India has been Pakistan’s arch rival since its inception and the South Asian neighbours have battled each other on multiple fronts – ranging from three wars to continuing hostilities along the border. In 1971, India played a key role in splitting Pakistan apart. Decades later, it is clear that while Pakistan’s political and military leadership made huge blunders; India actively conspired against Pakistan, fomented separatism and fanned the flames.
India’s tactical acts of hostilities to harm Pakistan have now reached new levels. New Delhi’s strategy today is to strangulate Pakistan’s economy, not only by engaging the Pakistani military along the Line of Control in occupied Kashmir and the Working Boundary, but also with a multi-pronged war along Pakistan’s western border with Afghanistan which, until recently, was a major trade corridor with landlocked Afghanistan and the Central Asian States.
Pakistan and Afghanistan have a symbiotic relationship, not only for defeating terrorism but for economic survival as well. But strained ties between the two countries, because of an environment of mistrust and accusations of cross-border terrorist infiltration, frequent border closures and the ‘misconception’ of perhaps Pakistan continuing with its policy of strategic depth in Afghanistan, has very effectively been exploited by India. This has not only made Pakistan’s western border more unsafe, but has also widened the increasing trade divide between the two countries.
Use of guns and mortar on the eastern border apart, the arrest of a serving RAW operative, Kulbhushan Jadhav, in Balochistan and the Indian involvement of supporting Pakistani militants in FATA, constitutes sufficient proof that Afghan soil is being used by India to destabilise Pakistan.
It is a harsh reality that Indian influence in Afghanistan is another key reason for souring bilateral and trade ties between Kabul and Islamabad.
Indian and Iranian trade influence and tit-for-tat imposition of unwanted taxes on bilateral trade by Pakistan and Afghanistan has not only affected the transit border trade of about $3 billion – which has declined to $1 billion – but an estimated $5 billion regular trade between the two countries has also dropped by almost 70 percent.
The fast growing trade triangle of India, Iran and Afghanistan has also deprived Pakistan of about $7 billion from Central Asian markets which were once green pastures for Pakistani goods. To a large extent, Pakistan’s unrealistic trade policies and Kabul’s reciprocal high tax tariff has pushed markets in the Central Asian Republics out of our reach.
Though Pak-Afghan border closures and violent incidents have often been cited as the main cause of the declining border trade, the ground reality is that the imposed Afghan Pakistan Transit Trade Agreement of 2010 proved a real disaster for Pakistan’s economic ties with Kabul, while the rest of the damage was completed by the Indian and Iranian influence on Afghan markets.
New Delhi is quietly waging a well-planned economic war against Pakistan. India has doled out more than $500 million for the Chabahar port in Iran to counter Pakistan’s Gwadar port, financed the extension of the road network and built hospitals in Afghanistan to gain Afghan sympathies. Additionally, India is trying to trigger a water war by building dams in Afghanistan, on rivers flowing into Pakistan, aimed at turning our agri-lands barren and to deprive Pakistan of its bread basket lands along the Kabul River which joins the great Indus River on Pakistani territory.
India is also trying to cut Pakistan out of an over $20 billion trade market of Afghanistan and the Central Asian States. India is not playing this new game alone. It has also roped in Iran to form a trade triangle, as Iran has started reaping the harvest in the form of grabbing the Afghan Transit Trade (ATT) via Bandar Abbas. Meanwhile, India is planning ahead to use Bandar Abbas and Chabahar to grab her share from Afghanistan, convincing the Afghan government, that they do not need Pakistan anymore to reach open waters for trade, with India and Iran there to support them.
The drop in more than 80 percent transit trade of over $2.5 billion between Pakistan and Afghanistan has been linked by traders mostly to flaws in the Afghan Pakistan Transit Trade Agreement (APTTA) of October 2010. But many also blame both Kabul and Islamabad for the irrational taxes and duties on both sides of the trade route from Karachi to Kabul.
This agreement has also allowed Afghan truckers access to the Wagah border and Karachi Port which is worrisome for both the government and Pakistani traders.
