The AFTA agreement aims at promoting free trade in the region by bringing down the tax barriers and making the trade related policy framework to be more encouraging. The agreement can be understood as a kind of regional liberalization of trade policies that are favorable for boosting regional trade.
Further the article focuses to find out whether if formation of this agreement has created trade creation or trade diversion. Trade creation can be considered as a development whereas trade diversion from the non member nations to the member nations can not be considered as a positive development.
An important instrument for applying the trade agreement in the total region is the Common Effective Preferential Tariff scheme that requires the tariff of certain commodity to fall below zero to five percent. These commodities include capital and non capital as well as manufactured goods. This process of liberalization and eliminating the identified commodities from taxable commodities has been phased out in for phases. This has been done in order to prevent any instantaneous impact over the respective national economies of the member countries. A gradual tariff reduction would assure that the change shall be absorbed over a period of years and thus promote trade.
After fifteen years of the agreement, it can be observed that the countries have largely succeeded in achieving the goals. ...