Steep fall in Pakistan-Afghanistan bilateral trade

Soured diplomatic relations and extensive monitoring along the Pakistan-Afghanistan border has led to a steep fall in trade between the two countries.

In the last two years, more than 70% of Afghanistan’s trade has shifted to Iran, China and India. Iran is now Afghanistan’s biggest trade partner, a position held by Pakistan before 2016.

According to figures compiled by the Afghanistan Chamber of Commerce and Industries (ACCI), trade between Iran and Afghanistan from March 2017 to March 2018 stood at $1.98 billion, accounting for 22% of Afghanistan’s $11 billion consumer market.

This was followed by Afghanistan’s trade figures with Pakistan of $1.2 billion and China’s of $1 billion during the same period.

The Iranian involvement in Afghan trade can be measured by the fact that of the 500 companies licensed to operate in Iran’s Chabahar port, 165 belonged to Afghan investors. Chahbahar port, built under an agreement between New Delhi, Tehran and Kabul in 2016, has been luring Afghan trade away from the Arabian Sea to the Sea of Oman and Persian Gulf.

Iranian authorities announced incentives to Afghan traders using the Chabahar trans-shipment facilities. The incentive regime includes an 80% discount in export tariffs and a 75% discount on import duties on Afghan goods cleared at Chabahar.

Since 2016 when Pakistan’s security agencies intensified monitoring the cross-border trans-shipment of goods, Pakistan lost half its land-route exports to Afghanistan. Pakistan’s Customs Department data reveals that exports to Afghanistan dropped to US$900 million from US$1.6 billion in 2016 amid recurring closures of the border.

During this period tension escalated between the two countries with trade coming to a standstill.

Stakeholders and independent analysts, however, claim the damage to trade between the two countries was more wide-ranging and widespread than the official data projected. They believe the government had no idea of the exact losses to trade.

“We have lost over 80% of business during a short span of two to three years with trade volume nose-diving to the $500 million mark from the peek figure of $2.5 billion,” Zahidullah Shinwari, president of the Sarhad Chamber of Commerce and Industry (SCCI) in Pakistan, told Asia Times.

Shinwari listed several reasons behind the decline in trade between the neighboring countries, which included slapping regulatory duty on Afghan imports, the withdrawal of US and NATO forces from Afghanistan, a strict border monitoring process, visa restrictions and a lopsided Afghanistan-Pakistan Transit Trade Agreement signed without taking the stakeholders onboard.

“Extensive visa restrictions and stringent visa regime enforced by the government on Afghans has hurt our service sector, particularly medical tourism, hotel industry, legal and professional services had the adverse effect of new visa regime for Afghans,” Shinwari maintained.

He added that as far as Afghan businesspeople and traders were concerned, the local business community had recommended they might be given visas at borders after showing legal credentials, but the government ignored the proposal and continued with a strict visa policy.

Another factor affecting the regular trade volume is Afghan transit trade, which has slowed in the past two years. Afghan importers started routing their transit consignments through Chahbahar in Iran instead of through Pakistan’s Karachi port due to multiple discounts and cost-effective incentives by Iranian authorities.

A new road linking Afghanistan with Chahbahar is under construction with Indian funding that will put an end to Pakistan being the only transit hub for landlocked Afghanistan.

“Pakistan will lose a major part of its transit business to Iran and India as soon as the 220-kilometer road in Nimroz province of Afghanistan is commissioned,” Muhammad Ishaq, a leading manufacturer and exporter, told Asia Times.

He said the road was being built at a total cost of US$150 million as a part of an Indian reconstruction effort in Afghanistan. India had earmarked $1.1 billion for the package. When completed, Ishaq said, it would open up an alternative route into Afghanistan, which now mostly relied on Pakistan’s seaport for transit trade.

“We have been demanding that infrastructure should be upgraded to facilitate the transit trade activities in the region, but nobody is giving heed to our request,” said Ishaq. “Barriers and strings attached with the transit business had forced the Afghan importers to use Iranian trans-shipment facilities as a viable option.”

Ziaul Haq Sarhadi, a former senior vice-president and director of the Pak-Afghan Joint Chamber of Commerce & Industry,  claimed that 70% of Afghanistan’s trade had shifted to Iran, India and China, primarily because the Afghanistan-Pakistan Transit Trade Agreement signed in 2010 was neither in the interest of businessmen from either country.

“This agreement was just forced upon the people without taking the stakeholders into consideration. As a result, unnecessary impediments discouraged Afghan traders to do regular business in Pakistan,” Sarhadi revealed.

He said the border had been closed regularly on flimsy excuses, unlike the Wagah border with India and Pakistan, which never closed despite regular border clashes between the two countries.

Sarhadi said Afghanistan puts a 15% import duty on Pakistan exports, while goods from Iran, China, India, Turkey and from all other countries were allowed to import goods at a 5% duty, which he said was an injustice to Pakistani exporters.

The Pakistan Customs Authority, he said, introduced the Web Based One Custom system, which was outlandish in a region where electricity, telephone and internet facilities were not up to scratch.