May 25 - 31, 2009

The new transit trade pact signed by Pakistan and Afghanistan in Washington on May 6 is actually aimed at providing a trade corridor for Indian goods to Afghanistan through Pakistan, according to the analysts. Being Kabul's major trade partner, India will be the main beneficiary of the transit trade agreement, which will ultimately allow it to use the Wagah-Khyber route for trade with Kabul. Pakistani business community has expressed reservations over the signing of the memorandum of understanding (MoU) in Washington, allowing India to use the transit Wagha-Khyber route for trade with Afghanistan. The businessmen fear that allowing India to use Wagha-Khyber transit route would wreak havoc with the local industries, as Indian goods would be smuggled back to Pakistan. Although India is not mentioned in the MoU signed by the two countries, yet the analysts believe that India will benefit from the pact, which will open Pakistan land route for transit trade between India and Afghanistan, and the export of goods through Wagha would cost India less.

The new trade and transit agreement between Pakistan and Afghanistan will be concluded by the end of this year. US Secretary of State Hillary Clinton, who hosted the Afghan and Pakistani presidents for the first round of the second trilateral talks last week, oversaw the signing of accord and she called it an historic event. "The pact is an important milestone in their efforts to generate foreign investment, stronger economic growth and trade opportunities," quoted Reuters Hillary Clinton as saying. "Nothing opens up an area to economic development better than a good road with good transit rules and an ability to transport goods and people effectively."

The country is already providing a transit route to the neighboring Afghanistan for its imports and exports through the Karachi port under Afghan transit trade agreement (ATTA) signed in 1965. The goods brought to Afghanistan under the ATTA have already wreaked havoc with the local industries. The availability of all kinds of goods, even viable industrial units in the province failed to compete with the duty-free goods smuggled back to Pakistan from Afghanistan. Allowing India to use Wagha-Khyber transit route would render the remaining industrial units closed, according to local analysts.

Local businessmen demand that Pakistani goods should be given access into the markets of the central Asian states. They contend that if the government allows India access to Afghanistan then other countries like Iran, Iraq, Central Asian States and Pakistan should also be allowed trade with other countries while using the Indian route.

Analysts believe that the accord seeks to provide a trade corridor for Indian goods to Afghanistan through Pakistan, though it doesn't mention India by name. If the US really wants cooperation to grow among the regional states, it should be serious in resolving Indo-Pakistan issues including Kashmir instead of expecting Islamabad alone to show goodwill.

Being a landlocked country, Afghanistan desperately needs an export outlet. She is dependent on Pakistan for its trade. Pakistan has been providing trade facility to Afghanistan under the WTO charter that allows the landlocked country to use the port of the neighboring country. Pakistan signed ATTA in 1965 with neighboring Afghanistan to facilitate Afghan foreign trade. Despite the occasional tensions between Pakistan and Afghanistan, Kabul has continued to benefit from Pakistan's strict adherence to the transit trade agreement.

Under Hamid Karzai government, Afghan trade has taken new direction in recent years, as Afghan authorities have reached trade deals with Iran, India and the Central Asian states all of which grant major concessions to Afghan goods. The efforts have been made to reduce dependence on Pakistan, which has been Afghanistan's principle trading partner and entry port for imports and exports.

Geographically, Afghanistan forms a land bridge between South Asia and Central Asia and the opening of its borders and rebuilding efforts can provide new opportunities for the region. By virtue of its geo-strategic location, the landlocked Afghanistan can emerge as a trade hub connecting the Middle East, Central Asia and Europe. Presently, Afghanistan is facing several constraints to boosting trade. Besides inadequate physical infrastructure such as link roads, ports, and border crossings, other constraints include customs issues, trade policies, permits, visa regulations, and endemic corruption.

Pakistani traders and businessmen complain against discriminatory policies on part of the Afghan government and demand that trade between Pakistan and Afghanistan should be on equality basis. The Kabul should provide the same facilities, which are being provided by Islamabad. Afghan government imposed 18 per cent import duty on the Pakistani goods whereas there was no import duty on the Indian items. Trade between Pakistan and Afghanistan plummeted to $400 million from $2 billion in the last three years due to discriminatory policies on part of the Afghan government.

The country's business community demands guarantee from the government and the international community that the goods transported through Wagha-Khyber route to Afghanistan would not get back in Pakistani markets to save local industry from further destruction.

Under the umbrella of ATT agreement, massive smuggling of goods like tyres, electronic goods, black tea and home appliances into Pakistan was carried out by the unscrupulous elements. The imported products booked for Afghanistan most of the time never reached Afghanistan but found its way back into the country. This not only undermined the local industry but also the legal imports.

The smuggling of the prohibitive items continued over the years. It cost billions of revenue loss to the Pakistan. Besides, discouraging the local manufacturers, the smuggling caused Rs 1.5 million revenue loss annually to the national exchequer and decline in legal imports. Ultimately, Islamabad put 17 items on the negative list of the ATT in 1996. Prior to 1996, the value of these 17 items made up 43 per cent of the total goods imported under the ATT in 1994-95. Under Musharraf government in 2001, another 7 items were added to the prohibitive list. The prohibitive list contains 24 items presently.

Critics say that the pact is an attempt by Washington to help India entrench itself deeply in Afghanistan and give it a major role in Afghanistan, even though the two are not neighbors. They say that while America is not giving access to Pakistani goods to itself, it is forcing president Zardari to surrender to Indian interests at the cost of Pakistan's economy and security. They fear that under the cloak of transit trade, arms would be supplied to Afghanistan, against Pakistan's strategic interests and enhancing the threat from India.

Pakistani authorities however reject the view that India has been granted transit trade route for Afghanistan, saying that it is a mere MOU under which Pakistan and Afghanistan would hold talks on the matter.