Trade concessions for smaller nations by host India and addition of five new observer countries might mean a much-needed shot in the arm for the South Asian Association for Regional Cooperation (Saarc).

This is the first summit for Bangladesh's caretaker government under Fakhruddin Ahmed, and also for the five new observers--United States, European Union, China, Japan and South Korea.

Chinese foreign minister Li Zhaoxing, Japanese Foreign Minister Taro Aso and South Korean Song Min-soon will make brief presentations during the summit to be attended also by US Assistant Secretary of State Richard Boucher.

Meanwhile, the pre-summit meetings have all but confirmed Iran's status to be announced during the summit in the Indian capital.

The South Asian Development Fund and the Regional Multimodal Transport Study (RMTS), which outlines a Dhaka-Kabul corridor, will not be finalised during this summit and matters would be deferred to later meetings.

Sri Lanka and India came out strongly against terrorism at the meetings in the lead-up to the summit. Both the countries said they would stress the importance of combating the menace multilaterally.

"We, in principle, have agreed to implement the existing commitments (to terrorism) and go beyond them," Indian Foreign Secretary Shivshankar Menon said, adding that both the foreign secretaries and ministers have recommended that the summit make a strong statement against terrorism.

"It is indeed a very important matter. We hope the summit will reflect its importance," said Menon, addressing the daily press briefing at the summit media centre in New Delhi.

Sri Lanka has proposed that the regional grouping should take steps to prevent the linkages between trade in narcotics and terrorism especially the terror financing through narcotics.

Sri Lankan Foreign Minister Rohitha Bogollagama on Sunday told reporters, "Counter-terrorism will be at the forefront of Sri Lanka's agenda in the summit. We have the cooperation of all other member states in this regard."

Foreign Affairs Adviser Iftekhar Ahmed Chowdhury said, "We are behind Sri Lanka in regard to terrorism, as we are committed to eradicating terrorism from South Asia together."

In October 2007, Sri Lanka will host a legal experts' meeting on "Mutual legal Assistance on Criminal Matters" that would seek to flesh out ways to cooperate on crimes with multiple sources and that require multilateral or bilateral cooperation.

Sources say, however, possibilities of an extradition treaty to be included in a possible convention on the matter irked Pakistan, which deferred matters to the next meeting.

"We did not have identical processes regarding this matter. We (India) have offered a draft and once the draft is done and the meeting takes place, we can look into the matter further," the Indian foreign secretary said.

South Asian Free Trade Area (Safta), meanwhile, has taken a backseat, as Pakistan's reluctance to implement the agreement over a dispute with India continues.

Pakistan Foreign Minister Khurshid M Kasuri and his Indian counterpart Pranab Mukherjee, however, said that they will soon resolve the dispute on account of the recent India-Pakistan 'goodwill.'

Even when intra-Saarc trade constitutes only 5.6 percent of trade by the seven Saarc states the countries have yet to resolve the issue and give a timeline for full implementation.

However, Indian Prime Minister Manmohan Singh is likely to announce tariff cut measures on a number of items to be exported by smaller Saarc countries to India, sources said.

Singh is also likely to propose a zero-tariff regime on India's positive list of goods from least-developed Saarc countries under South Asian Free Trade Agreement (Safta).

The Indian Premier is expected to make an announcement to allow import of eight million pieces of textile from Bangladesh and Sri Lanka, with a partly restricted import regime.

Both foreign minister- and secretary-level pre-summit meetings have discussed taking the agreement to the 'next level' to include trade in services into the free-trade agreement.

Shivshankar Menon said the Council of Ministers yesterday took significant steps to operationalise Saarc Development Fund (SDF) and on a possible 'soft wing' to look into poverty alleviation projects, and a commercial wing to develop infrastructure.

"The ministers have come to a clear conclusion that the SDF would be exclusive domain of the member states and would mobilize already existing funds," said Menon, adding, "The issue would be further discussed in the next council of ministers to be held in November this year."

Two other matters that have been prominent and finalised in principle are the South Asian University (SAU) and the Saarc Food Bank.

The SAU is likely to be based in Delhi, but Bangladesh has proposed that each country should have a campus as centres of excellence.

Meanwhile, the Food Bank is being set up to provide emergency food requirements in times of natural or other disasters. Each country would have their separate banks, which would have to be replenished under their own responsibility.

Bangladesh Chief Adviser Fakhruddin Ahmed, Indian Prime Minister Manmohan Singh, Pakistan Prime Minister Shaukat Aziz, Sri Lanka President Mahinda Rajapaksa, Maldives President Maumoon Abdul Gayoom, Afghan President Hamid Karzai, Bhutan Prime Minister Khandu Wangchuk and Nepal Prime Minister Girija Prasad Koirala will attend the summit.