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Old Thursday, July 22, 2010
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Afghan goods head for India
By Syed Fazl-e-Haider

KARACHI, Pakistan - Afghanistan and Pakistan on Sunday signed a deal to open their borders to more trade, including goods in transit from Afghanistan to India, in a move hailed by the United States as a sign of improved relations. The pact also gives Pakistan better access to Central Asia via Afghanistan.

The commerce ministers of the two Asian countries signed the document at the seventh round of talks for Afghanistan Pakistan Transit Trade Agreement (APTTA) in Islamabad in the presence of US Secretary of State Hillary Clinton, who was visiting the country ahead of an international conference in Kabul.

The agreement allows Afghanistan to move goods to the border crossing at Wagah, east of Lahore, and lorries leaving goods there to carry Pakistani products back to Afghanistan. It did not however agree to allowing India a transit route to Afghanistan. Before it grants this, Islamabad wants transit facilities for Pakistani good through India to Nepal and Bhutan.

Afghanistan forms a land bridge between South and Central Asia and by virtue of its location it could emerge as a trade hub connecting its neighbors to the east with markets in the Middle East, Central Asia and Europe. Before that happens, much has to be done to upgrade inadequate physical infrastructure such as roads, ports, and border crossings. Other constraints include customs issues, trade policies, permits, visa regulations, and endemic corruption.

Under President Hamid Karzai's government, Afghan trade has picked up in recent years, helped by 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.

Annual trade between Afghanistan and Pakistan, at present worth more than US$1 billion, is expected to reach $2 billion per annum after the signing of the new agreement. The bilateral trade is, however, one-sided as it comprises larger imports from Pakistan, with little scope for formal Afghan exports. Afghan's transit trade through Pakistan has increased to $1.07 billion in 2009 from $161 million in 2000. The country's main exports include fruits and nuts, gemstones and fabrics such as handwoven carpets, wool and cotton.

US officials consider the new APTTA a victory for the US administration, which has been encouraging closer relations between the two countries as a cornerstone of its efforts to fight Taliban extremists in Afghanistan. The US had given Pakistan a November 30, 2009, deadline to sign the agreement but the government slowed the process on the grounds that it could not finalize the pact before consultation with the private sector.

The deal represents "the most significant bilateral economic treaty ever signed between Afghanistan and Pakistan," Bloomberg reported, citing a statement released by the US Embassy in Islamabad. The two Asian countries agreed to expand existing trade routes and open new ones, which may help curb smuggling and other illicit border commerce.

Under the new trade agreement, Pakistan will have trade access to Central Asia, according to the Dawn News, a private TV Channel. It was also established that only licensed individuals are to benefit from the transit trade.

The denial by Pakistan of a transit facility for Indian goods destined for Afghanistan, where they are in high demand, means that these will continue to be smuggled there after being imported into Pakistan, Daily Times reported, citing a member of the Afghan delegation. An official transit facility would cut costs, undermining the illicit trade and benefiting Afghan consumers.

The rejection of Kabul's demand for transit trade rights for India was not unexpected, said an editorial published in Dawn newspaper. "Given the bilateral tensions and mistrust, few expect the two governments to agree to allow each other land transit rights. In fact, the two countries' mutual suspicions are inhibiting the expansion of intra-regional trade in South Asia, which remains the world's least integrated area. The vast potential for trade within the region is largely untapped, mostly because of India-Pakistan hostilities," it said.

Still, the Afghan business community welcomed the expected decision to open trade between Kabul and New Delhi. "If we sign this agreement, it will decrease [differences] because we will have found a way for everyone to carry out business without any problems," Reuters reported Abdul Qadir Bahman, the director of Afghanistan Chamber of Commerce, as saying.

The deal was less welcome in Pakistan, where critics say goods brought to Afghanistan under the 1965 Afghan Transit Trade Agreement (ATTA) hurt local industries, which struggle to compete with the duty-free goods smuggled back to Pakistan from Afghanistan. If the agreement had been extended to allowing India to use the Wagah-Khyber transit route it would lead to the closure of remaining industrial units, they said.

Under the new agreement, the two countries are to cooperate more closely to tackle smuggling. The Afghan side reportedly asked Pakistan to cut import duties on officially imported items so as to undermine the profit margins on duty-evading smuggled goods.

On the other side, Pakistani traders claim they suffer from discriminatory policies on the part of the Afghan government and demand that bilateral trade be on an equal basis and that Kabul provide the same facilities as are being provided by Islamabad. The Afghan government imposes an 18% import duty on Pakistani goods, whereas there is no import duty on Indian items.

Transit to Afghanistan through Pakistan has been governed by the ATTA, which specifies ports, routes, transport and customs transit procedures. These curbs have served as an umbrella for extensive smuggling of imported products such as tires, black tea and electronics goods, booked for Afghanistan, into Pakistan, undermining local industry and legal imports.

The National Assembly's Standing Committee on Finance said in January that the Afghan Transit Trade was the main source of smuggling into Pakistan, estimated at $4 billion to $5 billion annually with an associated revenue loss of $2.5 billion.
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