An influential theory in international relations, the theory of "expected trade gains", argues that positive expectations of future trade will lead interdependent states to assign a high expected value to continuation of peaceful trade, making war less appealing. Sino-Indian trade has become increasingly complementary and the Trade Integrity Index has doubled since the end of the Cold War. China might overtake the US as India's largest trading partner by 2007. The Nathu La pass will open for trade in July 2006, it was closed after the Sino-Indian war of 1962.

China, for long, claimed Sikkim as part of its territory and the People's Liberation Army repeatedly intruded into Sikkim in the early 1960's to assert this claim. PLA's attack on the Indian armed forces at Nathu La in 1967 is well known. The opening of Nathu La places the stamp of approval on China's recognition of Sikkim as an integral part of India. It is estimated by a study group that the value of bilateral trade through Nathu La could be as high as Rs 206 crore in 2007, which might reach Rs 12,203 crore by 2015. The lowest estimation of the value of bilateral trade through Nathu La is placed at around Rs 353 crore in 2010 and Rs 450 crore in 2015.

Politically, these moves promise to inhibit the Sino-Indian unresolved border issue from flaring up and could have a salubrious effect on these border talks. Both countries hope that by boosting economic activities across their mutual border, internal fissiparous tendencies and the proclivity for conflict would be reduced.

For an initial five years the pass will cater to limited border trade between Sikkim and southern Tibet. However, increased connectivity between nations bridges their differences, leads to economic spin-offs and reins in conflicts stemming from deprivation and poverty. People-to-people contacts across borders also promote inter-group understanding. From the Indian perspective, Nathu La could link Lhasa and Kolkata, thereby benefiting the North-eastern states and North Bengal.

Tibet is also expected to benefit from resumption of trade through Nathu La. At present, Indo-Tibetan imports and exports are mostly channeled through Tianjin, a port city near Beijing, that involves a detour of thousands of kilometers. Landlocked Tibet, one of the poorest regions of China, with a foreign trade of just $200 million, will also benefit from easy access to the Kolkota port. Goods from China's eastern and southern regions will reach Tibet through this route rather than the mountainous Beijing-Lhasa stretch. Improvement in infrastructure and an array of financial and logistics services across the border would lead to integrated economic development of the region.

Both countries appreciate the urgency of mitigating inter-regional disparities since economic imbalances have fuelled ethnic conflicts and terrorist activities. India has special packages and economic schemes for its eastern and north-eastern regions. Arunachal Pradesh has also expressed hopes that upgradation of its infrastructure and establishment of trade marts along the Sino-Indian border would invigorate its economy. China's coastal regions have surged ahead with economic growth, and China wants to link its relatively backward western regions with South Asia. The Chinese establishment advocates that its "peaceful rise" policy embodies benevolent regionalism. China, for instance, seeks to deepen the economic interdependence between China and South Asia through the development of both domestic and international road and rail links like the Qinghai-Tibet highway and the Sino-Pakistan Friendship highway. The opening of Nathu La manifests a "Chinese blend of a pragmatic policy of economic regionalism and ideology of peaceful rise".

Nepal is also banking on Tibet's development and Sino-Nepal agreements to deepen trade and transport links to develop its own mountainous northern districts. Bangladesh has also expressed optimism over the opening of Nathu La, as it foresees Chinese goods crossing through Nathu La to reach South East Asia via Chittagong.

International events do not occur in a vacuum and strengthened Sino-Indian trade ties will provide a positive milieu for enhancing the bilateral relationship. Following the logic of the interdependence school, bilateral confidence displayed by opening border trade will spill over to other politico-strategic issues like the Sino-Indian border trade talks, which have followed on the heels of this decision. India and China have now signed their first-ever memorandum of understanding on institutionalizing military training cooperation, and can hope to support each other on a broad array of political, economic and diplomatic issues in future. At the recently concluded Shanghai Cooperation Organization (SCO) meeting, Chinese President Hu Jintao stated that China is keen to develop a long-term strategic partnership with India. Events like the opening of Nathu La in the Sino-Indian Friendship Year will take bilateral relations to a new high and help heal the wounds of 1962.