Growing prospects for Pak-Afghan economic cooperation
By Alauddin Masood

There exist bright prospects for the growth of close economic collaboration between Pakistan and Afghanistan. The realisation by Afghanistan that in many areas especially in food supply its dependence on neighbouring countries and especially Pakistan is of vital importance.

The bilateral trade in the formal sector between both the geo-strategically located countries, along the historic silk route that connects this region with Central Asia, South Asia and the Middle East, has already considerably improved.

Against three million dollars in 2002, the bilateral trade in the formal sector between Pakistan and Afghanistan increased to 492 million dollars in 2003-04 and climbed up to 1.63 billion dollars in 2005-06, but it witnessed a decline of almost 400 million dollars in 2006-07 because the Pakistani manufacturers have been losing out to mainly Iranian and Indian competitors. However, Pakistan has targeted to increase its exports to Afghanistan to two billion dollars by 2010-11. Amongst Pakistan’s exports to Afghanistan, rice, textiles and garments top the list.

However, presently, most of the trade between Pakistan and Afghanistan takes place in the informal sector, where the volume of clandestine business (smuggling or re-routing of Afghan transit trade goods) between the two countries is estimated to be more than 10 billion dollars.

The formation of Pakistan-Afghanistan Joint Economic Commission (JEC) in 2002 offers tremendous opportunities to both the states to boost their bilateral trade. Pakistan signed its Afghan Transit Trade agreement in 1965 and now the formation of the JEC has made it possible for both the states to re-examine their trade ties and formulate plans to strengthen economic collaboration.

Meanwhile, Pakistan and Afghanistan have already taken various steps to consolidate their economic relations. The two states: (a) agreed to revive the transit trade agreement; (b) signed an investment protection treaty to create an investment friendly environment; (c) signed a Memorandum of Understanding (MoU) for the construction of highways in Afghanistan with the collaboration of Pakistani and Afghan contractors; (d) agreed to open branches of Pakistani and Afghan banks in Pakistan and Afghanistan respectively; and (e) agreed to start constructing a railway line between Chaman and Spin Boldak and between Chaman and Kandahar to boost trade.

On its part, Pakistan: (i) decided to reduce the negative list of six items under the transit trade agreement; (ii) agreed to open a trade route in Waziristan to facilitate transit trade; (iii) converted 100 million dollars aid to Afghanistan into a grant; (iv) announced the opening of ten more entry points on the Pakistan-Afghanistan border; (v) set up nine additional Custom stations in the border areas; (vi) granted 100 million dollars to refurbish schools and hospitals in Afghanistan; and (vii) decided to set up a warehouse, and heavy vehicle terminals at the border.

Earlier, for enhancing Afghan transit trade, Pakistan reduced port charges for Afghan goods by 50 per cent and railway charges by 25 per cent. Pakistan also authorised NLC to transport Afghan transit goods and declared Port Qasim to be an additional entry point for Afghan goods.

In 2008, to boost trade between Pakistan and Afghanistan and to remove hurdles in the way of bilateral trade, the Federation of Afghanistan Chamber of Commerce and Industry signed a Memorandum of Understanding (MoU) with the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) to form the Pak-Afghan Chamber of Commerce and Industry (PACCI). The scope of PACCI’s activities includes: exchange of information with regard to trade, economic cooperation and services between the two countries. The body will also prepare recommendations necessary for promoting more effective economic relations between the two countries and would submit it to their respective governments. It will also promote cooperation between both countries.

Meanwhile, Pakistan International Container Terminal has installed the country’s first container scanner system, having X-Ray Accelerated Technology with dual view scanning, i.e. both from the side and top of the containers to give a 3D image. The scanner provides non-intrusive examination enabling the Customs to view the goods without opening the containers. This would facilitate the trade by reducing the time and effort consumed by the conventional method of customs examination.

These moves indicate that Pakistan wants to utilise all possible resources to facilitate Afghan transit trade and also augment its legal trade with Afghanistan. Along with Turkmenistan, the two states have been engaged in discussions over the proposed Turkmenistan-Afghanistan-Pakistan (TAP) gas pipeline project. This is a major step towards promoting Pakistan-Afghanistan bilateral trade. In fact, it would be mutually beneficial for Pakistan and Afghanistan to make conscious efforts for trade between them as it would help both of them and, in particular, closely knit their economies to their mutual benefit.

But, the two countries cannot fully exploit the potential of increasing their bilateral trade and economic cooperation due to the continuing negative impact of the Afghan Transit Trade and the related smuggling on their economies in general and Pakistan’s economy in particular. Keeping this in view, Afghanistan needs to alleviate Pakistan’s concerns about smuggling, via transit trade, by improved customs administration.

Till recently, Afghanistan has been under utilised as a trading partner because of security concerns and the decayed status of its transportation and infrastructure, including system of payments through the formal banking channels. In fact, these very factors contributed to the emergence and growth of the informal sector, which has become very robust over the years.

It may be recalled that to facilitate Afghanistan’s foreign trade, the Government of Pakistan signed a transit trade agreement with the Government of Afghanistan in 1965, which allows both the parties the freedom of transit to and from their respective territories.

This UN brokered ATTA enables landlocked Afghanistan to import goods through ports in Pakistan without paying customs duties, dues or charges of any kind on transit traffic, except charges for transportation and the cost of services rendered. Even the railway freight, port and other dues, as per agreement, are subject to the most sympathetic consideration and have to be no less favourable than applicable on goods owned by Pakistani nationals.

But, over the years, the Afghan transit trade, facilitated by Pakistan since 1965 and ECO countries since 1997, has been massively abused by the unscrupulous elements to import products only to push most of them back into Pakistan clandestinely through over 100 natural passes that dot the 2400 kilometer long Pakistan-Afghanistan border. The specified routes for transit trade between Pakistan and Afghanistan are Peshawar-Torkham, Ghulam Khan Kelli and Chaman-Spinboldak. However, Afghanistan’s seven border provinces (namely Badakshan, Kunar, Ningarhar, Paktia, Zabal, Qandahar and Hilmand), which are connected to Pakistan’s Northern Areas, viz Chitral, Bajaur, Mohmand Agency, Kuram Agency, Northern Waziristan, Sourthern Waziristan and Balochistan, are being extensively used by some elements for cross-border movement of transit goods illegally.

With a view to give a boost to the trade in the formal sector, the economic managers of Pakistan and Afghanistan need to explore various economic options to tackle this problem in a way that is acceptable to both the countries and the world at large. The best option, which also appears logical in the context of the on-going economic globalisation process, is to establish a free-trade zone between NWFP-Pakistan and Afghanistan. This will greatly help the economies of NWFP and Afghanistan while, at the same time, bring smuggling down to a negligible level. A thriving NWFP economy would ultimately have a salutary impact on the entire economy of Pakistan.