Assessing the Imperative Changes Needed for Pakistan-Afghanistan Trade Relations

Pakistan and Afghanistan have a history of strained relations, primarily due to issues such as cross-border infiltration, refugee problems, drug trafficking, militant organizations, and disagreements on counter-terrorism policies. These challenges extend beyond security concerns, making it difficult to foster stronger economic ties. Interestingly, despite these conflicts, Pakistan is Afghanistan’s largest trading partner, while Afghanistan holds the second position for Pakistan. As a landlocked country, Afghanistan will continue to rely on Pakistan and Iran for its overseas trade. However, the potential for Pakistani investment in Afghanistan remains untapped, pending improvements in financial strategies, infrastructure development, and personal safety.

The path to improved relations lies in peaceful economic cooperation between Afghanistan and Pakistan, with a focus on enhancing trade and transit infrastructure. This approach can bridge South Asia with Central Asia and stimulate export-led economic growth, benefiting both countries by boosting domestic employment and increasing foreign exchange reserves. Diplomats in Afghanistan perceive Pakistan as primary adversary, necessitating the establishment of additional frameworks for mutually beneficial trade relations.

The hardline de facto Afghan authorities’ return to power prompted Western nations to terminate all economic assistance for the largely aid-dependent nation and impose banking sector sanctions, effectively blocking Afghanistan from conducting regular trade with other countries.

Pakistan’s bilateral trade with Afghanistan, especially the import of Afghan coal, has dramatically increased since the Taliban seized control of the landlocked neighbouring country in August 2021. The two countries conduct trade mostly in cash while using a barter mechanism for certain goods. In an effort to navigate these economic challenges, Pakistan has implemented a barter trade mechanism. This mechanism allows both state and privately owned entities in Pakistan to export goods to markets in Afghanistan,  In return, they can import essential items such as Afghan coal.

The return of hardline de facto authorities in Afghanistan has had a significant impact on Pakistan’s trade dynamics. Western nations have responded by terminating all economic assistance to Afghanistan, a nation that heavily relied on aid. They have also imposed sanctions on Afghanistan’s banking sector, effectively blocking regular trade between Afghanistan and other nations. In this scenario, Pakistan’s bilateral trade with Afghanistan, particularly the import of Afghan coal, has seen an opportunity for Pakistan as well as Afghanistan. But the trade between the two nations often occurs in cash, with a barter mechanism being used for certain goods. This dynamic reflects the complex economic and trade challenges Pakistan is currently navigating.

Crucial to trade between Pakistan and Afghanistan is the Afghanistan-Pakistan Transit Trade Agreement (APTTA), a commitment under the World Trade Organization (WTO) that obligates Pakistan to facilitate transit trade to landlocked Afghanistan. Recent developments, however, include Pakistani measures to curb smuggling and enforce proper taxation, resulting in the blockade of numerous containers bound for Afghanistan at Karachi port and significant losses for Afghan traders

To address these challenges, Pakistan should consider reviving the railway route to Afghanistan and expanding exports to Central Asian states under the APTTA. Improved transit arrangements could bring multiple benefits to both nations, offering Afghanistan better access to overseas markets through Pakistani ports and allowing Pakistan to reach Central Asian markets more effectively. The use of Afghan territory for trade with Central Asian countries also plays a significant role in this agreement.

Additionally, Pakistan should rethink its approach to regulating transit trade. Instead of unilateral actions that disrupt trade, a more collaborative approach should be developed, utilizing the APTTA to boost Pakistan’s exports while ensuring mutual benefits from the trade agreement. This approach not only generates income through transport logistics services in Afghanistan but also provides Pakistan with substantial revenue through taxation and port utilization fees, fostering a more mutually beneficial relationship.

People-to-people contact is a cornerstone for long-term trade relations. Thus, business visa policies should be further relaxed, exploring options like visa-on-arrival, long-term multiple-entry visas, and investment-friendly visas for entrepreneurs and experienced staff. An urgently needed trade agreement should provide Afghan products better access to Pakistani markets and address smuggling issues. This agreement should incorporate a clear roadmap for regional tariff rationalization and double taxation elimination, supporting investments in both states.

Both nations should collaborate to facilitate the transit of Pakistani exports through Afghanistan to Central Asia and Afghan exports through Pakistan to India, while addressing non-tariff barriers, particularly at customs checkpoints on both sides of the border. Reforms at operational and policy levels are necessary to simplify trade by reducing the cost of inspecting shipments and enhancing security. Modern infrastructure, including roads and railway networks, is pivotal to economic ties. Both countries should prioritize infrastructure projects to minimize transportation costs, with the China-Pakistan Economic Corridor playing a vital role in trade development.

Despite these efforts, trade between the two countries has significantly decreased, influenced by factors such as regulatory duties on imports and the withdrawal of US and NATO forces from Afghanistan. This decline may adversely affect Pakistan’s transit, warehousing, and construction sectors, potentially impacting the livelihoods of residents in Balochistan and Khyber Pakhtunkhwa provinces. However, the geographical scenario offers trade potential due to the beautiful scenic tourist destinations in both countries.

Trade and cultural cooperation between Pakistan and Afghanistan can serve as a catalyst for addressing contemporary challenges like poverty, development, and terrorism. Achieving this requires a paradigm shift at the strategic level, emphasizing peaceful coexistence and respect for each other’s sovereign status as the cornerstone of their policy.

To enhance trade relations between Pakistan and Afghanistan, a multifaceted approach is vital. First and foremost, both nations should prioritize peaceful economic cooperation as a foundation for improving overall relations. This cooperation should encompass a substantial investment in trade and transit infrastructure, such as road and railway networks, aimed at reducing transportation costs and facilitating the smooth movement of goods between the two countries. Leveraging the Afghanistan-Pakistan Transit Trade Agreement (APTTA) to its fullest extent is crucial, fostering collaboration while eschewing unilateral actions that disrupt trade.

Furthermore, streamlining visa policies, including options like visa-on-arrival, long-term multiple-entry visas, and investment-friendly visas, will encourage greater people-to-people contact and stimulate business engagement.

A comprehensive trade agreement, complete with a well-defined roadmap for regional tariff harmonization and double taxation elimination, should be established to bolster trade. This agreement must address non-tariff barriers by promoting collaboration, particularly at customs checkpoints, to simplify trade procedures, reduce inspection costs, and enhance security. Investment in modern infrastructure projects, particularly those linked to the  China-Pakistan Economic Corridor, holds the key to minimizing transportation costs and driving trade development. 

Additionally, fostering cultural exchange and people-to-people contact can strengthen understanding and trade relations. Collaborating on regional initiatives to enhance economic integration and trade opportunities with neighbouring countries is also crucial. Addressing underlying issues such as cross-border infiltration, refugee problems, drug trafficking, and counter-terrorism policies through diplomatic and conflict resolution channels is essential. 

Lastly, diversifying trade into sectors beyond traditional goods and commodities, such as technology and services, can offer new avenues for economic cooperation. Developing a long-term vision for trade relations, one that transcends immediate challenges and emphasizes the mutual benefits of trade for both nations, is paramount to ensuring lasting economic growth and regional stability.

Opinions expressed in this article are those of the author.

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