Pakistan Afghanistan Economic Cooperation

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v Contents Contents Preface: Rethinking Afghanistan-PakistanRelations by Jochen Hippler.............................................................................................i List of Abbreviations & Acronyms ............................................................ vii Introduction BYÒ(UMAÒ"AQAIÒANDÒ.AUSHEENÒ7ASI ..............................................................xi Pakistan-Afghanistan Relations: Emergence of New Nation States and the Search for Identity BYÒ(AMEEDÒ(AKIMIÒÒ:ALMAIÒ.ISHAT................................................................ 1 Pakistan-Afghanistan Relations: Towards a New Horizon by Aizaz Ahmad Chaudhry........................................................................... 29 Pakistan-Afghanistan Relations by Bettina Robotka ...................................................................................... 45 Governance, Nation-ness and Nationality in Afghanistan BYÒ/MARÒ3HARIµ............................................................................................ 55 Cultural, Religious and Economic Integration: Future of Afghanistan-Pakistan Relations BYÒ!LIÒ-AISAMÒ.AZARY................................................................................... 75 Pakistan-Afghanistan Economic Relations: Basis for Cooperation by Vaqar Ahmed.......................................................................................... 89 Proxy Politics – Working Towards Dead End by Mushtaq Muhammad Rahim................................................................. 115 Politics of Proxy Wars and Terrorism by Rahimullah Yusufzai .............................................................................. 135

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vi Pakistan-Afghanistan Relations: Pitfallsand the Way Forward Afghanistan Peace Process: Missed Opportunities by Maleeha Lodhi ...................................................................................... 151 Afghanistan Peace Talks: Envisioning a Political Settlement BYÒ3HABNUMÒ.ASIMI ................................................................................... 161 Afghanistan Peace Process and Involvement of Outside Powers by Zahid Hussain........................................................................................ 175 #ON¸ICTÑ-ANAGEMENTÑ-ECHANISMSÑINÑ0AKISTAN !FGHANISTANÑ2ELATIONS by Moonis Ahmar ...................................................................................... 189 #HRONOLOGYÑOFÑ!FGHANISTANÑ#ON¸ICTÑÑ0AKISTAN !FGHANISTANÑ Relations 2001 to 2021 by Wajahat Rehan...................................................................................... 203 Editors...................................................................................................... 231 Contributors ............................................................................................ 233 Endorsements.......................................................................................... 239

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89 Pakistan-Afghanistan Economic Relations:Basis for Cooperation Pakistan-Afghanistan Economic Relations: Basis for Cooperation Vaqar Ahmed I have always pitched a case for strengthening of trade and investment value chains between Pakistan and Afghanistan, liberal visa regime, and continued engagement which could allow Pakistan access to Central Asian economies via Afghanistan.229 I also remain of the view that Pakistan can only optimize BENEµTSÒFROMÒ#HINA 0AKISTANÒ%CONOMICÒ#ORRIDORÒ#0%# ÒANDÒENVISAGEDÒ3PECIALÒ Economic Zones (SEZs) if dividends of this economic corridor are offered to the neighboring countries including Afghanistan, India, and Iran.230 )ÒHAVEÒALSOÒµRMLYÒREMAINEDÒINÒTHEÒCAMPÒOFÒTHOSEÒWHOÒBELIEVEÒTHATÒECONOMICÒ relations between countries need to be insulated from any downturn in political relations to the extent possible.231 This chapter provides an analysis and understanding and discusses, options for enhancing transit trade via Pakistan including impact of possibly allowing Indian goods to reach Afghanistan through Wagah.232 The analysis is timely; President Biden in continuation with President Trump’s policy on Afghanistan is standing by the peace deal with Taliban. Afghan 0RESIDENTÒHASÒSHOWNÒ¹EXIBILITYÒANDÒWILLINGNESSÒTOÒNEGOTIATEÒWITHÒ4ALIBANÒ5NITEDÒ States and Pakistan who grew distant after the 2014 attack on Army Public 3CHOOLÒINÒ0ESHAWARÒANDÒGROWINGÒIN¹UENCEÒOFÒ#HINAÒTHROUGHÒ#0%#

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ÒAREÒONCEÒ again approaching eachother in the wake of Pakistan’s relevance in helping to bring some elements of Taliban to the dialogue table. The chapter argues that despite the availability of evidence on trade and transit measures required to promote welfare in the region, the actual progress on more liberal bilateral trade is only possible after deepening of political cooperation. Researchers who are able to produce timely and credible politically-informed economic analysis can shape the contours of bilateral political engagements. Hence evidence producers in future will need to think, work, and inform politically. The next two sections update the potential gains from closer trade and transit ties. Section 3 discusses why Pakistan needs to move fast and expedite transit trade reforms if it wishes to protect its share in regional transit. One of the solutions

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90 Pakistan-Afghanistan Relations: Pitfallsand the Way Forward can also be opening up and modernizing new transit routes – something we discuss in Section 4. This however has both political and economic costs and BENEµTSÒWHICHÒBEGÒAÒCAREFULÒANDÒOFTENÒAÒREAL TIMEÒANALYSISÒ 4HEÒRESEARCHÒISÒBASEDÒONÒAÒSURVEYÒOFÒÒµRMSÒINÒ0AKISTANÒANDÒÒµRMSÒINÒ Afghanistan233 . These enterprises are involved in bilateral trade or provide transit services. This survey was facilitated by Pakistan-Afghanistan Joint Chamber of Commerce and Industry (PAJCCI). I also travelled to Kabul and had the OPPORTUNITYÒTOÒINTERVIEWÒOFµCIALSÒINCLUDINGÒ(%Ò!BDULLAHÒ!BDULLAH

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ÒTHEÒHEADÒOFÒ (IGHÒ#OUNCILÒFORÒ.ATIONALÒ2ECONCILIATIONÒINÒ!FGHANISTANÒINALLY

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ÒSOMEÒµNDINGSÒ have been drawnfrom focus group discussions hosted by Center for Research and Security Studies (CRSS) and Regional Peace Institute (RPI). Overview of Bilateral Economic Cooperation Afghanistan with a population of 38 million (2018), out of which 52.8 percent are YOUTH

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ÒPRESENTSÒSIGNIµCANTÒTRADEÒANDÒINVESTMENTÒOPPORTUNITIESÒFORÒ0AKISTANÒANDÒ the region. Geographicallya landlocked country, Afghanistan is gradually moving towards a high economic growth trajectory. While most of the development is driven by public investment, there is a growing private sector which is gradually starting to contribute to higher levels of savings and investment. Over the past two decades, there has been a conscious effort by the Afghan government and development partners to invest in improving trade and logistics infrastructure. Despite internal security issues, the country has put in place mechanisms that ALLOWÒSAFEGUARDINGÒOFÒMERCHANDISEÒANDÒRECONCILIATIONÒOFÒTRADE RELATEDÒ¹OWS234 Afghanistan and Pakistan share a land border of 2670 km. The latter’s seaports allow the former to route its imports and exports from Karachi and Gwadar to Pakistani border cities including Chaman and Torkham. It is now believed that Pakistan will also open more land trade routes through Angoor Adda, Kharlachi and Ghulam Khan Khel border terminals.235 In 2018-19 the total value of transit goods passing through Pakistan was 4.3 billion dollars out of which 4.1 billion was transit from Pakistan (i.e., imports of Afghanistan from the world which pass through Pakistan) and 0.13 billion was 233. The research was carried out in 2013. 234. “How can Trade Accelerate Afghanistan’s Growth.” World Bank Group, https://www.worldbank. org/en/country/afghanistan/publication/trade-as-a-vehicle-for-growth-in-afghanistan, accessed on 18 September 2019. 235.Ò h.,#ÒTOÒUILDÒ.EWÒORDERÒ4ERMINALÒATÒ!NGOORÒ!DDA

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iÒHTTPSNATIONCOMPK *AN NLC TO build-new-border-terminal-at-angoor-adda, accessed on15 April 2020.

