PAKISTAN-AFGHANISTAN TRADE RELATIONS POST 9/11

ERA

Submitted By
Safi Ullah
(M.A Regional Studies )
Submitted To
Zahid Ali
(Lecturer )

Department Of Regional Studies University Of Peshawar

Session 2016-2017
 DECLARATION

I hereby declare that this dissertation is the result of my individual research and that it
has not been submitted concurrently to any other university for any other degree.

Safi Ullah.
 PAKISTAN-AFGHANISTAN TRADE RELATIONS POST 9/11 ERA

ABSTRACT
Soon after the terrorist attacks in the United States of America in 2001, allegations were held that
Al-Qaeda a terrorist organization was behind it. President George W. Bush demanded the Taliban
to hand over Osama bin laden (the top leader of Al-Qaeda) to the United States or otherwise
prepare for the consequences. They also demanded Pakistan to decide, either to support the war
against terror or the Taliban government creating a critical situation arose for Pakistan’s
government and policy. 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 unpredictable and after 9/11 the
trade has suffered a lot due unstable political conditions of both the countries. After trade-transit
agreement in 2010, the trade got a little bit increase. However, this study examines in detail that
how are the trade relations between the two countries after 9/11 incident and US attack on
Afghanistan
 ACKNOWLEDGEMENTS

I have no words to express my deepest gratitude to Almighty Allah. Who is the creator of whole
universe, without whom no task is possible and without whose name no endeavor is worth
undertaking. Thank you Almighty Allah for answering my prayers, for giving me the strength to
complete this research project successfully.
With profound gratitude and deep sense of devotion, I wish to thank my supervisor, Zahid Ali
Lecturer, Department of Regional Studies, University of Peshawar for his guidance and positive
criticism throughout this research made my work achievable.
Furthermore, I would, also, like to extend my regards to all the staff members of the Department
of Regional Studies.
Lastly and most importantly, I would like to extend my deepest regards to my parents, who
supported me throughout my academic career both morally and financially.
 CHAPTER – 1

INTRODUCTION

1.1 Introduction

Soon after the terrorist attacks in the United States of America in 2001, allegations were held that

Al-Qaeda a terrorist organization was behind it. President George W. Bush demanded the Taliban

to hand over Osama bin laden (the top leader of Al-Qaeda) to the United States or otherwise

prepare for the consequences. They also demanded Pakistan to decide, either to support the war

against terror or the Taliban government creating a critical situation arose for Pakistan’s

government and policy.1

Pakistan had friendly relations with the Taliban government in Afghanistan. Also it had to face the

growing pressure from USA and the West. This was crucial time for the government either to

support and sustain friendship with Taliban regime or to join hands with the US and her allies and

fight the former. As it is said that today’s friends are tomorrow’s enemies and today’s enemies are

tomorrow’s friends. Nothing is permanent in foreign policy but national interests. Pakistan in the

light of her broad national interests decided to take part in the so called ‘War on Terror.’ Pakistan

provided all sort of assistance to the US including aerial, logistic and intelligent sharing.2

Afghanistan is endowed with the wealth of natural recourses, including extensive deposit of natural

gas, Petroleum, sulfur, Lead, Iron, Chromate, Zink, Salt, and many precious and semiprecious

stones. Unfortunately due to the continuing conflict they could not make their best effort to explore

their recourses which can make their economy better. 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.3

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 unpredictable and after 9/11 the trade has

suffered a lot due unstable political conditions of both the countries. After trade-transit agreement

in 2010, the trade got a little bit increase. However, this study examines in detail that how are the

trade relations between the two countries after 9/11 incident and US attack on Afghanistan.4

1.2 Statement of the Problem

Pakistan and Afghanistan are two neighboring countries and have a number of commonalities.

Both are predominantly Muslim countries and share similar values, culture and civilization. Both

states are also a part of the South Asian Association for Regional Cooperation. Pakistan –

Afghanistan have a long history of being trade partners. Afghanistan has been a good market for

the Pakistani products ranging from food items to light machinery and engineering goods. After

9/11 attacks on the United States of American (USA), relation changed dramatically. US President

George W. Bush demanded from Pakistan to decide, either to support the war against terror or the

Taliban government. In this critical situation Pakistan changed their foreign policy and gave full

support to USA against Taliban government, which affected trade between the two countries.

However, this study is conducted to examine in detail the trading relations between the two

countries after 9/11 due to the fact that this has not been much focused in the literature.
1.3 Objectives of the Study

Below are the objectives of the study:

 To explore background of trade and business of Pakistan and Afghanistan

 To investigate post 9/11 trade relations between the two countries

 To study what is Afghanistan Pakistan Transit Trade Agreement and its impact on trade between

the two countries.

 To study external factors influencing trade between the two countries.

 Future prospects of trade relations between Pakistan and Afghanistan

1.4 Research Questions

Q1: What is the trading history of Pakistan and Afghanistan?

Q2: What is the impact of 9/11 incident on Pakistan-Afghanistan trading relationship?

Q3: What is Afghanistan Pakistan Transit Trade Agreement and what is its impact on trade

between the two countries?

Q4: What are the external factors that affects trade between the two countries?

1.5 Significance of the Study

This study is particularly focused on examining the trade relations between Pakistan and

Afghanistan after the 9/11 terrorists attacks on US.5 This study will be helpful to know about the

history of Pak-Afghan trade relations. This study will also provide evidence that why it is important

for Pakistan to engage in trade relations with Afghanistan as well as also the benefit for

Afghanistan in trading with Pakistan. Another significance of this study is that this study will

highlight the transit trade agreement between Pakistan and Afghanistan, and benefits for both the
countries and also the hurdles and myths about this trade agreement will be discussed in detail

which are important to know while studying the trading relations between the two countries.

Finally, this study is helpful to identify the external factors that make different hurdles in trade

between Pakistan and Afghanistan.

1.6 Research Methodology

This research study is qualitative as well as quantitative in nature. Most of the information for this

study are collected from secondary sources. The secondary sources that are used to collect

information for this study includes online libraries, online journals for searching related research

papers, books and different websites on the internet. The collected information is then analyzed

using views of different authors and writers and concluded that how the 9/11 terrorist attacks on

the United States of America affected trade relations between Afghanistan and Pakistan.

LITERATURE REVIEW

Journal of the Punjab University Historical Society Volume No. 31, Issue No. 1, January - June 2018

Kalsoom Hanif* Pakistan-Afghanistan’s economic relations after 9/11

Afghanistan is a landlocked country and always depended upon the cooperation of Iran, India and

Pakistan to develop its international trade links with the world through seas. Pakistan’s economic

relations with Afghanistan passed through various stages after the creation of Pakistan. From 1947

to 1965 their economic relations witnessed ups and downs owing to political reasons but once it

concluded Transit trade Agreement of 1965, their economic ties solidified despite all odds. By

concluding the Transit trade agreement of 2010 it ties between Pakistan and Afghanistan further

consolidated because now they became international trade partners. After 9/11 Pakistan provided

financial and technical assistance to the Afghanistan for its Reconstruction, Rehabilitation and
Development. This study argues that Pakistan and Afghanistan have unquestionable significance

for each other. especially for economic reason, make it compulsion for both the countries to have

cordial relations in their respective vested interests and larger interests of peace and prosperity in

regional and international context.

Pakistan and Afghanistan After 9/11: A Case of the Failing Bilateralism Muhammad Idrees1 * and Khalid

Anwar2 Review of Public Administration R and Management,2017

Soon after the terrorist attacks in the United States of America in 2001, allegations were held that

Al-Qaeda a terrorist organization was behind it. President George W. Bush demanded the Taliban

to hand over Osama bin laden (the top leader of Al-Qaeda) to the United States or otherwise

prepare for the consequences. They also demanded Pakistan to decide, either to support the war

against terror or the Taliban government. In the wake of this entire very critical situation arose for

Pakistan’s government and policy. Pakistan had friendly relations with the Taliban government in

Afghanistan. Also it had to face the growing pressure from USA and the West. This was crucial

time for the government either to support and sustain friendship with Taliban regime or to join

hands with the US and her allies and fight the former. As it is said that today’s friends are

tomorrow’s enemies and today’s enemies are tomorrow’s friends nothing is permanent in foreign

policy but national interests. Pakistan in the light of her broad national interests decided to take

part in the so called ‘War on Terror.’ Pakistan provided all sort of assistance to the US including

aerial, logistic and intelligent sharing [1]. Pakistan became a front line state in the war against

terrorism. This shift in the foreign policy is to be regarded as a U-Turn. Since that time till now

the relations between the two countries have never been cordial. Pakistan is seemingly losing her

position in Afghanistan and her Afghan policy is also failing. The policy makers and strategists

need to revisit their positions regarding the prospects of Pak-Afghan relations.

