Shifting Dynamics: Pakistan-Afghanistan Trade Relations In A Transforming Region

Pakistan and Afghanistan are among each other's largest trading partners. In 2022, Pakistan exported $975 million worth of goods to Afghanistan, with key exports including rice, packaged medicaments, and other vegetable oils. Afghanistan exported $847 million worth of goods to Pakistan in the same year, with coal briquettes, raw cotton, and grapes being the main exports. Despite the significance of their trade relationship, there are several factors that have hindered the full potential of trade between the two countries.

The lack of adequate road links between the two countries

The lack of adequate road links between Pakistan and Afghanistan has negatively impacted trade between the two countries. The rugged terrain and poor infrastructure have hindered the development of road networks, with only a few historical passes like the Khyber Pass, Kurram Pass, and Kojak Pass being available for trade.

The absence of well-developed land routes has resulted in higher transportation costs and longer travel times, affecting the flow of goods between the two countries. This has also led to increased reliance on alternative modes of transport, such as rail and air, which may not always be feasible or cost-effective.

The lack of adequate road links has also contributed to security concerns and border tensions. The inability to effectively monitor and control the border areas has resulted in cross-border infiltration, drug trafficking, and militant activities. The porous border has facilitated the illegal movement of goods and people, impacting the legitimate trade between the two countries.

Additionally, the poor road infrastructure has limited the potential for economic growth and development in the region. Well-developed road networks can attract investors and promote trade, but the lack thereof has deterred investment opportunities and hindered the expansion of trade relations.

To address these challenges, both countries have recognized the need to improve road infrastructure and cross-border connectivity. Efforts to establish and enhance road links, such as the China-Pakistan Economic Corridor, can facilitate trade and promote economic cooperation between Pakistan and Afghanistan.

Moreover, the improvement of road infrastructure can have a positive impact on the lives and livelihoods of the local population, particularly in the poorer regions of Balochistan and Khyber Pakhtunkhwa. By enhancing trade and economic integration, the development of adequate road links can contribute to poverty reduction and the overall well-being of the communities in these regions.

The Durand Line border dispute

The Durand Line is a 2,640-kilometre (1,640-mile) border between Afghanistan and Pakistan, established in 1893 as the border between British India and the Emirate of Afghanistan. The agreement was signed by Sir Mortimer Durand, a secretary of the British Indian government, and Abdur Rahman Khan, the emir of Afghanistan. The Durand Line has served as the official border between the two nations for more than a century, but it has been a source of controversy and tension for the people who live there.

The Durand Line was established after the 1893 Durand Line Agreement between Mortimer Durand of colonial British India and Amir Abdur Rahman Khan of Afghanistan. The agreement fixed the limit of their respective spheres of influence and included a commitment not to interfere beyond the Durand Line. The Durand Line divided the Pashtun areas, setting the region up for future tensions due to tribal allegiances spanning both sides of the border. It also gave Balochistan to British India and defined the Wakhan Corridor as a buffer zone between the Russian and British empires.

The Durand Line has been a source of tension and dispute between Afghanistan and Pakistan for several reasons. Firstly, Afghanistan has never formally accepted the Durand Line as the international border between the two states, claiming that the agreement was imposed on them by the British and is void. Afghanistan has sought to renegotiate the border, aiming to shift it eastward to the Indus River. This territorial dispute has prevented the normalization of bilateral ties between the countries. Additionally, the Durand Line has divided the Pashtun people, with Afghanistan governing Pashtuns on one side and Pakistan governing Pashtuns on the other. This has fueled Pashtun nationalism and demands for an independent state of Pashtunistan. The Durand Line has also been exploited by both countries to further their respective agendas, with Afghanistan inciting Pashtun nationalism and Pakistan advancing its 'anti-terror' agenda.

The dispute over the Durand Line has had significant implications for the relationship between Afghanistan and Pakistan. Afghanistan has territorial claims on areas stretching from the Afghan-Pakistan border to the Indus River, comprising nearly 60 percent of Pakistani territory. This has led to strained relations and influenced U.S.-Afghan relations in the mid-20th century. The lack of a mutually recognized border has also impacted trade and economic cooperation between the two countries. Additionally, the porous nature of the Durand Line has allowed for the cross-border movement of militants and the smuggling of goods, contributing to instability and insecurity in the region.

The presence of terrorist groups and the resulting security concerns

Afghanistan has alleged that Pakistan's intelligence agency, the ISI, supports terrorist groups such as the Taliban and Haqqani Network, and even state-sponsored terrorism. The Taliban's harsh and restrictive measures, such as banning girls from education and women from most jobs, have been condemned by the international community. Pakistan, on the other hand, has expressed concern over deadly attacks by the Pakistani Taliban, an independent group allegedly sheltered by the Taliban in Afghanistan. The Pakistani Taliban, also known as the Tehreek-e-Taliban or TTP, has stepped up attacks on Pakistani security forces, leading to demands for the Taliban in Kabul to rein in these anti-Pakistani groups.

The Durand Line, which serves as the border between the two countries, has been a frequent site of conflict and has witnessed numerous attacks. The Afghan government has refused to recognise the Durand Line as the international border, claiming that it should be renegotiated and shifted eastward to the Indus River. This dispute has further complicated efforts to normalise bilateral ties and improve trade relations.

The presence of terrorist groups has not only impacted security but also hindered economic growth and trade between the two nations. The drawdown of NATO forces from Afghanistan has negatively affected both economies, particularly in the transportation sector. Additionally, the presence of terrorist groups has led to increased costs for traders due to security deposits, insurance, and shipment tracker installation.

