Pak-Afghan trade

With Pakistan facing a crippling trade deficit, the country’s authorities should be alarmed by the $2 billion drop in Pak-Afghan trade in just one year. The numbers are even more alarming when we note that the total trade between the two countries amounted to $2.5 billion. The drop leaves it at a paltry $500 million, which opens up serious questions about how trade policy and security policy are interacting in Pakistan. If Pakistan is to take full advantage of the China-Pakistan Economic Corridor, it must be able to position itself as a regional trade hub. While policymakers and politicians have continued to repeat this stance, it seems security policy has trumped trade policy in the last year. Repeated closures of the Torkham border, tensions between Pak-Afghan armed forces as well as new trade tariffs from the Pakistani side have all contributed to the 80 percent fall in trade between the two countries. We must remember that this trade has traditionally been advantageous to Pakistan, which has been able to use resource-starved Afghanistan as an export market. This export market has rapidly shrunk in a year when the government had declared an increase in exports to be among its top priorities.

Only a couple of weeks ago, the Pakistani government announced the imposition of new tariffs on goods traded between the two countries. This had led to a massive outcry by traders on both sides of the border, who were concerned that trade between the two countries could collapse – something that has already been witnessed. It is only after much protest and lobbying by traders that the government has now asked traders to prepare a list of goods for which it could consider removing the new regulatory duties. But bilateral trade seems like a moot cause in an environment where security issues have been allowed precedence over economic cooperation. The Pakistani government has tried to negotiate with the Afghan government on a one-point agenda: no transit trade for Afghan goods into India. There have been few buyers in Afghanistan for that as trade with Pakistan offers no clear advantages to them. Afghanistan had already begun to use Iran more for transit trade due to its uncertain relationship with Pakistan. Iran becoming a viable alternative port should worry Pakistan, which wants to project Gwadar as the port of choice for the future. But the fact is that closing the border eight times in a single year and following it up by imposing new duties is a poor strategy to improve trade. The government has taken a positive first step to consider an exemption list, but much more is needed to restore the confidence of traders. Economic realities and compulsions cannot become a casualty in all this. Otherwise, the entire CPEC exercise could end up looking futile.