Aneela Tahir R & D Department. Pak-Afghanistan Trade Relationship.2013.

Afghanistan (Land of the Afghan) is a mountainous country in Central Asia with a history and

culture that goes back 5000 years. Throughout its long and sometimes chaotic history, this area of

the world has been known by various names. In the ancient times, the land was called Aryana by

its inhabitants. In the medieval era, it was called Khorasan, and in modern times, its people have

decided to call it Afghanistan. The exact population of Afghanistan is unknown, however, it is

estimated to be around 21-26 million. Afghanistan is being recognized as Islamic state. Economy

of Afghanistan Afghanistan’s economic growth has slowed but remains at satisfactory levels to

generate rising average standards of living. Real GDP growth is expected to close the fiscal year

2011-12 at 5.7 percent, down from 8.4 percent in 2010-11. The slowdown in growth was mainly

due to weather-related conditions which lowered agriculture output to below-average levels.

Economy: This year (2012-13) GDP growth is expected to pick up again and is projected to reach

7.1 percent. A sizeable financing gap will continue to exist through 2021 despite projections of

healthy growth in domestic revenue collection. At present, Afghanistan's economy is growing

strongly as a result of an exceptionally good harvest this year. Real gross domestic product (GDP)

growth will most likely close the calendar year at 10 percent, a significant increase from last year's

5.8 percent. The services and construction sectors continue to grow strongly, driven mostly by

continued high military spending and external aid. The good harvest has also brought Afghanistan

to near food self-sufficiency and slowed inflation to 4.6 percent in July 2012 (y-o-y). Progress in

the mining sector is clouded by uncertainty about a new mineral law. While investor interest in the

sector is encouraging, gaps in the legal and regulatory framework of the sector do not provide

sufficient confidence to investors to start operations or make firm commitments. Afghanistan's

economic growth prospects for 2012 give cause for optimism. Although real GDP growth slowed,
to around 7 percent in 2011 (from 8 percent the year before), due mainly to unfavorable weather

and a poor harvest, the agriculture sector rebounded strongly in 2012 and is expected to boost

economic growth to over 10 percent. Agriculture is an important component of economic growth.

1.7 Tentative Chapters

The study is organized in five different chapters. Chapter is introduction and includes introductory

background of the study, problem statement, research objectives, research questions, significance

of the study, research methodology. Chapter 2 will be divided into two different parts in the first

part the introduction to Afghanistan, introduction to Pakistan, economy of both the countries,

natural resources of both the countries and export and import partners of both the countries will

include and in the second part the post 9/11 trade between Pakistan and Afghanistan will be

mentioned. The chapter 3 will include the details of trade transit agreement between the two

countries and views of experts about this agreement from both the countries. The chapter 4 will

highlight the external factors that affects the trade between Pakistan and Afghanistan in detail. The

final chapter will be conclusion, which will conclude the study based on what is mentioned in all

the chapters. At the end of the study references will be provided in Turabian style.
References
1. Siddiqi, S. (2008) Afghanistan-Pakistan relations: History and Geopolitics in regional and

international context. Global Youth Fellowship Program.

2. Durani, M., Khan, A. (2002) Pakistan-Afghanistan relations; Historic mirror, M. Phil

Thesis, Department of Political Science, Qurtuaba University of Science and IT, Peshawar.

4: 52.

3. Siddique, Q. (2011) Pakistan’s future policy towards Afghanistan a look at strategic depth,

Militant movements and the role of India and The US (DIIS Report): 08: 16.

4. Ibid.,

5. Katzman K (2013) Afghanistan: Post-Taliban Governance, Security and U.S. Policy CRS

report for Congress Prepared for Members and Committees of Congress. 1: 51.
CHAPTER – 2

BACKGROUND AND POST 9/11 TRADE BETWEEN PAKISTAN

AND AFGHANISTAN

2.1 Introduction to Afghanistan

Afghanistan (Land of the Afghan) is a mountainous country in Central Asia with a history and

culture that goes back 5000 years. Throughout its long and sometimes chaotic history, this area of

the world has been known by various names. In the ancient times, the land was called Aryana by

its inhabitants. In the medieval era, it was called Khorasan, and in modern times, its people have

decided to call it Afghanistan. The exact population of Afghanistan is unknown, however, it is

estimated to be around 21-26 million. Afghanistan is being recognized as Islamic state.1

2.1.1 Geography of Afghanistan

Afghanistan is in the middle of Asia. The country is landlocked and mountainous, and has most of

the Hindu Kush mountains. There are four major rivers in the country: the Amu Darya, the Hari River,

the Kabul River and the Helmand River. The country also contains a number of smaller rivers, lakes,

and streams. Afghanistan has a total of 5529 km of borders - the longest part of the border (2,430 km)

is known as the Durand Line and forms Afghanistan international border with the Islamic Republic of

Pakistan. It is in the south and southeast of Afghanistan. The border with Iran, which is to the west of

Afghanistan, is 936 km. To the north are the Central Asian countries - Tajikistan has a border of 1,206

km with Afghanistan, Turkmenistan has 744 km, and Uzbekistan has 137 km. Afghanistan also has a

short border with China, it is 76 km in length and is in the far northeast of the country, although it is

disputed by both Pakistan and Tajikistan which lay irredentist claims on Wakhan area.
2.1.2 Demography of Afghanistan

Afghanistan's population is estimated at 37.21 million in 2019 based on the most recent UN data.

It's unclear how accurate these estimates may be, given that the last census was nearly 40 years

ago in 1979. This census estimated the population at 15.5 million. If the current estimate is correct,

then Afghanistan would be the 39th most populous country in the world, overtaking Morocco's

population ranking in 2018. Afghanistan is now just behind Canada in the world population lineup.

2.1.2.1 Capital of Afghanistan and Largest Cities

Most Afghans live in rural areas in tribal and kinship groups. Around 10% of the population lives in the

capital city, Kabul. Kabul's 2015 population is estimated at 3.1 million, which makes it the only Afghan

city with a population of more than 1 million. The second-largest city is Kandahar, with less than

400,000 people.

2.1.2.2 Afghanistan Population History

In 1979, a countrywide census was due to take place, but because of the Soviet invasion of

Afghanistan, it was never completed. However, early indications pointed to the figure of 15.5

million citizens that have already been quoted.

2.2 Economy of Afghanistan

Afghanistan’s economic growth has slowed but remains at satisfactory levels to generate rising

average standards of living. Real GDP growth is expected to close the fiscal year 2011-12 at 5.7

percent, down from 8.4 percent in 2010-11. The slowdown in growth was mainly due to weather-

related conditions which lowered agriculture output to below-average levels. At present,

Afghanistan's economy is growing strongly as a result of an exceptionally good harvest this year.2

Real gross domestic product (GDP) growth will most likely close the calendar year at 10 percent,
a significant increase from last year's 5.8 percent. The services and construction sectors continue

to grow strongly, driven mostly by continued high military spending and external aid. The good

harvest has also brought Afghanistan to near food self-sufficiency and slowed inflation to 4.6

percent in July 2012 (y-o-y).3 Progress in the mining sector is clouded by uncertainty about a new

mineral law. While investor interest in the sector is encouraging, gaps in the legal and regulatory

framework of the sector do not provide sufficient confidence to investors to start operations or

make firm commitments. Afghanistan's economic growth prospects for 2012 give cause for

optimism. Although real GDP growth slowed, to around 7 percent in 2011 (from 8 percent the year

before), due mainly to unfavorable weather and a poor harvest, the agriculture sector rebounded

strongly in 2012 and is expected to boost economic growth to over 10 percent. Agriculture is an

important component of economic growth.

