RTAs provide benefits and constraints. By reducing the number of participants in the negotiations, they can help extend the debate to other dimensions of economic integration. In relation to unilateral liberalisation, political support for ATRs also seems to be more important given the perception of reciprocity of other Member States. However, since the beginning of Viner`s work (1950), these benefits have been weighted by biases that can cause RTAs. Because of de facto discrimination against non-members, ATRs distort resource allocation and favour regional producers to the potential detriment of local consumers. Recent research also highlights the global impact of several overlapping RTAs on the transaction costs they impose (Feridhanusetyawan, 2005). A free trade agreement removes all barriers to trade among members, which means that they can freely move goods and services between them. When it comes to dealing with non-members, each member`s trade policies continue to come into force. Regional trade agreements depend on the level of commitment and agreement between member states. Two characteristics of the trade configuration of South Asian countries lead to the conclusion that it would be advantageous to establish ATRs outside the region. First, South Asian countries, with the exception of Bhutan and Nepal, are more in need of non-regional partners in their trade relations. Second, South Asian countries have on average a more restrictive trade policy vis-à-vis non-regional partners (Chart 2).
Three of the seven countries have lower tariffs on SAFTA members than any other bloc. The results of the simulation are available for three indicators (trade flows, trade balance and customs revenues) for South Asia as an aggregate and for the various countries of South Asia. The relative appeal of each hypothetical RTA varies from country to country. The RTA negotiations generally involve the communication of divergent interests between Member States and the simulations show that the decision on new trading partners is no exception (Table 2). For some of these countries (notably Bhutan and Nepal), regional trade is their main trading channel and SAFTA represents the largest increase in trade flows they could expect from an IPA menu. Due to the unusual importance of asean countries, the Maldives is an interesting case for their trade flows and would experience the largest increase in trade flows from an expansion to this bloc. If a country`s objective was to minimize trade imbalances, SA-NAFTA would be supported by Bangladesh, Sri Lanka and the Maldives; SAFTA would be preferred by India and Pakistan.