The study was undertaken at the request of the South Asian Centre for Policy Studies (SACEPS), Bangladesh, to assist its Task Force on SAFTA to outline the modalities of transition to a free trade area in the South Asian region. Although South Asia was fairly late in embracing the concept of regional cooperation in trade, it was quick to set itself an ambitious agenda. The proposal to set up a South Asian Preferential Trade Agreement (SAPTA) was accepted by all seven member states of the South Asia Association for Regional Cooperation (SAARC) in 1993 and, with the ratification of the first round of tariff concessions, SAPTA came into formal operation in December 1995. In 1996, SAARC member countries agreed in principle to go a step further and attempt to enact a South Asian Free Trade Agreement (SAFTA) by 2000, but not later than 2005. In subsequent developments, the date for establishing SAFTA was inexplicably brought forward to 2001 at the “10th Heads of State Summit” held in Colombo in July 1998. However, reflecting the concerns of some of the smaller economies in the region, the Group of Eminent Persons (GEP) Report recommended a more gradual phase-in of SAFTA with a target date of 2008. The study looks in detail at the following issues: an assessment of the perceived costs and benefits underpinning regional trade cooperation; the achievements of SAPTA to date and its impact on individual South Asian economies, where evidence is available; the constraints and challenges that South Asia is likely to face as it moves towards a more intense level of economic cooperation in the form of a free trade area; an analysis of some of the issues that need to be considered in moving towards a free trade area in the region by drawing upon the experience of other regional blocs, particularly the experience of ASEAN with the ASEAN Free Trade Area (AFTA).