ASSIGNMENT OF PAKISTAN ECONOMY TOPIC: INDO-PAK TRADE

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BAHAUDDIN ZAKARIYA UNIVERSITY SUB CAMPUS SAHIWAL

Group members: Ayesha mubeen Zaeema khan Aqsa aftab Khushbakhat Sani-e-zahra Umm-e-kulsoom Mariyam javed Rashda rehman Benesh Abdullah Nida saeed Faiqa altaf

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Abstract: Quantitative studies estimate that potential two way trade between India and Pak istan can be about 10 times than its rather unsatisfactory current level of $ 61 3 million. Moving towards realizing this trade potential is clearly in the inter est of both countries and the region. The study finds that transportation links between the two countries are inadequate and suggests that new rail and road lin ks should be opened. Transaction costs of trading between India and Pakistan are high and can be lowered by implementing some rather simple policy measures that are spelled out in the paper. The study also examines recent developments in BI MSTEC, ASEAN and in Indo-Sri Lanka and Indo-Nepal trade agreements, and draws le ssons to enhance Indo-Pakistan. Introduction of india-pakistan trade

Historical Trends: Historically, since 1947, trade between India and Pakistan never stopped complet ely with the exception of seven years (1965-72), though the overall volume of bi lateral trade has been very low as share of their total trade. Despite continued animosity and strained political relations, there were some bilateral efforts o n and off to promote mutual trade relations. Immediately after independence in 1 947, India turned out to be the most important trading partner of Pakistan until the 1965 war, accounting for 60% of Pakistan's exports and 17% of its imports.T hereafter, the trade remained halted until 1974 when the two countries signed a protocol on the resumption of trade, following the normalisation of relations un der the Simla Agreement in 1972. Paragraph 3 of the Protocol sets the basis of b ilateral trade on the Most Favoured Nation (MFN) principle in accordance with th e provisions and the decisions of the GATT.2 However, the initial trade was deci ded to be carried out through government corporations in certain specified commo dities. The bilateral trade Agreement of 1975 further emphasised the need to 'facilitate , strengthen and diversify trade between the two countries' while binding them t o grant MFN treatment on a reciprocal basis as per GATT provisions (Article 4).3 The agreement which expired in 1978, allowed mainly for trade at the government level. The role of the private sector in the bilateral trade remained very limi ted and short-lived. Although, between1979-1986, the series of bilateral talks c ould not lead to any consensus, the following years saw major developments in Pa kistan's trade policy towards India. Pakistan increased the number of items to b e imported by the private sector from India from 42 in 1986 to 767 in 2004. On t he other hand, India granted MFN status to Pakistan in 1995 as per the WTO provi sions; therefore, India has no specific list of importables from Pakistan. the low volume of bilateral trade could not register a substantial increase even under the multilateral arrangements, namely, South Asia Preferential Trade Agre ement (SAPTA). Since 1990, on average Pakistan and India's exports to each other were 0.9% and 0.3% of their total exports, respectively. However, these figures are only for the formal trade and a large part of informal trade consisting of unofficial trade remains unaccounted for. This unofficial trade is conducted thr ough third country as well through smuggling. So far, the actual volume of infor mal trade is unknown, although there are different estimates in this regard. It is generally estimated at around $1.5 to $2.0 billion.4 However, there is no sci entific basis for this estimate and it is questionable; given the total global i mports of Pakistan amounting to $15.5 billion (2003-04), this estimate depicts t hat a very large share of Pakistan's total trade is driven from India which does not seem to confirm the facts on ground. At the multilateral level, the latest development is the South Asian Free Trade Area (SAFTA), signed in January 2004, which will be effective from January 2006. Earlier, South Asia Preferential Trade Arrangement (SAPTA) was materialised in 1995. Given the lack of any significant trade developments under SAPTA, there are not very high expectations from SAFTA.5 political issues: Relations between India and Pakistan have been strained by a number of historica l and political issues, and are defined by the violent partition of British Indi a in 1947, the Kashmir dispute and the numerous military conflicts fought betwee n the two nations. Consequently, even though the two South Asian nations share h istoric, cultural, geographic, and economic links, their relationship has been p lagued by hostility and sAfter the dissolution of the British Raj in 1947, two n ew sovereign nations were formedtheUnion of India and the Dominion of Pakistan. T he subsequent partition of the former British India displaced up to 12.5 million people, with estimates of loss of life varying from several hundred thousand to a million.