs tariffs by 5% for items imported from other Saarc members.

Some member countries are yet to ratify the pact, but Indian officials said they would go ahead with its implementation from 1 January and hoped that their neighbours would do the same.

According to Safta, the developing members - Pakistan, India and Sri Lanka - will slash their customs duties to between zero and 5% within seven years after the pact comes into effect.

The least developed countries - Bangladesh, Bhutan, Nepal and Maldives - will do the same in 10 years.

However, to protect the domestic interests of member countries, the pact also provides for a list of 'sensitive' products on which trade will be restricted and tariffs will not be cut.

The pact requires all members to ratify the pact before it can be implemented.

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