Unlike their plans for carefully regulated intra-Kashmir trade, India and Pakistan have now agreed to open the gates for overland commerce on their international border that has been closed to business for decades.

If they do implement the proposed trade liberalisation, India and Pakistan will be on their way to reconnecting the two Punjabs as well as Sindh, Rajasthan and Gujarat that were once part of a deeply integrated economic space. It should also allow Pakistan’s traders to import goods from India for re-export to Afghanistan and Central Asia.

After their warm embrace in New York, Prime Minister Manmohan Singh and Pakistan’s President Asif Ali Zardari made three major trade-related announcements. One was about commencing “cross-LoC trade on the Srinagar-Muzaffarabad and Poonch-Rawalakot roads on October 21”.

India and Pakistan have been negotiating intra-Kashmir trade for more than three years, and two days before the leaders met in New York, officials from two sides had reached an agreement on all the necessary procedures.

The surprise from New York lay in the other two decisions. Asserting that the expansion of commercial cooperation “provides an effective platform to develop and strengthen bilateral relations”, the two leaders decided to open the Attari-Wagah road link on the Punjab border and the Khokrapar-Munabao rail route between Rajasthan and Sindh to all permissible items of trade.

As is the norm in Indo-Pak relations, the cryptic announcement hides the extraordinary significance of the decision. Although a limited amount of trade does take place now at the Attari-Wagah border, Pakistan and India had consciously discouraged trade between the two Punjabs all these years.

The two governments restored the old train link between Khokrapar and Munabao only a few years ago. Allowing overland trade on this border will reconnect not just Rajasthan, but also Gujarat with Sindh.

The opening of the trade routes on the international border would not have made much sense if Pakistan had not been open for business with India. Since the peace process was launched in January 2004, two-way trade has begun to expand.

Bilateral trade between India and Pakistan reached US $1.6 billion in 2006-07 from US $835 million in 2004-05. For the first time, imports from India to Pakistan have crossed the $1billion mark and stand today at more than $1.25 billion. Pakistan’s exports to India on the other hand have grown slowly from $280 million in 2004-05 to only $370 million in 2006-07.

Despite the unfavourable trade balance, Pakistan’s newly elected civilian government took a major political decision last July to expand the list of items that India could export to Pakistan, by adding 136 new product lines. The new list allowed imports of fuel oil, diesel, machinery such as paddy harvesters, rice driers, and mining equipment.

This bold move by Pakistan’s civilian government went largely unappreciated in New Delhi that was angry about the bombing of the Indian Embassy in Kabul on July 7. With Singh and Zardari now agreeing to address the issue of cross-border terrorism in general and, more specifically, the Kabul bombing, the latest decision on overland trade acquires a positive dynamic of its own.

(The writer is a Professor at the S. Rajaratnam School of International Studies, Nanyang Technological University, Singapore and Contributing Editor, The Indian Express.)