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Capricious Afghanistan-Pakistan Trade: Who Wins?

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The Pulse

Capricious Afghanistan-Pakistan Trade: Who Wins?

Ultimately, Pakistan loses from its stifling policies as Afghanistan seeks out other partners.

Capricious Afghanistan-Pakistan Trade: Who Wins?

Trucks carry goods on its way to neighboring Afghanistan through the Khyber Pass in Pakistani tribal area, Tuesday, March 21, 2017.

Credit: AP Photo/Muhammad Sajjad

Economics literature insists that trade among nations is beneficial for job creation and fueling economic growth. Trade helps improve living standards and promote better quality products and services at competitive prices. Thus trade remains at the top of agendas when it comes to bilateral relations among countries. However, these benefits aside, trade relations between Afghanistan and Pakistan have suffered considerably under turbulent bilateral political ties.

As a landlocked country, Afghanistan has remained dependent on Pakistan for its transit trade while both countries are also immediate markets for each other. Unfortunately, trade relations between Afghanistan and Pakistan have remained capricious, following the trajectory of turbulent political relations since the 1947 partition brought independent Pakistan into existence.

Trade restrictions had almost paralyzed the Afghan economy in the 1950s. Afghanistan, along with other landlocked nations like Bolivia and Czechoslovakia, urged the United Nations to ensure that their disadvantaged geographical position was not exploited for political gain. The UN addressed the request through the “UN Convention on Transit Trade of Land-Locked Countries” in 1965 which held that coastal neighbors would not discriminate in transporting goods for the landlocked. The convention was passed despite Pakistan’s stiff opposition at UN where its representative termed it paradoxical, nebulous and tragic to provide free access to a neighboring landlocked country.

In the light of international conventions, arrangements like the Afghanistan Transit Trade Agreement (ATTA) 1965 and Afghanistan Pakistan Transit Trade Agreement (ATTA) 2010 did provide legal frameworks for bilateral trade and transit relations but reality has never matched the paperwork. Even, major changes like the end of the Cold War, the collapse of the Soviet Union in 1991 and later the onset of a new Afghan regime in the aftermath of the September 11th attacks could not influence the bumpy trade relations.

In spite of such major changes in the regional political economy, Pakistan still maintains its 1950s attitude. The sudden closure of border crossing points, superfluous documentation at Pakistani ports, agonies in the name of security checks, and barriers on trade with India have continued to exert serious pressure on the Afghan economy. This strategy has been aimed at slowing down economic growth in Afghanistan to reinforce political pressure exerted through other channels. Pakistani authorities have also assumed that discouraging Afghan transit trade would force Afghan traders to opt for Pakistani products rather than importing them from other countries, like India. Under the same assumption, they proposed a target of $5 billion in bilateral trade. However, this approach has backfired.  

These circumstances forced Afghanistan to explore alternative avenues. This shifted Afghanistan’s transit and trade pendulum towards Iran’s Bandar-e-Abbas and Chabahar port. As a result, the volume of trade and transit between Afghanistan and Pakistan has shrunk significantly. The trade volume, which used to stand at $2.7 billion few years back, has now dropped to meager $500 million in the current fiscal year. In the same way, Pakistan’s exports to Afghanistan equalled $1.43 billion in FY16, dropped to $1.27 billion in FY17 and will likely significantly drop in FY 2018 given the dwindling figures in first half of the year. By another measure, the transit trade situation can be assessed from the fact that the number of containers that used to pass into Afghanistan has reduced to 7,000 from a peak of 70,000.

On the other hand, trade figures are on the rise in terms of trade with and via Iran. In the current fiscal year, Iran’s exports to Afghanistan increased by 13.57 percent to reach $2.79 billion. Eighty percent of Afghanistan’s cargo traffic has shifted to Chabahar and Bandar-e-Abbas in Iran. The value of transit goods to Afghanistan via these two ports is anticipated to reach $5 billion in the near future. Bilateral trade with Pakistan has been further dented as Afghan preference India products. Pakistan has reportedly lost its 50 percent share of the Kabul market to India. In June 2017, India and Afghanistan opened an air corridor to link Kabul with Delhi and later with Mumbai. In the first six months, goods worth more than $20 million were exported to India. Apart from this, the hospitals of Peshawar that thousands of Afghan patients visited for treatment are said to be almost empty after Pakistan introduced strict travel measures which forced medical tourism to divert towards Delhi given the ease of travel provided by Indian government.

Pakistan’s policies have not only cost it a sizable share of trade, but also kept it away from potential economic opportunities in the region. Today, Afghanistan is located at the crossroads of major international corridors and in a strategic position to connect the Central Asian republics with rest of the world. India is competing with China for political economic influence in Central Asia via Afghanistan. The Central Asian republics are planning energy, rail and other regional connectivity projects via Afghanistan.  

Now Pakistan wants to reach the lucrative markets of Central Asia via Afghanistan. However, as a reaction to restrictions on trade between India and Afghanistan, the Afghan government has said it would deny it access to Central Asia. Hence, while India would be able to effectively reach Central Asia via Chabahar and Afghanistan, Pakistan would continue to miss out. In the same way, the Lapis Lazuli Corridor, which connects Afghanistan with Europe via Turkmenistan, Azerbaijan, Georgia and Turkey has been dubbed as a shortest, most cost effective and reliable route to Europe for both countries. Pakistan’s prime minister has already expressed interest to join the initiative.

Pakistan’s restrictions on trade have forced Afghanistan to consider alternative options while hampering the potential gains from trade for the region. In spite of options available to Afghanistan, uninterrupted trade and transit relations between the two countries would enable both to facilitate bilateral as well as regional trade and reap immense economic gains. This would ensure shared prosperity among countries in the region.

Shoaib A. Rahim is a development practitioner, lecturer in international economics, and a regular contributor to national and international media about the political economy of Afghanistan and the region. Rahim holds an MSc. Degree in Development Economics from University of Sussex, England. Follow him on Twitter: @ShoaibBinRahim