WASHINGTON, March 5: Bilateral trade between India and Pakistan is extraordinarily low —less than one per cent of their global trade, said a report released on Wednesday by the Washington-based Centre for Strategic and International Studies.

Blaming their “volatile political relationship” for the failure to encourage trade between the two neighbours, the report says that the situation has also affected economic integration in the South Asian region as a whole.

Greater economic co-operation between the two countries could, however, provide mutual economic benefits, such as lower prices for consumers, much-needed revenue for the governments, and cost-effective gas import to India via Pakistan, the report observes.

“Perhaps most importantly, it could generate new linkages between the two business communities, thereby nurturing constituencies for peace in the region.”

Giving a brief history of bilateral trade, it points out: In 2000-2001, India exported only $186 million worth of goods to Pakistan, out of $44 billion in total exports. Pakistan’s exports totalled $8.8 billion, but only $65 million went to India.

The report says that the two countries have not always had such anaemic trade. In 1948-49, 56 per cent of Pakistan’s total exports were directed to the Indian market, and 32 per cent of its imports came from India. Lahore and Amritsar were important economic hubs, as trade flourished with a free flow of goods and services.

However, by the early 1950s trade between the countries was reduced to a trickle, and despite some ups and downs has not revived since.

Besides political consideration, the report says, India’s market size also intimidates its neighbours and discourages trade. The report pointed out that 80 per cent of intra-regional trade in South Asia is to or from India.

The report also says that in the decades following partition, both India and Pakistan adopted inward-looking economic policies that discouraged imports of consumer goods and local products. This led to a considerable overlap in both countries’ exports.

The report points out that Pakistan has not granted the most favoured nation (MFN) status to India and instead maintains a list of 600 goods that may be legally imported from India.

India, however, has granted MFN treatment to Pakistan. But meagre imports from Pakistan suggest that India has found ways of imposing a de facto ban on most of Pakistani items, the report says.

The report also points out that informal trade between the two countries is much larger, estimated at $1 to 2 billion annually, involving such goods as chemicals, medicines, videotapes, cosmetics, and viscose fibre. These goods find their way either through third markets, such as Dubai and Singapore, or through smuggling.