Managing India Pakistan Trade Relations

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MANAGING INDIA-PAKISTAN TRADE RELATIONS

Economic historians and analysts have been faced with a conundrum for quite some time. They found it hard to comprehend that South Asia, which was a single large market until a few decades ago with goods, services, capital investment and skilled labor flowing freely and the newly independent countries inheriting a common historical, legal, cultural and administrative background and a very well linked infrastructure was the least integrated region in the world while East Asia with countries having such diverse background and very little in common historically had become the most integrated region second after the European Union. Moreover, there was almost a consensus among academic economists in both the countries that the normalization of trade relations would bring substantial economic benefits evenly. Among many reasons responsible for this puzzle the political tension and rivalry between the two major countries of the region-- India and Pakistan—stands out as the main explanatory variable.
In last one year there has been some healthy developments in relaxing this constraint and resuming better trading relations . Academic consensus has now spilled over to the business community and a majority of the businessmen on two sides of the border appear convinced that liberalization of bilateral trade would be in their mutual interest. Finally, the policy makers, for a variety of internal and exogenous circumstances, seem to have overcome their reservations and a momentum has been built up in the last several months to move the process forward.
The breakthrough came in form of Pakistan’s decision to grant Most Favorite Nation (MFN) status to India and moving away from a highly restrictive positive list of items that could be imported from India to a negative list. The negative list will also be phased out by December 2012 and there will be no restriction on tradable items. Out of 8000 items only 15 percent or 1209

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