Why Pakistan and Afghanistan Should Keep Trade Away from Politics
Economic and geographic interdependence should compel Afghanistan and Pakistan to reinstate trade and transit and keep it isolated from political tensions.
Since 1947, Afghanistan and Pakistan have been closely intertwined by their cultural affinity, personal contacts and large volume of trade. These ties go back hundreds of years, when the cities of Balkh, Bagram, Kabul, Kandahar and Peshawar were major transit and trade hubs along the Silk Road, in what is present-day Pakistan and Afghanistan. Shah Hanifi, in his Connecting Histories in Afghanistan: Market Relations and State Formation on a Colonial Frontier, states that “the 19th century export of dried and fresh fruits and nuts from Kabul and Kandahar to India was perhaps the most lucrative of the economics of the three localities. Indian merchants financed this high volume exports, and Peshawar was an important base for a large number of bankers and financiers active in this trade.”
In 1965, Pakistan and Afghanistan signed the Afghanistan Transit and Trade Agreement (ATTA) to facilitate the flow of goods and services across their borders. ATTA was renegotiated in 2010, leading to the establishment of the Afghanistan and Pakistan Transit Trade Agreement (APTTA), which provided both countries the right to use each other’s specified land routes and ports for foreign trade. Based on Articles 3 and 4 of APTTA, Pakistan provides Afghanistan with access to use Karachi, Qasim and Gwadar Ports, as well as the Wagah route for overland trade with India. Pakistan was granted transit rights through Afghanistan’s border crossings at Ai-Khanum and Sher Khan Bandar (with Tajikistan), Aqina and Torghundi (with Turkmenistan), Islam Qala and Zaranj (with Iran), and Hairatan (with Uzbekistan). In 2012, the Pakistan-Afghanistan Joint Chamber of Commerce and Industry (PAJCCI) and the Afghanistan-Pakistan Transit Trade Coordination Authority (APTTCA) were established to further facilitate the better implementation of APTTA.
Although the signing of the agreement led to a surge in volume of trade and transit among the two countries in the first years, its success had always been limited due to a series of seemingly endless political and security constraints. Based on data provided by the Observatory of Economic Complexity (OEC), the volume of trade between Afghanistan and Pakistan has dropped from $2.1 billion in 2015-16 to $1.5 billion in 2016-17 — a 28.6% decline. Transit trade has also fallen by 23% since 2010-11. According to a survey by PAJCCI, Pakistan’s exports to Afghanistan have declined by 36% since the fiscal year 2010-11, while its imports from Afghanistan have risen by 169%, with the overall trade balance in favor of Pakistan. Given the innumerable border closures, political tensions and other non-tariff barriers, transit and trade might fall even more drastically in the future.
Over the last 15 years, Pakistan has time and again closed the Torkham and Spin Boldak passes — the only ways for Afghanistan to reach seaports and Pakistani markets — detaining thousands of loaded trucks for weeks on both sides of the border. These sudden border closures have cost millions of dollars in trade loss for both countries, and for Afghanistan in particular as the exporter of highly perishable goods such as fruits and vegetables. Farmers and small traders took a hard hit when an entire year’s worth of hard work rotted away on loaded trucks stranded on the border for days and weeks.
More recently, on October 17, according to Afghanistan’s Chamber of Commerce and Industries, Pakistan not only prevented Afghan trucks from crossing the border but also, without any prior notification, increased the customs tariff rates by up to 150% on 120 out of 741 Afghan goods being exported to Pakistan.
This may be a rational response to the changing prices and revenue attraction. However, as widely believed, it may also be Pakistan’s response to the Trump administration’s South Asian policy, which is putting pressure on Islamabad to shut its safe havens for terrorists amid appeals for India’s support and involvement in Afghanistan’s war on terror. If the latter is true, this can be interpreted as Pakistan’s retaliation against policies favoring India or Afghanistan in the region. Pakistan has been using its advantage of being the transit route and the major export and import market for Afghanistan as a bargaining chip to show that Kabul has to pay the cost of superseding Pakistan through economic and political connections.
