ISLAMABAD, Jan 6: The seven Saarc-member countries on Tuesday signed the landmark agreement on South Asian Free Trade Area (SAFTA) with a pledge to scale down their tariffs in two phases to 0-5 per cent that will come into force on January 1, 2006 , and will be fully implemented by December 31, 2015.

The agreement, signed at the start of the concluding session of the three-day Saarc summit here, seeks to allow free cross-border movement of goods within the region. The accord will be implemented through the following instruments:

Trade liberalization programme; rules of origin; institutional arrangements, consultations and dispute settlement procedures, safeguard measures and any other instrument that may be agreed.

Under the trade liberalization programme, the member countries agreed that Non-Least Developed States - India, Pakistan and Sri Lanka - will reduce their tariffs from their existing levels to 20 per cent within a timeframe of two years from the date the agreement comes into force.

The states are "encouraged to adopt reductions in equal annual instalments." The accord stipulates that if actual tariff rates, once the agreement takes effect, are below 20 per cent, there shall be an annual reduction on a margin-of-preference basis of 10 per cent on actual tariff for each of the two years.

It was agreed that the Least Developed Countries (LDCs) - Bangladesh, Nepal, the Maldives and Bhutan - will reduce their existing tariff rates to 30 per cent within two years of the coming into force of the agreement.

If actual tariff rates on the date the agreement takes effect are below 30 per cent, there will be an annual reduction on a margin-of-preference basis of 5 per cent on actual tariff rates for each of the two years.

The subsequent tariff reduction by Non-LDCs from 20 per cent or below 0-5 per cent shall be done within a second timeframe of five years, beginning from the third year from the date the agreement takes effect. However, the period of subsequent tariff reduction by Sri Lanka shall be six years.

The states "are encouraged" to adopt reductions in equal annual instalments, "but not less than 15 per cent annually." The subsequent tariff reduction by the LDCs from 30 per cent or below 0-5 per cent shall be done within a second timeframe of eight years beginning from the third year from the date of coming into force of the agreement. The LDCs are encouraged to adopt reductions in equal annual instalments, not less than 10 per cent annually.

The schedules of tariff reductions will not prevent states from immediately reducing their tariffs to 0-5 per cent or from following an accelerated schedule of tariff reduction.

The number of products in the "Sensitive Lists" shall be subject to a maximum ceiling, to be mutually agreed among the states. The list shall be reviewed after every four years or earlier "as may be decided by SAFTA Ministerial Council".

The states shall notify the Saarc secretariat all non-tariff and para-tariff measures to their trade on an annual basis. The notified measures shall be reviewed by the "Committee of Experts" for making it compliant with the relevant WTO provisions.

The committee shall recommend the elimination or implementation of the measure in the least trade restrictive manner in order to facilitate intra-Saarc trade.

It was also agreed that the contracting parties shall eliminate all quantitative restrictions, except otherwise permitted under GATT 1994, in respect of products included in the trade liberalization programme.