Pakistan has two types of trade ties with Afghanistan. One is bilateral trade set-up as it has with the rest of the world. The other is exclusive under Afghan Transit Trade Agreement (ATTA). In this article, I have tried to highlight policy flaws, anomalies and recommendations to overcome malpractices, cropped up by mishandling trade under ATTA.
This write-up will shed light on triangular aspects of trade, focusing ATTA, Pakistan-Afghanistan bilateral trade arrangement and Iran-Afghanistan-India trade bloc. In March 1965, under the pressure of the World Bank, the so-called Afghan Transit Trade Agreement (ATTA) was signed between Pakistan and Afghanistan.
The agreement had the contents that negated the concept of trade, ensures inflow and outflow of goods. Under the said arrangement Pakistan had to offer unilateral concessions to the landlocked Afghanistan in the name of transit facilities.
The imports of Afghanistan had been exempted by the custom duties coupled with a "sympathetic consideration" regarding service charges, port levies and handling fees. Under the Article-III of ATTA 1965, primarily two routes - Peshawar-Torkham and Chaman-Spin Baldak - were agreed upon for the smooth movement of goods from Pakistan to Afghanistan.
Perhaps it was never imagined at that time that such trade mechanism would hurt infant economy of Pakistan incalculably by rerouting the merchandise in Pakistan depriving it from billions worth of revenue besides damaging the local industry. As the trade volume started rising Bara Bazaars sprang up like mushrooms in Peshawar, Khyber Agency, Chaman, Quetta, and Rawalpindi. For more than three decades this trend continued.
In 1996, the Government of Pakistan, on the hue and cry of local business unions and federations, placed 17 items on the negative list by banning their import under ATTA. This left a very positive impact on the economy of Pakistan. In 1996-97 the production of TV sets jumped from 72,000 to 288,000 in 1999-2000 enhancing industry revenue from Rs 290 million to Rs 550 million in the same period alone in just one sector.
In the year of 2001 this list was revised upward and the transportation of seven more items were declared illegal. Mainly negative list included electrical appliances, chemicals, motor cars, tobacco and spare parts. On the request of Afghan government, the Government of Pakistan in March 2004 slashed this list to six items only. In August 2005 again, the size of the list was further cut to three items (tobacco, cooking oil and auto parts). However, cooking oil was also removed in 2006.
According to the high-ups in Pakistan's ministry of commerce, Afghanistan is not satiated with such favours hence, is clamouring for the removal of remaining two items from the negative list, demanding access to the Karachi ports and wagha border through its own transport, no such provision is permitted under ATTA.
Already Pakistan is providing a host of concessions for the movement of Afghan Transit Trade, including 50% concessions on port charges. Sindh Government has withdrawn cess and enhanced window for waiver of demurrage and other charges on ports.
The trade volume of Afghan Transit Trade rose 71.45% from Rs 15.06 billion to Rs 25.763 billion from the period July-December 2008 to the corresponding period. Analysis of the data shows that there many goods are not needed in Afghanistan. Rather these are being plunged in the Pakistani markets illegally at the cost of local industry and national exchequer.
Last year an increase of 192% was registered in just two commodities of electronics and machinery worth Rs 4.027 billion. Import bill for steel and iron jumped up by 40%. Imported fabrics increased 29% costing Rs 5.143 billion. Food items cost Rs 4.76 billion. Motor vehicles worth Rs 933.70 were imported showing an increase of 78%. Items like plastic, chemicals; tiles and other household goods were imported at a cost of Rs 9.684 billion.
There is no denying the fact that Afghan markets cannot absorb such luxuries when its 53% population is living below the poverty line. Is there any use of electronic gadgets and machinery in Afghanistan when people's access to electricity is just 9% plus electricity consumption per capita is 43kwatt with practically no road system.CIA Fact Book further puts a gloomy picture with its electricity generation ranking at 147th out of 210 countries.
Import items worth Rs 25.763 billion can be utilised in the Afghan markets where 80% of its labour force is working in agricultural sector, 10% in industry and 10% in services sector with 40% unemployment rate? Afghanistan is 174th out of 178 countries of the world with UNDP maintained Human Development Index and it raises more questions on the usage of Afghan Trade under transit mechanism through Pakistan.
The Customs sources confirm that a large number of containers carrying goods destined to Afghanistan come back in the area of ports within hours by unloading merchandise in the godowns of powerful mafia of Karachi, a clear violation of the article-II of the ATTA and the concept of "traffic in transit".
Now we examine Afghan-Pakistan bilateral trade scenario. It is important to note that under this accord, total trade volume has increased from $169.932 million in 2000-01 to $1235.013 million in 2007-2008. Pakistan's exports skyrocketed from just $140.404 million in 2000-01 to $1143.663 million in 2007-08. Althogu it fell down 40% in 2006-07.
Even imports from Afghanistan are growing but the balance has always been in favour of Pakistan. Imports from Afghanistan have gone up by almost three times from just $29.528 million in 2000-01 to $91.350 million in 2007-08. Presently, Pakistan's current favourable balance of trade was more than $1 billion.
According to the IMF data, Pakistan is still the largest trade partner of Afghanistan followed by EU and USA 37.5%, 15.9% and 12.5% respectively. Though India is trying to elbow others, it has just 6.4% as Afghan trade partner.
A close examination of the bilateral Pak-Afghan trade for the last four years shows that out of 82 trading items hardly 8 items of Pakistani exports have shown persistence in rising. Mainly these are, dairy products, fruit and fruit preparations, alcoholicand non-alcoholic beverages, petroleumand petroleum products, animal fats, oil and vegetables, pharma and medical products, cork and wood, construction materials, including cement and glasswares.
