Preferential trading is one of the mildest forms of an
integrative arrangement. Under the arrangement, the Contracting States
(CS) offer a preferential margin with respect to trade barriers in
relation to their MFN rates. CS having disparate levels of development
as well as trade regimes, find this an acceptable instrument for
initiating regional trade liberalisation. Such an arrangement
nevertheless provides the building blocks towards accelerated regional
trade liberalisation culminating in a free trade area within a defined
time frame. Under a free trade area the CS eliminate all trade
restrictions on their mutual trade, while maintaining restrictions in
their trade with non-CS at a level they deem appropriate. When all CS
decide on a common external tariff, then the arrangement translates
itself in a more cohesive customs union. The arrangement translates to a
common market when all CS agree not only to allow free movement of goods
and services, but all the factors of production including capital and
labour. Finally, the most comprehensive form of an integrative
arrangement results from an economic union, which integrates national
economic policies of CS and leads to the adoption of a common currency.
The Agreement on South Asian Preferential Trading Arrangement (SAPTA),
which became operational since December 7th, 1995 thus, symbolises the
beginnings of the very first stage of an integrative arrangement among
the member countries of SAARC. The decision made at the Twelfth SAARC
Summit at Islamabad in January 2004 to launch South Asian Free Trade
Agreement (SAFTA) from January 2006 would mark the second stage of the
process of integration in the region. The main focus of this paper is to
assess the impact of SAPTA on Indo-Pak trade.