The decision overruled reservations of the ministries of textile and industries which had been pushing for restricted trade with India to protect domestic manufacturers.
The cabinet’s decision will allow the import of about 90 per cent of all the items that India normally exports.
Before this decision, the ‘positive list’ allowed only 17 per cent Indian export items.
From Jan 1 next year, India will be able to export all its products to Pakistan without restrictions.
The cabinet also decided to do away with the ‘negative’ list of 1,209 items by the end of this year.
The ministries of textile and industries wanted the restrictions to continue for five years.
Information Minister Dr Firdous Ashiq Awan said the cabinet had unanimously approved switching over from a positive to negative list trade regime with India.
“The products from negative list will be completely phased out by Dec 31.”
She said the move would pave way for complete liberalisation of trade by the end of the year to culminate in an MFN (most favoured nation) status to India.
However, according to sources, the textile and industries ministries recorded their reservations during the cabinet meeting over the timing of phasing out of the list. The ministries now will have to implement the cabinet’s decisions.
To accommodate the concerns of these ministries, the negative list was revised to include 1,209 items, up from 636.
The commerce ministry did not agree with the industries ministry’s proposal to complete the phasing out in five years instead of 10 months.
The cabinet’s decision is in line with an assurance given by the government to Indian Commerce Minister Anand Sharma during his recent visit to Pakistan.
The cabinet had deferred the approval on Feb 14 with a directive to the commerce ministry to complete consultation with all stakeholders.
The information minister said normalisation of trade with India was in the interest of Pakistan because it would help strengthen national economy and boost economic activities in the region.
Commerce Secretary Zafar Mahmood told Dawn that the phasing out would not be carried out in three stages, as earlier proposed by his ministry. The process will be completed this year.
He said trade through Wagah would be subject to completion of infrastructure facilities on the border, but a decision on trade with India by land had been taken by the cabinet in 2008.
The commerce ministry will soon send a notification to the law division for replacement of the positive list with a negative list.
India exported goods worth $2.33 billion to Pakistan last year, while Pakistan’s exports amounted to $330 million.
The volume of bilateral trade is expected to reach $6 billion by 2014, mostly to the benefit of Indian exporters.
However, the information minister said full protection would be given to the local industry. The defence laws, she said, would be invoked in case of any loss to the national industry against a surge in imports from India.
At the same time, she said, there would be no compromise on any “core issue”, like the Kashmir dispute. “This perception should be dispelled that the Kashmir cause will in any way be compromised.”
The prime minister informed the cabinet that trade across the Line of Control in Kashmir was worth Rs15 billion through 14,000 truckloads of goods.
Welcoming the decision, the Indian commerce minister said the development reaffirmed the commitment of both governments for trade normalisation.
Talking to the Press Trust of India, he said the decision would translate into a huge opportunity for Indian businessmen who would be able to ship all but a few items to the Pakistani market through land, air and sea routes.
“I am happy that this has been achieved. We believe that strengthening economic engagement between India and Pakistan lies at the heart of building enduring peace and stability in this region.
“Flourishing trade is the biggest confidence-building measure between any two nations,” Mr Sharma said.