Pakistan and Afghanistan do not necessarily agree on most if not all issues involving each other. Trade being no exception, the ever-contentious Afghan Transit Trade Agreement (ATTA) has time and again taken the centre stage of one too many disagreements - the most recent being the redrafting process of the agreement due to be re-applied from January 2010.
Afghanistan happens to be one of the most important trading partners in the region for Pakistan as it accounts for roughly 7 percent of our total exports. Pakistan, which is the largest trade partner of Afghanistan, entered into a trade agreement with the war torn country way back in 1956 - allowing duty free access on almost all products to Afghanistan traders in Pakistan market. Yet, Pakistan ended on the losing end, as Afghanistan failed to reciprocate the same and we didn get any sort of free access to the Central Asian states.
Understandably, the business community of Pakistan was never at ease with the transit agreement that forced the government to ban imports of 17 items back in 1996 - leaving a positive impact on Pakistans economy, as the production of banned items surged manifolds during that era. But it proved to be a honeymoon period - not lasting long as the government lifted the ban in 2002, on Afghanistans request, on various products putting local industries on the back foot again.
Pakistan has already given enough concessions in the Afghan Transit Trade, which includes 50 percent concession on port charges. The striking thing to note is the trade volume under the Transit Trade agreement which has jacked up by more than 70 percent in the year to date.
However, a look into the details reveals that Afghanistan imports a huge amount of luxury items, which are certainly not consumed there, owing to weak purchasing power and infrastructure, and are instead smuggled back to Pakistan, depriving the exchequer of sizeable revenue. This also discourages the local industry as home made production dwindles, being pricey relative to the smuggled goods.
One such example is the excessive imports of electronic gadgets in a country, where only 9 percent population has access to electricity and whose power infrastructure is ranked 150th in the world by CIAs world fact book.
Now the question is what must be altered to ensure that the transit agreement is at least balanced if not in Pakistans favour. Pleading the US will not help as American counterparts have time and again emphasized that they will only act as facilitators. This leaves the government to take some bold and wise steps.
Since Afghanistan, being a land locked country, will need to rely on Pakistan in the long run, Pakistan officials should demand free market access to the Central Asian states, via Afghanistan, in return of being so generous in ATTA. This is the only way Pakistan can optimally exploit the potential of an otherwise not-so-active Gwadar Port, which was built mainly to target the Central Asian states and China.
Secondly, there is a dire need to kill the incentives in the market for smuggling by bridging the yawning gap between tariff and duty structure of the two countries. Also of importance, is the need to negotiate the terms on preferential terms than allowing duty free imports of almost any item Afghanistan wishes to import.
A thorough study of Afghanistans potential consumption of the goods it imports needs to be carried out - and excessive imports should be subjected to duties with a view to ensuring that those goods do not find their way back to Pakistan and hurt domestic industry.
The earlier this issue is solved, the better it is - for although there are no documented numbers as such, sources in the commerce ministry estimate the figure of total loss, including loss of revenue, to at least $3 billion per annum. And thats quite a big amount of loss indeed being incurred simply out of generosity.
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