The volume of transit trade lost by Pakistan is now being carried out from Bandar Abbas, as the Iranian government, exploiting the situation, is offering more subsidies and perks, from which Pakistan failed to capitalise.
The Transit Trade Directorate data alone shows that during 2015-16, at least 41,383 containers crossed over to Afghanistan via the Torkham border, but during the year 2016-17, during the same period, the number has dropped to 33,453 at Torkham, and it is a similar situation at other regular crossings.
Under APTTA-2010, shipping companies in Pakistan have made it mandatory for traders to carry transit goods through registered bonded carriers instead of loose cargo as was allowed in the Afghan Transit Trade Agreement of 1965. The shipping companies are charging a value guarantee of $1500 for a container from Pakistani traders and $6000 from Afghan traders besides demurrage and detention charges of about $90 per day.
The difference between the fare of private and bonded carriers is about $500 and a mandatory tracker costs them about $70. Pakistan has imposed 0.1 percent non-refundable insurance on the value of transit goods as duty taxes. In case of delay in lifting their goods from Karachi Port, transit traders have to pay about $70-$180 per day.
Thus, the transit traders have to bear an extra cost of 25 percent while operating from Karachi and have thus opted to go to Bandar Abbas because contrary to Pakistan, the Iranian government has extended extra facilities to the Afghan traders.
There is no compulsion of bonded carriers, no detention charges, no taxes and not even demurrage on the goods dumped at the port. Hundreds of acres of land have been reserved near the Bandar Abbas port only for transit traders where offloaded goods could be kept for months.
Before the imposition of APTTA-2010, Pakistan Railways, under the Goods in Transit to Afghanistan (GITA) was earning Rs. 8 to 10 billion a year from the Afghan Transit Trade, but under SRO-1-O1 loose cargo via Railways has been banned, causing revenue losses in billions of rupees to Pakistan Railways.
The clause of bonded carriers and trackers was introduced in the new agreement after the reported theft of NATO and ISAF containers which initially numbered 28,000 (from 2007 to 2010). Later, after an inquiry ordered by former Pakistan Supreme Court Chief Justice, Iftikhar Muhammad Chaudhry and conducted by Federal Tax Ombudsman, Dr Shoaib Suddle, the number was placed at 7,922. Following this, a National Accountability Bureau (NAB) reference was filed and hundreds of clearing companies, border agents and goods forwarding companies had to face trials for years.
This situation also cost non-NATO suppliers and transit trade operators enormous losses, as they faced inquiries and cases for years while their goods remained stuck on roads and ports. The mystery of the missing containers still remains unresolved.
The cost of railways carriages per container was $140-$150 and the cost per container via bonded carrier is about $450, but still the traders are forced to go via bonded carriers, mostly owned by influential Pakistani politicians, who had stolen the carrier contracts during their party’s tenure.
The traders’ complaints aside, the Pakistani government’s criminal silence for not reviewing the APTTA-2010 is also worrisome, as the agreement had to be reviewed after five years in 2015. But it remains in place unlawfully depriving the country of billions of rupees worth of revenue.
Besides the transit revenue, the trade triangle formed by Pakistan’s neighbours, has also deprived Pakistan of its bilateral trade with Afghanistan. The Collectorate of Customs data shows that Pakistan’s exports to Afghanistan declined by 14.9 percent during the fiscal year 2016-17, till December, while imports from Afghanistan also slid down by 21.9 percent.
The data also shows that exports to Afghanistan in the first two quarters of the fiscal year 2016-17 were calculated at Rs. 53 billion while during the fiscal year 2015-16 for the same period, the exports remained at around Rs. 62.49 billion.
The customs authorities at Torkham, however, claim the drop in regular trade between the two countries, estimated from $5 billion to about $1 billion, is said to be momentary because of border tension and closures and will be normalised after the border mechanism is installed and the truckers are issued visas and permit cards.
Data from the customs directorate at Torkham, reveals that in July last year the trade volume was $280 million which increased to $580 million in July 2017, thus showing an increase of $300 million a month. But the actual value, assessed by the border experts, is that this is because of additional and surplus supplies following the border opening as many traders tried to dump extra goods.
