C I V I L - M I L I T A R Y F U S I O N C E N T R E

AFGHANISTAN IN TRANSITION
November 2011 Comprehensive Information on Complex Crises

Transit Trade in Transition:

The APTTA & the Afghan Economy
Steven A. Zyck
Economic Development Knowledge Manager
steve.zyck@cimicweb.org

This report highlights the relevance of the Afghanistan-Pakistan transit trade for development and its role in the
ongoing transition in Afghanistan. The document also reviews the status of the Afghanistan-Pakistan Transit Trade
Agreement (APTTA), which was intended to facilitate Afghan exports via Pakistan. Related information is available at
www.cimicweb.org. Hyperlinks to source material are highlighted in blue and underlined in the text.

R
ecent months have witnessed a renewed emphasis on commercial linkages between Afghanistan and the
countries of Central and South Asia. On 22 September 2011, representatives of the American, German
and Afghan governments formally announced the
launch of the New Silk Road initiative, which, according to Note: This report strictly concerns transit trade
Pajhwok Afghan News, is intended to bolster transport, issues between Afghanistan and Pakistan. It does
energy and trade cooperation among Afghanistan and its not address the movement of materials for
neighbours. As part of the New Silk Road, the Afghan and international forces in Afghanistan, which are
Indian governments signed a strategic agreement in October governed by agreements other than the APTTA.
2011 which is intended to strengthen commercial and
security ties, reports The Washington Post. This agreement reportedly offers tremendous potential for economic
growth in Afghanistan. India requires Afghanistan’s mineral resources to fuel its continued growth and presents a
massive market for Afghan agriculture products. Expanded Indo-Afghan commerce could generate sorely-needed
revenues for the Afghan government as foreign aid declines and could promote stability by generating
employment. However, transporting materials from Afghanistan to India requires a stable and predictable transit
trade route across Pakistan. This issue – transit trade via Pakistan – is taken up in this report, which addresses the
development and implementation of the Afghanistan-Pakistan Transit Trade Agreement (APTTA) from the
perspective of economic growth and private-sector development in Afghanistan.

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 AFGHANISTAN IN TRANSITION // DEVELOPMENT & STATUS OF THE APTTA

The APTTA was signed on 18 July 2010 in Islamabad by the secretaries of commerce of Pakistan and
Afghanistan in the presence of the Pakistani Prime Minister and the US Secretary of State, says the Pakistan
Observer. According to the Associated Press of Pakistan, the APTTA replaced an out-dated transit trade pact
established in 1965. In short, it establishes a regulatory framework in which Afghan businesses will be able to
export goods easily through Pakistan to India, China and beyond via air and seaports. Under the agreement,
Afghanistan will also be able to import goods with fewer delays and expenses via Pakistan. Similarly, Pakistani
businesses will be able to export goods with greater ease, with regards to customs and paperwork, via
Afghanistan. Other key elements of the APTTA, which have been extracted and summarised from the full text of
the agreement, include the following:

 Transit trade through Afghanistan and Pakistan must take place along pre-determined routes and only utilising
specified ports and border crossings.
 Afghanistan and Pakistan are obligated to ensure that suitable infrastructure and personnel are available at
border crossings.
 While each country remains responsible for licensing transport operators (e.g., trucking firms) registered in
their territory, Afghanistan and Pakistan should seek to harmonise their standards and regulations in this area.
 Transport operators from Afghanistan and Pakistan which receive a “temporary admission document” will be
able to transport goods through the other country’s territory. That is, Afghan trucks may send carry goods via
Pakistan to India rather than having to re-load them onto Pakistani trucks at the Afghanistan-Pakistan border,
as had previously been the case.
 The Afghan government shall recognise Pakistani driver’s licenses and vehicle registration documents, and
vice versa. In addition, Pakistan and Afghanistan shall begin to harmonise the regulations and standards for
inspecting and certifying trucks used in the transit trade.
 The Afghan and Pakistani governments shall expedite and simplify the process for awarding multiple-entry
visas to truck drivers from one another’s countries.
 With the exception of selected items, goods transiting Figure 1. Border Crossing/Ports in the APTTA
through Afghanistan and Pakistan shall be stored in
sealed containers which meet international
specifications. 
Sost-
 Customs officials may inspect the contents of up to 5% Tashkurgan
containers at the point of entry into Afghanistan or
 Peshawar-Torkham
Pakistan and may not undertake additional inspections
 Ghulam Khan
unless signs of regulatory violations are found.
 The Afghanistan-Pakistan Transit Trade Coordination  Chaman-Spin Boldak  Wagah
Authority (APTTCA), which is established under the
APTTA, is responsible for monitoring and facilitating
the implementation of the agreement.

