Truly tragic and sad the Mumbai attacks represent a defining moment in the relationship of India and Pakistan. The two countries need to realize that there is no alternative to peace and security. Poverty level remains a major concern of SAARC, Pakistan and India in particular, and repeated studies have shown that mutual trade and economic cooperation could effect meaningful poverty alleviation. Paul Krugman recently won Nobel Prize arguing the very benefits of "Scale Economies", which refer to the underlying importance of regional focus, emphasizing that neighbourhood cooperation yields tangible benefits and strengths that otherwise may not be possible to attain. These delicate times call for restraint and prudence by the various segments of Pakistani and Indian society and leadership. Rather than blame game and unnecessary rhetoric we need to work together like never before to ensure that terrorism never wins This paper evaluates the positive effects that enhanced Indo-Pakistan cooperation and trade can yield and how such an effort can benefit the entire region politically and economically, and judge these rewards from a global perspective. Its scope covers trade and investment between the SAARC countries, with a direct focus on its two largest populations, Pakistanis and Indians. i) A question arises: Is it sensible to talk about regional focus in this age of globalisation when it could be interpreted as undermining a country's effort to be in the mainstream of globalisation or will it in fact strengthen it by serving as a base/platform for a meaningful global drive? And ii) Another question: Should emphasis on regional trade be confused with Free Trade Agreements (FTA) and Preferential Trade Agreements (PTA), and perceived as anti WTO or does promoting regional trade ultimately benefit the principles of free and fair trading practices - the very goal of WTO itself? To begin with let us focus on where the culture of trade and investment within the SAARC region stands today when compared with other regions. A recent World Bank-IMF study says that openness in trade and investment does not come to us in the region naturally. It reveals that while the non-Asian emerging-market countries have made appreciable progress in closing the "trade and policy gap" with leading East Asian countries, their progress in dealing with the South Asian countries remains rather dismal. Further, it tells us that the outlook of South Asian countries on liberalising trade and investment not only fall behind the emerging-market countries outside Asia but also significantly lag behind countries within Asia in their endeavour for increased mutual and investment. For example, even in this new millennium and an era where India is all but leading the pack of modern day global mergers and acquisitions, the preference of Pakistan as an investment ground would be probably at the bottom of Indian entrepreneurs' priority list. This, in spite of the facts that Pakistan, (a) boasts of having one of the largest populations in the world, (b) enjoys an extensive common border with India, (c) has large similarity in eating and living habits between the two populations, qualifying as a natural ground for Indian investment, and (d) shows limitless possibilities of mutual synergies emanating from such an investment Finally, the study goes on to highlight the importance (especially if judged in the aftermath of the current financial crisis and global recession) of maintaining and deepening reforms in South Asian trade and investment policies cum rules and regulations, in order to insulate the region as a whole from global financial turbulence and make it more competitive vis-a-vis the global economy. Regional Trade & Investment as Catalysts for Growth and Development and a Way to Build Global competitiveness In addition to sustained growth of domestic consumption, robust growth of exports to near markets is a widely cited factor favouring higher economic growth and development and a way to build global competitiveness in less developed countries. Though overall export performance may be greatly influenced by international economic conditions, a country's own trade policies, particularly those about imports and trade with neighbouring countries, can also be critical to its export performance. Also, in a dynamic world, factors such as linkages among export growth, foreign direct investment, accumulation of productive resources and technical know-how and macroeconomic growth and development - all tend to be important in their own individual capacity. In economic theory, exports can be substantially hindered (if not absolutely hobbled) by a country's own policies towards imports. Protection enforced through measures such as tariffs, quantitative restrictions, and non-border measures such as industrial or qualitative standards for goods and services applied mainly to imports, goes on to restrict the ability of domestic producers to sell their goods abroad. As Lerner (1936) outlined over 70 years ago, Clements and Sjaatad in 1984, and Derosa in 1992 (amongst many others who have more recently illustrated through quantitative analyses) that protection is equivalently a tax on exports. Thus, in order to sell goods and services abroad successfully, a country must allow its inhabitants to buy goods from abroad freely, leaving adjustments in exchange rates and domestic relative prices to ensure balance of payments equilibrium mainly to market forces. "Open" economies benefit from not only transitional