Import to Export Ratio of Afghanistan is very high, in the year 2016 imports are almost eleven

times larger than exports. The key exports of Afghanistan include vegetable saps, fresh and dried

grapes, carpets and other textile floor covering, fresh fruits and dried fruits. The top imports of

Afghanistan are wheat and meslin flour, braids of textile material, animal or vegetable fats and oil,

petroleum gas, machinery and surgical instruments. Major importers of Afghani products are

Pakistan, India, Iran Turkey and Iraq while top origins for Afghani imports are Iran, Pakistan,

China, Kazakhstan, and Uzbekistan.4

In 2017 Pakistan exported goods worth $1.3 billion to Afghanistan. Pakistan is the largest importer

of Afghani Products with imports of $369 million while Afghanistan is the 4th largest destination
for Pakistan Exports. Due to the consistent decline in trade volume since 2012, the bilateral trade

between Pakistan and Afghanistan is diminishing.5

2.3 Natural Resources of Afghanistan

Despite the infusion of international assistance much of the population continues to suffer from

shortages of housing, clean water, electricity, medical care, and jobs. Afghanistan is remarkably

rich in natural resources. There are currently more than 1,400 identified mineral deposits like

natural gas, petroleum, and coal, marble, precious and semiprecious stones, gold, copper, chromite,

talc, barites, sulfur, lead, zinc, iron ore and salt. Some of these resources are extensive deposits of

natural gas, petroleum, coal, copper, chromite, talc, barites, sulfur, lead, zinc, iron ore, salt, and

precious and semiprecious stones.6

2.4 Afghanistan’s Main Industries

Afghanistan’s main industries are small-scale production of textiles, soap, furniture, shoes,

fertilizer, and cement; hand woven rugs; natural gas, apparel, food-products, petroleum, coal and

copper. Agriculture accounts only for 30% of the GDP, but it is a source of income for 80% of the

population.7

2.5 Exports and Imports Of Afghanistan

The following are the major commodities that form the basis of Afghanistan’s economy:

 Export commodities include fruits and nuts, hand-woven carpets, wool, cotton, hides and

pelts, precious and semi-precious gems.

 Imports include machinery and other capital goods, food, textiles, petroleum products.

2.5.1 Export Partners of Afghanistan

The major export partners of Afghanistan include:

 India 25.5%

 Pakistan 25.9%

 US 14.9%

 Tajikistan 9.6%

 Germany 5%

2.5.2 Import Partners

The major import partners of Afghanistan include:

 Pakistan 23.3%

 US 29.1%

 Germany 4.2%

 India 7.6%

 Russia 4.5%

2.6 Pakistan and Afghanistan Trade Current Scenario

Pakistan is the largest importer of Afghani products with imports of $369 million while

Afghanistan is the 4th largest destination for Pakistani exports. During the last five years, the trade

volume between Pakistan and Afghanistan has declined from $2.3 billion to $1.4 billion. Pakistan

is losing its market share in Afghanistan due to the entrance of Iran and India. Pakistan was the

top origin for Afghanistan’s imports, but since 2014 Iran has taken away the first position from

Pakistan. Primary reasons for declining exports include dispute on Afghan-Pakistan Transit Trade
Agreement, trade controls at borders, deterrence of Indian imports in Afghanistan via Pakistan,

and closure of borders.8

Most of the exports to Afghanistan include agricultural products. The reason is that Afghanistan

prefers to import agricultural products from neighboring countries like Pakistan, Iran, and

Tajikistan due to low cost. Wheat, cement, sugar and, rice are the top products which Pakistan

exported to Afghanistan in 2016. For some of the products, the market share of Pakistan is more

than 90%.9

The potential export items identified are based on the criteria of supply, demand and market share.

Items are preferred to be included as a potential product if Pakistan has enough supply, Afghanistan

has high demand, and existing market share of Pakistan is low for the specific item. The filtered

products are the surgical instruments, soap, rubber tires, milk and cream, and footwear. Pakistan

already has a high market share for a number of products, but it can be further improved because

Afghanistan is a developing country and has a high dependency on Pakistan. For each potential

item ranking of Pakistan and other suppliers has been calculated based on Export Competitive

Index and compared with preceding years. Pakistan’s Competitiveness is weakened for medical

instruments and soap while other products either improved or maintained their competitiveness.

Lack of transparency and ambiguous custom procedures make it difficult to trade in Afghanistan.10

Moreover, World Bank (2014) placed Afghanistan at 184th place out of 189 regarding trading

across the borders. There are several demand and supply issues like the undeveloped banking

system, poor infrastructure, weak legal system, deteriorating security situation, trade controls and

closure of borders which further hinder trade. Moreover, exports to Afghanistan can be improved

by arranging more exhibitions, facilitating exporters, renegotiating improved terms for the APTTA

and narrowing trust deficit.

2.6.1 Potential Trade Scenario

The following table depicts the top 15 items exported to Afghanistan in 2016 with the percentage

change in value as compared to 2015, the share of that product in Pakistan’s exports and tariff

faced by Pakistan for a particular product. It can be observed that in top 15, most of the products

are agricultural commodities. Furthermore, for some of the products like wheat or meslin flour,

cane or beet sugar, vegetable fats and oils, household articles, fiberboard, milk and cream and fresh

or dried bananas Afghanistan is the leading destination, as more than 90% exports of these items

are to Afghanistan only. It is because Afghanistan prefers to import agricultural products from

neighboring countries like Pakistan, Iran, and Tajikistan due to low cost.
By comparing the value of the major products with the year 2015, it can be seen that most of the

products, export value has declined in 2016. Fresh or chilled potatoes, cane or beet sugar, and

wheat or meslin flour, faced a substantial decline of 62%, 47%, and 47% respectively. Pakistan

suffered the highest tariff of 16% on fresh and chilled vegetables. Pakistan being a member of

SAFTA, pays 2% less tax on fresh or dried bananas and 1% less tariff on fresh or dried mandarins

and household articles as compared to non-member countries of SAFTA.

2.7 Pakistan and Afghanistan Trade Relations After 9/11

Ever since the 9/11 attacks on the Pentagon in Washington and Twin Towers in New York, the

US has been involved in the war on terror in Afghanistan. From 9/11 to present, new alignments

have either been forged or are continuing in the region: PakistanUS informal alliance in the US

war on terror to combat Al Qaeda related terrorism on Pak-Afghan border from 2001 to present,

Indo-US strategic partnership of 2005, Indo-Afghan strategic partnership of 2011 and Pakistan-

China strategic friendship which has endured. In order to understand the nature of conflict and

cooperation in the region, it is important to comprehend the nature of the great game in Central

Asia and its impact on issues of war and peace in South Asia. In the region, this study will stress

the relationship between India, Pakistan and Afghanistan and examine its effect on Pakistan’s

security post 9/11.11

The renewed bilateral diplomatic and political relations between Pakistan and Afghanistan auger

well for establishing sound economic relations. The current Pakistan-Afghanistan bilateral trade

stands at one billion dollars against three million dollars in 2002. The formation of the Pakistan-

Afghanistan Joint Economic Commission (JEC) in 2002 has offered tremendous opportunities to

both states to boost their bilateral trade. Pakistan signed its last Afghan Transit Trade (ATT)

agreement in 1965 and now the formation of the JEC has made it possible for both states to re-

examine their trade ties and formulate plans to strengthen economic collaboration.12

Pakistan and Afghanistan have taken various steps to consolidate their economic relations. The

two states:

agreed to revive the transit trade agreement;

 Signed an investment protection treaty to create an investment friendly environment;

  Signed a Memorandum of Understanding (MoU) for the construction of highways in

Afghanistan with the collaboration of Pakistani and Afghan contractors;

 Agreed to open branches of Pakistani and Afghan banks in Pakistan and Afghanistan

respectively;

 Agreed to start constructing a railway line between Chaman and Spin Boldak and between

Chaman and Kandahar to boost trade.

