Afghanistan – Pakistan trade relations: From Mutual Losses to Mutual Gains
Introduction:
Regional integration and cross regional economic relations play an important role in stimulating development and bringing prosperity to nations. There are many examples from different regions of the World that underscore the importance of economic relations between nations and expanded regional collaboration contributing to stability, development and prosperity. For instance, the formation of the European Coal and Steel Agency in 1957 played a critical role in acceleration of post-World War II reconstruction and development in Europe and paved the way for expanded political, social and economic integration in the region. The formation of the Association of Southeast Asian Nations (ASEAN) is another example of regional initiatives aimed at building greater economic relations and facilitating business and trade relations among nations in the region.
Afghanistan and Pakistan, despite sharing tensed historic relations, have many great prospects for economic co-operation and expanded regional relations interlinking Central and South Asian countries. This is not a new issue and there has been extensive studies and reviews seeking options to remove the barriers and explore opportunities for expanding economic relations between the two countries. However, progress has been limited and continued tensed political and security relationship has resulted in mutual losses. Both countries have tried alternative routes to bypass geography. For instance, in its quest to provide access to Central Asia Countries via Kashgar circumventing Afghanistan, in 2016 Pakistan Government announced its intention to revive the Quadrilateral Traffic in Transit Agreement. However, the QTTA would not allow Pakistan to access Turkmenistan and Iran and it will not have the same impact as accessing Central Asian Countries through Afghanistan. Likewise, Afghanistan’s quest to reach India and other countries via the air corridor is not a sustainable option in the long run.
Cross-border infiltration, refugees, drug trafficking, militant groups, and disputes over counterterrorism policy and dialogue with terrorist networks have contributed to an entrenched trust deficit and have eroded relations between the two nations [1]. These issues have impacts beyond the security sector, complicating efforts to build stronger trade and economic ties. Despite tensions, Pakistan is today Afghanistan’s largest trading partner, and Afghanistan is Pakistan’s second-largest trading partner [2]. The withdraw of the international military forces from Afghanistan as well as ever changing border closure and clashes at the border line, has shrunk trade volume between the countries from US $2.3 to US $1.2 Billion in 2019. The recent border closure caused by security, political and pandemic has devastated farmers on both side of the border. While the recent closure of border has added to uncertainty and reduction in trade, there is need for a long term mutually acceptable framework for continued trade and business relations.
Need
for a renewed robust mechanism:
Afghanistan and Pakistan share a 2,430km border with several passes and transit points connecting the two countries. Three border crossing points have been agreed along the Pak-Afghan border in the Afghanistan and Pakistan Trade and Transit Agreement also known as APTTA: the Torkham, Chaman-Spin Boldak, and Ghulam Khan4 border crossings.
The Afghanistan–Pakistan Transit Trade Agreement is a bilateral trade agreement signed in 2010 that calls for greater facilitation in the movement of goods amongst the two countries. The 2010 agreement supersedes the 1965 Afghanistan Transit Trade Agreement which granted Afghanistan the right to import duty free goods through Pakistan. The 1965 agreement did not provide Pakistan reciprocal rights to export goods to the Soviet Union nor to the Central Asian Republics after the fall of the USSR [3].
The APTTA was redesigned in 2010 to allow the transit of Afghan exports through Pakistan to the Wagah border with India, and to the seaport cities of Karachi and Gwadar. Pakistani trucks in turn are allowed to move products to all regions of Afghanistan. The agreement also led to the formation of a joint chamber of commerce. In July 2012, Afghanistan and Pakistan agreed to extend the APTTA to Tajikistan, a first step in the establishment of a north-south trade corridor [4].
The 2010 APTTA allows for both countries to use each other's airports, railways, roads, and ports for transit trade along designated transit corridors. The agreement does not cover road transport vehicles from any third country, be it from India or any Central Asia country. [5]
Afghan trucks are to enter Pakistan via border crossings at Torkham, Ghulam Khan and Chaman to transit Afghan goods across Pakistani territory, and to import goods from Pakistani ports in Karach, Port Qasim and Gwadar. The signed Agreement permits Afghanistan trucks access to Wagah border with India, where Afghan goods will be offloaded onto Indian trucks, but does not permit Indian goods to be loaded onto trucks for transit back to Afghanistan.
The APTTA agreement allows Afghan trucks to transport exports to India via Pakistan up to the Wagah crossing point, but does not offer Afghanistan the right to import Indian goods across Pakistani territory, out of fear that Indian goods would end up on the Pakistani black market in the same manner that was common under the 1965 ATTA. Instead, Afghan trucks offloaded at Wagah may return to Afghanistan loaded only with Pakistani, rather than Indian goods, in an attempt to prevent the formation of a black market for Indian goods in Pakistan.
Barriers in implementation of APTTA 2010
Afghanistan has complained that anti-smuggling security measures agreed in the APTTA are restrictive cost-prohibitive, and that banking guarantee fees are excessively high and time consuming, ranging from 100,000 to 150,000 Pakistani rupees per carrier. Banks from both countries have also refused to offer such guarantees, further delaying customs clearances [6].