The text of the agreement authorised a number of routes by

which Afghan goods could transit via Pakistan en route to 
India or other international markets. These routes begin and Gwadar  Karachi & Port Qasim
end at the following ports and border crossings (see Fig. 1):
Peshawar-Torkham, Chaman-Spin Boldak, Ghulam Khan,
Sost-Tashkurgan, Port Qasim, Karachi and Gwadar port. It Source: Adapted from Hollows Foundation Map, with
should be noted that the APTTA concerns only trade information from UN-HABITAT Pakistan.

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 AFGHANISTAN IN TRANSITION // DEVELOPMENT & STATUS OF THE APTTA

through Afghanistan and Pakistan but not trade between Afghanistan and Pakistan, which is governed by separate
trade, border and customs regulations and agreements.

The Significance of the APTTA to Afghanistan

According to a number of experts and international organisations, the successful implementation of the APTTA is
crucial to Afghanistan for a number of reasons. As the World Trade Organization (WTO) highlight, at least half of
Afghanistan’s exports went either to or through Pakistan in 2010. In addition, the volume of Afghan exports to
India is already high and likely to increase substantially in the coming years, as suggested by the recent Indo-
Afghan strategic agreement. Between 2009 and 2010, for instance, the proportion of Afghan exports destined for
India increased by 35.6%. However, in order to sustain such growth, trans-Pakistan trucking must be predicable,
relatively cheap and fast, according to a 2009 report on “Trade Promotion in Afghanistan”. Air freight may allow
some high-value Afghan exports to bypass Pakistan and other neighbouring countries, but, as a report on “Market
Prospects” in Afghanistan suggests, shipping agricultural goods via plane is not commercially viable given the
prohibitively high costs involved.

Figure 2. Afghanistan’s Annual Export Value (in USD Millions), by Trading Partner
$1,000

$900

$800

$700
$540.1
$600

$500 $403.4
$408.0
$400
$132.0
$300 $264.1
$251.1 $17.3
$76.0
$200 $76.9
$67.7 $48.8 $76.0 $264.3
$100 $46.6 $191.1
$54.4
$64.9 $89.5
$53.2
$0
2005 2006 2007 2008 2009
Pakistan India United States Worldwide

Source: International Trade Centre, Trade Competitiveness Map, accessed October 2011
Note: Data for 2010 and 2011 or for years before 2005 is not available from this source. The “Worldwide” figure includes
Afghan exports to Pakistan, India and the United States.

Smooth and predictable exports and imports via Pakistan also appear to be important for Afghanistan’s most
promising and strategic industries: mining and agriculture. The US and Afghan governments have recently made
concerted efforts to promote Afghanistan’s mining sector, which The Guardian says could be decisive in moving
the country out of poverty. One 2010 study of economic growth in Afghanistan, entitled “Afghanistan and the

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Search for a Sustainable Economy”, indicates that the mining sector could provide from USD 300 to USD 730
million per year during initial exploration and development of mining infrastructure; subsequently the Afghan
government could receive up to USD 1 billion in income annually. Former US Ambassador to Afghanistan
Zalmay Khalilzad wrote in Foreign Policy in October 2011 that “[a]s foreign aid dries up, Afghanistan will
become increasingly dependent on mineral and energy development contracts to finance its reconstruction efforts
and sustain its security forces.” Extraction would also produce a massive potential for employment which could
stabilise Afghanistan, according to the World Bank. China first won the rights to the Aynak copper deposit in
central Afghanistan in 2007, and a range of companies, primarily from India, are in the final bidding stages for the
Hajigak iron ore deposit, according to the Indian Express newspaper. However, actual ore extraction has not yet
begun on a large scale in Afghanistan, and growth in this sector could be jeopardised if mining firms face
difficulties importing equipment into Afghanistan and, above all, in exporting the ore.

