THAT TWO TECHNOCRATS are at the helm in Pakistan and India should ordinarily lead to some optimism about the future of economic relations between the two countries. But the maiden visit of the Pakistani Prime Minister, Mr Shaukat Aziz, to New Delhi belies this primarily because of the political and diplomatic baggage weighing on the economic ties. The best piece of evidence of this is Mr Aziz's stand on granting the most-favoured-nation status to India — which New Delhi extended to its neighbour some years ago — on the ground that the MFN issue was related to the progress made in the ongoing political dialogue between the two countries.

Indeed, the non-extension of MFN status to India is indefensible as both nations are part of the World Trade Organisation, which enjoins members to grant the MFN status to one another. A more important reason is the economic gains Pakistan will make, especially if the impact of such a measure on informal and third country switch-trade is considered. As it is, an increasingly favourable official trading climate in the recent past has led to the bilateral trade going up by nearly a third in 2003-04 over the previous year with India's exports rising proportionately and Pakistan's by around 22 per cent. Among other things, the MFN status would reduce the transaction cost (the bilateral trade will be more direct) not to speak of the resultant greater economic exchange as well as higher revenue proceeds for the Pakistani exchequer. In fact, Mr Aziz has referred to the economic benefits flowing to both sides as the most important argument for New Delhi agreeing to the $4.16-billion Iran-Pakistan-India gas pipeline project without any pre-conditions. He is bang on because his country stands to gain $600-800 million a year in transit fees. Yet, he is not ready to extend the argument to the MFN issue, which has led the Indian side to make it a pre-condition for agreeing to the pipeline project. This, expectedly, is not acceptable to Pakistan. Islamabad not agreeing to grant transit rights for Indian trade with Afghanistan also cannot be described as a confidence-building measure. The only notable commercial achievement is the decision to establish banking relations, but its full potential can be realised only if easier trade is facilitated between the two economies.

It is well-known that the Kashmir issue has cast its shadow onbilateral relations much to the detriment of the people of the two countries, especially Pakistan. It will be a pity if the same hurdle obstructs progress on the SAARC (South Asian Association of regional cooperation) front, which involves the lives of 1.3 billion people. The current focus of the Association is to get the South Asia Free Trade Area (SAFTA) operational by early 2006, a review of the progress having been made recently at the SAARC Commerce Ministers' meeting in Islamabad. It is a welcome sign that both Dr Manmohan Singh and Mr Aziz have expressed disappointment over the Association's "inability to be an engine of growth and development". Clearly, the onus is on Islamabad to hasten progress, but the signs as yet do not seem encouraging and this does not bode well for SAARC.

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