On its part, Pakistan:

 Decided to reduce the negative list of six items under the transit trade agreement;

 Agreed to open a trade route in Waziristan to facilitate transit trade;

 Converted 100 million dollars aid to Afghanistan into a grant;

 Announced the opening of ten more entry points on the PakistanAfghanistan border;

 Set up nine additional custom stations in the border areas;

 Granted 100 million dollars to refurbish schools and hospitals in Afghanistan;

 Decided to set up a warehouse, and heavy vehicle terminals at the border.

These moves indicate that Pakistan wants to utilize all possible resources to augment its 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.

Following the 9/11 incidents and the resultant environment in the region, the interdependence of

Afghanistan and Pakistan has followed an upward trend. The problems which both the countries

share and the points of convergence on major issues, especially terrorism, make cooperation and

regular consultation an imperative element in their bilateral relations. The strategic equation
between Pakistan and Afghanistan compels the two states towards maintaining friendly relations.

Afghanistan has strategic significance for Pakistan as a gateway to Central Asia. Now, with an

entirely new political set-up, the future relationship between Pakistan and Afghanistan could be

one of close economic collaboration.13

References

1. Meredith, L. R. (1994). The History of Afghanistan, 2nd Edition.

2. Sengupta, K. (2010). Afghanistan's resources could make it the richest mining region on

earth. Independent.co.uk. Retrieved 2019-03-15.

3. Haack, B. (1998). Remote sensing change detection of irrigated agriculture in Afghanistan.

Geocarto International. 13: 65–75. doi:10.1080/10106049809354643.

4. Kay, C., Najafizada, E. (2017). Ghani Says Afghanistan Hit by 'Undeclared War' From

Pakistan. Bloomberg. Retrieved 8 Mar 2019.

5. Ibid

6. Lalit, K. J. (2011). Huge rare-earth material in Helmand. USGS Archived 2016-01-24 at

the Wayback Machine.

7. Dawn (2010). Agreement reached on Afghan–Pakistan gas pipeline. Karachi, 11

December. Retrieved from http://beta.dawn.com/news/590414/agreement-reached-on-

afghan-pakistan-gas-pipeline.

8. UNHCR (2013). UNHCR country operations profile—Pakistan. Retrieved 13 June 2013,

from http://www.unhcr.org/pages/49e487016.html.

9. UNODC (2012). World drug report 2012. Vienna: United Nations Office on Drugs and

Crime. Retrieved from http://www.unodc.org/documents/data-and-

analysis/WDR2012/WDR_2012_web_small.pdf.

10. ADB (2013). Key indicators for Asia and the Pacific: Pakistan. Manila: Asian

Development Bank. Retrieved from

http://www.adb.org/sites/default/files/ki/2013/pdf/PAK.pdf.
11. Ahsan, M. B. (2013). A census without consensus. The Daily Star, 17 June. Retrieved from

http://archive.thedailystar.net/newDesign/news-details.php?nid=195122.

12. Ali, M. (2011). Frontier crimes regulation: Centuries-old law will take time to ‘reform’. The Express

Tribune, 2 December. Retrieved 29 July 2013, from http://tribune.com.pk/story/301002/frontier-

crimes-regulationcenturies-old-law-will-take-time-to-reform

13. Chatterjee, K. (2013). Pakistan and Afghanistan: Of instability and umbilical ties’, in K. Chatterjee

(Ed.), Pakistan and Afghanistan. The (in)stability factor in India’s neighbourhood (pp. 35–55). New

Delhi: KW Publishers.
CHAPTER – 3

TRANSIT TRADE AGREEMENT BETWEEN AFGHANISTAN AND

PAKISTAN

3.1 History and Background of Pakistan-Afghanistan Trade Relations

Afghanistan and all the south Asia have a very long history and holds a very key position in the

geography of the World. The regions Cultural values, Relations and backgrounds are very similar.

From the invasion of Alexander the Great to the Islamic Conquest all the in land routes to central

Asia was always been Afghanistan and Persia.1

Trade has always been the prime objective of invasions and acquiring resources the British India

Company when came to India the basis was the trade. That has always lead to land disputes as

control over resources has always been a issue. In 1896 an agreement was signed named “Durand

Line Agreement” between Sir Mortimer Durand a British Diplomat in British India and Abdur

Rehman Khan the Afghan Amir. The reason for that was to fix the power of influence and Improve

Diplomatic and Trade Relations.2

Afghanistan and Pakistan share Multiple strands of History, Culture, Religion and civilization. The

Durand line between the Two countries is the border where many villages lie half and half in

Afghanistan and Pakistan as well there are houses having one door in Pakistan and the other in

Afghanistan. This ascertains the extent to which these two countries carry similarities.3

with all the similarities in culture tradition the relations between the two countries have been poor.

Afghanistan and Pakistan cut off their Diplomatic relations in 1961. Many comment that

Afghanistan tried to take advantage of newly born Pakistan instability as it had good relations with
India and USSR that time it is also believed that the Politicians in the Khyber Pakhtunkhua region

in Pakistan are also pro Afghanistan since beginning. In 1965 both countries reach to a trade

agreement called APTTA to promote trade in the region as Afghanistan is a land locked country

and Pakistan also wanted the access to the countries in the west of Afghanistan.4

During the decade of 1980s when soviet Afghan war started these trade routes were used to support

the Mujahideen fight USSR and Pakistan backed Afghanistan in every possible way. The trade

and exports to Afghanistan had been an important deal to Pakistan as Pakistan holds a very key

geographical position in the region.

Fig 3.1: Map Showing Border Area between Pakistan and Afghanistan
3.3 Afghanistan – Pakistan Trade Transit Agreement (APTTA)

The Afghanistan–Pakistan Transit Trade Agreement (also known as APTTA) is a bilateral trade

agreement signed in 2010 by Pakistan and Afghanistan that calls for greater facilitation in the

movement of goods amongst the two countries. 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.5

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. 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.6

The agreement provided Pakistan access to every country bordering Afghanistan, with access to

Iran via the Islam Qila and Zaranj borders, Uzbekistan via the Hairatan border, Tajikistan via Ali

Khanum and Sher Khan Bandar crossings, and Turkmenistan via the Aqina and Torghundi border

crossings. Pakistani imports and exports are granted permission to enter Afghanistan via border

crossings at Torkham, Ghulam Khan, and Chaman. The APTTA calls for various measures to

counter smuggling of duty-free goods into both Pakistan and Afghanistan by mandating: tracking

devices of goods, banking guarantees and special bonded carrier licenses for transit trucks,

vehicular tracking systems, and container security deposits. The Afghanistan-Pakistan Transit

Trade Coordination Authority (APTTCA) was created to coordinate the Afghanistan–Pakistan

Transit Trade Agreement and meetings are held.7

Pakistan is not the only country through which imports and exports of Afghanistan are Transiting.

Afghanistan also has transit agreements with Iran, Tajikistan, Turkmenistan and Uzbekistan. The

share of these countries in terms of the transit load provided to Afghanistan is given in Figure 3.

Pakistan leads the list with 34 percent followed by Uzbekistan and Iran. Below graph shows the

share of countries Allowing Transit to Afghanistan.

 Fig 3.2: Share of Countries Allowing Transit to Afghanistan

3.3.1 Proposed Inclusion of Tajikistan

In July 2012, Afghanistan and Pakistan agreed to extend APTTA to Tajikistan in what will be the

first step for the establishment of a North-South trade corridor. The proposed agreement will

provide facilities to Tajikistan to use Pakistan's ports and the Wagah Border for its imports and

exports while Pakistan would be granted rights to transit goods across Tajik territory to Kyrgyzstan

and Uzbekistan. Afghanistan's President Ashraf Ghani in 2015 made clear that Tajikistan cannot

be included in the trade agreement until Indian goods are offered the right to export goods to

Afghanistan across Pakistani territory, which is in direct contradiction of Articles 5 and 52 of the

signed Agreement which specifically forbids Indian goods and transporters this right.8
3.4 Afghan Transit Trade during Pre and Post-APTTA Period

The below table shows percentage of Afghan transit trade through Pakistan.

