NEW DELHI, Dec 2: Seven South Asian countries have finalized an agreement to set up a free trade area, the Indian government said on Friday, a move predicted to more than double the size of the regional market.

The landmark deal to create a South Asian Free Trade Area (Safta) was signed in Islamabad in January 2004 during a summit of regional leaders with January 1, 2006 set as a deadline for implementation.

However the deal by the South Asian Association for Regional Cooperation (SAARC), was expected to become fully operational only by 2016.

“The South Asian Free Trade Area (Safta) Agreement has been finalized,” said India’s Commerce Minister Kamal Nath.

The statement was issued after “receiving intimation from Kathmandu about the deliberations of the Committee of Experts on Safta which met there from November 29-December 1, 2005 to resolve the outstanding issues ... so as to complete the negotiations,” Nath said.

SAARC groups Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka.

“Implementation of Safta will further strengthen our trade relations with the SAARC countries,” Nath said.

The agreement when signed in Islamabad was seen as the best hope to better the standards of living for millions of poor in a region with a population of 1.5 billion. But implementation was delayed when some SAARC members expressed reservations over a list of sensitive products, rules of origin and a compensation mechanism for the least developed countries.

The statement said agreement had been struck on the outstanding issues.

“A phased tariff liberalization programme from the date of Safta’s coming into force is envisaged,” it said.

Under the terms of the agreement, the more developed countries among the seven member states would bring down their tariffs for non-SAARC trade from the existing 30 per cent to zero in five years while the less developed countries would do so in eight years.

The developed countries would also reduce their tariffs for non-developed countries within SAARC in three years, the statement said. At their last summit in Dhaka on November 12-13, South Asian leaders had directed officials to ensure Safta came into force on January 1, 2006.

Indian Prime Minister Manmohan Singh said implementation of Safta would raise the current level of intra-regional trade from $6 billion to 14 billion annually.—AFP