Pakistan's government announced today it would normalize trade with its giant rival and neighbor India, a sign of better ties between two nuclear-armed nations whose tense relations have long poisoned South Asia. The decision to grant India "Most Favored Nation" status would enable Pakistanis to export more goods to booming India at a time when Pakistan's own economy is in the doldrums. Most Pakistani business quarters welcomed the decision, but some expressed concerns about cheaper Indian goods flooding the market.
The World Bank estimates that annual trade between India and Pakistan is around $1 billion and could grow to as much as $9 billion if barriers are lifted. Much of the current trade is illicit—products go through Dubai, where they are repackaged and are smuggled into both countries, meaning higher prices for consumers and less tax revenue. Granting a country MFN status means that countries trade on equal and improved terms, typically giving each other low tariffs and high import quotas. India gave Pakistan MFN in the 1990s, but Pakistan did not reciprocate. (Read more India stories.)