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91 Pakistan-Afghanistan Economic Relations:Basis for Cooperation reverse transit (i.e., exports of Afghanistan to the world which pass through Pakistan). This cooperation in transit trade is apart from the bilateral trade of 1.9 billion dollar between the two countries – out of which 1.34 billion dollars was export of Pakistan to Afghanistan, and 0.51 billion was import of Pakistan from Afghanistan for 2018. There are three main mechanisms which govern Pakistan’s cooperation in bilateral and transit trade with Afghanistan. First, the Joint Economic Council allows both countries to discuss medium to longer term economic cooperation avenues and also follow up any revisions to Afghanistan Pakistan Transit Trade Agreement (APTTA) and draft preferential trade agreement (PTA). Second, to streamline issues related to transit, Afghanistan Pakistan Transit Trade Coordination Authority (APTTCA) was set up. Finally, both countries also have a ministerial process where commerce ministers meet to discuss issues related to bilateral and transit trade. Besides these three arrangements, there are working committees at the border with members from the customs and other border control authorities. In 2018, both countries agreed to the Afghanistan-Pakistan Action Plan for Peace and Solidarity (APAPPS).236 Ò 4HISÒ PROCESSÒ SOUGHTÒ INPUTSÒ FROMÒ µVEÒ JOINTÒ working groups on issues related to politico-diplomatic, military, intelligence, economic and trade, and refugees’ issues. In August 2019 a Technical Working 'ROUPÒ OFÒ !FGHANÒ OFµCIALSÒ METÒ WITHÒ 0AKISTANgSÒ !DVISERÒ TOÒ 0RIMEÒ -INISTERÒ ONÒ Commerce to exchange their concerns and proposals. At the time of writing this text the Advisor was expected to visit Afghanistan once COVID-19 related lock downs are eased, to continue this process. The 2019 visit of President Ashraf Ghani to Islamabad rekindled hopes of a revised APTTA (as the grace period under the agreement matures in 2020), and PTA between both countries. In his meeting with Pakistan’s Prime Minister, the Afghan President also discussed expediting transboundary cooperation projects including the Central Asia-South Asia (CASA 1000) electricity transmission line and Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline. This process WILLÒSTRENGTHENÒFURTHERÒIFÒ53ÒDIALOGUEÒWITHÒ4ALIBANÒSUCCEEDSÒOVERTIME237 At a business-to-business level, both countries have allowed PAJCCI to represent the private sector and discuss issues faced by the trading community. With OFµCESÒINÒBOTHÒ+ARACHIÒANDÒ+ABUL

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ÒTHISÒCHAMBERÒISÒNOWÒALSOÒAÒPARTÒOFÒMOSTÒ 236. “Ghani, AbbasiAgree to 7 Key Principles for Action Plan,” https://tolonews.com/afghanistan/7- PRINCIPLES AGREED AFGHANISTAN PAKISTAN ACTION PLAN

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ÒACCESSEDÒONÒÒ.OVEMBERÒÒÒ 237. Samad, (2020).

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92 Pakistan-Afghanistan Relations: Pitfallsand the Way Forward government-led or track-II dialogues between the two countries. This forum continues to push for expediting negotiations towards revised APTTA and PTA to boost transit and bilateral trade volumes. The track-II dialogues continued to pave way for enhancing mutual understanding around economic cooperation even during times when government to government dialogue had stalled. CRSS, in collaboration with its Afghan partners, continues to undertake Pakistan-Afghanistan track-1.5 and track-2 initiative called “Beyond Boundaries.” This initiative started in October 2015 as part of the center’s efforts to help improve relations between the two countries and enhance people to people contacts. Pakistan’s Regional Peace Institute also undertakes a track-II initiative with the aim to take an appraisal of the ongoing reconciliation process in Afghanistan; strengthening economic engagement, academic exchanges and social linkages – integral to expanding bilateral connectivity for development, and post- reconciliation Afghanistan; and institutional mechanisms to ensure peace and stability. In 2018, Afghanistan’s total exports stood at 875 million dollars out of which 458 million was export to Pakistan. Major export items include edible fruits and vegetables, mineral fuels and products, carpets, cotton and raw hides. While Pakistan topped the list of countries where Afghanistan was able TOÒEXPORT

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ÒTHEÒOTHERÒMAJORÒCOUNTRIESÒINCLUDEÒ)NDIA

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ÒANDÒ5!%Ò Most of thesecountries have also provided some sort of preferences to Afghan traders enabling easy entry of their goods. In the same year, Afghanistan’s total imports from the world stood at 7.4 billion dollars out of which 2.1 billion were imports from Pakistan. Key items imported from Pakistan include milled products, cement, cereals, sugar and sugar confectionary, animal or vegetable fats and oils, wood products, and pharmaceutical items. Pakistan is no more the leading country for sourcing imports by Afghan traders. In 2018, Iran was the leading country from where Afghanistan imported 2.5 billion dollar worth of merchandise followed by China and Pakistan. The other major countries supplying to Afghanistan include +AZAKHSTAN

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Ò5ZBEKISTAN

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Ò4URKMENISTAN

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ÒANDÒ)NDIA238 On the importside, Iran has been the top buyer of Afghan goods since 2014. 4HEÒ µNANCIALÒ EMBARGOÒ ONÒ )RANÒ HASÒ PROMPTEDÒ AÒ HIGHERÒ RELIANCEÒ ONÒ TRADEÒ INÒ barter terms which is equally preferred by the Afghan traders, particularly those operating near the Afghanistan-Iran border. Apart from Iran and Pakistan, the ONLYÒOTHERÒCOUNTRYÒWHICHÒHASÒAÒSIGNIµCANTÒSHAREÒINÒIMPORTSÒFROMÒ!FGHANISTANÒ 238. Recent literature advocates a large untapped potential for Pakistan. For example, see: “Pakistan Trade with Regional Partners – India, Iran Afghanistan.” Pakistan Business Council, 2018.

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93 Pakistan-Afghanistan Economic Relations:Basis for Cooperation is India due to: a) lower tariff rates allowed under South Asian Free Trade Area (SAFTA) to least developed countries, and b) recently opened route for India’s imports from Afghanistan through Chabahar port of Iran.239 Literature on Afghanistan’s comparative advantage is now starting to emerge INÒ SCIENTIµCÒ STUDIESÒ )TÒ HASÒ BEENÒ EXPLAINEDÒ THATÒ !FGHANISTANÒ HASÒ COMPARATIVEÒ advantage in exporting animal and vegetable materials.240 The potential to improve comparative advantage exists in product groups which include vegetables and fruits, tea, spices, feeding stuff for animals, and made-up textile articles.241 RecentliteraturealsoindicatesthatsigningofbilateralPTAcouldhelpAfghanistan boost its exports to Pakistan. Other operational issues which require attention INCLUDEÒRULESÒRELATEDÒTOÒQUARANTINE

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ÒPRODUCTÒCERTIµCATIONS

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ÒANDÒFREQUENTÒCHANGESÒ in tariffs andpara-tariffs which ultimately cause uncertainty regarding terms-of- trade. The rules around inspection and quarantine were cited to be more strictly applied by Afghanistan’s neighbors during food exporting months. In the case of several exports of Afghanistan the overall duties charged are more than the SAFTA rates owing to regulatory duties, levied by neighboring countries.242 The Ministry of Commerce in Pakistan informed that the draft of the PTA was shared with Afghanistan in 2014 after latter’s request during the 10th Afghanistan Pakistan Joint Economic Commission (JEC) meeting. At that point the Afghan team assured of early response on the draft however it was only in January 2020 that a formal communication was received from the Afghan side on this subject. The Afghan side has provided its comments and requests for changes in the draft to Ministry of Commerce in Pakistan. The reasons for such DELAYÒSEEMÒTOÒBEÒWEAKÒPOLITICALÒENGAGEMENTÒATÒOFµCIALÒLEVELÒDURINGÒTHESEÒYEARSÒ Ò According to the Afghan traders, the reasons for this lack of interest from Kabul could be due to the lack of trust, which weakened in the aftermath of arbitrary regulatory duties by Pakistan and abrupt border closures and Iran’s increased capacity to provide substitutes of Pakistani goods. 239. “Afghanistan Sends First Exports To India Via Iran’s Chabahar Port.” https://www.rferl.org/a/ AFGHANISTAN µRST EXPORTS INDIA CHABAHAR IRANHTML

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ÒACCESSEDÒONÒÒ.OVEMBERÒÒ 240.Ò 7ANI

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Òh4RADEÒ#OMPATIBILITYÒBETWEENÒ!FGHANISTANÒANDÒ)NDIAÒ!NÒ%MPIRICALÒ%VALUATIONiÒ https://mpra.ub.uni-muenchen.de/86432/1/MPRA_paper_86432.pdf, accessed on17 September 2019. 241. Vaqar Ahmed, Saad Shabbir, Saad, “Trade Transit Cooperation with Afghanistan: Results from a Firm-level survey from Pakistan.” Sustainable Development Policy Institute. http://hdl.handle. net/11540/6693. 242. See proceedings from the meeting organized by Center for Research Security Studies, https:// crss.pk/beyond-boundaries/beyond-boundaries-iii/pak-afghan-youth-dialogues-2/better-trade- relations-between-pakistan-afghanistan-can-help-reduce-poverty-concludes-crss-8th-pak-afghan- YOUTH DIALOGUE