The ability to export goods in a timely and predictable manner is particularly crucial for agricultural products
given their perishability. Last year, licit agricultural products accounted for more than half of the total value of
Afghan exports, according to the WTO. International emphasis has recently been placed on enhancing the
production, marketing and export of high-value agricultural products from Afghanistan, thus making this sector
poised for growth in the short-to-mid-term. For instance, MSNBC notes that international and Afghan agencies
have promoted crops such as pomegranates and saffron as alternatives to poppies and as sources of future
economic growth. The importance of Afghan agricultural exports to India – and other foreign nations – can be
seen in the October 2011 establishment of the India Fresh Fruit Trade Office in Afghanistan, which was supported
and highlighted by the United States Agency for International Development (USAID). This office builds upon
large-scale purchases of Afghan fruits by Indian wholesalers in 2010, according to Tolo News.

Concerns Regarding the APTTA

While the APTTA is crucial to Afghanistan and to sectors such as mining and agriculture, in Pakistan the
agreement encountered virulent opposition from within government and business community, says the Pakistan
Observer and a variety of other Pakistani news outlets. As a US Department of Agriculture (USDA) report
suggests, the APTTA would have particularly negative implications for the Pakistani National Logistics Cell
(NLC), a “Pakistani military run trucking and rail company” with a dominant role in commercial transport. NLC
trucks and NLC-bonded trucks play a major role in Afghan imports and exports. Currently, the NLC transports
goods into Afghanistan from relevant ports, particularly Karachi, to their final destination, and they pick up
Afghan exports at the Afghanistan-Pakistan border and bring them to locations within Pakistan or to Pakistani
ports. Under the APTTA, Afghan trucks and trucking firms are allowed to carry their loads to the Indo-Pakistani
border or to Karachi for export further abroad, thus reducing the role and influence of the NLC. However,
according to a 2007 report from a senior Afghan Ministry of Commerce and Industries (MoCI) official, loosening
the grip of trucking cartels such as the NLC may play a major role in reducing transport costs for Afghan
businesses seeking to export and import goods more economically via Pakistan. One representative of the
Pakistani private sector, in arguing against the APTTA, told The News that Pakistan’s transport sector could lose
300,000 jobs if the transit trade agreement was implemented.

Furthermore, Pakistani officials and the Pakistani private sector were also concerned that the APTTA would create
additional opportunities for smuggling goods into Pakistan, says the Pakistan Observer. While the APTTA has
been specifically designed to prevent smuggling by enhancing the management of trade and customs data among
Afghan and Pakistani institutions, some still fear that simplifying transit trade regulations would also make
smuggling easier. The primary form of “smuggling” between Afghanistan and Pakistan, according to The News
International, does not involve the clandestine transport of goods across borders. Rather, smugglers take
advantage of the fact that goods passing through Pakistan en route to Afghanistan are not charged any Pakistani

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customs or taxes. As such, smugglers have simply claimed that large volumes of goods being imported into
Pakistan are intended for Afghanistan. However, after leaving customs houses at major ports and airports in
Pakistan, the tax-free goods are dumped on Pakistani markets rather than moving on to Afghanistan. An
investigative piece by Dawn found that, of 306,267 containers transiting Pakistan between 2007 and 2010, more
than half reportedly never made it to their supposed destination and were “lost” (i.e., smuggled) en route to
Afghanistan. In a smaller number of cases, the goods are actually transported into Afghanistan under pre-APTTA
transit trade regulations and later smuggled back into Pakistan in a process known as “reimportation”, according
to a 2008 study commissioned by the UK Department for International Development (DFID). Doing so puts law-
abiding Pakistani businesses at a commercial disadvantage given that they cannot compete when much cheaper
and tax-free, smuggled goods are available on the market. Moreover, smuggling prevents the Pakistani
government from gaining customs and tax revenues. Pakistani officials and experts have suggested that smuggling
of goods into Pakistan (by taking advantage of various agreements with Afghanistan) costs the Pakistani treasury
PKR 12 billion (USD 140 million, approx.) annually.

