Global Insider: India-Pakistan Trade Relations

India and Pakistan recently renewed their dialogue over the countries' moribund trade relations, with Pakistan indicating it is considering extending most favored nation status to India. In an email interview, Mohsin S. Khan, a senior fellow at the Peterson Institute for International Economics and a former director of the Middle East and Central Asia department at the International Monetary Fund, discussed India-Pakistan trade relations.

WPR: What is the status quo of trade relations between India and Pakistan?

Mohsin S. Khan: Trade between India and Pakistan is negligible, amounting to only $1 billion to $2 billion a year, reflecting very poor trade relations between the two countries. There was a major breakthrough in improving trade relations following the meeting between then-President Pervez Musharraf of Pakistan and Prime Minister Manmohan Singh of India in April 2005. At that meeting, several key decisions were taken to increase trade through small, though meaningful, steps. Six years later, most of the decisions are being implemented very slowly as political tensions, security issues and domestic political opposition in both countries continue to create obstacles. A renewal of trade discussions began this year with a meeting in April between the respective Commerce Ministry officials of the two countries -- the first such meeting on this issue since the 2008 Mumbai terrorist attacks. The discussions include the possibility of Pakistan granting most favored nation (MFN) status for India, as India has already done for Pakistan, and moving from a positive list of goods that can imported from India to a negative list of restricted goods. There is also a possibility of India exporting diesel and petrol to Pakistan. In return, Pakistan wants India to reduce tariffs as well as nontariff barriers that it imposes on Pakistani exports, despite the MFN status.

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