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94 Pakistan-Afghanistan Relations: Pitfallsand the Way Forward The respondents in a survey conducted in 2019 informed that a reduction in trade taxes and border related charges could help in reducing incidence of informal and illegal trade. The lack of mutual recognition of product standards also increases transaction costs faced by Afghan traders. These traders even if in POSSESSIONÒOFÒCERTIµCATEÒFROMÒ!FGHANISTANÒAREÒASKEDÒTOÒPRODUCEÒCERTIµCATEÒFROMÒ Pakistan’s Department of Plant Protection. The respondents from Pakistan’s Federal Board of Revenue (FBR) informed that SEVERALÒSUCHÒISSUESÒWOULDÒGETÒRESOLVEDÒONCEÒTHEÒ.ATIONALÒ3INGLEÒ7INDOWÒ.37 Ò facility is ready and the Electronic Data Interchange (as seen in the case of transit trade) is available for bilateral commercial trade. This will allow sharing ANDÒRECONCILIATIONÒOFÒTRADEÒDATAÒINÒREALÒTIMEÒONÒBOTHÒSIDESÒ.37ÒWILLÒALSOÒBEÒ expected to streamline and possibly merge the multiple guarantees desired BYÒ0AKISTANIÒAUTHORITIES

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ÒANDÒTRACKINGÒDEVICES243 The respondents alsoexplained that visa and travel regime in Pakistan is unwelcoming for Afghan business persons. A regime of business friendly, long term multiple entry visas may be allowed on reciprocal basis. The relevant provincial government departments in Quetta and Peshawar need to address accommodation issues faced by Afghan business persons. In 2019 there have been refusal by Pakistani hotels to host Afghan guests. It is also due to these reasons that established Afghan business persons who previously use to base themselves in Peshawar for operating in the region, have now moved and OPENEDÒBRANCHÒOFµCESÒINÒ5!%Ò The issue of rationalizing trade taxes comes up often during interactions with Afghan government or traders. They believe that the export of primary goods or raw materials from Pakistan is usually tax free if bound for any other country except Afghanistan. This in turn increases the cost of production in Afghanistan’s manufacturing sector. Similar requests for tariff rationalization are forwarded by Pakistani traders. For example, it was noticed that higher tariffs have been levied on several Pakistani exports including cement, plastic materials, pharmaceuticals, PVC pipes and beverages. However, such high levels of tariffs are not seen in the case of imports from India, Iran, Turkey or other Asian economies. Regular communications on both sides need to be encouraged as currently there are frequent changes in customs duty rates by both governments; mostly without the knowledge of business community. There remains uncertainty 243. See draft of ‘The Pakistan Single Window Act, 2019’. http://download1.fbr.gov.pk/Docs/20197215 IRST$RAFT037!CT ND*ULY

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95 Pakistan-Afghanistan Economic Relations:Basis for Cooperation around the negative list on both sides. Such lists have not been recently updated ANDÒHENCEÒLEAVEÒROOMÒFORÒDISCRETIONÒBYÒBORDERÒOFµCIALS244 The team at PAJCCI also cited several illegal payments faced by Afghans while trading with Pakistan.245 Table 1 presents estimates of these payments. Table 1: Unauthorized payments faced by Afghan traders (2018) Service Place Department Figures in Pakistani Rupees Political representative Political representatives authorized in the tribal area 4200 Municipality fee for export of goods from Pakistan PDA Hayatabad 2000 From Afghan border to Wagah border/ other cities Charged at every check post 8000 Transporters 2500 Gate pass fee for Afghan exports Border police 5000 Machini check post Local militia/police 2200 Illegal charges by the security on Afghan export and import Hayatabad 1750 Road fee on cargo from Lahore to Kabul Municipality of Lahore 3000 Weight assessment fee (Actual = PKR 700) Torkham 2500 Source: PAJCCI 7ITHÒ AÒ RENEWEDÒ FOCUSÒ ONÒ !FGHANISTANÒ PEACEÒ ANDÒ RECONCILIATIONÒ PROCESS

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Ò 53Ò along withAfghan government and Taliban have been engaging in dialogue LATELYÒ4HEREÒHASÒNOTÒBEENÒAÒSIGNIµCANTÒBREAKÒTHOUGH

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ÒHOWEVERÒDUEÒTOÒSEVERALÒ FACTORSÒINCLUDING

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Ò53ÒTRYINGÒTOÒPUSHÒTHEÒPEACEÒAGENDA

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ÒANDÒCHALLENGESÒIMPOSEDÒ BYÒ#/6)$ ÒMAYÒTRIGGERÒAÒRECONµGURATIONÒOFÒLOCALÒPOLITICALÒECONOMYÒWHICHÒ could prompt successof reconciliation dialogue. The survey reveals that Pakistan’s role in these recent peace dialogues has increased trust between the two neighbors – a prerequisite for moving towards 244. The APTTA document only provides a list of banned items. 245.Ò 3AYEDÒ7AQARÒ(USSAIN

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Òh4HEÒ)MPACTÒOFÒ!FGHANÒ4RANSITÒ4RADEÒONÒ.70gSÒ%CONOMYiÒ!LSOÒSEEÒ!DILÒ Khan Miankhel, “ChannelizingAfghanistan to Pakistan Informal Trade into Formal Channels.”

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96 Pakistan-Afghanistan Relations: Pitfallsand the Way Forward increased levels of bilateral trade. A key lesson that I advocate, keeping in view the above-mentioned ups and downs in bilateral trade ties, relates to embedding participatory evaluation methods while implementing such reforms which can trigger economic cooperation. Such an approach will involve the stakeholders, INCLUDINGÒµRMSÒONÒBOTHÒSIDES

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ÒINÒAÒREGULARÒEVALUATIONÒPROCESSÒ)ÒWOULDÒALSOÒGOÒ a step furtherto suggest that participatory evaluation should take place at every stage - design of the bilateral trade, transit, or tariff policy, collection and ANALYSISÒOFÒPREÒANDÒPOST CHANGEÒSTATISTICSÒONÒTRADEÒ¹OWS

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ÒANDÒTHEÒREPORTINGÒOFÒ µNDINGSÒBEFOREÒANYÒPOLICYÒORÒPROCEDURALÒCHANGESÒAREÒMADE Transit Trade: SomeEmerging Developments Afghanistan borders with six countries namely China, Iran, Pakistan, Tajikistan, 4URKMENISTAN

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Ò ANDÒ 5ZBEKISTANÒ(OWEVERÒ +ABULÒ BEINGÒ ONEÒ OFÒ THEÒ LARGESTÒ and populous cities, and having proximity to Torkham, allows Pakistan the geographical and cost advantage over other countries (see Table 2). The other three priority routes including, Turkeministan-Azerbaijan-Georgia (Poti Port), 5ZBEKISTAN +AZAKHSTAN 2USSIA ,ATVIAÒ 2IGAÒ 0ORT

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Ò ANDÒ TRANSITÒROUTEÒ VIAÒ )RANÒ are longer in distance as compared with Karachi-Torkham-Kabul or Karachi- Chaman-Kandahar. However, as Afghan exports grow and the country is allowed preferential market access by advanced economies, the most lucrative MARKETSÒWILLÒBEÒINÒTHEÒ%UROPEANÒ5NIONÒREGION

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ÒFORÒWHICHÒ)RANÒANDÒ4URKMENISTANÒ REMAINÒTHEÒMOSTÒEFµCIENTÒROUTE Table 2: Afghanistan’sMain Trade Transport Routes Transit Country Transit Port Transit Route Destination Pakistan Karachi ® ® Peshawar Quetta ® ® Torkham Spin Boldak ® ® Kabul Kandahar Herat Pakistan Gwadar ® Chaman ® Spin Boldak ® ® Herat Kabul Kandahar Iran Bandar Abbas ® Islam Qala ® Herat ® ® Kabul Kandahar Iran Chabahar ® Zahedan ® Zaranj ® Kabul Herat Updated from: World Bank (2004)246 246.Ò h4RADEÒANDÒ2EGIONALÒ#OOPERATIONÒBETWEENÒ!FGHANISTANÒANDÒITSÒ.EIGHBORSi Poverty Reduction and Economic Management Sector Unit. World Bank Group,Ò2EPORTÒ.OÒ

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Ò

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97 Pakistan-Afghanistan Economic Relations:Basis for Cooperation 4HEÒEFµCIENCYÒOFÒVARIOUSÒROUTESÒALSOÒDEPENDSÒUPONÒREGIONALÒARRANGEMENTSÒTOWARDSÒ trade facilitation. For example, a landlocked economy like Afghanistan stands TOÒGAINÒSIGNIµCANTLYÒIFÒTHEREÒISÒFURTHERÒACCESSIONÒTOÒ4RANSPORTÒ#ORRIDORÒ%UROPEÒ Caucasus Asia (TRACECA)247 multilateral agreement Programme which was initiated by Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Tajikistan, 4URKMENISTANÒANDÒ5ZBEKISTANÒ)RANÒHASÒRECENTLYÒJOINEDÒTHISÒARRANGEMENTÒ3ECOND