Pakistan has expressed concerns that Afghanistan bound goods transiting through Pakistan are often immediately smuggled back into Pakistan via the porous border the two countries share and illegal smuggle of goods has created a thriving black market economy [7]. Therefore, Afghanistan’s proposal to allow Afghan trucks to import Indian goods to Afghanistan is met with resistance by Pakistan Government fearing that Afghanistan bound goods are prematurely off-loaded and smuggled back to Pakistan which erodes local industries.
To address issue of goods illegally entering back to Pakistan, several stringent measures were introduced such as shipment tracking system, obtain certified customs clearance documents, restrictions on partial shipments of goods that require all trucks of a given shipment to be present before trucks can cross into Afghanistan, and heavy security deposits, insurance, and shipment tracker installation costs all increase truckers’ costs of operations and strain their limited working capital.
Formal banking ties between Afghanistan and Pakistan remain limited, with traders on each side of the border forced to rely on unofficial transfers, and with inconsistent exchange rates. Complaints were also reported regarding road and customs clearance infrastructure in both countries
Afghanistan also refuses to grant Pakistan the right to import and export goods from Central Asia The 2010 APTTA agreement allowed for Afghan goods to be exported to India via Pakistan territory, but did not permit Indian goods to in turn to be exported to Afghanistan across Pakistani territory.
Afghanistan and Pakistan Transit Trade Coordination Authority
To ensure effective implementation of
APTTA, the Agreement establishes APTTCA, which is required to meet once every
six months, alternating between the territories of each contracting party. The
authority is co-chaired by the Deputy Minister of Commerce and Industries,
Government of Afghanistan and the Secretary Commerce, Government of Pakistan,
and is tasked to perform the following functions:
Monitor effective implementation of the Agreement
Ensure
uniform interpretation and application of the Agreement by both parties
Formulate measures to address/ curb unauthorized trade
Monitor
implementation and effectiveness of measures adopted to curb unauthorized trade
Resolve disputes that may arise regarding the interpretation or implementation of APTTA
Authorize studies on issues related to transit trade
Consider any other matter for smooth operation of the Agreement
Despite the past agreements, continued political and security tensions have prevented full realisation of the APTTA and implementation of the treaty has been inconsistent, with both sides complaining of continued barrier to trade and much of the APTTA provisions remained unexploited. The APTTCA which was designed to oversee implementation of the agreement has not been fully utilised and disputes and disagreements remain unresolved.
Owing to the recent tension in political and security relations between the two countries as well as challenges posed by the pandemic, increased and ever changing restrictions imposed on border has left devastating impact on local economies. Farmers have greatly suffered from these restrictions and both sides impose border restrictions with little or no concern for business impact.
Way forward:
It is obvious that the existing situation is unsustainable and if the two countries fail to reach an amicable framework for trade and business, losses will be mutual with short and long term consequences. If the governments in both Afghanistan and Pakistan do not act now, significant losses will be inflicted on local farmers and local economies at large.
Why is it important to act now?
The ongoing peace talks with the Taliban provides an unprecedented opportunity for both sides to engage in a constructive dialog which among other things could include sustainable solution to overcome trade and transit disagreement. The peace dividends can be shared along security, political and economic realms.
Security and political decisions are taken with little or no concern for business which have devastating impact on farmers and traders on both sides of the border. Uncertain political and security environment is not conducive for investment and trade and it is feared that future closure of border could have further devastating impact on both sides. Thus, sheer logic suggest that mutual losses is not in the interest of any side and decision makers on both sides of the border need to be engaged in constructive discussion to overcome challenges through negotiations to avoid border closure.
As mentioned above, both countries have attempted to find alternative transit routes albeit with limited success. Before they pursue such option any further and make further investment, it is better to address their mutual concerns. The existing trade agreements are flawed and does not seem to address mutual concerns of the contracting parties. With mediation by a neutral party, both countries can resume discussion on redesigning of the APTTA and agreeing on an effective and robust governing body.
Public Private Partnership is critical and both countries need to engage their private sector in decisions that can have impact on business and trade. The Chamber of Commerce on both sides can become more involved to represent business interest and serve as catalyst to turn losses into gains
There is need for a neutral party to engage and lobby with both countries and advocate for the concerns of the business. Such an entity or organisation can involve academia, think tank organisations, Chamber of Commerce and other relevant organisation to be effectively engaged in any discussion impacting on business and trade.
Last but not least, authorities on both sides of the border need to de-escalate border clashes and avoid closure of boarder at all time and particularly at the harvesting to protect farmers and safeguard interests of the poor.
About Centre for Afghanistan Policy Studies
(CAPS) is a London based think tank which works to link Afghanistan with knowledge, expertise and wisdom that it needs to make informed policy decisions. It conducts independent researches and studies on varied policy topics, generates critical thinkers to nurture deep understanding of policy impact on future generations and advocate for positive change and sustainable development. CAPS seek to closely engage people, particularly young leaders and it believes that “policies are only good if they deliver for the people”.