Policy Brief 09-15: India-Pakistan Trade: A Roadmap for Enhancing Economic Relations

1750 Massachusetts Avenue, NW Washington, DC 20036 Tel 202.328.9000 Fax 202.659.3225 www.piie.com ment that settles outstanding disputes still seems far off. But this does not mean that steps toward better economic relations cannot be taken. Indeed, there was a major breakthrough in trade relations at the meeting between then President Pervez Musharraf of Pakistan and Prime Minister Manmohan Singh of India in New Delhi in April 2005 (Joint Communiqué 2005). A number of trade-related issues were discussed at this meeting, and several key decisions were taken to move the process along. On the face of it, the Musharraf-Singh 2005 meeting was probably one of the most important meetings between India and Pakistan on trade issues and generated considerable optimism on both sides of the border about overall trade relations in the future. However, four years later most of the decisions are being implemented very slowly, if at all, as political tensions, security issues, and domestic political opposition to the agreements continue to create obstacles. But now with a new Indian government and a relatively new democratically elected government in Pakistan, the timing may well be propitious to revive and expand the “confidence-building” actions on the trade front that came out of the famous April 2005 summit. While the Mumbai attacks severely strained relations between the two countries, Prime Minister Manmohan Singh and President Asif Ali Zardari had their first post–Mumbai attacks meeting on the sidelines of a regional summit in Yekaterinburg, Russia, on June 16, 2009, and a further meeting is planned at the Non-Aligned Movement Summit in Egypt in July. Both leaders have stressed that it is in the vital interest of the people of the subcontinent to have peace, and are apparently ready to engage on economic issues. Improving economic ties may help to resolve the larger political issues that have bedeviled India-Pakistan overall relations for over 60 years.1 The potential gains from increased economic integration between India and Pakistan are large. Trade between the two countries is unnaturally small and the scope for gains from