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Ò the arrangements underCentral Asia Regional Economic Corridor (CAREC) could open up new transit possibilities for Afghanistan. CAREC corridors 5 and 6 aim to rehabilitate and upgrade the Salang Corridor – a viable land route linking the north and south of Afghanistan.248 Some bilateral projects could also materialize in the medium term, which could enhance the transit trade possibilities for Afghanistan. These include !FGHANISTANÒ Ò5ZBEKISTANÒÒKILOMETERÒRAILWAYSÒLINKÒTHATÒENDSÒATÒ-AZAR E 3HARIFÒ in Afghanistan. Most of the transit arrangements on the western side are rail based, while in the case of eastern borders these are road based arrangements. For further development of rail roads, pledges have been offered by Asian Development Bank (ADB) and for road sector development portfolio is being supported by World Bank Group (WBG).249 Afghanistan is also actively working on implementation of Cross Border Transport Agreement (CBTA) between Afghanistan, Kyrgyzstan and Tajikistan. If trade related documentation is harmonized, and Transport and Trade Facilitation committee of CBTA recommends, there could be an extension of APTTA to include Tajikistan. Afghanistan is now also a member of TIR – convention dealing with internal road transport. The TIR regulations have been drafted and capacity BUILDINGÒOFÒCONCERNEDÒCUSTOMÒOFµCERSÒATÒTHEÒBORDERÒFORÒTHEÒIMPLEMENTATIONÒOFÒ TIR and green lanes at border crossing points is under way.250 In our consultations we were informed that APTTA and TIR can complement each other in future.251 247. TRACECA programme is aimed at strengthening of economic relations, trade and transport communication in the regions of the Black Sea basin, South Caucasus and Central Asia owing to active work based on political will and common aspirations of all member-states. 248.Ò #!2%#ÒHASÒMOBILIZEDÒMOREÒTHANÒÒBILLIONÒINVESTMENTSÒTHATÒHAVEÒHELPEDÒESTABLISHÒMULTIMODALÒ transportation networks, increased energy trade and security, facilitated free movement of people and freight, and laid the groundwork for economic corridor development. 249. See “World Bank to Help Build Peshawar Kabul Highway.” https://www.dawn.com/news/1328851, ACCESSEDÒONÒÒ.OVEMBERÒÒ 250. MoCI, “Afghanistan and Regional Trade Arrangements, Presentation at World Trade Organisation. https://www.wto.org/english/thewto_e/acc_e/3_afganrta_e.pdf, accessed on 17 September 2019. 251. The Ministry of Commerce in Pakistan has also conducted a research exercise to compare the legal regimes governing APTTA and TIR. The support to conduct this exercise was provided by Pakistan Regional Economic Integration Activity (PREIA) project.

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98 Pakistan-Afghanistan Relations: Pitfallsand the Way Forward Other important agreement is the Lapis Lazuli Trade and Transit Agreement.252 This will allow Afghanistan access to black sea and Europe. The route opened in 2018 linking Afghanistan to Turkey via Turkmenistan, Azerbaijan and Georgia. The corridor begins at Torghundi in the Herat Province of Afghanistan, and enters Türkmenbaºy - the port on the Caspian Sea in Turkmenistan. The route then continues on to Baku in Azerbaijan, and connects onward to Tbilisi in Georgia. Here access to the Georgian ports of Poti and Batumi is also possible. )NÒITSÒµNALÒLEG

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ÒTHEÒCORRIDORÒCONNECTSÒWITHÒCITIESÒOFÒ+ARSÒANDÒ)STANBULÒINÒ4URKEY In 2016, Chinaalso initiated a rail link with the Afghan city of Mazar-e-Sharif VIAÒ+AZAKHSTANÒANDÒ5ZBEKISTANÒ4HISÒISÒAÒWEEKLYÒSERVICEÒTHATÒCOMPLETESÒTHEÒÒ kilometers journey in 15 days – half of the time required by maritime option. This rail link is expected to be connected with future rail roads planned to reach Herat. Partial funding for these plans is expected through the ADB supported programme - CAREC Corridor 3 and CAREC Corridor 6. In the coming days the possibility of Chabahar being the key competitor to Karachi and Gwadar ports for Afghan transits will continue to remain slim due TOÒTHEÒµNANCIALÒEMBARGOÒONÒ)RANÒANDÒSTRAININGÒOFÒ)RAN 53ÒANDÒ)RAN 3AUDIÒ!RABIAÒ ties. The promised Indian investment for Iran’s port and railways also has not materialized at the pace desired by Tehran.253 At the time of writing this paper, THEREÒISÒAÒTALKÒREGARDINGÒPOSSIBLEÒATTACKÒOFÒ53ÒANDÒ.!4/ÒFORCESÒONÒ)RANÒ)RANgSÒ diplomats in Pakistan have emphasized to look into possibilities where Chabahar and Gwadar ports can complement each other.254 While several factors determine a landlocked country’s preference to route its imports via any transit destination, however in the longer term the decisions are based on factors which comprise logistics performance index (LPI). A key reason why Iran was able to attract a large part of Afghanistan bound cargo away from Pakistan’s Karachi port was due to better LPI ranking – 44 compared with Pakistan’s 122 out of 160 countries in 2018.255 252.Ò HTTPSTOLONEWSCOMBUSINESSµVE NATIONS SIGN LAPIS LAZULI CORRIDOR AGREEMENT 253. “Iranian move Frustrates India’s Regional Ambitions,” Asia Times, July 16, 2020. https://asiatimes. com/2020/07/iranian-move-frustrates-indias-regional-ambitions/, accessed on 9 August 2020. 254. “Chabahar not a Rival to Gwadar, Iranian Envoy Tells Pakistan,” DAWN, May 27, 2016. https:// www.dawn.com/news/1261006, accessed on 16 April 16, 2020. 255. For details and updates: https://data.worldbank.org/indicator/LP.LPI.OVRL.XQ?locations=PK

57.
99 Pakistan-Afghanistan Economic Relations:Basis for Cooperation Pakistan’s Transit Trade with Afghanistan In 2017 the number of twenty-feet containers coming to Pakistan under APTTA was 72821 out of which 70311 containers were commercial while remaining were non-commercial. A decline in transit via Pakistan was seen after 2016. This decrease in the value of cargo passing through Pakistan is seen for both commercial and non-commercial goods. This period also marked strained political relations between the two neighbors. We also observe the emergence of new countries which have recently become suppliers to Afghan markets. While China continues to lead this list, Malaysia, India, and Indonesia are witnessing growing shares. Given Afghanistan’s growing demand for consumer goods, the major items coming through APTTA arrangement include food products, pharmaceuticals, and electronic items for household use. In 2019 top imports through APTTA included fabrics, photosensitive semi-conductor devices, vegetable oils, sugar, palm olein, armoured vehicles, and weapons. According to the survey and assessment, the key factors responsible for declining levels of Afghan transit via Pakistan (over the recent past) include overall rising costs associated with transportation via Pakistan, shipping detention fees, complex scanning and examination process at sea and land ports, guarantees related to insurance, and often cited unauthorized payments. Apart from these process-related issues, there remain some structural issues which weaken the certainty related to timeliness and safety of Afghan transit.256 Afghan traders interviewed as part of this exercise explain how in the past, unanticipated border closures by Pakistan, unnecessary delays at ports and border trading points, delays in opening up new transit routes, demurrage charges, and lack of promised transit trade facilitation at Karachi port, had prompted them to consider alternative transit routes. To expedite the redressal of above-mentioned grievances, respondents were of the view that APTTCA process may be restored and regular meetings should be undertaken by both sides. A key issue preventing APTTCA process is Afghanistan’s desire to allow its trucks to go all the way to Wagah – Attari border instead of the current arrangement where these trucks can only go up to Peshawar. From Peshawar, Pakistani trucks take their cargo up to Wagah border. Views from Pakistan’s customs was that there are no restrictions on Afghan 256. See “Trade- low Hanging Fruit in Af-Pak ties.’ https://dailytimes.com.pk/10035/trade-low-hanging- FRUIT IN AF PAK TIES I

58.
ÒACCESSEDÒONÒÒ.OVEMBERÒÒ

59.
100 Pakistan-Afghanistan Relations: Pitfallsand the Way Forward trucks to go all the way to Wagah, however it does not make economic sense as their trucks will not be allowed to carry back Indian goods to Afghanistan. Additionally, Afghanistan wants that once allowed access to Attari, then on the way back these trucks may be allowed to bring India’s exports to Afghanistan. The Afghan authorities have offered that if Pakistan obliges to such an arrangement, the former can consider Pakistan’s request to allow its merchandise TOÒ REACHÒ #ENTRALÒ !SIANÒ STATESÒ /NÒ THISÒ POINT

