PAK-AFGHAN TRADE: Policy Proposals and Confidence-Building Measures for Institutional Arrangements

Table of Contents

• Executive Summary: Key Insights
• Proposed Policy Proposals and Confidence Building Measures (CBMs)
• Policy Implications
• Introduction
• Pak-Afghan Major Imports and Exports
• Neighboring Countries Share in Afghanistan (Import /Export) Market
• Regional Countries Share in Afghanistan’s Imports
• Pak-Afghan Transit Trade Overview
• Afghanistan’s Engagements with India and Iran: Chabahar Agreement: India, Iran and Afghanistan
• India and Afghanistan Air Corridor
• Iran and Afghanistan Khaf-Herat Railway Project
• Causes of Pak-Afghan Low Trade Volume
• Potential Exports to Afghanistan and Imports from Afghanistan
• Policy Proposal
• Proposed Immediate Agreement: Establishment of New Trade Gateways in each Bordering Town
• Appendix
• Annex 1 Afghan Transit Trade

Executive Summary

Key Insights

I. This study is designed to examine pre- and post-Taliban Pak-Afghan bilateral and transit trade trends, review the share of neighboring and regional countries in the Afghan market, identify potential trade avenues, and suggest policy proposals and Confidence-Building Measures (CBMs) to restore and augment sustainable bilateral and transit trade.

II. Pakistan has boundaries with Afghanistan, Iran, China and India. However, its largest border on the western side with Afghanistan, is around 2600 km long. In Balochistan, out of 36 districts, 9 districts have physical border with Afghanistan. In KPK out of 38 districts, 10 districts have physical border with Afghanistan.

III. Overall volume of Pak-Afghan trade has declined since 2011, reducing from the peak of USD 1766 million in 2012 to USD 1085 million in 2019. When Taliban took over Kabul in August 2021, Pakistan’s export to Afghanistan stood at USD 1025.5 million and Imports were 612.4 million. However, in the last two years, exports have declined to USD $976.6 million whereas, imports have augmented to USD 886.8 million.

IV. On the one hand, Pakistan’s share of exports in Afghanistan’s market has steadily declined. On the other hand, the volume of Pakistan’s imports from Afghanistan has increased. This trend persist even after Taliban takeover. This reveals that Pakistan’s dominance in bilateral trade is weakening, with imports catching up to exports. Whereas, other neighboring  countries, particularly  Iran’s  share of  export  to Afghanistan has increase over the time.

V. In  addition  to  this, the volume of Afghanistan’s imports from other regional countries (India, China, Kazakhstan and Turkmenistan) has increased. This indicates that Pakistan is losing presence in Afghanistan’s Market.

VI. Furthermore, this study reports that the size of Afghanistan’s transit trade through Pakistan has been reduced, due to the development and operationalization of Iranian ports. Subsequently, Afghanistan has diverted most of transit trade from Pakistan to Iran.

VII. Finally, this study reports the prominent stumbling block in Pak-Afghan trade includes but not limited to political  instability, and frequent  border closures, privatization of taxation (Rent-seeking by multiple agencies), strict visa policies, inadequate infrastructure (roads networks and banking facilities), expiry of APTTA, underutilization of potential trade and gateways, informal trade, excessive and overlapping checking by various agencies.  Interprovincial products movement restrictions and market accessibility (in the context of Balochistan).

Proposed Policy proposals and Confidence

Building Measures (CBMs)

This study recommends the following actionable policy proposals and Confidence Building Measures to foster sustainable Pak-Afghan, bilateral and transit trade;

I. Propose to engage with Taliban government to establish, notify and operationalize new trade  hotspots  in  major bordering  districts  of  Balochistan  and Khyber Pakhtunkhwa.

II. Engagement with Afghan government for the establishment of Pak-Afghan joint border markets in major bordering towns of Balochistan and Khyber Pakhtunkhwa.

III. Both countries governments needs to sign a Preferential Trade Agreement (PTA) to improve the market access and bilateral trade. As a part of the agreement, the governments should agree on the utilization  of potential  products  and tariff rationalization (for details see table 2 and 3).

IV. The government need to revise the Afghanistan Pakistan Transit Trade Agreement (APTTA) as a part of the revised agreement, both nations should commit to facilitate the transit trade of Pakistan’s export through Afghanistan to Central Asia and Afghanistan’s import transit from India and other trade partners.