[1] India emerged as a secular nation with a Hindu majoritypopulation and a large Muslim minority while Pakistan was established as an Islamic republ ic with an overwhelming Muslim majority population.[2][3] Soon after their independence, India and Pakistan established diplomatic relatio ns but the violent partition and numerous territorial disputes would overshadow their relationship. Since their independence, the two countries have fought thre

e major wars, one undeclared war and have been involved in numerous armed skirmi shes and military standoffs. The Kashmir dispute is the main center-point of all of these conflicts with the exception of the Indo-Pakistan War of 1971, which r esulted in the secession of East Pakistan (now Bangladesh). There have been numerous attempts to improve the relationshipnotably, the Shimla summit, the Agra summit and the Lahore summit. Since the early 1980s, relations between the two nations soured particularly after the Siachen conflict, the inte nsification of Kashmir insurgency in 1989, Indian and Pakistani nuclear tests in 1998 and the 1999 Kargil war. Certain confidence-building measures such as the 2003 ceasefire agreement and the DelhiLahore Bus service were successful in deesc alating tensions. However, these efforts have been impeded by periodic terrorist attacks. The 2001 Indian Parliament attack almost brought the two nations on th e brink of a nuclear war. The 2007 Samjhauta Express bombings, which killed 68 c ivilians (most of whom were Pakistani), was also a crucial point in relations. A dditionally, the 2008 Mumbai attacks carried out by Pakistani militant resulted in a severe blow to the ongoing India-Pakistan peace talks. Junagadh dispute: Junagadh was a state on the southwestern end of Gujarat, with the principalities of Manavadar, Mangrol and Babriawad. It was not contiguous to Pakistan and othe r states physically separated it from Pakistan. The state had an overwhelming Hi ndu population which constituted more than 80% of its citizens, while the ruler of the state was a Muslim. Nawab of Junagadh, Mahabat Khan, acceded to Pakistan on 15 August 1947. Pakistan confirmed the acceptance of the accession on 15 Sept ember 1947. India did not accept the accession as legitimate. The Indian point of view was t hat Junagadh was not contiguous to Pakistan and that the Hindu majority of Junag adh wanted it to be a part of India and that the state was had Indian territory on three sides. While the ruler of Junagadh claimed a border with Pakistan by se a.

Kashmir dispute: , Urdu: ) is a territorial dispute betwee The Kashmir conflict (Hindi: Kashmir region, the northwestern most region of South Asia. India claims the entire state of Jammu and Kashmir and as of 2010, administers a pproximately 43% of the region, including most ofJammu, the Kashmir Valley, Lada kh, and the Siachen Glacier. India's claims are contested by Pakistan, which con trols approximately 37% of Kashmir, namely Azad Kashmir and the northern areas o f Gilgit and Baltistan. India has officially stated that it believes that Kashmir is an integral part of India, though the Prime Minister of India, Manmohan Singh, stated after the 201 0 Kashmir Unrest that his government is willing to grant autonomy within the pur view of Indian constitution to Kashmir if there is consensus on this issue.[1] P akistan says that Kashmir is a disputed territory whose final status must be det ermined by the people of Kashmir. China states that Aksai Chin is a part of Chin a and does not recognize the addition of Aksai Chin to the Kashmir region. Certa in Kashmiri independence groups believe that Kashmir should be independent of bo th India and Pakistan. Indo-Pakistani War of 1947: This is also called the First Kashmir War. The war started in October 1947 when it was feared by the Kashmiris that Maharajah of the princely state ofKashmir an d Jammu might accede to India as choice was given to him on the matter to accede to any of the newly independent nations. Tribal forces from Pakistan attacked a nd occupied the princely state, resulting in Maharajah signing the Agreement to the accession of the princely state to India. The United Nations was invited by India to mediate the quarrel resulting in the UN Security Council passing Resolu tion 47 on 21 April 1948. The war ended in December 1948 with the Line of Contro l dividing Kashmir into territories administered by Pakistan (northern and weste rn areas) and India(southern, central and northeastern areas).