Finally, and perhaps most importantly, the APTTA has also raised intense concerns within Pakistan about Indian
exports crossing through Pakistani soil en route to Afghanistan, says The Express Tribune. The text of the APTTA
itself says that Afghan trucks may carry goods to the Indo-Pakistani border crossing at Wagah but “on return
[they] will not carry Indian Exports”.1 However, a Pakistani officials told The Express Tribune that Pakistan could
consider allowing Indian exports to Afghanistan under the APTTA “at an appropriate time in the future”. Such
statements raised concerns within Pakistan about the potential for the APTTA to aid Indian businesses. Capturing
this sentiment, Mahfooz Elahi, President of the Islamabad Chamber of Commerce and Industry (ICCI), told the
Pakistan Observer “some secret clauses may be part of this agreement allowing India to use Pak territory for
transit trade to Afghanistan.”

Delayed Implementation of the APTTA

The concerns noted above resulted in a range of delays to the implementation of the APTTA. The agreement,
heavily discussed in 2009, was signed by representatives of both countries in July 2010, just before the Kabul
Conference. However, the Pakistani Federal Cabinet did not authorise Pakistan’s participation in the agreement
until early October of that year. The APTTA was formally ratified by both countries on 27 October 2010 in a
ceremony in Kabul, says The Express Tribune, a Pakistani newspaper. While intended to take effect as of 12
February 2011, implementation of the agreement was initially delayed for four months due to a series of
regulatory disputes. The dispute involved a range of issues, including the proportion of Afghan containers which
would be inspected, how Afghanistan-bound containers would be sealed and how truck drivers’ biometric data
would be collected and maintained. However, the most contentious dispute revolved around the provision of
customs guarantees for Afghanistan-bound goods in order to prevent the sorts of smuggling noted above.

The APTTA mandated that Afghan firms transporting items via Pakistan provide what the text of the agreement
refers to as “customs security” but which are also referred to as customs or bank guarantees. In short, Afghan
businesses importing goods via Pakistan would be obliged to provide a third party, such as a bank, with a sum of
money equivalent to the Pakistani customs which would normally be levied on the goods. If the Pakistani customs
officials found that the goods were dumped on Pakistani markets before entering Afghanistan, the Pakistani
authorities would have the right to take possession of the customs guarantee. If smuggling did not occur and the
transit trade goods arrived in Afghanistan, as intended, the funds would be returned to the importer (or kept in a
standing account for the importer). Such a system of financial guarantees is established in Protocol 3, Section 1,
Article 9 of the APTTA, though the Afghan and Pakistani governments understood the implementation of
guarantees very differently. According to the Asia Times, Pakistan wished to ensure that Afghan importers, in

1
See page 27 of the APTTA, which provides further clarifying text on Indian exports to Afghanistan under the APTTA.

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particular, provided cash guarantees with reputable Pakistani banks in order to prevent them from engaging in the
sorts of smuggling discussed above. Afghan officials countered that doing so placed an unfair burden upon the
Afghan business community, which may not have sufficient resources to leave as guarantee. Questions were also
raised about which institutions could hold the customs guarantees on behalf of Afghan businesses. Pakistan
preferred that top-tier Pakistani or international banks hold the funds, while Afghanistan pushed for Afghan banks
to hold the guarantees in trust. Disagreement over this issue led implementation of the APTTA to be delayed from
12 February to 12 June 2011. During that time period, according to Pajhwok Afghan News, uncertainty over the
status of the agreement led Pakistani border and customs officials, most notably in Karachi, to cease clearing
goods being imported into Afghanistan via Pakistan. At any one time, several thousand Afghanistan-bound
containers were held up in Pakistan. Tolo News reports that, in March 2011, as many as 10,000 trucks, many filled
with agricultural products for Afghanistan had been held up in Karachi and that the shipment had begun to rot. A
high-level delegation was dispatched to Pakistan in this instance – and several times in the future – in order to
facilitate Afghan imports.

