Only a few days ago, when Pakistani government and leaders of other ECO members (including Central Asian countries) made rosy promises between themselves on doubling regional trade; higher level representation from one member was missing- Afghanistan. (Read our story Make regional trade work again on ECO).
Among the ECO members, Pakistan is slowly trying to build a stronger relationship with Turkey, contemplating a free trade agreement with the emerging economy, and with Iran on energy. Both countries are also Pakistans competition in international marketsthe former in EU destinations against Pakistani textile, while the latter is a major competitor of Pakistans cement exports in various countries. But it is really Afghanistan that Pakistan has had a long, trade-positive, (even if politically tumultuous) partnership over the years.
Afghanistan is the only country within the group with which Pakistan has a bilateral trade deal dating back the 1960s (which was later on replaced with AfghanistanPakistan Transit Trade Agreement-APTTA in 2010); while Pakistans exports to the nation constitute over 80 percent of all of Pakistan-to-ECO exports.
Quoting some numbers from International Trade Centers (ITC trade map) online portal: Pakistans exports to Afghanistan go between 8 percent and 10 percent of all exports, while Pakistans imports from Afghanistan are merely 0.9 percent of all the countrys imports. However, trade on both sides is bolstered through APTTA.
Data reported by a Pakistan Business Council report suggest Afghanistans imports through the transit route account for over 40 percent of all Afghan imports. This means, the agreement with Pakistan facilitates nearly half of all of the countrys imports. Thats a large number. Unfortunately, Pakistans exports to Central Asia through the Afghan border are glaringly absent from this report, and other sources we tried to reach. In total trade though, Pakistan has been exporting 10-14 percent of all its exports to ECO countries. Pakistan hopes to expand trade with these countries so, Afghanistan does have importance.
Now, lets try to unpack what has been happening between the two countries in the past few weeks. After the latest attack on a Sufi shrine in Sindh, Pakistan closed the Torkham border that it shares with Afghanistan. This has affected the movement of goods and people; which Afghanistan claims could result in a major financial crisis. According to Pakistan-Afghanistan Joint Chamber of Commerce and Industry (PAJCCI), and reported by an Afghan paper; 1200 Pakistani trade vehicles are stranded on either side of the border.
Officials of PAJCCI claim Pakistan has already suffered a $70 million loss over the past two weeks after borders closed, largely affecting trade of fresh produce Pakistan that exports to Afghanistan and onwards to Central Asia (which are part of ECO). PAJCCIs estimates say Pakistan sends 300 vehicles of fruits and vegetables a day to the region through its borders with Afghanistan.
The Afghanistans Chamber of Commerce and Industries (ACCI) quote higher numbers (again reported by an Afghan paper)1,000 trucks at the Torkham border; 1,000 trucks on the Boldak border; 300 trucks at the Durand Line and 1,200 more trucks stranded elsewhere. The ACCI said Pakistan would suffer 80 percent of the loss in trade with Afghanistan and Central Asia.
Interestingly, no similar numbers were reported by any local media source, but there is no doubt that trade wouldve been affected by closed borders. Two days ago, Pakistan temporarily reopened the borders to ease the backlog of vehicles and people travelling. Clearly security will remain a pulsing point in constricting trade between Afghanistan and Pakistan.
The second biggest concernwhich keeps coming up is smuggling due to the wide open borders and the losses to the exchequer it has caused over the years. Just last week, figures reported to several local media outlets by Pakistani officials suggest that 70 percent of the goods exported through transit trade are smuggled back into Pakistanamounting to approximately $1.4 billion last year. Older studies estimate loss to revenues amounting to $3-$5 billion to Pakistan. With limited resources, it is impossible for Customs to man all the borders, and the checkpoints that exist are not effective enough.
Having proper toll facilities at the borders, instituting fines and automising the processes should be a starting point. The central bank introduced a compulsory electronic forms for all imports in Pakistan recently to reduce under-invoicing. That is a good measure. We need more of these.
The advantages of a transit trade deal like APTTA could potentially be enormous, but they are easily counteracted by the costs associated with not being prepared for a deal like this. Lapses in security and inadequate border protection will continue to look bad for free trade.
One could hold the idea of free trade hostage but once again, it is the homework that needs to be done by governments before getting on board with such deals. As we have talked about in our last column, that is the ultimate failure.
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