War of 1965: Indo-Pakistani War of 1965 started following Pakistan's Operation Gibraltar, whi ch was designed to infiltrate forces into Jammu and Kashmir to precipitate an in surgency against rule by India.[14]The five-week war caused thousands of casualt ies on both sides. Most of the battles were fought by opposing infantry and armo ured units, with substantial backing from air forces, and naval operations. It e nded in a United Nations (UN) mandated ceasefire and the subsequent issuance of the Tashkent Declaration. 1971 bangladesh libertion war: Pakistan, since independence, was geo-politically divided into two major regions , West Pakistan and East Pakistan. East Pakistan was occupied mostly by Bengali people. In December 1971, following a political crisis in East Pakistan, the sit uation soon spiralled out of control in East Pakistan and India intervened in fa vour of the rebelling Bengali populace. The conflict, a brief but bloody war, re sulted in an independence of East Pakistan. In the war, the Pakistani army swift ly fell to India, forcing the independence of East Pakistan, which separated and became Bangladesh. The Pakistani military, being a thousand miles from its base and defeated by superior forces, surrendered. Kargil war: During the winter months of 1998-99, the Indian army vacated its posts at very h igh peaks in Kargil sector in Kashmir as it used to do every year. Pakistani Arm y intruded across the line of control and occupied the posts. Indian army discov ered this in May 1999 when the snow thawed. This resulted in intense fighting be tween Indian and Pakistani forces, known as the Kargil conflict. Backed by the I ndian Air Force, the Indian Army regained some of the posts that Pakistan has oc cupied. Pakistan later withdrew from the remaining portion under international p ressure. Improving India-Pakistan relations through trade: As Indian and Pakistani governments have often repeated the desire for peaceful relations, reaching a comprehensive agreement that settles outstanding disputes, such as Kashmir and the Indus waters agreement, still does not seem to be in th e cards as yet. However, developing stronger economic relations between the two countries could be a base on which to build overall ties and trust. More specifi cally, despite the political issues that divide them, steps could be taken towar d better economic relations through expanding trade between the two countries. The potential gains from increased economic integration between Indi a and Pakistan are large. Even the both countries are members of the South Asia Free Trade Area (SAFTA) established in January 2006, trade between the two count ries is unnaturally small and the scope for gains from increased trade correspon dingly large. Total trade between India and Pakistan in 2008 amounted to a litt le more than US$2 billion, up from a paltry US$500 million in 2000. But still Pa kistan accounts for less than 0.5 per cent of Indias trade, and India accounts fo r a little over 1 per cent of Pakistans trade compared with the very large trade shares following the independence of the two countries in 1947. In 1948-49, 70 p er cent of Pakistans trading transactions were with India, while 63 percent of In dian exports went to Pakistan. Informal trade, via third countries (such as Duba i), is estimated at some US$2-3 billion per year, and this trade could obviously be undertaken bilaterally at significantly lower cost. There have been a number of studies using gravity models to assess t he effects of SAFTA on interregional trade. Based on these studies, India-Pakist an trade could increase up to 50 times its current level. A more recent study, u sing the Peterson Institute for International Economics gravity model, shows th e potential of formal trade between India and Pakistan is roughly 20 times great er than recorded trade. This means that at 2008 trade levels total trade betwee n India and Pakistan could expand from its current level of US$2.1 billion to as

much US$42 billion if the normal relations estimated by the PIIE gravity model fo r trading partners were to hold for the two countries. What then is holding trade back between the two countries? Pakistan has not yet given most favoured nation (MFN) status for India and maintains a fairly narrow positive list of about 1400 items on goods t hat India may export to Pakistan. At the same time, Indias tariff rates remain hi gh, especially for goods of particular interest to Pakistan, such as textiles, l eather and nontariff barriers are substantial. Poor transportation linkages make trade costly, with railway and road connections inadequate and sea shipments co nstrained by both limited port facilities and bureaucratic regulations and restr ictions. Moreover, constraints on visas and cumbersome payments and customs proc edures further limit the scope for trade. Finally, although there are no specifi c