Policy Implications

If effectively implemented, these policy proposals and CBMs will have the following implications.

I. Reductions in size of informal trade.

II. Encourage Pak-Afghan bilateral trade.

III. Reduction in political tensions between Pakistan and Afghanistan.

IV. Encourage Afghanistan’s transit trade through Pakistan and vice versa.

V. Creation of job opportunities for the local population in general and bordering regions in particular.

VI. Additionally, this will help address youth unrest and promote national integration primarily in Balochistan and Khyber Pakhtunkhwa.

Introduction

Pakistan has Physical boundaries with Afghanistan, Iran, China and India. However, its largest border on the western  side with Afghanistan, is around 2600  km long. Balochistan shares around 2377km long border with Afghanistan (1468 km) and Iran (909 km). Khyber  Pakhtunkhwa  (KPK) shares around 1172km  long border with neighboring country Afghanistan. Out of the 36 districts of Balochistan, 13 districts are located along the international border. Among these 13 districts, 9 districts (Quetta, Pishin, Chaman, Killa Abdullah, Zhob, Sherani, Killa Saifullah, Nushki, and Chaghi) have a border with Afghanistan. Similarly, out of 38 districts of Khyber Pakhtunkhwa (KPK) ten districts have physical boundary with Afghanistan. Including Bajaur, Upper Dir, lower Dir, Uper Chitral, Lower Chitral, Mohmand, Khyber, Kurram, North Waziristan and Lower South Waziristan. Most  of cross-border movement, bilateral trade and transit trade with Afghanistan takes place through the borders the Balochistan and KPK shares with the Afghanistan. Torkham, Chaman, Ghulam Khan, Kharlachy, Badini and Angor Ada serve as major border crossing points for Pak-Afghan bilateral trade. Whereas, Torkham, Chaman and Ghulam Khan serve as major border crossing points for Pak-Afghan transit trade.3

People living on both sides of the border share a common language, culture, values and history. Moreover, the population residing in the bordering districts on both sides of the border are primarily dependent on the border trade and trade-related activities. The PIDE (Pakistan Institute of Development Studies) recent study on border trade reports more than 25 trade hotspots (informal) in Balochistan (Pak Afghan and Pak-Iran). Chaman and Badihni are the only borders with Afghanistan that are officially notified and functional.   In fact, Pakistan has traditionally been one of the largest trading partners of Afghanistan. Various nature of trade take place between two countries; two main forms of trade include bilateral and transit trade. In addition to these two, there is also undocumented and illegal trade, widely known as smuggling (informal trade). Informal trade makes up a large share of cross-border trade and is a major source of livelihood for the population of border towns.

Historically, Pakistan was one of  the largest importers of Afghan  products  and Afghanistan was among the top-five major destinations for Pakistani exports. At its peak in 2010-11, Pakistan’s exports to Afghanistan reached USD 2.6 billion and is also the main conduit of imports for Afghanistan from elsewhere through the Karachi port. Studies anticipated that, with full operationalization of Gwadar Port in Balochistan and improved connectivity of the province, exports to Afghanistan and other Central Asian Republics can be exponentially increased in the medium to long term4. However, the volume of Pak-Afghan trade has declined since 2011. When Taliban took over Kabul in August 2021, Pakistan’s export to Afghanistan stood at USD  1025.5 million and Imports were 612.4 million. However, in the last two years, exports have declined to USD $976.6 million whereas, imports have augmented to USD 886.8 million.

On the one hand, Pakistan’s share of exports in Afghanistan’s market has steadily declined. On the other hand, the volume of Pakistan’s imports from Afghanistan has increased. And, this trend persist even after Taliban takeover. Furthermore, the share of other neighboring and regional countries in export to Afghanistan has increase over the time. Likewise, the volume of Afghanistan’s transit trade is declining.

Therefore, the primary objective of this study is to examine the pre- and post-Taliban takeover  Pak-Afghan  bilateral  and transit  trade  trends, to  review  the  share of neighboring and regional countries in the Afghan market, to identify potential trade avenues between Pakistan and Afghanistan, and finally, to suggest policy proposals and Confidence-Building Measures (CBMs) to augment and restore Pak-Afghan bilateral and transit trade.