60.
Ò THEÒ 0AKISTANIÒOFµCIALSÒ INFORMEDÒ that they needed to conduct an assessment to see if Indian merchandise also reaches Central Asian states via Attari, and how it would impact Pakistan’s competitiveness.257 We were also informed that India on its own may not be interested in APTTA ASÒNOÒOFµCIALÒREQUESTÒHADÒEVERÒBEENÒRECEIVEDÒFROMÒ.EWÒ$ELHIÒ!CCORDINGÒTOÒ SOME

61.
Ò)NDIAÒUNDERSTANDSÒTHATÒIFÒITÒOFµCIALLYÒDEMANDSÒACCESSÒTOÒ!FGHANISTANÒVIAÒ Pakistan, it willhave to reciprocate when Pakistan requests for access to India’s EASTERNÒNEIGHBORSÒ4HEÒOFµCIALgSÒFROMÒEDERALÒOARDÒOFÒ2EVENUEÒ2 ÒWEREÒOFÒ the view that the issue of allowing Afghan trucks to pick Indian goods at Attari could be discussed once APTTCA meetings are resumed, however it may not be economically feasible for Afghan trucks to go all the way to Karachi. The respondents lamented that despite sophisticated trade clearance software on both sides, there were recurrent issues related to data reconciliation. The real-time reconciliation of data related to transit trade could over time reduce the incidence of informal trade, under invoicing, and smuggling. Due to the frequent changes in rules governing APTTA, it was emphasized during our meetings with stakeholders that regular joint outreach activities to create awareness regarding rules and regulations may be organized by both SIDESÒ4HISÒWILLÒALSOÒALLOWÒOFµCIALSÒFROMÒBOTHÒSIDESÒTOÒMEETÒINÒANÒINFORMALÒSETTINGÒ and strengthen trust which in turn could help future reform. The low number of each country’s bank branches across the border also pose increased information and transaction costs related to settling trade payments. The Afghan traders in our interviews did complain regarding the diminishing price competitiveness of transit via Pakistan. For example, we were informed, handling charges incurred during arrival to and exist from sea port amount TOÒAPPROXIMATELYÒ53$ÒÒTOÒÒDEPENDINGÒUPONÒTHEÒCONTAINERÒSIZEÒ4HESEÒ charges are exclusive of customs in the case of bilateral trade (Table 3) and higher than other transit options available to Afghanistan. 257. The business associations in Pakistan also haven’t produced such research to our knowledge.

62.
101 Pakistan-Afghanistan Economic Relations:Basis for Cooperation Table 3: Costs incurred during arrival to and exit from seaport (2018) Destination Payments 20 ft container 40 ft container Karachi Port Ò53$ Ò53$ Port Qasim Same Same *Exclusive of custom duties; source: PAJCCI While Karachi port is preferred because of quick custom clearance process and ability to handle more containers effectively, however in the case of heavy load on THISÒPORT

63.
ÒITÒISÒTHEÒDISCRETIONÒOFÒPORTÒAUTHORITIESÒTOÒDIVERTÒTHEÒTRAFµCÒTOÒOTHERÒPORTS

64.
Ò which in turncan increase time related uncertainties for Afghan importers. The operation timings could also differ depending upon the port, for example, vehicles can go from Karachi port only at night but at Port Qasim, day and night operations are available. As per the current practice, mostly non-commercial items come through Port Qasim. There are varying cost estimates for transporting containers from Karachi port, port Qasim, and Wagah to Chaman and Torkham (Table 4). Table 4: Transit costs from seaport to land border and port exit (Rs.) 2018 Routes Payments 20 ft 40 ft Karachi port – Torkham 180-190 K 270-290 K Karachi port - Chaman ÒMOREÒTHANÒ4ORKHAMÒDUEÒTOÒ security-related costs Port Qasim – Torkham Almost 10K less than Karachi port Port Qasim – Chaman Wahga – Torkham 90 K 108-110K Wahga – Chaman Source: PAJCCI The high security and detention charges and other fee by shipping companies have also encouraged Afghan importers to look for alternate countries. For example, in 2018, Afghan importers were paying a security deposit of 0+2Ò

65.
ÒONÒAVERAGE ÒFORÒÒFTÒANDÒ0+2Ò

66.
ÒONÒAVERAGE ÒFORÒFTÒ container. The shippinglines usually promise to refund security deposits upon RETURNÒOFÒEMPTYÒCONTAINERS

67.
ÒHOWEVER

68.
ÒTHESEÒREFUNDSÒMATERIALIZEÒWITHÒSIGNIµCANTÒ time delays. Theseresponses have been endorsed by Pakistan’s Ministry of Commerce and according to the ministry’s own estimates, security deposit

69.
102 Pakistan-Afghanistan Relations: Pitfallsand the Way Forward ATÒANDARÒ!BBASÒ)RAN ÒISÒ53$ÒÒFORÒFTÒANDÒ53$ÒÒFORÒFTÒCONTAINERÒ COMPAREDÒTOÒ53$ÒÒANDÒ53$ÒÒRESPECTIVELYÒINÒ+ARACHIÒESIDESÒTHESEÒ there are some unauthorized charges explained in Table 5. The unauthorized COSTSÒASÒPERCENTAGEÒOFÒTOTALÒTRANSITÒCOSTÒWEREÒÒASÒPERÒ ÒESTIMATESÒ Ò Table 5: Transit costs faced by Afghan Cargo (2018-19) Transit Stage Unauthorized charges (PKR) Authorized Cost 20ft (PKR) Karachi Terminal Operator Charges charged by the Shipping Line 12,000 Port Handling Charges charged by the Port 14,312 Excess payment to transporter - Costs incurred due to scanning / examination of containers 10,000 Clearing Agent Fee 10000 Demurrage Insurance Cost (average) 7000 Tracking on container 5600 5NEXPLAINEDÒCHARGESÒINÒRELATIONSÒTOÒ above steps 2700 Enroute Toll tax 1000 8000 Torkham Bonded Carrier Freight (Khi to Torkham/Jalalabad) 125,000 Customs 1200 Clearing charges 8000 Khasadars (local police) 1900 .(! 610 .,# 2500 Peshawar Development Authority 500 5NEXPLAINEDÒCHARGESÒINÒRELATIONSÒTOÒ above steps 4900 Total 21,700 193,522 5NAUTHORIZEDÒCOSTÒÒOFÒCUMULATIVE 10.1 Source: PAJCCI and Ministry of Commerce, Government of Pakistan

70.
103 Pakistan-Afghanistan Economic Relations:Basis for Cooperation The monopolistic powers available with the bonded carriers also need to be regulated. The inland freight charges for Afghan cargo are much higher than CARGOÒBOUNDÒFORÒ0AKISTANgSÒOWNÒUSEÒ3UFµCIENTÒBONDEDÒTRUCKSÒAREÒNOTÒAVAILABLEÒ in Karachi due to which on several occasions containers are stuck at the port with traders having to pay increased rents and port demurrages. The physical examination and scanning of Afghan cargo still remains complex ANDÒSUBJECTÒTOÒDISCRETIONÒOFÒOFµCIALSÒATÒ+ARACHIÒPORTÒ!004!ÒALLOWSÒSCANNINGÒÒ PERCENTÒOFÒCONTAINERÒCONSIGNMENTÒBASEDÒONÒRISKÒMANAGEMENTÒPROµLE

71.
ÒHOWEVERÒ lately the normhas been to check 80 percent of cargo which in the case of perishable items had led to loss of quality. Consequently, the traders end up PAYINGÒDESTUFµNGÒANDÒRESTUFµNGÒOFÒCONTAINERÒCHARGESÒATÒTHEÒPORTÒ Delays in the processing of cargo are also taking place due to lack of capacity OFÒSCANNERSÒINSTALLEDÒATÒTHEÒ+ARACHIÒPORTÒ4HEÒSCANÒREPORTÒREACHESÒTHEÒOFµCIALSÒ after more than the allowed three-day limit. Even Pakistani transporters have complained of the frequent breakdown of scanners at the Karachi port which in turn could take up to 2-3 days of repair time. The APTTA document highlights items which are banned from movement under TRANSITÒTRADEÒ(OWEVER

72.
ÒTOÒPROTECTÒ0AKISTANgSÒLOCALÒMARKETSÒFROMÒBEINGÒ¹OODEDÒ through smuggled goods,some further items have been curtailed outside of APTTA. These include consumer household products, tires, tiles, electronics (LED and mobiles), poultry, yarn, auto parts, steel, clothes, and footwear items. The Afghan side sees these measures as a violation of APTTA. As per the interviews conducted, occasionally there are incidents where items in transit get leaked or come back to Pakistan after unpacking in Afghanistan. Such incidents are on a decline due to the fencing at the border. Causes of leakages include occasional hike in trade taxes in Pakistan, porous border, smuggling, and informal trade.258 Leakages of these products affect adversely the domestic industry of Pakistan and preventive measures in this regard are needed to be taken to lessen the leakage. Border fencing on Afghanistan-Pakistan border could help some aspects of smuggling, however, leakages within the boundary of Pakistan still need administrative controls. At the same time, there is a need for an independent evaluation of the currently existing tracker system for both transit and reverse transit. 258. Vaqar and Saad, op. cit.