restrictions, there is virtually no trade in services or foreign direct invest ment (FDI) flows between the two countries. The specific short-term measures, mainly related to trade faci litation, could include: easing restrictions on visas; eliminating the requireme nt that ships between India and Pakistan touch a third country port before bring ing in imports; removing the requirement that rail wagons carrying goods across the border return empty; opening additional road border crossings and bus routes ; increasing air links between the two countries particularly establishing fligh ts between Islamabad and New Delhi increasing the number of customs posts; and a llowing branches of Indian and Pakistani banks to operate in the other. The specific medium-term measures towards greater economic inte gration between India and Pakistan could include: Pakistan granting MFN status t o India, and in turn India significantly lowering tariff rates for goods of pa rticular interest to Pakistan such as textiles and agricultural products; Pakist an allowing transit trade from India, which is required by WTO rules; facilitati ng energy trade between the two countries through building gas pipelines and eve ntually joint energy grids; allowing trade in information technology and elimina ting obstacles to foreign direct investments by the other country. Trade will of course not solve all the problems between the two countries, but it could be an important catalyst in the lowering of tensions, which certainly has to be in th e interest of both India and Pakistan. Statistical analysis: Pakistans balance of trade with india: In US million $ year imports exports balance 1996-97 204.70 36.23 -168.47 1997-98 154.53 90.57 -63.98 1998-99 145.85 173.66 28.81 1999-00 127.38 53.84 -73.74 2000-01 283.33 55.41 -182.92 Security Implications of Indo-Pak Trade: Pakistan's security establishment supports the civilian government's efforts to normalize trade relations with India as it believes the move will boost the coun try's economy and help create grounds for resolving political disputes between t he two nations, security officials said. B. Raman, former Additional Secretary i n cabinet secretariat of the Government of India and former head of the counterterrorism division of India's external intelligence agency Research and Analysis Wing (RAW) has raised the question of 'Security implications of economic relati ons with Pakistan'. He categorized the implications as low, medium and high. Under the head of low i mplications, he mentioned "increased flow of Pakistan intelligence personnel and jihadi leaders to India under the cover of businessmen for establishing contact s with leaders of organizations like Indian mujahideen". He placed 'trade in ser vices and foreign direct investment' under medium security implications, and obs erved this could enable the Pakistani intelligence to acquire a key presence in s ensitive sectors of our economy such as banking, telecommunications, information

technology etc. He categorized the Foreign Institutional Investments (FIIs) in Indian stock mark ets under high security implications and stated: "Allowing either China or Pakis tan to invest in our stocks will give them a capability to disrupt our economy t hrough manipulation of their stock holdings", suggesting that it should not be a llowed. There is a widespread perception that India stands to gain more from tra de with Pakistan because of former's sound industrial base. In fact, India's rea l objective is to reach out to the Central Asian republics, as Pakistan is the m ost convenient and inexpensive route. It would be appropriate to give comparative figures of India and Pakistan's econ omy to enable the readers to see that Pakistan will be rather vulnerable. India has three large stock exchanges and at least 19 regional stock exchanges, wherea s Pakistan has only three stock exchanges - Karachi, Lahore and Islamabad. Forei gn Institutional Investors invested $30 billion in 2010 in India as compared wit h $588 million foreign direct investment in Pakistan. With over 20 million share holders, India has the third largest investor base in the world after the US and Japan. The Indian capital market is significant in terms of the degree of devel opment, volume of trading and its tremendous growth potential. It has to be mentioned that despite the solid industrial base and 8 per cent eco nomic growth, India is land of appalling poverty. The intention here is not to p rove that India is invincible, but to expose the mindset of the Indian military and intelligence agencies for having created roadblocks in the normalization of relations between India and Pakistan. The moot question is whether Pakistan will benefit from bestowing on India statu s of the most favoured nation, and by boosting trade with India? Pakistan could only save freight because in case of materials or goods imported from Europe