InternationalVOLUME 16 ISSUE # 19


No fresh agreement between Pakistan and Afghanistan on trade could be finalized despite the expiry of the extant framework several months back, putting the future of businesspeople at stake and preventing the growth of the volume of trade, which has more potential than its actual size. As the governments of Pakistan and Afghanistan could not sign a new agreement, authorities in Islamabad have extended the duration of the present trade agreement by six months. However, both governments claim that 90 percent of modalities of the new trade agreement have been thrashed out and it would soon be given the final shape.

Despite the claims of Pakistani and Afghan authorities, there are fundamental impediments to the framing of a fresh trade agreement between the two countries. The most important bottleneck in this regard is Kabul’s insistence that Pakistan allows Afghanistan-bound Indian goods through its territory. However, Pakistan is totally uncompromising on it, as it thinks that giving excess to India to Afghan and Central Asian markets is against its interests. There is a lot of substance in the Pakistan argumentation for geopolitical and geo-economic reasons. In geopolitical terms, if India is given access to Afghan and Central Asian markets through Pakistan territory, there could be no concrete gains for Islamabad. Rather, it would strengthen India’s geopolitical standing in the region and Pakistan could not use its geostrategic advantage in the situation. Moreover, on reciprocal terms, if even India allows South East Asian countries-bound Pakistani exports through its territory, it would not be much advantageous. The reason is that Pakistan does not have extensive trading relations with the states of the region. On its part, Kabul has been offering Pakistan that in return for its permission to Afghanistan-bound Indian exports through its territory, it would give access to Pakistani goods to Central Asian states. The offer of Afghanistan to Pakistan is akin to doing Delhi’s bidding. It may be mentioned that at the beginning Pakistan was hesitant to allow Afghan exports to India, but afterwards it allowed it. It was a great gesture to strengthen the Afghan economy and support businesspeople from the country.

The extant Pakistan Afghanistan Transit Trade Agreement (PATTA) was reached in October 2010, and it was made for five years. However, both countries extended the agreement for another five years. After a couple of short-term extensions, the current trade mechanism between Pakistan and Afghanistan expired on May 11. However, Pakistani authorities decided to extend it before the expiry for another six months. The makeshift manner to manage Pakistan-Afghanistan relations, whatever its reasons may be, is a cause of deep consternation for businesspeople from Pakistan and Afghanistan, because they have been in limbo whether to continue the mutual trade which is becoming non-lucrative day by day.

The technical committees of Pakistan and Afghanistan governments on the issue of framing a new trade agreement are holding meetings to finalize it but in the meanwhile the extension of the extant agreement is quite meaningful. It means that Pakistan would remain intransigent on the issue of giving access to Indian exports to Afghanistan and beyond through its territory. More importantly, as the United States and its NATO allies have started withdrawing their residual forces from Afghanistan and they would complete the process by September, the political and security situation in Afghanistan has become completely uncertain. In the situation, Pakistan seems to have adopted the policy of wait and see, which is an appropriate strategy, particularly when the Afghan Taliban are taking territory after territory.

The 2010 PATTA had been signed after years and years of painstaking negotiations between Pakistan and Afghanistan. The agreement had replaced the Afghan Transit Trade (ATT) truce signed between them in 1965. The new agreement (PATTA) had come into force when the competent forums of both countries, the Afghan Parliament and the Pakistan federal cabinet, had given it the go-ahead. In the ATTA of 1965, both Afghanistan and Pakistan had serious reservations. However, the nature of objections of both countries had been fundamentally different but mutually reinforcing. Afghanistan had been complaining that the ATTA of 1965 provided undue leverage to Pakistan for restricting the trade of Kabul with the rest of the world. The restraints by Pakistan, as Kabul thought, came in the shape of limiting the number of items Afghanistan could import via Pakistan and the outright rejection of exports from certain countries, like India. For Pakistan, the problem with the ATTA had been the landing back, through smuggling, of colossal amounts of goods imported by Kabul and meant for local consumption in Afghanistan. The smuggled goods, imported under the ATTA, inflicted huge damages on the Pakistani economy in the form of revenue losses of around $5 billion a year. The damages to the local manufacturing sector had been besides the revenue losses.

The mammoth volume of smuggling through the ATTA had been the reason behind Islamabad’s protective measures of limiting the number of items Afghanistan could import through Pakistan and denying India a trade corridor through Pakistan for Afghanistan. Pakistan has been fully justified in rejecting the Indian and Afghan requests under the ATTA and then through the PATTA for giving both a trade corridor, because besides the mentioned reasons, war-ravaged Afghanistan, with a limited writ of the central government, has never been in a position to check the landing back of Indian goods into Pakistan. Thus, giving Indian goods access to Afghanistan would have been harmful as Pakistani markets could then have been flooded with Indian goods and due to their low manufacturing cost and relatively good quality, they could be the choicest consumer items in Pakistan.

Though Pakistan and Afghanistan signed the PATTA, yet it has not been a satisfactory agreement in the last 11 years and it could not result in significantly increasing bilateral trade. Moreover, the illegal movement of goods could not be checked. The PTTA has failed to address the core issue of smuggling by not putting any conditions on Afghanistan for checking it. Rather, the agreement exacerbated the smuggling of goods into Pakistan, because it had allowed Afghan transporters to carry their exports to India on their own. So, there has been increased smuggling through Afghan trucks as the PATTA failed even to touch the issue.

The Pakistani business and trading community has been opposing the PATTA with one voice. Their argument has been that Pakistan allowed the use of its land for the benefits of others. As the PATTA allowed Afghan transport owners to carry goods in their own trucks through Pakistan territory, it had severe consequences for local transport owners. The Pakistan transport industry has suffered losses to the tune of billions. While finalizing the fresh agreement, if the aspects of the PATTA are not kept into serious consideration, any new arrangement for Pakistan-Afghanistan trade would be stillborn.