73.
104 Pakistan-Afghanistan Relations: Pitfallsand the Way Forward In a survey conducted in fall 2019 the items reported by PAJJCI members as being leaked included tiles, electronic items i.e., LED, mobile phones etc., poultry, yarn and clothes, tires, vehicles and parts thereof, steel, footwear, cement, used items and raw material with high regulatory duties. Total value of reported leaked items was approximately 215 million dollars as per responses compiled from the interviews and latter validated through cross-check with a different group of respondents. Opening New Transit Trade Routes This section provides details regarding emerging transit possibilities for Afghanistan. It also discusses impacts in the event route via Wagah is allowed for imports and exports by Afghanistan from India. It is widely assumed that for Punjab-based traders and exporters from India, movement via Wagah could result in dividends originating from transport and location economies.259 This is the most economical route through which Indian cargo can reach Kabul. There are other competing routes which pose higher direct and indirect transport, logistics, warehousing and insurance costs. However, studies argue that such transport related advantages to countries like Pakistan and Iran could be offset if Afghanistan with support from development partners is able to expedite the investments under Afghanistan Transport Sector Masterplan 2036.260 The new routes such as the rail links between Turkmenistan and Afghanistan’s city of Mazar-e-Sharif and road links between Chabahar port of Iran and Zaranj in Afghanistan have received attention in recent literature and could prove to be competition for other routes. 4OÒ HELPÒ SUPPORTÒ EFµCIENCYÒ IMPROVEMENTS

74.
Ò AÒ MULTI MODELÒAPPROACHÒ HASÒ BEENÒ adopted by Afghanistan, its neighbours and development partners. The recently approved or under preparation projects indicate urgency of governments in the region to improve their domestic road networks and consider trans-boundary connectivity via air, road and rail linkages (Table 6). 259. The route from Wagah to Chaman has not been discussed for the time being given the relatively low trade volumes expected to pass through Balochistan in current times. 260. See ADB Afghanistan transport sector master plan update (2017–2036) Mandaluyong City, Philippines: Asian Development Bank, 2017.

75.
105 Pakistan-Afghanistan Economic Relations:Basis for Cooperation Table 6: Recently Approved Interventions by Development Partners Link Section Cost ($m) Financing Source Current Status Tajikistan - Afghanistan Dushanbe - Shir- Khan Bandar 150 World Bank 5NDERÒPREPARATION Afghanistan Baghlan - Bamyan 136.3 World Bank 5NDERÒCONSTRUCTION Salang road and tunnel 60 World Bank 5NDERÒCONSTRUCTION Afghanistan - Pakistan Kabul – Jalalabad 140 ADB 5NDERÒCONSTRUCTION Jalalabad – Torkham 125 Govt of Pakistan Completed Torkham Border Transit !$ÒISÒµNANCINGÒUPGRADEÒÒOFÒCROSS BORDERÒ infrastructure. Pakistan Peshawar-Torkham (KPEC) 402.75 World Bank 0ENDINGÒ%#.%#Ò approval World Bank approved 2018 Source: World Bank, 2019261 The Asian Development Bank is also supporting efforts under the CAREC program which allows four of its transport corridors to pass through Afghanistan (Table 7). These will connect Afghanistan with China through Kazakhstan, Kyrgyz Republic, Turkmenistan, and Tajikistan. Table 7: CAREC Corridor Route CAREC 1 %UROPE %ASTÒ!SIAÒ+!:

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95.
106 Pakistan-Afghanistan Relations: Pitfallsand the Way Forward !'Ò !FGHANISTANÒ +!:Ò +AZAKHSTANÒ +':Ò +YRGYZSTANÒ 4!*Ò 4AJIKISTANÒ 5:Ò 5ZBEKISTANÒ4+-Ò4URKMENISTANÒ85!2Ò8INJIANGÒ5YGURÒ!UTONOMOUSÒ2EGIONÒOFÒ THEÒ0EOPLEgSÒ2EPUBLICÒOFÒ#HINAÒ0!+Ò0AKISTANÒ-/.Ò-ONGOLIAÒ)-!2Ò)NNERÒ Mongolia Autonomous Region of People’s Republic of China Source: CAREC Secretariat !LONGSIDEÒ THEÒ ABOVEÒ MENTIONEDÒ EFFORTSÒ !FGHANISTANÒ .ATIONALÒ 2AILWAYgSÒ 0LANÒ has received encouraging attention from the development partners. With a TOTALÒESTIMATEDÒCOSTÒOFÒ53$ÒÒBILLION

96.
ÒTHEÒPLANÒAIMSÒTOÒBRINGÒEFµCIENCYÒINÒBOTHÒ PASSENGERÒANDÒCARGOÒTRAFµCÒkÒCONNECTINGÒVARIOUSÒMAJORÒCITIESÒOFÒ!FGHANISTANÒ with vital borderpoints (Table 8 and Table 9). Table 8: Afghanistan National Railway Plan Investment Program, 2017-2036 Railway Kilometers Cost per Kilometer ($ million) Total Cost ($ million) (ERAT 1ALAÒ)Ò.AW -ARMANA 3HEBERGHAN Mazar-e-Sharif-Khunduz 1,105 1.9 2,100 Torkham-Jalalabad-Kabul-Parwan-Bamyan- Baghlan-Kunduz-Mazar-e-Sharif 772 1.9 1,467 Kunduz-Sherkhan border 88 1.9 167 Sheberghan-Andkhoy-Aqina 100 1.9 190 Kushk-Torghondi 47 1.9 89 Herat-Ghoryan-Chah Sorkh 149 1.9 283 Kunduz-Takhar-Badakhshan-Wakhan 700 1.9 1,330 Herat-Ghor-Bamyan Railway 550 1.9 1,045 Herat-Farah-Delaram-Kandahar-Kabul 1.141 1.9 2,168 Kandahar-Spin Boldak 96 1.9 182 Delaram-Zarang 222 1.9 422 Gereshk-Baram Chah 385 1.9 732 #ONTINGENCIESÒ 1,001 TOTAL 5,355 11,176 Source: AFRA 2016. Afghanistan National Railway Plan, Kabul

97.
107 Pakistan-Afghanistan Economic Relations:Basis for Cooperation Table 9: Investment Priorities for Railways Rank Projects Project Cost ($ million) Comments 1 Kushk-Toghondi 89 Vital border connector 2 Kunduz-Sherkhan border 167 Vital border connector 3 (ERAT 1ALAÒ)Ò.AW -ARMANA Sheberghan-Mazar-e-Sharif- Kunduz 2,100 (IGH PRIORITYÒ.ORTHERNÒ,INEÒWITHÒ best prospects for viability 4 Herat-Ghoryan-Chah Sorkh (Iran) 283 Vital border connector 5 Delaram-Zaranj 422 Mineral resources; regional integration; link to Chabahar Port 6 Sheberghan-Angkhoy- Anqina 190 Important border connector 7 Kandahar-Spin Boldak 182 Important border connector 8 Herat-Farah-Delaram- Kandahar-Kabul 2,168 Important southwest section of the rail ring with access to border crossing points 9 Torkham- Jalalabad-Kabul- Parwan-Bamyan-Baghlan- Kunduz-Mazar-e-Shairf 1,467 Western ring section of dubious viability; low Afghanistan Railway Authority (AFRA) priority 10 Kunduz-Takhar-Badakhshan- Wakhan 1,330 Potentially important link to the People’s Republic of China; dubious viability, low AFRA priority 11 Herat-Ghor-Bamyan Railway 1,045 Link not essential and unlikely viable; low priority also accorded by AFRA 12 Gereshk-Baram Chah 732 Parallel north-south link Contingencies 1,001 TOTAL 11,176 Source: Asian Development Bank A research was conducted in 2019 to look into gains for Afghanistan, India, and Pakistan if transit trade between Afghanistan and India was allowed through Wagah-Attari border. For ease of simulation exercise, data of top 22 export items of India comprising more than 75 percent of total Indian exports to Afghanistan was used. For the ease in interpreting the results only transport and

98.
108 Pakistan-Afghanistan Relations: Pitfallsand the Way Forward port clearance costs were considered while assuming other costs constant i.e. road fee, gate charges, weight assessment fee, informal payments, municipality fee and any other charges in erstwhile FATA region inside Pakistan. As the cost incurred by Indian exporters falls due to shorter transit route so a favourable net welfare effect is expected. The cost to Indian exporter per 20ft container will decrease by 931 dollars and for 40ft container the same cost will decrease by 1,339 dollars.262 The estimated annual total number of expected containers from India is 27,442 for 20ft and

