Analysis By Shahzeb Jillani BBC World Service reporter

Traders have opposed the introduction of the tax

Pakistan has reaffirmed its seriousness in promoting bilateral and regional trade initiatives with India.

"We are hoping that, when peace talks resume between the two countries, trade and exchange of business leaders will figure higher on the agenda," said Federal Commerce Minister, Humayun Akhtar Khan in an interview with the BBC's Urdu Service.

Mr Khan said that, in the past, Pakistan has been in negotiations with India over a South Asian Preferential Trade Agreement (SAPTA).

"Now that diplomatic tensions are easing in the region, we are hoping to finalize the agreement by our next summit meeting," he said.

If that happens, the move will clearly pave the way for the creation of South Asia Free Trade Agreement (SAFTA), a seven-nation economic goal which has until recently been hampered by Indo-Pakistani hostilities.

History of hostility

South Asia has some of the world's most densely populated countries where poverty and unemployment remain major socio-economic challenges.

Since independence in 1947, military tensions between India and Pakistan over the disputed territory of Kashmir have led to three wars and a number of limited border conflicts.

Last week, both India and Pakistan said they would resume full diplomatic relations after more than a year of hostilities.

On Tuesday, listing steps to improve relations with India, Prime Minister Mir Zafarullah Jamali announced the removal of trade restrictions from 78 Indian items.

Business leaders and traders on both sides have welcomed the prospect of increased trade between the two countries.

"Traders in both the countries, particularly in steel, cement, textiles, coffee and machinery sectors, stand to benefit much if open trade is allowed by the two governments," Vijay Kalantri, President All India Association of Industries told the BBC.

Competition concerns

Despite the tensions, the two countries enjoy a formal trade relationship of $204m, while informal and indirect trade (via third countries like Dubai and Singapore and cross-border smuggling) amounts to more than $1bn.

Business groups claim that, if import-export restrictions are removed and transport links restored, potential trade between the two nations could amount to nearly $4bn.

Yet there are some fears on the Pakistani side. "The government of Pakistan will have to be sensitive to the survival of the domestic industry," warned one analyst in Karachi.

"If cheaper Indian goods are ever allowed to flood the Pakistani market, it'll render some of our industries totally uncompetitive."

Nevertheless, as Waqar Ahmed, the spokesperson of Saarc Chamber of Commerce & Industry points out, the impact will be temporary.

"That will happen initially." he said.

"In the long run, however, Indian and Pakistani consumers will turn out to be the biggest beneficiaries of freer trade between the neighbouring countries."