and static gains from trade, but also "dynamic" gains from trade, for instance, the gains we see in the form of economy wide enhancement in factor productivity. In response to greater integration with the world economy under liberal trade policies, producers and consumers allocate resources more efficiently, including their own labour services. Producers in particular tend to adopt technologies that are appropriate to domestic and international economic circumstances. These tendencies help ensure that the greatest potential output is attained from available domestic resources, maximising a country's growth, economic development, and economic wellbeing. From this perspective, robust export performance sustained by a liberal trade policy regime is sometimes attributed more to prudence in home policy measures than to any other production related factor. Foreign Direct Investment as a Catalyst Growth and economic development are related to a number of dynamic factors. Among these the most important being growth in the inputs of skilled and unskilled labour, physical capital and technology (including knowledge and managerial know-how) to production. Long-term growth of labour input is often considered to be a nature's gift, but it can also be very easily correlated to the economic policies impinging on employment and education as well as the country's population growth rate. Growth rates of physical capital and technology inputs are more often considered directly related to changes in economic policies. Traditionally, domestic investment has been a particular focal point of economic growth theories. However, in recent times with the advent of the so-called new growth theory, factors influencing growth of technology, general knowledge, managerial and technical know-how have come to the fore in attempts at understanding why countries grow and develop at different rates (Barro and Sala-I-Martin 1995). Foreign equity participation in industrial and other commercial projects has come to be viewed as especially important if not crucial for the growth prospects of less developed countries in the modern global economy; this frequently with reference to the experience of developing Asian countries such as Hong Kong, Singapore, Malaysia, Thailand and most recently China that have benefited from large inflows of foreign direct investment. Today, FDI is widely viewed as one of the major forces propelling "globalisation" of the world economy i.e., the increasing specialisation of production and trade through global networks of production and distribution, pioneered and operated by multinational enterprises (WTO 1996). Moreover, due to this we see that the advanced industrial countries that once dominated the global picture are now being increasingly challenged by the developing countries, which barely accounted for less than one-third of the global stock just at the beginning of this decade. In neoclassical economic theory, FDI mainly involves the movement of productive capital from one country to another. When productive capital moves from capital-abundant to capital-scarce countries, it promotes greater world production and economic welfare in the same manner as expansion of international trade in goods under trade liberalisation. That is why FDI is also sometimes viewed as a substitute for International trade in goods (Mundell 1957). In this vein, even if in certain cases high tariffs and other barriers to trade can induce substantive FDI, it comes with little beneficial impact on domestic resource allocation and economic welfare, because such a model reflects a host country that is highly distorted and where typically the foreign direct investment is geared to only servicing a rather small segment of "inward-looking" markets. In the global economy today, FDI is more often viewed from a "new trade theory" perspective, emphasising firm-level decisions to marshal proprietary assets and organise production processes across boundaries in either horizontal multi-plant modes or vertically integrated modes. From this perspective, FDI is frequently viewed as instrumental to promoting foreign trade, particularly in host countries that maintain relatively open economies, stable macroeconomic conditions, limited restriction on foreign exchange transactions (and repatriation of investment earnings) and protection of private property rights. Specifically, under such favourable conditions, FDI by multinational firms tends to foster export-oriented production following underlying comparative advantage factors such as the relative abundance of low-wage labour in developing countries. This particular notion on FDI also accords well with the "flying geese" theory, according to which FDI disperses production technology and know-how from a higher wage country to one or more lower-wage countries. Such dispersion ultimately influences trade patterns as the primary location of production is gradually transferred offshore by the high-wage source country to the lower-wage "follower" countries (similar to the pattern formed by flying geese). With its emphasis on differential wage levels between countries and creation of overseas "export platforms" by multinational firms, the flying geese theory of FDI in Asia provides an added explanation for the remarkable performance of East Asian exports. The flying geese theory also points to the nature of the problem being faced by many higher-income developing countries in East Asia namely, the challenge of smoothly adjusting to new products