 Relations between India and Pakistan hold the key to the pact |
South Asian nations have agreed to put in place a free-trade zone, aimed at boosting economic co-operation and development in the region. Foreign ministers from the seven nations in the South Asian Association for Regional Co-operation (Saarc) signed a pact at a summit in Islamabad.
The agreemment is set to take effect from 1 January, 2006.
Its success, however, will depend on continuing good ties between India and Pakistan, analysts said.
Starting point
The two countries held their first talks in three years on Monday after having narrowly averted a war over Kashmir in 2002.
Pakistan's Pervez Musharraf and India's Atal Behari Vajpayee spent an hour together, confirming a thaw in their relations.
Analysts say the rivalry between India and Pakistan has in the past halted projects within the 18-year-old Saarc .
 | SAARC MEMBERS Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka |
The main item on the agenda of the Islamabad summit, however, was the free-trade zone. Under the terms of the new agreement, Pakistan, India and Sri Lanka will cut import tariffs to between zero and 5% within seven years of the pact starting.
Saarc's remaining members will have 10 years to complete the process.
Ahead of the Islamabad meeting, ministers also reportedly reached agreement on combating terrorism and on a social charter to raise living standards across the seven-member grouping.
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