Medicine exports from Pakistan, however, showed an increase and remained at Rs. 2.21 billion as compared to Rs. 1.94 billion during the fiscal year 2015-16.
The value of formal and informal trade has always been estimated at about $5 billion a year, carried out through border crossings both legally and through illegal means with the connivance of customs, as well as through unfrequented routes. This figure, however, does not include illegal weapons, drugs and other contraband business which amounts to billions of dollars.
But the black economic exchange between Pakistan and Afghanistan has now come to a halt following stringent border management measures by Pakistan, plugging of unfrequented routes, border fencing, surveillance on the border and the compulsion of valid visa and travel documents.
The Afghan transit trade had always been viewed as a major source of smuggling and the reverse flow of ATT goods into Pakistani markets. There was always a demand to stop it, as it was hurting local industries, but the backflow is still high via the sea route, and other countries bordering Afghanistan, with contraband goods still trickling into our economy. This can only be countered if tax duties are subsidised by Pakistan to rationalise the rates, but border management has proved to be an excellent remedy to stop illegal trade along the porous border.
Another reason for the declining border trade is the fact that out of twelve customs stations along the Pak-Afghan border only three are functional i.e Torkham in the Khyber Agency, Kharlachi in the Kurram Agency and Chaman in Balochistan. Others like Ghulam Khan, Angoor Adda, Khapak, Nawa Pass, Arandu and others have yet to become operational, but traders are optimistic that once all these are operational, trade volume will likely surge as operational and transportation cost would be minimised. This will encourage traders to come back to the shortest trade route, instead of the longest via Bandar Abbas.
But it is also a reality that besides the flaws in APTTA-2010, the tit for tat imposition of undue taxes, both by Pakistan and Afghanistan, has made trading harder for businessmen and allowed other players like India and Iran to invade the Afghan and Central Asian markets. The National Logistics Cell is charging Rs. 2,500 per truck for road usage from carriers, while the Afghan government has imposed a ‘Khaki Pulli’ tax, i.e 5,000 Afghanis per truck for Afghan truckers and 10,000 Afghanis from Pakistani trucks which is an additional cost the traders have to bear while trading across the Pak-Afghan border. This has also affected bilateral trade.
Pakistan used to be the sole exporter to Afghanistan and had been extending its business to Central Asian states, but the new scenario has begun to cost us more. Kabul increased the tax rate tariff for Pakistani goods up to 25 percent while for India, Iran, Turkey and China, its five percent less, which is why Pakistani products cannot compete in Afghanistan. Pakistani dairy products, milk, cream, sugar, cement, biscuits, toffee and candy, bubble gum and cooking oil once dominated the Afghan market, but now Iranian, Indian and Chinese products are taking over due to the high tax tariff on Pakistani products.
Pakistan was also the sole importer of gems and precious stones from Afghanistan, transported from Panjsher valley via Chitral to Pakistan and exported to India, Thailand and other countries, but now India has started air lifting the goods directly thus depriving us of huge revenue.
Pakistan’s cement export to Afghanistan, a couple of years ago, was approximately 10,000 to 15,000 tons, but has currently dropped to 6,000 to 8000 tons per year. Since 2012, there has been a decline of seven percent every year in the cement supply to Afghanistan.
The irrational taxes and market manipulation of the Pakistani cement manufacturers, coupled with route taxes, have increased the rate of Pakistani cement to about $100 per ton while Iranian cement costs just $96 per ton. As a result, we cannot compete with the Iranians beyond Kabul, as the transportation costs increase too much if we move to northern Afghanistan.
The official data also shows that cement exports to Afghanistan went down during the current financial year to Rs. 5.89 billion as compared to the last fiscal year when it was about Rs. 8.0 billion.
Another reason for losing the Afghan cement market is that once Pakistani cement was in high demand even in the Central Asian states of Kyrgyzstan, Tajikistan and others, but now after completion of the dams there, the cement manufacturers in these countries have captured the northern Afghanistan markets from Mazar-i-Sharif to Badakhshan, while Iran has captured the western market from Herat to Kabul, ultimately hitting our cement exports.
