Altering Afghan-Pakistan Trade Relations

Spearhead Analysis – 27.03.2017

By Shirin Naseer
Research Analyst, Spearhead Research

Pakistan Afghanistan FlagAfghan president Ashraf Ghani and Indian Prime Minister Narendra Modi are set to finalize an air cargo service pact to diversify and boost bilateral trade. The 2010 Pakistan-Afghanistan trade pact permits Afghan trucks carrying goods to India to travel up to the last checkpoint at Wagah, and not to the final Indian checkpoint at Attari, less than a kilometer away. Pakistan is yet to provide a transit link for India-Afghan trade through its territory. The trade and transit agreement was revised last year—again, with no provisions for Indian goods passing through Pakistan. The transit dilemma has since pushed Afghan traders in a quandary.

Afghanistan depends on Pakistan’s port of Karachi for its foreign trade. The air corridor connectivity project comes as an alternative designed primarily to enable a landlocked Afghanistan to trade with India, which happens to be the biggest market for Afghan goods in all of South Asia. This move is likely to help export Afghan fruits and carpets to India and allow Indian medicines to be imported to Afghanistan.

According to Afghanistan’s deputy minister of commerce and industries, from “2008-2009 nearly 60 percent of Afghan imports were transited from Pakistan”. However, up until 2016 the figures have shrunk to “not even 30 percent.” In truth, due to the transit and trade problems with Pakistan, Afghan traders have diverted their attentions to Bandar-e-Abbas in Iran. From 2008-2009, “nearly 15-20 percent Afghan imports were transited from Iran” following which the percentage increased to “37-40 percent” in 2016. 

Understandably, bilateral relations play a significant role in the condition of Afghanistan-Pakistan transit; there is a strong belief that Pakistan may be using a landlocked Afghanistan’s ‘transit dilemma’ as a pressure point or a bargaining chip against Kabul. There is seething distrust between the two neighbors, owing to which bilateral trade is at a standstill.

Faced with an unsettlingly slow level of progress, Pakistan has taken steps of its own to bypass Afghanistan and reach markets of Central Asian countries through China and CPEC; a quadrilateral transit agreement with Central Asian Republics and China is also underway.

The air cargo deal came soon after Afghanistan, Iran and India signed the Chabahar transport and transit agreement in Tehran, which will enable India and Afghanistan to bypass the Pakistani transit route and increase trade relations with the rest of the world.

Even though ambassadors from both countries have clarified that Gwadar and Chabahar will remain “sister ports”, several analysts have painted the two out as rivals. Chabahar is portrayed as an example of India’s efforts to counter CPEC. A lot of Pakistanis feel anxious over how Pakistan may be losing its monopoly over regional transit routes, and transit customers in Afghanistan and Central Asia. This is somewhat rooted in the strategic fear, typically found among foreign policy analysts, of Pakistan being ‘encircled’ by India, and finding itself at the receiving end of PM Modi’s foreign policy plan of isolating Pakistan.

From a geopolitical standpoint, the Gwadar port may lose its status and importance as Chabahar opens as an alternative transit hub and route for Afghanistan and Central Asian republics. Moreover, a Chinese and Indian military presence on the two ports may increase Sino-Indian rivalry in the Indian Ocean.

While China can get permission from Pakistan to use Gwadar militarily, for Iran to allow India the same is unlikely.

China and Iran bilateral trade is $51.8 billion compared to bilateral trade of $14 billion between India and Iran. Additionally, in January of last year Iran and China agreed to increase bilateral trade to $600 billion over the next 10 years.

China is Afghanistan’s top trading partner through the Afghanistan-Pakistan Transit Trade Agreement (APTTA), accounting for 33% of total Afghan imports in 2012, 2013 and 2014. In case the trading route with China through the Wakhan pass is unavailable and technical problems arise in the newly established railway link between Afghanistan and China, Afghanistan’s trade with China will depend on Pakistan and CPEC.

Moreover, China has supported Iran’s strategic ally when China along with Russia vetoed the United Nations Security Council resolutions against Bashar al-Assad’s regime in Syria.

Presently, Sino-Iranian relations are far too important for Iran to risk entering the Sino-Indian strategic rivalry.

Iran has extended invitations to both China and Pakistan to be a part of the Chabahar port project. In response, the Chinese Ambassador to Iran, Pang Sen, said that Chinese companies are eager to invest in the Chabahar economic and strategic zone. Both sides in 2015 signed an MoU on the construction of an industrial town in Chabahar and a technical team from Beijing also visited the port in April of 2016.  Additionally, there is news of Pakistan considering linking Gwadar with Chabahar harbor.

Given that Afghanistan continues to face: problems of transit and trade in Pakistan, and opposition to including India in the Afghan-Pak transit trade agreement, the opening up of newer alternate routes for Afghan imports from China via Pakistan may lead to the Pakistani route losing its popularity and regional significance. However, all is not lost. This may well be avoided if Pakistan agrees to include India in APTTA. Pakistan has so far rejected the proposal to allow goods to be transported from India to Afghanistan through its territory (via the Wagah-Attari route), using APTTA. India is however keen to join APTTA and Afghanistan is known to have mirrored India’s enthusiasm. However, with the India-Afghanistan bilateral relationship thriving at the expense of Pakistan and an already strained bilateral Indo-Pak relationship severed due to Modi’s inflexible Pakistan policy, it is highly improbable for Pakistan to alter its stance.