Table 3.1: Afghanistan Transit Trade through Pakistan

According to the above table the share of Afghan transit trade through Pakistan in the year 2006

was 30%, in 2007 declined to 21% and recorded lowest in 2008 i.e. 19% in pre APTTA period or

under ATTA. Share of Afghan transit trade via Pakistan under APTTA was 22% in 2011, increased

to 42% in 2013 and recorded highest in post APTTA period for the year 2014 i.e. 58%. Despite

the fact that exports to Afghanistan by countries sharing no border with Afghanistan have fallen

from $7.9 billion in 2011 to $4.3 billion in 2014, Pakistan’s share in Afghan transit trade has

increased from 22% in 2011 to 58% in 2014 (Samir and Attarwala, 2015). It reflects that the

decline in Pakistan’s share in Afghan transit trade during the immediate post APTTA period was

not entirely due to terms and conditions of APTTA. One can argue that in the face of deteriorating

law and order situation in Pakistan plus the worsening relations between US/NATO due to Salala
and Abbottabad incidents, the share of Afghan transit trade via Pakistan declined during the years

2011-12-13.9

There are several reasons that are responsible for a decline in Afghan transit trade through Pakistan

during the immediate post APTTA period can be summarized as following:

 In addition to the law and order situation in Pakistan and deteriorated relations between

Pakistan and US/NATO as mentioned above, it seems that Afghanistan’s imports also

dropped during 2011 to 2014 which is the cause of fall in transit trade via Pakistan.

 According to Afghan traders, transit trade via Pakistan costs a single container $5000 while

through Iran $3500. The cost of doing business might be increased due to the condition of

 providing insurance guarantee equal to livable taxes, duties on Pakistani imports as

insurance companies charge a premium of 0.5 to 0.7 percent of the amount. Insurance

Guarantee through Banks is even more expensive. Financial guarantee plus the tracking

device on bonded carriers to avoid any diversion from designated routes have increased the

cost of transition by 25 percent. While in Iran no such condition has been included in their

bilateral transit trade agreement with Afghanistan.

 Underpowered and outdated trucks, poor connectivity infrastructure and unnecessary delay

at customs due to problems in scanning devices causing demurrage to Afghan importers.

 FBR might have diverted its focus from Afghan transit trade as it does not yield any

customs duty and therefore unnecessary delay follows which results in avoidable

demurrage charges.

 According to one source, port handling and other charges for Afghan transit traders are

almost double i.e. Rs. 291400 in comparison to that for Pakistani traders which are just

around Rs. 14268.

  It is also reported that the transportation cost through Pakistan has increased in the range

of Rs. 50000 to Rs. 80000. The reason might be that bonded carriers have to fulfill certain

criteria including the financial bond/agreement of Rs. 25 million to Rs. 50million as

financial guarantee or security.

 It is also reported that the transportation cost through Pakistan has increased in the range

of Rs. 50000 to Rs. 80000. The reason might be that bonded carriers have to fulfill certain

criteria including the financial bond/agreement of Rs. 25 million to Rs. 50million as

financial guarantee or security.

 The deterioration in the capacity of Pakistan Railways for freight transport has also

undermined Pakistan competitiveness for transit trade. At present, the major portion of the

transit goods is being transported through the roads network which is also in vanishing

form.

3.5 Illegal Trade Across the Border

Illegal trade across Pakistan‘s borders with neighboring countries and the coastline is widely acknowledged.

It contributes to the informal economy which evades taxes, deals in contraband, and other criminal

activities. The size of the informal economy in Pakistan is large. A State Bank of Pakistan study 18

concludes that the size of the informal economy in Pakistan has been around 30% of GDP in the 2000s

(Arby, Malik, & Hanif, 2010). The SBP estimate means that Pakistan‘s informal economy was

approximately US$ 34 billion in 2009/10 according to a UNODC funded study in 2011.19 ―While the

illegal economy raises the cost for conducting legal economic activities, it also weakens states, threatens

development opportunities, undermines the rule of law and keeps countries trapped in a cycle of poverty

and instability. Proceeds of the illegal economy find their way into the world‘s formal economies every

year through money-laundering and acquisitions of legal assets. Illegal economic activities also fund the
activities of international organised crime groups and finance insurgent groups active in conflict zones

throughout the world.10

The UNODC study adds further that ―Pakistan is uniquely challenged by the nexus between crime and the

illegal economy due to its geographic location. The country‘s relations with its neighbors, particularly

Afghanistan, are complicated by cross-border criminality, which in turn creates a thriving regional illegal

economy orchestrated by complex informal and formal organized criminal networks.‖ (SDPI & UNODC,

2011).

Illegal trade across the Pakistan-Afghanistan border is nothing new to the porous border. Renewed focus

on illegal trade in discussions between Afghanistan and Pakistan stems from evidence that illegal trade has

flourished in the cover of Afghan transit trade. Illegal trade associated with transit trade is conducted in two

ways:20 transit diversion (in which goods in transit through Pakistan, never reach the destination and are

diverted for sale in Pakistan; and illegal re-export (where goods reach Afghanistan but are subsequently

smuggled back into Pakistan across the porous border). There is no consensus on the estimate of illegal

trade associated with Afghan transit trade, and estimates vary from study to study. The Pakistan Business

Council study concludes that the difference in the value of transit trade reported by Pakistan and

Afghanistan (reflecting illegal trade diversion) remained high at $1.0 billion in 2014 (post APTTA) but

much less than $2.9 billion in 2010 (the last year of ATTA). There are few estimates of illegal re-exports

from Afghanistan which make their way to Pakistan across the porous border over mountainous passes and

through FATA.11

As always, the incentive for illegal trade comes from a price differential (or quantitative restriction) between

the domestic economy and across the border. Studies have concluded that for some goods transiting through

Pakistan, the level of Afghan imports bear no relevance to the consumption levels in Afghanistan and that

many of these goods are primarily meant for Pakistani markets to benefit from the tariff differential between

the two countries. ―Pakistan‘s tariff rates are generally higher, particularly for the types of goods where it
is argued that substantial amounts of unauthorized trade are taking place. Pakistan‘s average tariff rate is

14.5 percent, about 2.5 times the average tariff for Afghanistan (i.e., 5.65 percent).

Whatever the size of the illegal trade across the AfghanistanPakistan border and whatever methods are

used, its impact on Pakistan‘s economy is significant. One, it causes a loss to the government in tax revenues

and duties, and two; it adversely impacts legal businesses and industry (USAID Pakistan, 2014). Pakistan‘s

concerns about illegal trade in discussions about transit trade are genuine and serious. There is a need to

take effective steps to reduce illegal trade without restricting transit trade. Illegal trade can be reduced by

improving border procedures, strengthening the bonded transport and guarantee system, especially build

the institutional and financial apparatus to implement the TIR Convention system.

Suggestions to harmonise tariff rates between the two countries to reduce incentives for illegal trade are

unrealistic in general although on a few items it‘s possible. Pakistan‘s tariff rates are set in view of the

protection considerations of a complex economy with a relatively large industrial base, and in other cases

with a view to raise revenues for a government of a large economy. In contrast, Afghanistan has no

industrial base in relative terms, and tariffs have been set at low levels to stimulate trade and lower the

burden on consumers.22 Revenue generation is an important consideration for Afghanistan as well, but till

recently it has been dependent on donor assistance and own revenue generation has been low. With such

diverse approaches to tariff determination, the two countries are unlikely to reach agreement on the level

of tariffs on all items in tariff structure. There will always be some items for which there is a strong price

differential between the two countries, creating an incentive for illegal trade. And in any case illegal trade

will continue if smugglers can avoid paying customs in Afghanistan where government control and tax

administration is relatively ineffective in the war torn country. The answer lies in better border controls,

and strengthening the bonded transport and guarantee system.

3.6 Salient Features and Basis for APTTA

The salient features of APTTA includes: freedom of Transit to both countries, allowing Pakistan

access to Central Asian Republics, allowing Afghanistan access to Pakistan’s sea ports and

allowing Afghanistan access to Wagah for its exports to India. The agreement does not allow

Indian Exports to Afghanistan through Wagah Land Border.

The 1965 Agreement does not specify entry, exit and designated routes for Pakistan’s exports to

Central Asia through Afghanistan. In 1965 Central Asian Republics were part of USSR which did

not allow entry of Pakistani origin goods through Afghanistan. Bulk of the present exports of

Pakistan to Central Asia through Afghanistan are being declared as Afghan origin. The official

exports of Pakistan to Central Asian States are US $ 20 million in the total imports market of US

$ 70 billion in 2009. This low volume amongst other things is the result of low accessibility of

Pakistani exporters to Central Asian countries (Figure 3.3).

