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South Asian Preferential Trading Arrangement (SAPTA) became operational in December 1995, through a modest exchange of tariff preference among the contracting states. The concessions exchanged expanded progressively through the second and third rounds, and by end of October 1999 as many as 5550 products were conceded preferential concessions by all contracting states, of which 3439 products were offered exclusively in favour of Least Developed Countries (LDCs). India offered concessions on 477 products. Using highly disaggregated data from Indian sources, this paper highlights the trend in preferential trading between India and Pakistan on these products through the three rounds of negotiations covering the period 1996-97 to 2002-03. The hypothesis of the study is that the share of preferential trade in relation to bilateral trade (both for imports and exports) would increase with the offer of concessions and also lead to trade diversification in such products. The results of this study support this hypothesis. The paper examines the various constraints to bilateral trade and agrees that in case these were removed, the bilateral trade between the two countries would expand even further.

South Asian Free Trade Area and Indo-Pakistan Trade