or America, about 10 per cent freight charges are payable. On the other hand, cost of production of Pakistani products is higher because of high electricity charge s, and also because of lost production hours due to excessive load shedding. Thi s is one of the reasons that Pakistan cannot compete in the world market. Pakist ani officials who are talking of 'trade not aid' perhaps do not understand that no country in the world, be it from Islamic fraternity, will import from Pakista n unless Pakistani products are competitive. Reasons why Pakistan cant afford trade with India: Unfortunate is the fact that in the world today, when economies are focusing on optimizing their resources and opportunities, India and Pakistan have held on to the historical bitterness of partition. Trade with India is not a new phenomeno n and successive governments from both sides have made hectic efforts in the pas t. Pak-India trade relations are the key to all problems and both countries are bound to remove trade barriers under trade agreements like GATT, WTO, and SAPATA . ETC. There is another group who visualize that Pakistan should not engaged in trade t ies with India even if Kashmir issue a bone of contention between the two countr ies is resort. There are few reasons that Pakistan cannot afford trade with Indi a: Domestic country has not so much potential which can compete the mega economy of its old rival. It is the fact that Indian Economy stand on its strong feet and we should look every aspect before engaging in trade ties with our old rivals. I t has a balanced and strong manufacturing sector which enjoys cheap labor, low p ower terrif, easy availability of raw material and different subsidies from the government. The Indian business takes advantage of consistent economic policies of the government and has an opportunity of duty free imports under certain cond itions. No pressure of international lending agencies like IMF, WB etc. In the case of P akistan where economic decisions were taken on the advice of these institutions. As a signatory of international trade agreement like WTO, SAPATA, etc. Pakistan is legally bound to give most favored nation (MFN) status to India by removing a ll trade restrictions. It has also committed itself to reduce import duty by 10%

on items from SARC countries under SAPATA. Another reason being presented to initiate trade links with India is that it wou ld discourage between the 2 countries which at present is touching and alarming figure of 1.2 billion dollar. But the economic export do not believe this logic, term and figures bare less and falls because 70% of the smuggling occur throug h legal channels and with the corporation of corrupt officials of custom. The sh are of illegal trade is very small and the figure being presented in this regard totally wrong he opined. Trade with India would demoralize the Kashmir freedom fighters in held Kashmir w ho are struggling for freedom since last year. By initiating trade with India we would send wrong signals to them it would ultimately demerge our national inter est. If Pakistan would involve in trade with India then how it would ask other countr ies to put pressure on India by removing their trade links with it. Pakistan is the only country in the SAARC nations who is resisting against India on economic front. By taking advantages on its strong industrial base India has already captured the economies of Bangladesh, Nepal, and Bhutan etc. They impo rt the high percentage of their total import from India. In the SAARC region the se countries especially Bangladesh and sibilance are looking towards Pakistan to help them by enhancing its trade share with these countries and pull them out o f the Indian octopus. Which have crippled their economies? So by initiating trad e relation with India we would not only accept Indian supremacy on economic fron t but will also disappoint these countries. We should not trust of India aimed consider its past attitudes on different issu es its a common practice that it always refuse to fulfill its promises even did n ot recognize its commitment admitted on international forms. It did not obey Sec urity Council resolution on Kashmir despite the promise to hold plebiscite in oc cupied Kashmir. Negative impacts of indo pak trade: negative list of trade items between India and Pakistan, likely to be effective in February 2012, can increase their bilateral trade to around $6 billion in a f ew years, according to a Pakistani industry chamber.The volume of bilateral trad e between the two countries stood at nearly $1.8 billion last year. "Imports to Pakistan from India was $1,500 million and exports were around $273 million, thereby taking the volume of total trade to $1.8 billion last year. Onc e the short negative list comes into effect next year, it can take the bilateral trade to $6 billion in a few years," Pakistan Chamber of Commerce and Industry