Further challenges mounted. Pakistani and Afghan authorities compromised and agreed that Pakistani insurance
companies, rather than banks, could hold customs guarantees for Afghan businesses, according to the Daily Times.
However, this compromise quickly encountered opposition from the insurance companies themselves. Based on
the past rates of smuggling between the two countries, companies were unwilling to issue such “insurance
guarantees”, according to the Pakistani Business Recorder. Moreover, regulatory disagreements and other
technical challenges complicated the agreement. While the APTTA took effect formally in mid-2011, provisions
pertaining to customs guarantees were suspended for 60 days from 07 July. A further 30-day delay was issued in
early September 2011, reports The Express Tribune. Amidst these delays, transit trade continued between the two
countries in a regulatory grey zone, with Pakistani customs officials regularly delaying clearance of Afghanistan-
bound goods.

While border infrastructure arrangements and other technological parts of the APTTA are still being refined and
developed, the parts of the agreement pertaining to customs guarantees ultimately took effect in October 2011,
says The Express Tribune. Imports into Afghanistan were subject to customs guarantees, which had to be paid to
selected Pakistani insurance companies (rather than banks).2 These had to be equivalent to 100% of the customs
which would normally be charged if the goods were intended for Pakistani markets (rather than for delivery to
Afghanistan). Such a move was celebrated within Pakistan, though Afghanistan’s Minister of Finance told The
Express Tribune that the requirement had pushed some Afghan businesses to increasingly rely upon Iranian rather
than Pakistani ports. The extent to which Afghan imports and exports have moved from Pakistani ports to Iran’s
Bandar Abbas port remains unclear at the time of writing.

Conclusion: Promising Indications

Initial signs have emerged that the APTTA – and increased formalisation and regulation of Afghanistan-Pakistan
transit trade – has prevented smuggling of goods into Pakistan and, thus, reduced Pakistani discomfort with the
agreement. The Business Recorder says that smuggling of goods into Pakistan has declined by 40% as smugglers
prepared themselves for the implementation of the APTTA. Similarly, The Express Tribune says that commercial
cargo “transiting” Pakistan has declined by 54%; Pakistan’s Federal Board of Revenue (FBR) believes that
decline in smuggling. The drop in smuggling is also, according to the Pakistan Observer, reflected in sharp spikes
in the licit import of goods into Pakistan. For instance, in recent months, legal and tax-able imports of tea into
Pakistan have risen by 41%, according to testimony by FBR officials to the Pakistani senate. Such an increase

2
Public information is not currently available on why Pakistani insurance companies withdrew their earlier objections to accepting
customs guarantees for transit trade goods.

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reportedly reflects the diminished availability of smuggled goods such as tea in Pakistani markets.3 While such
short-term declines in transit trade are a positive indication that the APTTA has accomplished the objective of
reducing smuggling, one would ultimately expect to see the volume of transit trade increase in the coming months
as the agreement fulfils its primary objective of improving market access for both Pakistani and Afghan
businesses.

The success of initial APTTA implementation appears to have led the Pakistani government to make a number of
concessions requested by Afghan customs officials and importers, wrote the South Asia News Agency (SANA) on
25 October. Containers being imported into Afghanistan under the APTTA will not need to be stamped with the
words “In Transit to Afghanistan”, and open-air (rather than sealed) containers may be used in transporting fruits
and vegetables from Pakistan to Afghanistan. In addition, the paperwork and number of licenses obtained by
Afghan importers will also be simplified, says SANA. Pakistan Observer also notes that the Pakistani customs
officials have allowed Afghan importers to pay customs guarantees directly to the Pakistani government rather
than using insurance companies, which charge a fee. These recent decisions suggest that the APTTA may, in the
future, encounter fewer obstacles than it had during the first nine months of 2011.

