Bloomberg News

India Embraces Pakistan Trade Plan as Rivals Boost Economy Ties

March 01, 2012

India embraced Pakistan’s plan to dismantle trade barriers for exports to its neighbor, auguring closer economic ties between the South Asian nations that have fought three wars since attaining independence six decades ago.

“Flourishing trade is the biggest confidence building measure among any two nations” and improved economic engagement will help build peace and stability, India’s Trade Minister Anand Sharma said in a statement yesterday. Sharma visited Pakistan last month.

Pakistan’s cabinet approved a proposal to remove restrictions on prohibited imports from India by December, according to a statement from Pakistan Prime Minister Yousuf Raza Gilani’s media office yesterday.

The nuclear-armed rivals agreed last year to broaden the number of goods that can be traded between the countries and to grant more business visas as they move to normalize economic ties that have been hampered by distrust and hostility since they gained independence from British colonial rule in 1947. They vowed to dismantle tariffs on about 8,000 items by the end of this year, with all restrictions being lifted by 2013.

“The next big step we need to see is how quickly both countries bridge the trust deficit and do away with the non- tariff barriers,” said Sakib Sherani, chief executive officer at Macroeconomic Insights Pvt. in Islamabad and a former economic adviser to Pakistan’s Finance Ministry. “In the interim, India will benefit more than Pakistan because of its industrial strength.”

Most-Favored Nation

Pakistan confirmed India’s so-called most-favored nation status yesterday, giving its neighbor equal standing in international trade by removing non-tariff barriers, lowering customs duties and raising import quotas. India gave Pakistan that status in 1996.

After Pakistan’s cabinet decision yesterday, the country will do away with a list of 1,209 items by December that traders weren’t allowed to import from India, Gilani’s office said in the statement.

“The process of trade normalization between the two countries will be completed after this step,” it said.

Trade between the two countries was $2.7 billion in the year ended March 31, according to India’s commerce ministry.

India and Pakistan agreed to resume peace talks in February 2011, after a break in the process as a result of the terrorist attack on Mumbai in 2008 by 10 Pakistani militants. India said it’s continuing to press Pakistan to dismantle guerrilla groups based on its soil and targeting India.

India and Pakistan have fought three wars, two of them over their conflicting claims to the territory of Kashmir. The two countries agreed in July to expand trade and travel between the parts of Kashmir they control.

To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net. Haris Anwar in Islamabad at hanwar2@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net Peter Hirschberg at phirschberg@bloomberg.net


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