NAVIGATING ECONOMIC CROSSROADS: THE IMPACT OF AFGHANTRANSIT TRADE ON PAKISTAN’S ECONOMIC LANDSCAPE

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Malik Zaeem Ul Hassan

22 November 2023

Pakistan’s significance cannot be overstated due to its geographical
location. Pakistan has a geostrategic advantage because it shares borders
with Iran, Afghanistan, China, and India, as well as the Arabian Sea, which
connects it to the rest of the world. This edge has not only piqued the
curiosity of the world’s great nations, but it has also boosted
multilateral trade with adjacent countries. As a result, Pakistan acts as
an important logistics hub for neighboring countries, particularly
landlocked Afghanistan.
Transit through Pakistan is presently Afghanistan’s only viable
alternative, and both nations have signed the Afghan-Pakistan Transit
Trade Agreement (APTTA). Pakistan and Afghanistan have also agreed on
broad parameters for Afghan exports to Pakistan and India, as well as the
use of Afghan territory for Pakistani exports to Central Asian republics. As a
result of its strategic location and three efficient seaports, Pakistan is
poised to become a significant commerce corridor for accessing Central
Asian markets.
The Directorate General of Trade functioning under the
administration of Federal Board of Revenue (FBR) has revealed in its report
that the Afghan transit and the Afghan imports were negatively affecting
Pakistan’s economy and were the basic components of black economy in
Pakistan. It was stated that Afghanistan was deliberately not providing
complete and correct data of its import to the international institutions.
The information given by Afghanistan to the UN’s International Trade
Centre sub-body places the value of imports several times lower than the
actual statistics, in an attempt to refute Pakistan’s concerns about
smuggling. The Afghan government values Afghan transit trade going
through Pakistan at $14.8 billion for the current fiscal year, but the
Pakistani valuation methodology values it at $44.4 billion.
According to the paper, simply preventing smuggled commodities in
the market would not produce results, but there is a need to adopt severe
measures at the zero line (the border with Iran and Afghanistan) to
curb smuggling in collaboration with customs, Rangers, coastal
guards, and Pakistan’s military forces.
The report also stated that “Bara markets” in major cities must be
shut down quickly, where smuggled commodities worth billions of rupees
are sold, and that a new method to discourage phony sales tax
registration and import licenses must be implemented. According to the
research, Pakistan’s products declaration, duty assessment, and antismuggling systems are ineffective.Recently, FBR chairman had held a
video conference with customs officers across the country in which it was
revealed that Afghan Transit Trade and especially the overall imports of
Afghanistan were a big source of smuggling in Pakistan and for this
reason Pakistan had a black economy. They opined that until the issue
was addressed, Pakistani economy could not improve.
Afghanistan imports 28% of its total valued goods to Pakistan
via the Torkhum and Chaman routes, 37% via the Islam Qila area of
Iran, and 26% via the Heman area of Uzbekistan.
Just as Kabul valued transit trade through Pakistan at 0.82 billion dollars
in 2016, the Afghan authorities surprisingly presented a value of Afghan
transit commerce to Pakistan that is three times lower than the actual
price. On the other hand, the actual value was reported to be 2.9 billion
dollars in the Pakistan Customs Value Additional Table.
Imports under the Afghan Transit Trade had a 67% rise, reaching
US$ 6.71 billion in February 2022–2023. In contrast, their imports totaled
$4 billion USD last year. Tea, tire tubes, electronics, electrical
equipment, and synthetic fibers are among the items that Afghanistan
imports from Asia. There was a 35%, 72%, 80%, and 59% growth in
these imports, respectively. Pakistan’s imports of these goods dropped
dramatically as a result of the sharp rise in imports from Afghanistan: 48%
for textile products made of synthetic filament, 62% for electronic
equipment, 42% for tires and rubber, 51% for tea, 34% for machinery,
and 46% for vegetables and fruits.
The transit trade with Afghanistan negatively impacts Pakistan’s
small and medium-sized enterprises, which in turn has a severe effect on
the country’s economy. For Pakistan’s economy to revive, it is imperative
that the transit commerce with Afghanistan adhere to international
legal standards.
Pakistan has responded by tightening the rules governing transit
commerce through a number of methods. These restrictions include
requiring bank guarantees from Afghan importers, prohibiting the
import of specified commodities that are easy targets for smuggling,
and charging processing fees for some imports.
In prevailing scenario, Government has taken the rightful step of
deporting illegal Afghan refugees, who were main facilitators of these illegal
activites. Many experts contend that these steps were long overdue and
necessary to combat smuggling and safeguard the Pakistani economy as
members of the World Trade Organization (WTO) are permitted to
implement safeguards for their own sectors. Pakistan claims that in
order to prevent smuggling, its recent efforts are crucial. In this regard,
Pakistan has made it quite evident that processing fee it charges for
some commodities coming from Afghanistan is not a tariff but rather a
way to pay for the overhead associated with running the transit trade
regime.
The effects of smuggling became too evident during the current
import restriction regime and balance of payments crises. The Ministry of
Commerce reports that during FY 2022–2023 Afghan Transit Trade
(forward) via Pakistan surged abnormally by 67% to US $ 6.71 billion
from US $ 4.016 billion during FY 2021–2022. The nation has
experienced an economic crisis in light of its restricted exports and finance
sources, particularly with the imposition of several sanctions on the interim
Afghan government. This has caused both its GDP and aggregate demand
to fall. Furthermore, Afghanistan has had an increasing trade deficit
during the same period, which does not reconcile with a more than
50% increase in imports.
A comprehensive comparison of the major forward Afghan transit
trade products of the preceding two years provides a more credible
explanation. The increase in transit imports through Pakistan can be
linked to Pakistan’s low volume of imports of the very products that
were “imported to Afghanistan.” This suggests that the significant
increase in smuggling of these commodities has not only resulted in income
loss for Pakistan, but has also rendered the government’s import curtailment
policies ineffective. It has also reduced lawful company earnings and
harmed the domestic economy. With a balance-of-payments crisis and the
imminent threat of financial default, the country could only go so far by
allowing illegal products to enter free.
The damage does not end here. Afghanistan is under the rule of a
proclaimed staunch “Islamist” government. The affiliation of localized
and international terrorist groups with Tehrik-e-Taliban Afghanistan is not a
new story. To finance these groups requires lot of money and remuneration
received through transit trade is the answer.
Moreover, TTA count anti-terrorism scalps by pretending to fight
IS-KP, which in fact is their own creation to be used as a negative
leverage in neighbouring countries. Additionally, decades of conflict
inside Afghanistan and across the border in Pakistan have formed the
linkages between the Taliban and TTP in that country as well. The TTP
chief has also claimed that his organization is a part of the Taliban’s
Islamic Emirate of Afghanistan and has pledged allegiance to the emir
of the Taliban.
Undermining the above-mentioned havoc, it was the imperative of the
state of Pakistan to take strict actions regarding Transit Trade in order to
stabilize the economy and prevent the liquidation of already scarce
resources. Given the patterns and behaviors of current Afghan regime, it is
hard for Pakistan to align with duplicitous nature of the regime. A hand for
cooperation and assistance is always there, but the interests, peace and
stability of Pakistan is always the foremost priority of the nation.

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