Afghan President Mohammad Ashraf Ghani took the tripling of tariff rates on Afghanistan’s exports as a justification to ban the entry of Pakistani trucks to his country via the Torkham and Spin Boldak crossings on October 23. Instead, he decreed that Pakistani trucks should unload at the border and their goods be carried to their destinations only by Afghan trucks — a practice that Pakistan has been doing since the establishment of APTTA in 2010 with respect to trade between Afghanistan and India over the Wagah crossing. Ghani’s decision is justified based on Article 54 of APTTA, which states that “the contract (APTTA) will remain in to force for a period of 5 years from the date of its enforcement (2011) and shall automatically be renewed for a further period of 5 years unless terminated by either contracting parties with valid justification(s).”
It is true that the persistence of the trust deficit between Afghanistan and Pakistan has signaled both countries to reexamine their geo-economic policies and look for alternative routes for their trade. Pakistan, as the main beneficiary of the China’s ambitious One Belt One Road (OBOR) initiative, and specifically the China-Pakistan Economic Corridor (CPEC), is working on its access to Tajikistan via China using the Karakorum Highway that would make Tajikistan its gateway to Central Asia. On the other hand, Afghanistan has also expanded its trade routes and partners in the region and beyond. Along with the partial opening of Chabahar Port — Afghanistan’s alternative to the Karachi and Gwadar Ports of Pakistan — and accession to the World Trade Organization in 2016, Afghanistan has signed 31 bilateral trade and investment agreements, 10 bilateral economic agreements and five tripartite agreements.
However, the long-standing trade relations and corporate and private consumers’ reliance on these trade routes and products make the continuation of trade and transit between Pakistan and Afghanistan essential. The neighbors are intertwined economically to such a degree that, at least in the short term, it is unlikely that either could find a lucrative alternative trade route or partner. The geographic proximity and the relatively low production costs for their respective exported goods help reduce the overall trade costs between the two countries. This economic and geographic interdependence and mutual gains should compel Afghanistan and Pakistan to immediately reinstate trade and transit and keep it isolated from political tensions.
Furthermore, the South Asian Free Trade Area (SAFTA) — a regional trade agreement between eight South Asian countries that was established in 2006 with the intention to promote and enhance trade and economic integration through tariff concessions — has almost failed to achieve its goals. Instead, over the last few years, numerous bilateral, trilateral and quadrilateral trade agreements have been signed, making the renewal and further extension of APTTA inevitable and a most viable option. There may be many reasons that hindered the implementation of SAFTA: non-cooperation among members due to political disagreements, especially between Pakistan and India; the inability of SAFTA and SAARC to play a role as a regional body due, to some extent, its inadequate institutional structures; and security fears as well as poor infrastructure connecting, or failing to connect, the countries in the region.
The main beneficiaries of APTTA over the years have been Afghanistan’s and Pakistan’s private sectors, which found wider market alternatives to export and import from. The APTTA also gave ordinary households access to a wider basket of imported goods and services, leading to a drop in prices for goods. According to a report for the fiscal year 2015-16, more than 84,500 containers of goods traveled across the border that have directly or indirectly supported the livelihood of millions of people in both the countries.
There is not only a mutual need to immediately renew the APTTA, but also to extend it to neighboring countries. The agreement would better serve the goal of regional and cross-regional integration if it could be renegotiated and transformed into a transit corridor between Afghanistan, Pakistan, India and Tajikistan. Its realization would not be difficult if trust among Afghanistan, Pakistan and India could be reestablished. In fact, India, along with Tajikistan, has showed interest for such a quadrilateral agreement, but Pakistan, while implicitly accepting the inclusion of Tajikistan, has explicitly refused the appeals for the inclusion of India in the treaty.
Due to the prevalence of chronic poverty and the threat of terrorism in South Asia, it is to the mutual benefit of all SAARC member countries to work together for a stronger regional integration. More economic and trade links would reduce poverty directly by affecting growth and income as well as acting indirectly by increasing trade volume, investment and employment opportunities. Each country should accomplish trade liberalization and, more importantly, devise mechanisms for trade facilitation by minimizing tariffs and removing all barriers to trade.
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.