A bilateral trade agreement between India and Pakistan may serve as a building block towards regional economic cooperation efforts under Saarc. Initiating trade co-operation measures has the potential to effect efficiency-seeking industrial restructuring processes, both bilaterally and regionally. The impact of such pursuits on creating more peaceful avenues of employment and livelihood can, in turn, play a determining role in attracting extra-regional foreign direct investment in the desired sectors.
Despite sufficient analytical rationale, trade between India and Pakistan remained at an abysmally low level of around $345 million in 2004. Moreover, in spite of trade restrictions on Indias exports to Pakistan, the trade surplus has been in Indias favour. This raises the question if this is due to limited export supply capability in Pakist-an or on account of infrastructural bottlenecks, such as the absence of trade facilitation mechanisms or both.
All said, a lot needs to be done to convert the economics of neighbourhood into the economics of peace, and a bilateral free trade agreement could be a step in the right direction.
The writer is Fellow, Research and Information System for Developing Countries (RIS). These are his personal views