chairman Shiekh reporters here Thursday. Nasiruddin was in the city for the launch of " International Mega Trade Fair". India can now export only 1,946 items to Pakistan from the 8,000 tradable goods between the two countries.A negative list also includes items which cannot be tr aded legally. "While the legal trade is close to $1.8 billion, the volume of illegal trade is around $4 billion, Once the negative list came into effect, it would also reduce the illegal border trade between the two countries, he added. Pakistan Commerce Minister Makhdoom Muhammad Amin Fahim had visited India in Sep tember this year, when it was decided that in the first stage, Pakistan would mo ve from the current 'positive list' approach to a 'negative list'. The Pakistan government will ensure the removal of "non-tariff barriers" and provision of fre e access for Pakistani products to Indian markets before phasing out the negativ e list, officials said. Thereafter, all items other than those on the negative l ist will be freely exportable from India to Pakistan. The process of Pakistan granting MFN ( Most Favoured Nation) status to India is likely to be completed by end of next year. Trade is set to take from the sea an d railway route but it will take time for things to move along the surface trans port front. Discussions are on to open up more trade through the land route, inc luding a new one in Rajasthan, Out of 8,000-odd items notified under newly relea sed negative list, only 150-odd items could be traded through trucks across the

border, something that needed to be urgently expanded. Bilateral trade stood at $2.75 billion last year and has potential to touch $10 billion mark in next four years, according to Federation of Indian Chambers of C ommerce and Industry (FICCI). Major items included in the list of items importable through Wagah are livestock , vegetables and newsprint in rolls or sheets. Manufacturers can import raw mate rials, except basic materials that are locally manufactured, and packing materia l needed for pharmaceutical products once they are approved by the Director Gene ral of Health, The import of vaccines will be allowed only from Indian plants th at have been approved by the World Health Organisation. Till now, Pakistan trade d with India under a positive list regime that allowed the import of less than 2 ,000 items. The import Indian products through other countries increased the cos t of items in the local market, Technological industries base alt. these factors threaten pakistans manufacturing sector especially nascent industries which results uncompetitiveness, and high unemployment in pakistan also present latest unemployment rate is 5.6%. Another reason is difference of prices as their economy is more stable than us. The prices of consumer goods and services are higher in pekistan than india. The same product is less priced as compared to pakistan. Foreign direct investment also suffer WHAT ARE THE BENEFITS FOR PAKISTAN ARE ASSOCIATED WITH INDO-PAK TRADE? At the time of the birth of pakistan india was its largest trading partner.and wh en GATT, WTOs predecessor came into being both countries gave MFN status to each other.But after the war of 1965 the trade was resumed and the MFN principle was disregarded by both countries.In 1995 WTO was born and adopted MFN as its consti tutional principle.At that time India restored the Pakistans MFN status.And now m any years Pakistan also gave the status of MFN to India. The question then arises: Will expansion of trade with India bring benefits to P akistan or would we be swamped by our big neighbour? A lot of myths and misperce ptions on this point need to be explored. India-Pakistan trade is a win-win situ ation. India has a middle class of about 300 million people with rising purchasi ng power that matches that of South Eastern Europe while Pakistans middle class i s approximately 30 million. A 10 percent penetration into the Indian middle clas s market would double the market size for Pakistani companies and businesses. All studies on India-Pakistan trade have so far demonstrated that the relaxation of constraints in the way of bilateral trade would benefit both the countries. State Bank of Pakistan study in 2005 estimated that the volume of trade could ri se five times from the actual one billion dollars. An ICRIER study showed a much higher volume - about $10-11 billion (Pakistan 55 percent textiles; India 90 pe rcent non-textiles). Net welfare gains are positive in every single scenario - c onservative to optimistic.Granting MFN treatment to India would bring gains to P akistan and an FTA would generate even larger benefits. Islamabad has already ex tended the MFN status to more than 150 countries. Pakistani officials say it is a misperception that the local markets will be flooded with Indian goods if Indi a is given the same status.And trade with India will yield certain