DECEMBER 31, 2012: this was the deadline for Pakistan to phase out its “negative list” of goods that can’t be traded with India.

Riding on the coattails of Pakistan’s decision in 2011 to grant Most-Favoured Nation status to India, the move was meant to be a major step in transforming 65 years of modest, haphazard, and often informal trade into a formal commercial partnership emblazoned with the MFN label.

Four months later, however, the negative list remains in place.

Islamabad insists that trade normalisation will occur after the May elections. Whether it does or not, it’s imperative that political parties and the general public have a clear understanding of where things stand — particularly given the misconceptions surrounding Pakistan-India trade.

A new Wilson Centre report, Pakistan-India Trade: What Needs To Be Done? What Does It Matter? edited by myself and Robert M. Hathaway, highlights four myths in particular.

1. Current bilateral trade is stagnant: Observers often note that formal trade — which is less than $3 billion — barely exceeds the value of informal trade. If normalisation were to ensue, they argue, official trade could truly take off.

This narrative, however, underplays how official trade volume has already increased in recent years, even without the perks of MFN. In 2001-02, trade was just over $200 million; by 2007-08, it had soared to $2.2bn. Though the 2008 Mumbai attacks caused a brief decline, trade volume eventually picked up, climbing to $2.6bn in 2010-11. And between April and December of 2012 — a period that saw the launch of a new integrated checkpoint at Attari-Wagah and a milestone visa agreement — Pakistan’s exports to India increased by two-thirds.

Such achievements without MFN suggest that economists’ lofty projections of trade with MFN — some say it could soar to $40-50bn — are not unfathomable.

2. Pakistan’s agricultural lobby is the chief obstacle to normalisation: Many food producers are indeed infuriated about the prospect of cheap, subsidised Indian products flooding Pakistani markets. With agricultural lobbies warning that farmers will be economically devastated and threatening to impose blockades on food imports from India, it’s little surprise that Islamabad is rightfully singling out the obstructionism of the agriculturists.

However, a glance at the negative list’s 1,209 items yields some revealing insights. The sector boasting, by far, the largest number of items isn’t agriculture (with 16) — it’s the car industry (with 385). Some car-parts makers fear that imports from India will ruin their industry — and that Pakistani exports won’t be purchased by an Indian industry that prefers to buy parts domestically. The report also highlights major opposition within the pharmaceutical and chemical/synthetic fibre sectors.

3. India’s copious non-tariff barriers spell disaster for Pakistani exports: Our report highlights the findings of IBA-led focus group consultations with Pakistani businessmen who identify 17 such barriers — from anti-dumping to the lack of testing labs at border crossing points. They suggest that unless India addresses them, India-bound Pakistani exports will face a raft of problems.

Indians openly acknowledge these problems, but they also offer a more nuanced picture. Some measures described by Pakistan as discriminatory are in fact permitted by the World Trade Organisation on safety and health grounds. Others represent what were once legitimate grievances, but have now been addressed by New Delhi.

4. The storminess of the Pakistan-India relationship makes trade normalisation unlikely: Certainly, trade is often a casualty of the enmity that afflicts Pakistan-India political relations. From the 1965 war to the 2008 Mumbai attacks and this year’s border clashes, security developments have caused bilateral trade to decline or even cease altogether.

Yet there are just as many — if not more — examples of trade relations withstanding the pressures and tensions of the fraught security relationship. During the initial years following each country’s independence — a period of uneasy political relations — India was Pakistan’s largest trading partner. In 1972, just months after the devastation of another subcontinental war, the two sides signed an agreement that produced a resumption of limited trade. More recently, the Samjhauta Express train blasts failed to derail trade. In fact, in the months following the attack, trade volume rose — and benefited from a new trade facilitation measure that intensified cross-border truck movement.

In short, political tensions need not be an obstacle to cordial trade ties. The flourishing commercial cooperation of China and India is a stark example.

Confronting and correcting these misconceptions can provide more clarity to the trade normalisation debate, and help move the process forward. Yet much more must be done as well.

The report’s recommendations call for Pakistan to craft a more comprehensive and strategically focused trade policy — one that promotes open commerce, not protectionism; that emphasises improvements in transit trade, transport infrastructure, and cross-border banking; and that regards India’s economic growth as an opportunity, not a threat.

At the same time, Islamabad should use its increased revenues from tariff collections, customs duties, and other outcomes of expanded legal trade to compensate the losers of trade liberalisation.

India has a role to play as well. New Delhi should make its trade rules and procedures more transparent — in order to reduce confusion in, and miscommunication with, Pakistan about non-tariff barriers (real or perceived).

Ultimately, however, trade normalisation is a two-way street — and Pakistan and India must work collectively to consummate it. Together, they should ensure that their private sectors (whose action-oriented, proactive approaches strongly benefit economic relations) are on the front lines; engage their powerful private media to amplify the advantages of trade; loosen transit restrictions and enhance trade route efficiency; and establish a bilateral commission to oversee the economic relationship.

If such steps are taken, Pakistan’s next government will be well-positioned to score a major achievement — one that goes a long way toward easing the country’s economic crisis.

The writer is senior programme associate for South Asia at the Woodrow Wilson International Centre for Scholars, Washington, DC.

michael.kugelman@wilsoncenter.org