and technologies as the comparative advantage of more advanced Asian countries gradually shifts to less advanced Asian countries. This holds true not only for the more physically capital-intensive products but also for more human-capital-intensive and technology-intensive products that are more affected by the higher average wage levels. Coming back to our earlier and two main points: is it even sensible to be talking about regional linkages when the real thrust should be on a global linkage? and can regional focus anyway help us in grander scheme of global goals or does it only pose to be a hindrance to reaching an agreement on WTO's Doha Round Talks? The answers to this are neither very clear nor that simple. The experts who favour or give priority to regional trade development over other options put forward two main arguments: a) Perfect global trade based on absolutely free and fair trading principles is a utopia and, therefore, the logical and a more doable strategy is to first maximise mutual trade in one's own region and then go on to aspire for a bigger global agenda. Also, at a regional level one has the key advantage of synergies arising from factors like commonalities in consumption habits, tastes, language, geography, history, culture, religion, ethnicity, communications, human resource and logistics. & b) Regional trade helps prepare a positive mindset towards investment and trade in general and once countries within a region, especially neighbours, are able to successfully develop a good level of mutual trade and investment, the model goes on to serve as a platform for becoming competitive in international arena thereby also having a positive effect on the WTO philosophy of global linkages and trade. On the other hand, towards mid-June 2006, to keep abreast with trade structural developments, the members of the WTO agreed on rules that would make it easier to track bilateral and regional trade deals. Negotiators were concerned that the proliferation of such deals would detract from efforts of an already faltering process to reach a global trade pact. This is exactly what has happened and regional deals seem to have moved to the forefront after the collapse, for the foreseeable future, of global talks that began more than five years ago in Doha, Qatar. Everyone, virtually coming out in the open to steer this new course where whether it is the European Union (EU), USA, India or China, no one can anymore refrain from addressing bilateral and regional priorities. India as we have already seen in pursuing the culture of FTA and PTA has actually moved well beyond regional boundaries to seek independent trade agreements with Japan and the EU. Still, the encouraging aspect is that with India being the dominant player in the SAARC arena, it has assured the co-members that it will also become proactive in simultaneously pursuing economic engagements not only at the SAARC level but also on a bilateral basis with countries in this regional grouping. Though politicians around the globe are not yet willing to pronounce the multilateral talks as dead, largely because the potential economic gains from a global agreement would outstrip the effects of regional deals but given the stalemate in the global talks, regional agreements are likely to become a more important motor of trade liberalization in years ahead. The problem, economists say, is that while regional deals can help expand trade in the absence of global agreement, they are also likely to create varying or overlapping rules, and sharper tensions between those involved and those left out. Moreover, poorer nations like sub-Saharan Africa, which were supposed to benefit most from the latest round of global talks, are likely to lose out because they have the least to offer. According to Jean-Pierre Lehmann, founder of the Evian Group, a Switzerland based free-trade advocacy organisation, "The cost of failure in the Doha talks is that trade could become regional, discriminatory, and there can be more conflicts." Trade deals between two or more countries are nothing new. The WTO estimates that there are today more than 300 such accords, accounting for about more than half of the total value of global trade. The US has been especially active in seeking two-sided deals, recently signing agreements with booming economies like Singapore and Chile. Asian countries are also joining the bandwagon and moving quickly to sign agreements among themselves and others. China, Japan and South Korea have interlocked themselves with a deal on majority items of common interests, and India and Singapore have also signed agreements between themselves and are considering signing more and more agreements bilaterally (i.e. the two countries jointly or separately) with other South Asian countries. In spite of their damaging effect on the ongoing global talks, these "limited agreements" (as they are referred to) are generally less prone to political disputes than global ones and offer a way to keep trade liberalisation on track. It is also easier to fine-tune regional agreements to make them easier for politicians to sell to a domestic audience afraid of the resulting job losses. However, the key is to ensure that regional trade agreements become building blocks, not stumbling blocks, to world trade. The fear however remains that bilateral pacts could lead to what economists term a "spaghetti bowl" of rules and regulations leading to enhanced trade disputes, which may make the elusive global agreement even more distant