Fig 3.3: Connectivity of Pakistan to Central Asian Countries Through

Afghanistan
In the absence of any legal cover in the 1965 Agreement, Pakistani exporters are currently paying

110% of the value of the goods as security to Afghan Government for transit to Central Asia

irrespective of the ownership of transporting vehicles. It takes more than a year to get the security

released from the Afghan authorities through a non transparent mechanism. The exporters from

Pakistan have to file registration with multiple Ministries and Agencies of Afghanistan.

In view of the above, an Afghanistan – Pakistan Transit Trade Coordination Authourity will be

co-chaired by Secretary Commerce and Deputy Minister for Commerce of Afghanistan and

include representatives from relevant government Ministries and Chambers of Commerce. This

Authority will monitor effective implementation of the agreement, formulate and monitor

measures to curb smuggling and resolve disputes regarding the interpretation or the

implementation of the Agreement.

Under the new agreement the rights have been secured on permanent basis with legal cover for the

following entry and exit points for Pakistan’s exports:

 Torkham to Hairatan (with Uzbekistan)

 Torkham to Torghundi (with Uzbekistan)

 Torkham to Ai Khanum (with Tajikistan)

 Torkham to Sher Khan Bandar (with Tajikistan)

 Torkham to Aqina (with Turkmenistan)

 Torkham to Torghundi (with Turkmenistan)

 Chaman to Islam Qala (with Iran)

 Chaman to Zaranji (with Iran)

Afghan trucks will be allowed access to sea ports carrying Afghan cargo for exports. Only those

trucks which are carrying Afghan cargo or exports beyond Pakistan would be allowed to lift

Afghanistan imports which Transit through sea ports. Only Afghan trucks having valid permits

duly cleared by biometric security systems will be allowed entry. Afghanistan is allowed to use

Pakistani trucks for transit of their Imports from Pakistani ports to Afghanistan. Empty Afghan

trucks would not be allowed entry to lift afghan Imports from sea ports. Afghan trucks will be

allowed to travel upto sea ports and Wahga land border station on designated routes only. The law

enforcement agencies to ensure their monitoring and security through modern tracking methods.

If Pakistan had not allowed this concession to Afghanistan, Pakistani trucks would not have been

allowed a similar concession to carry exports to Central Asia through Afghanistan.

3.7 Trade Relations Between Afghanistan And Pakistan Post 9/11 Incident

After 9/11 attacks in the US the situation further got worse as the two countries struggled to

facilitate their relationship with each other. Pakistan as an ally of the USA supported the troops

deployed in the region by the US to over throw and take charge of Afghanistan and the War on

terrorism took a major turn.

As per the Government claims Pakistan was given huge amounts to support the US led NATO in

Afghanistan and Pakistan also believed that this alliance will help Pakistan to restrain terrorist not

to create problems for Pakistan as US is well equipped to handle the situation. this increased the

trade for Pakistan as all the NATO supplies reach Karachi Sea Port and then Transported to

Afghanistan as usual but unfortunately the war on terrorism directly effected Pakistan making it a

war torn Country since last 16 years.

In July 2010, a revised MoU was reached between Pakistan and Afghanistan for the Afghan Pak

Transit Trade Agreement (APTTA), which was observed by United States Secretary Hillary

Clinton. Both countries also signed MoU for the construction of railway tracks to connect

Afghanistan with Pakistan. In October 2010, Pakistan Chamber of Commerce and Afghanistan

Chamber of Commerce signed this landmark agreement APTTA. Number of representatives

around the world including foreign ambassadors attended the ceremony. The APTTA allows

Afghan trucks to drive inside Pakistan to Wagah border and to ports cities of Pakistan. The APTTA

is intended to improve trade between the both countries and for this both countries have formed

the joint Chamber of Commerce for the trade expansion to solve the problems trader face.
References
1. Seddon, D. (2004). A Political and Economic Dictionary of the Middle East. Routledge. p. 15. ISBN 978-

1-85743-212-1.

2. Siddiqui, A. Q. (2010). Afghan-Pakistan chamber of commerce set up. Pajhwok Afghan News. Archived

from the original on 27 July 2011. Retrieved 10 March 2019.

3. Kakar, J. H. (2010). "Pakistan, Afghanistan ink MoU on rail links". Pajhwok Afghan News. Archived

from the original on 13 March 2012. Retrieved 10 March 2019.

4. Muzhary, F. (2010). Landmark trade pact inked with Pakistan. Kabul, Afghanistan: Pajhwok Afghan

News (PAN). Retrieved 11 March 2019.

5. Afghanistan Pakistan Transit Trade Agreement 2010 (PDF). Pakistan Ministry of

Commerce. p. 28. Retrieved 7 March 2019.

6. Aneja, A. (2015). Xi comes calling to Pakistan, bearing gifts worth $45 billion. The Hindu.

Retrieved 23 April 2015.

7. Hussain, I. (2015). The Future of Afghanistan-Pakistan Trade Relations. United States

Institute of Peace. Retrieved 9 March 2019.

8. The News International (2011). Afghan-Pakistan Trade Transit Deal Extended to

Tajikistan. The Gazette of Central Asia. Satrapia. Retrieved 13 March 2019.

9. Haidar, S. (2015). Pakistan must open Wagah for trade: Ghani. The Hindu. Retrieved 17

February 2019.

10. Muzhary, F. (2010). "Landmark trade pact inked with Pakistan". Kabul, Afghanistan: Pajhwok Afghan

News (PAN). Retrieved 28 October 2019.

11. Landler, M. (2010). Afghanistan and Pakistan Sign a Trade Deal, Representing a Thaw in Relations.
The New York Times. Archived from the original on 13 June 2013. Retrieved 3 September 2010.
CHAPTER – 4

FACTORS THAT AFFECTS THE TRADE BETWEEN PAKISTAN AND

AFGHANISTAN

4.1 BILATERAL TRADE BETWEEN PAKISTAN AND AFGHANISTAN

4.1.1 Afghanistan-Pakistan Bilateral Connectivity

During couple of years few elements have severely affected the confidence building measures

initiated by both the Governments for enhancing the cordial relationship between the two

neighboring countries. These mainly includes weak border management system promoting

informal trade, rise in unofficial payments across the border, political and legal insecurity, lack of

tariff parity or rationalization, coordinated investments by India and Iran in Afghanistan in contrast

to Pakistan, enhancing role of Iran as a transit route to Afghanistan, penetration of India, Turkey

and China as significant trade and development partners in Afghanistan and lack of facilitation in

the context of transit and trade matters from Pakistan.1

Unregulated traffic across a rugged but porous border has been a sticking point and a major security

concern throughout. In addition to an estimated 6,000 illegal border crossings per day, this

unmanageable border facilitates a vast black economy that flourishes on the illicit drug trade and

smuggling.2

The pending bilateral talks between the two countries have significantly affected trade and social ties in

recent past. Not only it has led to decline in trade and transit, but has also shifted Afghanistan‟s focus to

other regional neighbors. India in the recent past has contributed both in terms of donations and subsidies

to Afghanistan and also by offering competitive tariffs. Iran has also improved its infrastructure and
offering better facilities and tariffs to Afghanistan that resulted in an intensive shift in both transit and

bilateral trade from Pakistan.3

The decline in aggregate demand and purchasing power in Afghanistan, as a result of the withdrawal of

NATO Forces from Afghanistan and declining International donor funding for development projects, is also

causing overall reduction in Afghanistan‟s imports. However, as much as this corridor is important for

Afghanistan, it is needed to be understood that this is the major partner with which Pakistan has a positive

trade balance and losing this opportunity reflects in economic devastation in Pakistan also mainly in

border areas, where dependence on their economic activities is greatly on Afghanistan. The congenial

relationship between both the countries will not only ensure economic stability, but also peace and

prosperity. This would also strengthen regional connectivity in totality.4

Recently all Central Asian Republic countries have shown their interest in joining CPEC, whereby