Policymakers have recently attempted to capitalise upon the initial success of the APTTA in order to facilitate
greater regional economic cooperation in the spirit of the aforementioned New Silk Road initiative. In fact, as
Pakistan Today reports, the Pakistani government recently invited a number of Central Asian republics to join the
APTTA or to establish similar agreements with Pakistan in order to allow Pakistani trucks to reach Central Asian
markets and to cross Central Asia en route to markets further abroad. According to the Daily Times, the US
Assistant Secretary of State for South and Central Asia, Robert Blake, also suggested that India should be
included in the APTTA in order to increase regional commerce and cooperation. Under the current APTTA,
Afghan trucks must off-load their goods at the Indo-Pakistani border crossing at Wagah, where they must be re-
loaded onto Indian trucks.

Blake’s discussion of the need for greater economic cooperation between India and Pakistan reflected ongoing
negotiations between the two countries. As this report was being finalised, the Pakistani government announced
that it was planning to award most favoured nation (MFN) status to India in November 2011, a move which would
pave the way for an increase in cross-border trade, according to the Financial Times. The present value of trade
between India and Pakistan currently stands at USD 2.7 billion, though the two countries’ governments hope to
increase this amount to USD 6 billion within three years. Increased economic cooperation between Pakistan and
India could help to remove obstacles to trade and commerce between Afghanistan and India and may help to
promote economic growth in Afghanistan in the near future.

3
Consider the following example, which uses completely hypothetical figures. If half of every USD 100 in goods entering Pakistan
under the guise of transit trade with Afghanistan was smuggled into Pakistan – rather than arriving, as claimed, in Afghanistan – one
would expect to see the volume and value of supposed transit trade to decline if smuggling was reduced. The remaining amount
would comprise the licit imports while most of the decrease could be attributed to the loss of

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Annex A. Afghanistan’s Licit and Documented Agricultural Exports, by Export Value

and Average Annual Increase in Exports

The following table provides the reader with an idea of the growth in agricultural exports from Afghanistan. It is
included here given that agricultural products are likely to be among the most heavily exported items from Afghanistan
under the APTTA.

Average Annual Average Annual

Export Value
Agricultural Product* Export Value (USD Increase in Export
(USD ‘000s) in 2009
‘000s), 2002-09 Value, 2002-09**
Raisins 53,359.00 21,876.50 50%
Almonds Shelled 35,476.00 10,205.00 81%
Crude Materials 30,499.00 7,261.13 88%
Almonds, with shell 23,966.00 6,367.50 91%
Pistachios 19,902.00 10,582.75 87%
Sesame seed 14,289.00 5,026.13 244%
Walnuts Shelled 12,825.00 3,092.00 -
Apricots 10,915.00 2,245.50 102%
Figs Dried 9,836.00 10,916.63 -
Potatoes 9,094.00 1,689.00 131%
Hair Fine 7,559.00 1,739.50 -
Fruit Fresh Nes 6,949.00 2,005.63 108%
Anise, badian, fennel, corian. 6,888.00 5,964.25 108%
Grapes 6,852.00 8,753.00 56%
Dry Apricots 6,331.00 4,220.63 46%
Plums Dried (Prunes) 6,196.00 790.75 -
Apples 4,683.00 3,012.88 106%
Skinsdry Sltsheep 4,227.00 555.13 -
Other melons (inc. cantaloupes) 2,816.00 1,207.75 79%
Vegetables fresh nes 2,394.00 3,115.25 65%
Fruit Dried Nes 1,590.00 1,465.13 71%
Walnuts, with shell 1,456.00 216.63 549%
Citrus fruit, nes 1,136.00 152.50 -
Hides Wet Salted Cattle 593.00 222.38 92%
Skin Furs 178.00 1,289.00 1%
Pulses, nes 93.00 1,694.00 5%

Source: Food and Agricultural Organization (FAO) of the United Nations, TradeSTAT Database, accessed October 2011.
*Note: Refer to the FAO’s TradeSTAT Database for clarification regarding the specific meaning of various agricultural product.
**Note: Some year-on-year increases were high in relative terms and skewed the figures. Thus, the numbers in these columns,
particularly those which appear exceptionally high, should be approached with a degree of caution.

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