Pakistan, India, and Afghanistan trade

There have been several recent developments regarding transit trade to and trade with Afghanistan. Firstly, and most significantly, India and Iran have made operational a transit trade route to Afghanistan via Chabahar that bypasses Pakistan.

Secondly, President Ghani has issued a decree banning trucks from Pakistan to cross into Afghanistan, allegedly to create job opportunities for truckers and transit companies in Afghanistan. And lastly, Pakistan has imposed new documentation requirements for exports to and imports at Torkham. What do these developments spell for Pakistan and Afghanistan trade ties?

Though previously India was among the top trading partners of Afghanistan utilizing Pakistan’s land routes, the loss of its transit trade is insignificant compared to the loss of Pakistan’s exports to Afghanistan. Already, 40 percent of Pakistan’s exports to Afghanistan have been eroded away with India exports edging out Pakistani commodities.

And why shouldn’t Afghanistan prefer Indian imports? Pakistan keeps blocking exports and transit trade to Afghanistan with trucks stranded on both sides of the border, often with perishable goods. The new documentation requirements at Torkham seem a hodgepodge of overdue implementation of genuine security concerns and those that make no sense. (Read “Documentation at Torkam,” published on November 9, 2017). On the other hand India facilitates and incentivizes its traders by helping pay their travel expenses, subsidising air freight, and investing $500 million in developing transit trade route to Iran.

Before President’s Ghani’s decree, trucks from Pakistan had access to other Central Asian countries to transport their goods through Afghan border. This move is seen by many as means to pressurize Pakistan into allowing Indian exports to Afghanistan through Wagah border, by holding Pakistan’s trade with CARs as hostage.

Pakistan’s bilateral trade with CARs in 2016 was $87 million so if Pakistan’s trade with them dwindles, it does not influence the economy much. However, allowing Indian imports through Wagah could wreak havoc to the local economy due to high degree of smuggling. Already, sector’s such Pakistan’s tyre and tea industries have losses suffered to illicit activities. Allowing Indian imports through Wagah is not an option, especially when the carrot offered is current trade with CAR.

Keeping Wagah aside, there is not much Pakistan can do to stop or hinder India’s trade with Afghanistan. What Pakistan can do, and should do, is improve its trade facilitation for exporters to Afghanistan before we lose out to our more economically savvy neighbour.