Afghanistan and Iran has also shared same sentiments previously. The productive relationship between

these two countries will help pave ways for economic development across the belt. Recent visits to

Afghanistan by Honorable COAS and H.E. Prime Minister of Pakistan and subsequent meetings of Finance

ministers of both the countries in Washington has shown the ray of light and have reinstated the hopes

of the private sector across the border. The commitments pertaining to segregating economics from

political and security issues, avoiding border closures and improving both transit and bilateral trade

procedures are crucial confidence building measures. The announcement to rejuvenate table-talks,

especially holding JEC meeting after June 2018 is an initiative in the right direction. However, materializing

the commitments on due deadlines is of greater importance. Despite all odds, long-standing trade and

social relations, religious and geographical proximity, business stakeholders‟ preference of common trade

routes and products make the continuation of trade and transit between Pakistan and Afghanistan

essential. Owing to cultural and language similarities, the potential also exists for trade in the service

sector in education, healthcare, and information technology. Peaceful economic cooperation between
Afghanistan and Pakistan and improved trade and transit facilities would help connect South Asia with the

Central Asia. As disturbances across the border also greatly affects social ties between the two countries

mainly in border areas. This economic growth would increase domestic employment in both countries

and also provide foreign exchange.5

4.2.2 Statistics on Import / Exports

Keeping trade balances in view, the highest was attained in 2010-11, since then exports of Pakistan have

declined by approximately 45% as reported in fiscal year 2016-17. From a slight increase in 2014-15, again

the decline has mainly been attributed to the frequent closure of PakAfghan border due to security

concerns, favorable conditions for India and Iran due to the increasing trust deficit, decreasing aggregate

demand due to withdrawal of NATO forces and declining international donor funded projects in

Afghanistan.

The imports from Afghanistan have grown steadily since 2009-10 and reported an all-time high in 2015-

16, from then showed decline in 2016-17. This increasing trend was discouraged by the Ministry through

trade in dollars and the imposition of regulatory duties specifically on complementary items.
Table 4.1: Bilateral trade of Pakistan with Afghanistan (US Million $)

In order to understand the trend of bilateral trade for the fiscal year 2017-18, a semi-annual comparison

was made that showed an increasing trend both in exports and imports during the 6 month period. If the

movement will persist in same ratio then overall effect would be better than last two fiscal years.

Export of services to Afghanistan has shown a disappointing trend in 2015, although the quantum

increased during 2009 till 2012 but has declined since then. However, in 2016 the trend has shown

positivity. The growing sectors included telecommunication / computer and information services,
construction, transportation and insurance, whereas consumption of financial services and traveling has

reduced significantly.

As per stakeholders‟ feedback, the following issues were raised that have affected / are affecting the

bilateral trade along with possible economic alternatives for rejuvenating confidence building across the

border.

4.3 FACTORS/ISSUES THAT AFFECTS THE PAK-AFGHAN TRADE

4.3.1 Closure of Borders

Traders have great concern due to uncertainty pertinent to Pak/Afghan border closure, it is the most

important factor which hits the business community of both the countries and creates a lack of trust

between each other. The shipments are stuck leading to psychological and financial losses, especially in

cases of perishable items and items of immediate consumption. The sudden closure without any prior

notice, especially in the season of Afghan exports of fruits and vegetables creates devastating effect.6

All issues related to transit are also applicable here like lack of infrastructure and custom support, undue

requirements, the arrogance of port and shipping lines, extensive demurrages and most importantly

border closures.

As Pakistan‟s bilateral ties with India are unfavorable hence Afghanistan‟s demand of including India is

uncalled for. Additionally, India is a competing economy of Pakistan, which does affect the businesses

within Pakistan. Despite several invitations to Afghanistan, table talks are halted and preferential trade
agreement (PTA) is also pending. These delays further worsen the relationship between the two countries.

Other regional players are trying to capture the share in Afghanistan due to widening gap between the

two countries. These regional players are providing competitive tariffs to Afghanistan and also

Afghanistan in reciprocity is ensuring the same.7

4.3.2 Exports and Imports of Afghanistan to/from Other Countries

Another factor that affects the trade relationship between Pakistan and Afghanistan is the trade of

Afghanistan with other countries, which are now competitors of Pakistan. The crucial issue is not only

declining trade quantum between the most important partners, but also is the shift of the same to other

neighbors that may get a competitive edge.

Exports of Afghanistan have grown in totality, but more is attributed to Pakistan, however interestingly,

it has been reduced to Iran and China significantly from 2013-14.

Whereas, Pakistan’s and Iran’s exports to Afghanistan have declined, but the increase is witnessed in case

of India, especially in the last fiscal year, mainly due to frequent Afghanistan-Pakistan border closures.

Another thing to note is that even though exports of Iran are more than Pakistan, but has significantly

declined as compared to the last year (2015-16). The China is also growing as a potential trade partner

whereby its exports to China is showing tremendous growth since 2014.

4.3.3 Regulatory Duties And Tariff Rationalization

4.3.3.1 Tariffs from Afghanistan Side

As Afghanistan is in a war zone, therefore major trade partners offer lots of subsidies in trade and transit

sector, but recent imposition of the regulatory duties (RD) on all import items to Pakistan disturbed the

export of Afghanistan significantly. In the past, Afghanistan was exempted from the RD duties; but now

more than 22 items of Afghanistan come under the RD policy which are the key export items. The export

of raw materials from Pakistan to other countries except Afghanistan are tax free that discourages the

investment and internal production in Afghanistan.8

4.3.3.2 Tariffs from Pakistan Side

Afghanistan has imposed high tariffs on Pakistan dominant products like juices, cement, pharmaceuticals,

PVC pipes and have raised duties / taxes on plastic & plastic made materials, medicinal drugs, safety

matches etc. which has affected Pakistan’s exports. However, this change has not been implemented on

imports from Iran, India and Turkey. Though Afghanistan was exempted from the ambit of regulatory

duties previously, yet not a single cement container was exported to Afghanistan via the Chaman border

last year because of cheaper Iranian cement available in Afghanistan.

There is a great potential for pharmaceutical exports to Afghanistan, but ad hoc rules controlling drug

prices are an impediment.

4.3.4 Factors Related to Cross Border Investments And Joint Ventures

If Afghan investor wants to invest or open sister branch of its business in Pakistan, so for approval the

case is being transferred to Intelligence agency and these agencies are authorized to approve or

disapprove, this increases complexities and discourage investors.

Similarly, If a Pakistani investor wants to invest in Afghanistan, so he can transfer his capital/ money after

the approval of the State Bank of Pakistan, which is generally disapproved that discourages investors. The

Government is unwilling to remove the restriction for exporters who want to avail schemes like DTRE and

manufacturing bonds for exports to Afghanistan. Pakistani businesses are facing a lot of issues relevant to

Trademark registration and Intellectual Property Rights issues.9

4.3.5 Travel And Visa Regime

This is one of the major deterrent for the Afghan business community as Pakistani Authorities do not treat

them properly, they always face problems from local police, further even if they have the business visa to

Pakistan but hotels in Lahore do not provide them stay facility.

One of the thorniest issues is an Afghan strict visa regime for Pakistanis including its businessmen.

Moreover, Pakistan business personnel, working as representatives of Pakistani companies established in

Afghanistan are being harassed by their intelligence agencies.

4.3.6 Procedural Hindrances Hampering Bilateral Trade

It has been the decision of the Government of Pakistan, that Afghan trucks, which are exporting goods

from Afghanistan to Pakistan would be allowed to go to Peshawar, but in some cases, it is not permitted

and the trucks are vacated in Torkham causing financial losses. Pakistan Government does not allow

Export shipments in Afghani Vehicle/Container to directly proceed to Pakistani Port and it has to cross

stuff the whole consignment from one container to another on Torkham / Chaman border. At present

Afghanistan exports are once examined by the Pakistan Customs at Torkham and then the custom’s sealed

containers are moved under customs escort to Pakistani Ports but they are re-examined by the customs

at the causing time delays and also damage of cargo.10

Pakistani exports to Central Asian countries is hampered by Afghanistan, whereas it is reported that either

Afghan partner is included in the transaction or it will be re-exported to Central Asia by Afghanistan’s

trader. Pakistani trucks are not allowed to move beyond the border causing the extra amount in

transshipment from Pakistani trucks to Afghani Trucks. Unnecessary checking and the halting of export

cargo trucks at the border, especially of perishable items, creates immense financial losses and product

damages.

