"The move to full normalisation of trade relations shall be sequenced. In the first stage, Pakistan will transition from the current Positive List (PL) approach to a Negative List...A small Negative List (NL) shall be finalised and ratified by February, 2012.

"Thereafter, all items other than those on the Negative List shall be freely exportable from India to Pakistan," a joint statement said, after end of the two-day talks between commerce secretaries of the two countries.

Agreeing that Islamabad has a WTO obligation to grant the Most Favoured Nation (MFN) to India,Pakistan Commerce Secretary Zafar Mahmood said, "MFN is not an award or a degree which we can give to Khullar Saheb..This would not need any notification or a document. Under WTO, members are to grant MFN to each other. That obligation stands and will be completed when there is no list (positive or negative)".

India's Commerce Secretary Rahul Khullar said once Pakistan moves from PL to NL, the bilateral trade would improve considerably. At present, Pakistan allows import of only about Indian 1900 items, listed in the PL.

The two-way trade is a paltry USD 2.65 billion, but the third country is estimated at USD 10 billion.

The two countries which have been improving their political and economic relations in the past few months,formally agreed to move towards enhancing the preferential trading arrangements (PTA) under the SAFTA process. Under PTA, both sides will slash duties on specified number of items in a phased manner.