The South Asian Free Trade Area (SAFTA) is a 2004 agreement that created a free-trade area of 1.6 billion people in Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka with the vision of increasing economic cooperation and integration.

SAFTA required the developing countries in South Asia (India, Pakistan and Sri Lanka) to bring their duties down to 20 percent in the first phase of the two-year period ending in 2007.

[3] The agreement was signed in 2004 and came into effect on 1 January 2006, with the desire of the member states of the SAARC (Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka) to promote and sustain mutual trade and economic cooperation within the SAARC region through the exchange of concessions.

Contracts involving trade operated by states, supply and import assurance in respect of specific products etc.

The main objective of the agreement is to promote competition in the area and to provide equitable benefits to the countries involved.

Manmohan Singh, then Indian Prime Minister, announced in September in Dhaka that he will reduce the Sensitive List by 46.

The Solvent Extractors’ Association of India (SEA), the apex body of the vegetable oil trade, has called upon the government to look for ways to end indirect sourcing of palm oil and soyoil from Nepal under cover of the South Asian Free Trade Agreement (SAFTA).

This indirect route helps Malaysia reroute palm oil through Nepal to offset Indian government's move to stop imports of Malaysian palm oil after Prime Minister Mahathir Mohamad's stand against the abrogation of special status to Kashmir.