Pakistan also used to be the sole route for transportation of fresh and dry fruit from Afghanistan but, today, India is directly airlifting the fruits from Afghan airports, enjoying subsidies and tax exemptions. Rice, oranges, mangoes, juices, sugar and cement used to be a cash commodity in trading with Afghanistan, but due to Afghan government taxation such as ‘Khake Pulli’ and another Afghan tax known as ‘Malia’, along with scores of taxes and illegal money extortion at checkposts, traders are exploring avenues with China, Turkey and Iran as well.
The issue of the Pak-Afghan border closure and strict border management has always been exploited by India to increase the trade divide. New Delhi has been creeping in to fill the vacuum, which is increasingly harmful for Pakistan. Islamabad now has to be realistic to rectify its misdirected trade policy on border trade with Afghanistan, as Kabul is no longer reliant only on Pakistan after entering into the fold of the World Trade Organisation (WTO) as it can carry out import from and export to 163 countries.
On August 6, it was announced that the Chabahar Port will be operational in 2018, while the Delaram-Zaranj Highway is also likely to be functional soon. During last year’s Heart of Asia Conference in Amritsar, India and Afghanistan discussed the establishment of a commercial air corridor after which they will bypass Pakistan’s airspace for trade.
During the fiscal year 2016-2017, Afghanistan’s exports to India remained at around $80 million, while imports were estimated at $152 million. When Chabahar is operational in 2018, the Indo-Afghanistan trade is likely to surge over $1 billion, more than the present Pak-Afghan trade. To counter this, Pakistan will not only have to ease visa restrictions for Afghan traders, but also give them more subsidies on taxes and travel, to counter Indian economic hegemony.
Keeping in view the ground realities, Iran is becoming the major beneficiary of the strained Pak-Afghan economic ties, as trade volume between Kabul and Tehran has increased from $1.5 billion to almost $2 billion; the volume lost by Pakistan is expanding the Iranian economy.
Furthermore, Chabahar’s operation, along with extension of railway lines to Afghanistan, would not only increase Iranian trade, but would also provide access to all Pakistani border towns. There is a greater likelihood that the illegal flow of Iranian oil, food products, groceries, vegetable oil and other commodities would further hit Pakistani industries, as smuggling from the Balochistan border has already become a headache for Pakistan.
Iranian oil, dates, soaps, detergents, clothes, vegetable oil, food products and petroleum products have already started capturing Pakistani border markets in Balochistan and FATA. Even major cities like Peshawar, Islamabad, Lahore and Rawalpindi have smuggled Iranian and Indian goods sold as imported products, which by no means could have come by legal routes.
Indian plans of extending the road network along the Pak-Afghan border in FATA and the Balochistan border areas also have multi-dimensional objectives, besides destabilising border areas of Pakistan through militant elements and rebels. There is every reason to promote illegal dumping of Indian and Iranian goods to destroy the Pakistani economy.
Detailed discussions with Afghan traders reveal that they would still opt for the traditional Pakistani route, instead of the unnatural and long troubled Iranian corridor and air-lifting of goods, but they want undue taxes on both sides of the border to be removed. Many, despite their government’s tilt towards Indian perks, are happy to continue with their traditionally and culturally close partner Pakistan. To retain these traditional partners as well as counter the Indian onslaught, Pakistan has to be realistic because Indian traders are filling the vacuum by offering and getting extra perks.
Pakistan must rationalise the policy for shipping companies. If Iran can relax the bonded carrier, detention and demurrage costs, Pakistan will have to do the same to remain competitive.
It is possible to regain our lost trade revenues, if a viable transportation mechanism, such as Pakistan Railways is restored and eventually further extended up to the Torkham Border, tax subsidies are extended and illegal money flow at checkpoints is stopped.
Pakistani policy makers also have to realise that if Afghanistan is relying on Pakistan to reach the open seas for trade, Pakistan also needs the Afghan corridor for cheap power and gas supplies from the Central Asian States to meet its energy needs, as well as establishing a much-needed foothold in the greener CAR markets for our exports.