“The economy is going to continue to be faced with multiple crises unless reforms which redistribute resources and relocate priorities are made.”

(Syed Akbar Zaidi, Pakistani Political Economist)

Despite sharing deep cultural and historical linkages, the Pak-Afghan trade has not been able to reach its full potential. Pakistan is Afghanistan’s largest trading partner and receives 75% of Afghanistan’s exports. Pakistan’s export to Afghanistan US $ 833.42 M in 2021-2022. Export volume increased by 32 % from US $ 500 M to US $ 658 M in the first eight months of the fiscal year 2022-2023. Despite the increase, the overall volume of trade between both countries has been estimated as less than the actual capacity of trade.

Pakistan during 2021-2022 exported major items like cereal worth US $ 122.05 M, livestock worth US $ 79.33 M, pharmaceutical products worth US $ 71.07 M, plastic worth US $ 28.46, woods-related articles worth US $ 26.92 M, and electric equipment worth US $ 19.85 M. Afghanistan on the other hand exported cotton worth US $ 161.21 M, edibles worth   US $ 139.41 M, vegetables worth the US $ 118.62 M, minerals worth US $ 111.28 M, iron steel worth   US $ 30.34 M and carpets textile worth   US $ of 3.14 M to Pakistan.

Pakistan and Afghanistan are close neighbors, culturally linked states in dire need to enhance trade to get their economic stagnations down.

Both countries formulated a Transit Trade Agreement (TTA) that came into effect in 1965. According to the agreement, Pakistan would provide a transit route to Afghanistan for trade through Pakistan’s ports. To enhance further, the Joint Economic Commission was established in 2002 to promote business-to-business interaction. The exhibition of the Joint Chamber of Commerce and Joint Customs Committee was proposed under this agreement. APTTA (Afghanistan-Pakistan Transit Trade Agreement) is the extension of the Transit Trade Agreement of 1965 and provides more facilities to traders by allowing the use of transport including railways, roads, airports, and ports. Despite these agreements, Pakistan was not able to avail equal opportunities for transit trade through Afghanistan to Central Asian states and Russia. In July 2012, Afghanistan and Pakistan agreed to extend the Afghanistan-Pakistan Transit Trade Agreement (APTTA) to Tajikistan, a first step towards the establishment of a North-South trade corridor. In 2014, the president of Afghanistan Ashraf Ghani proposed an Afghan trade corridor to India via Pakistan, however, it indicates that if Pakistan does not agree to the proposal, Afghanistan will not allow Pakistan access to the already agreed corridor towards Tajikistan. This proposal could not be materialized due to the security concerns shown by Pakistan. After the Taliban-led regime came into power in Afghanistan, Pakistan wanted to implement the deal to get access to Tajikistan, but international isolation became a big hurdle to the concept. According to the Ministry of Commerce, Central Asian Republics (CARs) have bilateral trade potential worth US $ 96 B with Pakistan through Afghanistan.

Despite these agreements, challenges are still not resolved. Although some positive developments have been observed with the incumbent Taliban government, broader challenges are unchanged. The menace of smuggling is a long-standing concern on Pakistan’s side and the surge in dollar smuggling to Afghanistan has continued to drain the foreign reserves of Pakistan, resulting in the appreciation of Afghan currency by 5.6 % as compared to the depreciation of the Pakistani Rupee 36.6 %. A 2011 study by Pakistan’s Federal Tax Ombudsman noted that several high-tariff goods, including vehicles, cigarettes, and electronic items were being smuggled from Afghanistan to Pakistan, which had negatively impacted Pakistan’s local industry.

The security situation impacts trade between both countries. An unwanted security incident leads to perishable items being stopped at the border.

Temporary Admission Document (TAD) was introduced in 2022 to facilitate traders but it was not operationalized due to the visa ratio being 500 on a day which should have been an average of 2000 per day.

There are numerous prospects for increasing Pakistan’s trade with Afghanistan. In 2022 Economic Coordination Committee allowed an increase of 14 items of exports in local currency which was an effective method to raise trade with Afghanistan. Pakatan has visible opportunities in rice, fish, poultry, meat products, sugar, bakery products, salt, textile, pharmaceutical products matches, textile and textile articles, building stone, and surgical instruments. These opportunities should be explored to get maximum benefits.

There are several ways to stop smuggling from Afghanistan to Pakistan. Pakistan is building one of the longest fences to stop smuggling, which needs effective surveillance around the clock. Drone and Satellite surveillance is a good and effective mechanism to deal with the situation. Curbing the smuggling will increase revenue through tax collection and proper legalization of new trade firms in both countries. The reduction in the visa ratio, especially in the business community, must be addressed. Pakistan visa office in Kabul needs to be renovated and spacious for the accommodation of more Afghan citizens.

There is a dire need to attract the youth of Afghanistan. The Allama Iqbal Scholarship Program (AIS) was launched in 2009 and was very popular with Afghan students.  Afghan students were put into different fields, especially skilled-based degrees like engineering.

According to the Pak-Afghan Graduate Associate (PAGA), there are around 30,000 students who got an education in different fields over the last 30 years in Pakistan.

Central Asian Republics (CARs) are the largest marketplace where Pakistan can explore maximum trade potential. Some recommendations can increase trade between Pakistan and CARs. First, there is a need to provide incentives to transporters for freight services between Pakistan and Afghanistan. Second, there is a need for the inclusion of the CARs in CPEC and Gwadar port Trade facilities in compensation for the agreements with CARs. Labeling and packing are regional languages as there are very less English-speaking people in the CARs. Finally, infrastructural development through the Afghan corridor is inevitable for effective trade with CARs.

Similarly, there is a need for modern trade facilities at border crossings, trained staff in the Pushto language, and high hospitability should be given duties of the checkpoints at the border crossing.  Healthcare centers and emergency services should be maintained at border crossings. Single window operation and quick customs services are required. These are some major border management techniques that can enhance the trade between Pakistan and Afghanistan.

There is an immediate need for less securitization of the trade points. There are a lot of security clearance issues at trade points like dealing with customs, FIA, IB, and ISI. There must be proper utilization of a single force mechanism to deal with this division of the security mechanism at the border. The facilitation center like TAD (Temporary Admission Document) must be fully operationalized. By this, Pakistan can increase the visa ratio of the Afghan community in Pakistan, and it will automatically reduce the trust deficits among Afghan people towards Pakistan.

There are high prospects for increasing trade between Pakistan and Afghanistan. Afghanistan and the rich neighboring markets of Central Asian Republics (CARs) have one of the largest markets available to us. There are multiple challenges in front of both countries, but an effective and sagacious approach can resolve these hindrances all the way. This will not only bring positive results for Pakistan but the region at large.