advantages.so me are given here. Access to cheaper goods: Pakistani consumers having access to cheaper goods particularly autos and medici nes, as well asindustrial buyers who will access to cheaper goods and raw materi als from india. Industrial benefits: India is industrially more developed and its manufactured products will have mor e prospects in the Pakistani markets,Pakistan should be able to do well in agric ulture, agriculture processing.As a result being agro-based industry Pakistani i ndustry will boost up.It will also work good for various supply chains,and in so me services. Petroleum products: Pakistans refining capacity meets only half of its domestic requirments,while Ind ia now exports almost one-fourth of the 185 million tons it refines.A Mumbai bas

ed oil analyst quoted , Pakistan move to ease trade with India could translate into a big oppurtunity for HPCL as it will be best positioned to use Bhatinda refinery as a critical gatew ay This will require the building of 50 km pipeline connecting the refinery being erected in the Indian Punjab with Lahore in Pakistan.If it happens it will give benefit to both countries. To curb the menace of smuggling: Due to high tariffs, instability in socio-political relations and a large number of non-tariff barriers, there is an unusually high degree of informal trading ( estimated to be 87 per cent of formal trade) between India and Pakistan.Accordin g to a report published in 2006 by Sustainable Policy and Development Institute, informal trade between India and Pakistan is more than $540 million, of which I ndian exports comprise $530 million due to its broader industrial base.Indian an d Pakistani governments can work together to reduce informal trading but for tha t a lot of conviction and sincerity is required on either side. Over the past fe w years, informal trading has reduced due to trade liberalisation policies being adopted by the two nations. If SAFTA agreement is implemented as it was suppose d to be in 2006, both countries will get benefits.At this present scenario IndoPak trade is considered ase a matter having more worries then comfort.But by hav ing a look at all all these factors we can hopefully say that benefits will come to surface after the full implementation of the non-restricted trade regime. Help to reduce the tension ad cordial relationships: Better Late than Never: India-Pakistan Trade Steps in the Right Direction. Trade normalization may reduce tension between their countries. Nothing in the past h as worked to decrease tension on either side of the border, taking the heat off of politicians and putting it in the hands of economists and the private sector is a worthy effort. Current bilateral trade is thought to be between $2 billion and $3 billion, most of it in three sectorschemicals, base metals, and machinery and electronicsgoing through unofficial channels, mainly D, costing both economi es valuable revenue and increasing the price of goods on both sides of the borde r. Greater trade liberalization would reduce these costs, and begin to move the needle on trade volume upwards With an expected jump in trade, a simultaneous in crease in people-to-people and private-sector interaction is logical. Increased commerce should be seen as a starting point for reducing tensions between the tw o countries and as a step in the right direction India, Pakistan hope to achiev e peace through trade diplomacy Improved relations stem from MFN status given to India. MFN status will mean India can export 6,800 items to Pakistan, up from a round 2,000 at present, and the countries aim to boost bilateral trade to $6 bil lion within three years.India now also says it is ready to unban investments fro m Pakistan and the countries are planning to allow multiple-entry business visas to spur exchanges, a key demand by business executive. Proper trade can increase revenues for both India and Pakistan opening up the integrated check-post at Attar-Wagah border and Pakistan's granti ng the most favored nation status to India would increase the bilateral trade in formal trade between India and Pakistan through third country like united Arab E mirates,Singapur and Hongkong is estimated to $5 billion by $7billion legislatio n of trade is expected to reduce the cost and increase the govt revenue by colle cting duties on imports. Pakistan has committed to end the -ve list of 1209 item s by the end of 2012. Improve competitiveness of many industries both the govt should get together to remove the trade hurdles private sector sho uld act as the pressure group we have done so in Pakistan and have brought all t he political forces o board on this property values would double as soon as free trade with India becomes practical. The opening of the two or three trade route s the entire board between India and Pakistan should be opened for trade. Pakist an needs to grow 8-9% per annum like India and china.