4.3.7 Quarantine Certificate Issuance Problem

The recent SRO issued by the Food and Security department to present health standard certificates for

Pest Risk Analysis and assessing potential phyto-sanitary risks (Quarantine Certificate, Aflatoxine test,

Form A, Import permit, etc.) on the Agri products (820 types of items) being imported to Pakistan has

significantly affected the Afghan exporters by causing heavy losses because thousands of tons of cotton,
fresh fruits and vegetables are stranded at the border. The concerned tests and certificates are not

applicable in the region and also getting the import permit for Afghan businessmen would be challenging

due to Quarantine office being located in Karachi only.

Chaman and Gawadar Chamber insisted that it is not possible to apply requirement of all these certificates

on Afghan imports as the infrastructure support is critically limited for such issuance and such imposition

in this season of Afghan exports (especially of fruits) would have a demoralizing effect on the traders. Due

to a lack of plant protection support, especially at Gwadar, the exports of fish to the other side and the

imports from Iran are also affected significantly. The Plant protection department (DPP) is not only slow

but also increases the requirements unnecessarily. They also require certificates for commodity which are

also not in the list and upon complaint states that it is done on the instructions of the Ministry of

Commerce. The samples are drawn after grounding the container which requires original delivery

order/release of documents. At that stage, the 100% payment is already made to the exporters. In case

the consignment is rejected, it is not possible for the importer to get the payment back from the exporter

and the consignment cannot be returned.

References

1. Qassem, S. (2013-03-28). Afghanistan's Political Stability: A Dream Unrealised. Ashgate Publishing,

Ltd. ISBN 9781409499428.

2. Mashal, M. (2012). "Can Afghanistan Sort Out Its Cross-Border Water Issues?". Time.

Retrieved 2019-03-12.

3. Sohail, M. (1991). Partition and Anglo-Pakistan relations, 1947-51. Vanguard. ISBN 9789694020570.

4. Misra, K. P. (1981). Afghanistan in crisis. Croom Helm. ISBN 9780709917274.

5. Hilali, A. Z. (2017). US-Pakistan Relationship: Soviet Invasion of Afghanistan. Taylor &

Francis. ISBN 9781351876230.

6. Fair, C. C., Watson, S. J. (2015). Pakistan's Enduring Challenges. University of Pennsylvania

Press. ISBN 9780812246902.

7. Constable, P., Khan, H. N. (2017). Pakistan targets Afghan Pashtuns and refugees in anti-terrorism
crackdown. Washington Post. ISSN 0190-8286. Retrieved 2018-02-26.

8. Ahmed, V. (2015). Fiscal Challenges and Response. In I. P. Institute, Roadmap for EconomicGrowh

of Pakistan. pp. 50-57.

9. Gul, I. (2012). State of Pakistan-Afghanistan Relations. Pakistan Institute of Legislative

Development and Transparency. PILDAT.

10. Hussain, I., & Elahi, M. A. (2015). The Future of AfghanistanPakistan Trade Relations. UnitedStates

Institute of Peace: Peace Brief (191).

Chapter – 5

Conclusion and Recommendations

5.1 Conclusion

This study aims to investigate the Pakistan – Afghanistan trade after 9/11 attacks. The main

objectives of the study include exploring background of trade and business of Pakistan and

Afghanistan, to investigate post 9/11 trade relations between the two countries, to study

Afghanistan Pakistan Transit Trade Agreement and its impact on trade between the two countries

and to study the factors that affects the trade between the two countries. This study is particularly

focused on examining the trade relations between Pakistan and Afghanistan after the 9/11 terrorist

attacks on US. This research study is both qualitative and quantitative in nature and most of the

information for the study is collected from secondary sources. The secondary sources that are used

to collect information for this study includes online libraries, online journals for searching related

research papers, books and different websites on the internet. Pakistan and Afghanistan are two

neighboring countries and have a number of commonalities. Both are predominantly Muslim

countries and share similar values, culture and civilization. Pakistan – Afghanistan have a long

history of being trade partners. Afghanistan has been a good market for the Pakistani products

ranging from food items to light machinery and engineering goods. After 9/11 attacks on the

United States of American (USA), relation changed dramatically. US President George W. Bush

demanded from Pakistan to decide, either to support the war against terror or the Taliban

government. In this critical situation Pakistan changed their foreign policy and gave full support

to USA against Taliban government, which affected trade between the two countries. From the

study it is found that Pakistan is the largest importer of Afghani products with imports of $369

million while Afghanistan is the 4th largest destination for Pakistani exports. During the last five
years, the trade volume between Pakistan and Afghanistan has declined from $2.3 billion to $1.4

billion. Most of the exports to Afghanistan include agricultural products. The reason is that

Afghanistan prefers to import agricultural products from neighboring countries like Pakistan, Iran,

and Tajikistan due to low cost. Wheat, cement, sugar and, rice are the top products which Pakistan

exported to Afghanistan in 2016. For some of the products, the market share of Pakistan is more

than 90%. Moreover, it is also found that lack of transparency and ambiguous custom procedures

make it difficult to trade in Afghanistan. Moreover, World Bank (2014) placed Afghanistan at

184th place out of 189 regarding trading across the borders. There are several demand and supply

issues like the undeveloped banking system, poor infrastructure, weak legal system, deteriorating

security situation, trade controls and closure of borders which further hinder trade. Moreover,

exports to Afghanistan can be improved by arranging more exhibitions, facilitating exporters,

renegotiating improved terms for the APTTA and narrowing trust deficit. Thus, it is concluded

from the study that ever since the 9/11 attacks on the Pentagon in Washington and Twin Towers

in New York, the US has been involved in the war on terror in Afghanistan. From 9/11 to present,

new alignments have either been forged or are continuing in the region and this war and terror

leads to the decreased trade between Pakistan and Afghanistan. The renewed bilateral diplomatic

and political relations between Pakistan and Afghanistan auger well for establishing sound

economic relations. The current Pakistan-Afghanistan bilateral trade stands at one billion dollars

against three million dollars in 2002. The formation of the Pakistan-Afghanistan Joint Economic

Commission (JEC) in 2002 has offered tremendous opportunities to both states to boost their

bilateral trade. Pakistan signed its last Afghan Transit Trade (ATT) agreement in 1965 and now

the formation of the JEC has made it possible for both states to re-examine their trade ties and

formulate plans to strengthen economic collaboration.

5.2 Recommendations

Below are the recommendations regarding Pakistan-Afghanistan trading relations:

 Afghanistan should finalize pending Preferential Trade Agreement to resolve pending issues

which will enhance confidence amongst private stakeholders.

 It is vital to initiate pending table-talks and with reference to the bilateral trade, JEC meeting

should be held on immediate basis.

 For better coordination and resolution of mutual issues, it is proposed to formulate a joint

committee for rationalization of duties between the two countries having members of

customs also. Tariff disparity in Afghanistan and Pakistan should be minimized leading to

discussions for Free Trade Agreement (FTA).

 If the prices of the same products being imported directly or via transit trade in Afghanistan

are equalized and similarly duty structure is rationalized in both the countries then chances of

leakage would reduce and the existence of the parallel regime can be discouraged. This would

improve the trust and the platform of smuggling can be curbed significantly.

 People-to-people contact is a necessary condition for sustainable trade relations; therefore,

business visa policy needs to be relaxed further.

 It is suggested to minimize the Exports examination process for smooth Exports of both the

countries across the port and border.

 Policy Advocacy should be done for Perishable vs. Non-Perishable items‟ trade, as perishable

items suffered significantly during border closures and unnecessary delay times. 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.

 Lack of refrigerated containers / warehousing facilities is also causing significant losses in

trading of perishable goods such as fruits, herbs, vegetables and frozen food etc

 It is observed that Afghan Government has certificate issuing department at borders so same

practice may be adopted by Pakistan to facilitate and expedite the process.

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