99.
ÒFORÒFTÒSPECIµCATIONÒDURINGÒÒ4HEREFORE

100.
ÒTHEÒANNUALÒTOTALÒCOSTÒOFÒ Indian exporters willdecrease by 25.55 million dollars for 20ft containerized cargo and 55.13 million dollars for 40ft containerized cargo. The main export categories from India which stand to gain include gents clothing, shawls and scarves, medicaments, sportswear, synthetic woven fabric, sugar, wheat, and made-up textiles. In 2018-19 India’s total exports to Afghanistan stand at 709 million dollars out of which 514 million go through APPTA while the remaining 195 million dollars go through other routes, most notably Iran. Once the route via Wagah is allowed THEREÒISÒAÒPOSSIBILITYÒTHATÒAÒLARGEÒCHUNKÒOFÒ53$ÒÒMILLIONÒPARTICULARLYÒTHOSEÒ items falling under the agriculture and livestock categories) could pass through Pakistan (i.e., Wagah).Afghanistan’s total exports to India currently stand at 719 million dollars out of which 252 million go through APPTA while the remaining 467 million dollars go through other routes, most notably Iran. Once the route via Wagah is allowed there is a possibility that a large chunk of 467-million- dollar worth of commodities could pass through Pakistan. It is more likely that most of the agricultural goods from India like vegetables, animal meat, dairy produce, live trees and plants, raw hides and crop will go to Afghanistan through Wagah to Torkham. Major share of these agriculture related produce comes from the Indian Punjab that shares the Wagah border with Pakistan. The total exports of India to Afghanistan under these categories are around 65 million dollars. These are the potential exports in which India’s comparative advantage could enhance, if routed from Wagah. Currently, the Indian exports, transiting through Pakistan, majorly follow the route of Pune, Karachi and Torkham; only small quantities in sporadic frequency pass through Gwadar-Chaman route. Export route via land-sea-land cost also 262.Ò #URRENTLYÒTHEÒTOTALÒCOSTÒOFÒFTÒCONTAINERÒISÒ53$ÒÒANDÒFORÒFTÒCONTAINERÒTHEÒSAMEÒCOSTÒISÒ53$Ò ÒORÒFTÒCONTAINERÒIFÒWEÒSPLITÒTHEÒOVERALLÒCOST

101.
ÒTHENÒPORTÒANDÒMISCÒCHARGESÒSTANDÒATÒ53$ÒÒ ANDÒTRANSPORTÒINCLUDINGÒOCTROI ÒISÒ53$ÒÒ

102.
109 Pakistan-Afghanistan Economic Relations:Basis for Cooperation involves multiple guarantees including land and sea insurance. A comparison is provided of transportation cost of 20ft and 40ft container from Karachi port to Torkham and from Wagah to Torkham. The 20ft standard size container has a maximum load capacity of 22 tons whereas the 40ft standard size container has max capacity of 26.6 tons. The estimated cost savings may be seen in table 10. Major gainers are textile, pharmaceuticals, sugar and construction material. Table 10: Magnitude of cost saving for India263 Container Size 20 ft 40 ft Total number of containers (Afghan imports)264 27,447 41,171 0ERÒCONTAINERÒ53$ÒCOSTÒ+ARACHIÒTOÒ4ORKHAM 265 1396 1955 4OTALÒCOSTÒ+ARACHIÒTOÒ4ORKHAM ÒMILLIONÒ53$ 38.32 80.49 0ERÒCONTAINERÒCOSTÒINÒ53$Ò7AGAHÒTOÒ4ORKHAM 465 616 4OTALÒCOSTÒ7AGAHÒTOÒ4ORKHAM ÒMILLIONÒ53$ 12.76 25.36 #OSTÒSAVINGÒMILLIONÒ53$ 25.55 55.13 SourceÒ#ALCULATIONÒBASEDÒONÒDATAÒPROVIDEDÒBYÒ$'Ò4RANSITÒ4RADEÒOFµCEÒPRICEÒESTIMATESÒBYÒ0!*##)Ò Time saving is an additional advantage for India if it starts exporting from Wagah to Afghanistan. These calculations are based on two-rounds of interview with PAJCCI members. If transit via Wagah is allowed Indian export consignments saves 1 and a half day while going to Torkham. The route to Chaman is longer from Wagah in comparison to Karachi and therefore will involve an additional half a day. We also look in to the implications of containerization via railways and reduction in cost of transit. Based on the review of cost of transit cargo train from Karachi to Peshawar, the average km per ton transport cost is estimated for the cargo train (Table 11). It is also assessed how much cost will be saved if this facilitation for transit trade is initiated by Pakistan. 263. The analysis for cost savings is done for the top 22 export items of India to Afghanistan as it COMPRISESÒMOREÒTHANÒÒOFÒTOTALÒEXPORTSÒOFÒ)NDIAÒ(ENCE

103.
ÒTHEÒRESULTSÒCANÒONLYÒBEÒGENERALIZEDÒFORÒ the other exportedproducts also. 264. Estimation of number of 20ft and 40ft containers is made based on the information provided by transporters. 265.Ò !ÒFTÒCONTAINERÒISÒALLOWEDÒÒTONNESÒ0ERÒTONNEÒPRICEÒFROMÒ+ARACHIÒISÒ53$ÒÒ0ERÒTONNEÒPRICEÒ FROMÒ,AHOREÒ7AGAH ÒISÒ53$ÒÒPERÒTONNE

104.
110 Pakistan-Afghanistan Relations: Pitfallsand the Way Forward Table-11: Estimates of Transit Trade Cost through Railway from Karachi to Peshawar266 a. 0ERÒKMÒCOSTÒFORÒÒTONÒ2AILWAYÒLOADÒ53$ 267 0.007 b. Transport cost of road container (per km of 1 ton load)268 0.036 c. Karachi to Peshawar distance (km) 1590 d. Transport cost on railway from Karachi port to Peshawar PERÒKMÒOFÒÒTONÒLOAD Ò;DA C= 11.01 e. Peshawar to Torkham distance (km) 52.6 f. Transport cost of road container from Peshawar to Torkham PERÒKMÒÒTONÒLOAD Ò;FB E= 1.894 g. Total load transported during transit (ton)269 1667413 h. Total cost of transit through railway (1 ton load per km) [h=d+f] 12.902 i. Total cost of transit through railway for Indian goods landing in +ARACHIÒ-ILLIONÒ53$ Ò;IG H= 21.513 SourceÒ#ALCULATIONÒBASEDÒONÒDATAÒPROVIDEDÒBYÒ$'Ò4RANSITÒ4RADEÒOFµCEÒPRICEÒESTIMATESÒBYÒ0!*##) Table 11 exhibits that the total cost incurred after operationalizing the railway option from Karachi to Peshawar for Indian exporters is 21.51 million dollars per year. This estimate will apply to non-India exports as well and only includes transport cost. The cost of transit from Karachi to Torkham through railway for one ton load is 12.9 dollars while for road is 57.26 dollars. The cost saving, if RAILWAYÒROUTEÒISÒOPERATIONALIZED

105.
ÒWILLÒBEÒ53$ÒÒPERÒONEÒTONÒLOAD Economic logic demandsthat it should allow Afghan trucks to pick up Indian goods at Attari. In my opinion, this arrangement is akin to allowing India access to Afghanistan and beyond even if India’s own trucks do not pass through Pakistan. Such an arrangement will be feasible for Pakistan once, (a) India is also willing to allow Indian trucks to carry Pakistani goods to India’s other neighbors, and (b) Pakistan’s agriculture exporters to Afghanistan are provided same facilitation as seen in Indian Punjab. Opening up to foreign competition at the 266. The analysis transit trade cost is done for the top 22 exports of India to Afghanistan as it comprises MOREÒTHANÒÒOFÒTOTALÒEXPORTSÒOFÒ)NDIAÒ4HESEÒRESULTSÒCANÒBEÒGENERALIZEDÒFORÒTHEÒOTHERÒPRODUCTSÒ also. 267. Taken from Pakistan Railway website 268.Ò 3$0)Ò3URVEYÒ5NIT 269.Ò $ATAÒFROMÒ$'Ò4RANSITÒ4RADEÒ/FµCE

106.
111 Pakistan-Afghanistan Economic Relations:Basis for Cooperation end of the day is a political decision. Hence researchers in this space will need to think and work politically while assessing even the pure economic gains. Issues for Future Engagement It goes without saying that more frequent meetings between Afghan and 0AKISTANIÒTRADEÒOFµCIALSÒISÒNEEDÒOFÒTHEÒHOURÒ!SÒPERÒTHEÒÒSURVEY