However, there are some items which have shown overflucuations and decline. These are rice, cereals, refined and raw sugar, paints, tyres and tubes, cosmetics, coal, machinery and parts, sanitary plumming, footwear, hosiery and so on. These are the items which Pakistan is losing in Afghan market steadily in favour of India, China and Iran. It is not a joke that Pakistan is importing raw cotton from Afghanistan that soared from $1 million in 2004-05 to $10 million in 2007-08.
Now for the last leg of this summary which gives insight into the phenomena how Iran-India-Afghanistan troika is emerging for trade and commercial interests, setting aside their dependence on Pakistan as a channel for Afghanistan. Iran-India trade relations took a surprising movement when in 1995, the then president of Iran Hashmi Rafsanjani proposed that Iran, India and Afghanistan should constitute a trade bloc to the mutual benefit of each partner.
In January 2003, the troika made a historic agreement in Tehran to construct a road that could link Afghanistan with Iran and Iran will construct a sea port at Chah Bahar a few hundred kilometres from Pakistan seaport Gwadar to use it for the mutual benefit of all three countries exclusively.
In the last week of January 2009, this project once completed, was formally opened by the Afghan President Hamid Karzai and Indian Foreign Minister Paranab Mukherjee. The 220-km long road costs $150 million, borne by India. It is one of the projects of total $1.1 billion which India is funding in Afghanistan.
This road will connect Afghanistan through Delaram in Nimroze province to Zaranj of Iran further leading to Iranian sea port Chah Bahar. In Afghanistan this artery is linked with the Herat-Kabul-Kandahar garland. Iran will let India transport its goods through this conduit bound to Afghanistan and the Central Asian States at a preferential treatment.
Muhammad Ishaq, Vice President of Sarhad Chamber of Commerce and Industry opines that it will hurt Pakistan trade interests significantly. For exports to Afghanistan, 90% discount rate on port fee plus a 50% on warehouse charges will be offered by Iran government at Chah Bahar port. Afghani transport can enter Iran to the point of port too.
None of these facilities has been given by the government of Pakistan to Afghanistan under ATTA. India has already transit agreements with Iran, Turkemisnistan and Uzbekistan. Now the operation of Chah Bahar will make this trade with more ease. India will get all concessions from Iran as given to Afghan goods at Chah Bahar.
Although Afghan transit trade through Pakistan is replete with anomalies, however, it generates Rs 1 billion to Pakistan Railways through its freight services annually besides hundreds of millions for NLC with thousands of employment to the locals. India is reluctant either to use Wagha border linkage for its merchandise into the CAS and agreeing with Iran and Pakistan for the proposed gas pipeline.
India fears that in both cases, Pakistan will be at most advantageous position. Pak-Afghan trade cannot flourish unless problems like poor conditions of road networks, lack of capacity of service providers, insurgency in tribal areas, Nato forces in Afghanistan, less availability of railway wagons and high transport costs of NLC as an alternative. 44% of road from Karachi to Peshawar is in poor condition, making 25 kilometres speed p/h on an average.
In the past couple of years both Pakistan and Afghanistan have taken some steps for boosting bilateral trade. Both states:
a) Agreed to review transit agreement. The Government of Afghanistan has handed over its draft which is under consideration of Pakistan Cabinet for approval. The Ministry of Commerce has proposed inclusion of two more sea ports - Port Qasim and Gwadar.
b) Signed an investment protection treaty to create an investment friendly environment.
c) Signed an MOU for the construction of highways in Afghanistan.
d) Agreed to open branches of banks in each other's country.
e) Signed an agreement to construct a railway line between Chaman and Spin Baldak and between Chaman and Kandahar to uplift trade. It gives some satisfaction to note that Pakistan has done more as compared to Afghanistan.
NOTABLY, PAKISTAN HAS:
i) Reduced negative list of 24 items to just 2, at the cost of its own economy.
ii) Agreed to open more routes from NWFP subject to the security situation.
iii) Converted $100m loan into grant
iv) Established nine additional Customs Stations in the border areas.
v) Donated $100m for the renovation of schools and hospitals.
vi) Set up better and well-equipped warehouses, vehicle terminals and established screening systems for containers.
It is pertinent to mention that though Iran has offered its port services for both India and Afghanistan and granted them free zone like services, even then Chah Bahar port is not as suitable to India and Afghanistan as that of Karachi. From this perspective, Iran's isolation at international level compelled it to eat a "bitter candy" by extending such generosity to India and Afghanistan.
When Pakistan will tighten Afghan Transit trade by more strict regulations for smuggling Afghan imports through Iran will not be able to reach Afghanistan and will creep back into Iranian markets, inflicting the same loss to Iran economy as has been the case of Pakistan for last more than four decades.
Pakistan must revitalise SAFAT that enshrines South Asia as a free trade bloc. For the future periods too, Afghanistan will continue to depend on Pakistan, especially for food items. Adjacent to its own border, Torkham suits best. For India, in order to avail its CAS exploration, it will have to cover hundreds of miles more for reaching Chah Bahar port as compared to Wagha border.
Indian Punjab produces food items for most parts of India and for exports. To bring such consignments to Mumbai and then to Chah Bahar for exporting to the CAS, it will have to bear enormous costs like transportation and other services that will deprive Indian items from competitiveness. Naturally, Chinese products will be the most useful items from the consumers point of view of CAS. Good relations with neighbours never have been so important for Pakistan as they are now.
Pakistan must actively engage India to use its route for trade in Afghanistan on the terms best suited to Pakistan and revive its talks with India for Iran-Pakistan-India gas pipeline. India needs security, Pakistan needs royalty and "friends". Such tripartite confluence of trade-based interests can potentially bring $6 to $8 billion royalty to the cash-strapped Pakistan. All must work for each other. This is trade of interests and a recipe for growth.