To improve trade and address security concerns, both countries have agreed to enhance bilateral engagement and combat terrorism. They have also taken steps to improve trade facilitation, such as streamlining payments, improving infrastructure, and facilitating the transit of goods. However, the full realisation of their bilateral trade potential depends on addressing continued tensions and improving security in the region.

The impact of the drawdown of NATO forces

The drawdown of NATO forces from Afghanistan has negatively impacted both the Afghan and Pakistani economies, particularly in the transportation sector. Pakistan, in particular, has lost a large market for its bottled water exports, as most of its exports were consumed by NATO forces. The reduction in bilateral trade will also affect Pakistan's transit, warehousing, and construction sectors, which are important sources of employment for poorer inhabitants of Balochistan and Khyber Pakhtunkhwa provinces.

The exit of foreign troops has strong implications for future security and stability in the region. The success of the new national unity government's vision of economic revival and attracting foreign investment will depend on an improvement in law and order and effective governance.

The NATO drawdown will also have direct economic impacts on Pakistan as the military stimulus to both countries' economies decreases. For instance, Pakistan supplied most of the fuel for NATO efforts in Afghanistan, with 80% of fuel coming from Pakistani refineries in 2007. In 2010, as a result of deteriorating American-Pakistani relations, the US military began to stockpile supplies and increase storage capacity, reducing its dependence on Pakistani supply lines.

The use of alternative supply routes, such as the Northern Distribution Network, was more expensive, costing $87 million per month more than the Pakistan routes. The closure of the Pakistan routes in 2011 resulted in the NATO alliance using the northern distribution route almost immediately as alternative supply routes.

The drawdown of NATO forces has also impacted the flow of trade between Afghanistan and Pakistan. Afghanistan is a landlocked country and relies on its neighbors, particularly Pakistan, for overseas trade. The implementation of the Afghanistan-Pakistan Transit Trade Agreement (APTTA) has been mixed, with complaints of continued barriers to exchange from both sides of the border.

The drawdown of NATO forces has also impacted the security situation in Afghanistan, with the Taliban taking power in Kabul in 2021. This has led to tensions between the Afghan Taliban government and Pakistan, with the Pakistani embassy in Kabul coming under attack in late 2022. The Pakistani Taliban (TTP) has also carried out attacks along the Afghanistan-Pakistan border, leading to growing tension and skirmishes between the two countries.

The role of the Pakistani Inter-Services Intelligence (ISI) agency

The Pakistani Inter-Services Intelligence (ISI) agency has played a significant role in shaping the relationship between Pakistan and Afghanistan. ISI has been involved in various activities that have impacted trade and economic relations between the two countries. Here are four to six paragraphs detailing the role of ISI:

ISI's Involvement in the Afghan Civil War:

ISI has been actively involved in Afghanistan's internal affairs, particularly during the Afghan Civil War. ISI provided strategic support, funding, training, and weaponry to various factions within Afghanistan, including the Taliban and other mujahideen groups. ISI's support for the Taliban, in particular, has been significant and has contributed to the group's ability to seize and maintain control over large parts of Afghanistan. This involvement has had mixed effects on trade, with some routes being made safer due to ISI's influence, but also causing tensions with other countries, such as India and the US.

ISI and the Afghan Taliban:

ISI has been accused of having close ties to the Afghan Taliban and providing them with support, including funding, training, and weaponry. ISI's involvement with the Taliban dates back to the group's formation and has continued even after the Taliban's removal from power in 2001. ISI's support for the Taliban has created tensions with other countries, particularly the US, which has accused ISI of playing a "double game" and providing safe havens for terrorists.

ISI's Role in the US-led War on Terror:

Following the 9/11 attacks, ISI became a key player in the US-led War on Terror. ISI provided intelligence and support to US forces during their invasion of Afghanistan and the hunt for al-Qaeda leader Osama bin Laden. However, ISI has also been accused of warning militants of imminent US missile strikes and providing support to terrorist groups operating in the region. ISI's role in the War on Terror has had a significant impact on trade and economic relations, as it has affected the level of trust and cooperation between Pakistan, Afghanistan, and their international allies.

ISI's Activities in Afghanistan:

ISI has conducted numerous clandestine operations in Afghanistan, including the training and support of insurgent groups. ISI has been accused of supporting groups such as the Haqqani network, which has carried out attacks on US and Afghan forces. ISI's activities in Afghanistan have often been linked to Pakistan's desire to exert influence over its neighbour and counter the influence of rival powers such as India. These activities have had a detrimental effect on trade and economic relations, as they have contributed to instability and security concerns in the region.

ISI and Drug Trafficking:

ISI has been accused of involvement in drug trafficking, particularly in the Afghan opium trade. ISI has been implicated in facilitating the transport and sale of opium and heroin, using the profits to fund its operations and those of various militant groups. This has negatively impacted trade and economic relations, as it has contributed to the instability and insecurity in the region, making it more difficult for legitimate businesses to operate safely and confidently.

ISI's Domestic Political Role:

In addition to its external operations, ISI has played a significant role in Pakistan's domestic politics. ISI has been accused of influencing political parties, infiltrating and coercing politicians, and supporting or opposing various governments. This has had indirect effects on Pakistan's economic relations with Afghanistan, as political instability and changes in government can impact trade policies and agreements. ISI's influence over successive Pakistani governments has also shaped the country's approach to economic relations with Afghanistan, including the level of trade and the provision of support to various factions within Afghanistan.

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