107.
ÒTHISÒWASÒ a major suggestionby the business community on both sides. Several issues including faster customs clearance processes; insurance of transport vehicles, containers and consignments; tracking and monitoring of consignments; role OFÒ 3PECIALÒ 2EGIONALÒ /FµCESÒ 32/S Ò HURTINGÒ BILATERALÒ TRADEÒ CREDITÒ FACILITYÒ FORÒ TRADERSÒCURRENCYÒSWAPSÒANDÒSEVERALÒNON TARIFFÒBARRIERSÒ.4S ÒREQUIREÒCONTINUEDÒ engagement in the interest of ease in conducting trade. Ministry of Commerce INÒ0AKISTANÒANDÒ2ÒSHOULDÒREVISITÒOBSOLETEÒ32/SÒTHATÒAREÒACTINGÒASÒ.4SÒANDÒ hurting the bilateral trade. Several of these SROs are now obsolete however continue to burden the traders and often times restrict trade. Better trade dispute resolution mechanisms can be envisaged through inputs from PAJCCI. The Ministries of Commerce in both countries should institutionalize a dedicated Afghanistan-Pakistan desk with research, monitoring and evaluation capabilities. This unit will: a) coordinate the implementation of decisions undertaken at VARIOUSÒGOVERNMENTÒFORUMS

108.
ÒANDÒB ÒUNDERTAKEÒSPECIµCÒRESEARCHÒTASKSÒRELATEDÒTOÒ Afghanistan-Pakistan bilateral tradeand investment cooperation. This will also regularly allow both sides to update current assessment on the missing facilities curtailing cross border transit and commercial trade. Weak border-related trade infrastructure was pointed out as a key constraint in our survey. Transit reforms related to transportation, customs and border controls will also have a quick impact in terms of increasing formal bilateral trade. Pakistan railways had initiated test runs to carry goods in transit. An evaluation may be undertaken if this measure has led to anticipated gains. Timely completion and effective management of Torkham-Jalalabad dual carriageway and Chamman– Kandahar rail link can also slash the transit costs. Pakistan with help of development partners should continue improving AUTOMATIONÒOFÒTRADEÒ¹OWSÒATÒBORDERÒPOINTSÒ!FGHANISTANÒMAYÒBEÒSUPPORTEDÒBYÒ FBR for putting Weboc-like systems at new border points where trade is being allowed. Where automation and conventional trade-related infrastructure may not be possible, both sides could consider establishing ‘border haats’ which have been successful in the case of several Asian economies.

109.
112 Pakistan-Afghanistan Relations: Pitfallsand the Way Forward Expediting work on ongoing road and railways projects linking the various cities across the Afghanistan-Pakistan border should remain a medium to long term AGENDAÒ,IKEWISE

110.
ÒAIRÒCARGOÒANDÒPASSENGERÒ¹IGHTÒOPTIONSÒFORÒBUSINESSÒCOMMUNITYÒ need to beincreased. Business persons on both sides may be allowed visa-on- arrival facility. This is also expected to help boost bilateral trade-in-services. For example, Pakistan’s private hospitals and diagnostic centers have immensely BENEµTEDÒFROMÒPROVIDINGÒTIMELYÒANDÒQUALITYÒSERVICEÒTOÒ!FGHANÒPATIENTSÒ4HISÒCANÒ be scaled up in future. The banking channels between the two countries should be expanded to curtail INFORMALÒTRADEÒ¹OWS

111.
ÒILLEGALÒ¹OWÒOFÒMONEYÒANDÒRELATEDÒTRANSACTIONSÒ4HISÒWILLÒALSOÒ be important fromthe view point of recent demands put forward by Financial !CTIONÒ4ASKÒORCEÒ!4 ÒORÒ!FGHANISTANÒITÒISÒDIFµCULTÒTOÒTRANSFERÒFOREIGNÒCURRENCYÒ abroad particularly in larger amounts. This issue can be addressed if both countries accept each other’s currency for trading purposes. Bilateral Foreign Direct Investment (FDI) cooperation may also be facilitated through easing of foreign exchange controls by State Bank of Pakistan (SBP), particularly with a viewpoint to enhance investment cooperation with Afghanistan. An additional measure required from both sides is to allow investors cross-border investment through both government and automatic route. The civil society organizations and think tanks working on Afghanistan- Pakistan trade cooperation should be strengthened by the governments and development partners. They should independently hold annual Afghanistan- 0AKISTANÒECONOMICÒSUMMITSÒWHICHÒALSOÒBENEµTÒFROMÒTHEÒPRESENCEÒOFÒINVESTORSÒ ANDÒBUSINESSÒCOMMUNITYÒOFÒBOTHÒSIDESÒ#OOPERATIONÒBETWEENÒMEDIAÒOUTµTSÒISÒ need of the hour. Television channels on both sides could partner for airing evidence-based talk shows which explore and exhibit the trade and investment cooperation potential. This will also enable people on both sides to see stories of success resulting from closer business to business relations. The relevant sports board on both sides could also look into the potential of ‘cricket diplomacy’ in bringing the two sides closer. Apart from the civil service on both sides, interaction on trade cooperation should also be prioritized during parliamentary engagements. The parliamentary committees on commerce and trade on both sides may like to increase frequency of their dialogue. For effective promotion of ‘make-in-Pakistan’, Trade Development Authority of Pakistan could collaborate with PAJCCI to increase frequency of export goods exhibitions inside Afghanistan.

112.
113 Pakistan-Afghanistan Economic Relations:Basis for Cooperation The planned trans-boundary cooperation projects in the Central Asian region should go beyond the currently ongoing work on CASA-1000, TAPI and some road sector projects. A high-powered working group comprising of experts from Afghanistan, Pakistan and select Central Asian countries should be facilitated to meet regularly so that an inventory of projects can be planned. Such projects will strengthen economic and political interdependencies in the region The scholarships allowed to Afghan students can be scaled up with the help of private sector universities in Pakistan which have better academia-industry linkages not just in Pakistan but also across the region and beyond. Also, business schools in both countries could partner and arrange study trips for faculty and students enabling each other to see how business partnerships can be strengthened. Both countries must come together to push for normalization of South Asian Association for Regional Cooperation (SAARC) process and regular meetings of SAARC Heads of State Summit in which several important transport and energy cooperation agreements are expected. Counties which are part of Economic Cooperation Organization (ECO) and Shanghai Cooperation Organization 3#/ ÒCANÒBEÒASKEDÒTOÒHELPÒINÒPUTTINGÒ3!!2#ÒPROCESSÒBACKÒONÒTRACKÒ5LTIMATELYÒ connectivity in South Asia is bound to help other economic blocs in the region. I also observe that economic cooperation with Afghanistan is a subject which is spread across various ministries in Pakistan. Economic Aid Division (EAD) leads the Joint Economic Commission meetings. MoC conducts bilateral and transit trade dialogue. There is no active investment cooperation process. There were occasions when heads of both central banks also met. Perhaps there is a need now to have a dedicated desk which keeps track of various decisions and meetings between both sides. To end this chapter on a positive note, I would recall an anecdote that I presented at the Seventh Round of Afghanistan Pakistan Bilateral Dialogue on Strengthening Economic Engagement by Regional Peace Institute. “After several months of decline in Afghanistan Pakistan TRADE

113.
Ò WEÒ µNALLYÒSTARTEDÒ TOÒ SEEÒ ANÒ UPTICKÒ DURINGÒ LATE Ò Afghanistan was once again among the top export destinations for Pakistan in the fourth quarter of 2019. We asked the authorities what had changed. There was still no progress on JEC, APTTA and PTA. To explore this further we were asked to sit with the border control authorities and customs department OFµCIALSÒONÒBOTHÒSIDESÒ4OÒTHEÒPLEASANTÒSURPRISEÒOFÒMOSTÒOFÒUS

114.
Ò

115.
114 Pakistan-Afghanistan Relations: Pitfallsand the Way Forward this increase actually came about due to the cooperation of a FEWÒCUSTOMSÒOFµCIALSÒONÒBOTHÒSIDESÒWHOÒWEREÒWILLINGÒTOÒWALKÒ over and discuss with each other every time some formality, TRUCKÒPERMIT

116.
ÒCONTAINERÒSPECIµCATION

117.
ÒANDÒTRACKERÒREQUIREMENTSÒ were found missing.Their personal working relationship and SENSEÒ OFÒ RESPONSIBILITYÒ TOWARDSÒ ACHIEVINGÒ HIGHERÒ TRADEÒ TRAFµCÒ on both sides made this happen. This for us was a lesson in leadership. Many a times we await decisions from the higher political authorities whereas the solution lies in the hands of those who are able to exercise their own job description in the MOSTÒ LOYALÒ MANNERÒ )TÒ ISÒ INÒ THISÒ ANECDOTEÒ WEÒ µNDÒ REASONSÒ TOÒ attach greater importance to people-to-people cooperation between Afghanistan and Pakistan.”

118.
247 Preface

Pakistan Afghanistan Economic Cooperation

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Pakistan Afghanistan Economic Cooperation