Pakistan and Afghanistan need to realise their immense bilateral trade potential which can on its own develop a new paradigm of regional trade. The two countries have bilateral as well as transit trade owing to Afghanistan being a landlocked country. Afghanistan Pakistan Transit Trade Agreement (APTTA) signed in 2010 allows for the transit of Afghan exports through Pakistan. Afghanistan is amongst Pakistan’s top trading partner where in 2022 Pakistan exported $975 million to Afghanistan and imported about $ 691 million the following year. This bilateral trade, however, is declining and faced a dip of $1800 million recently.

The most culpable factor for this decline in trade is a lack of realisation amongst the populations about their shared trade potential. Despite the U.S. sanctions and security threats Afghanistan exported 57.6% of its goods/raw materials to Pakistan in the year 2022. On the other hand, Pakistan was its third largest import partner for the same year. To improve these statistics on trade both nations need to work together, and arrange workshops and seminars to train the traders, industrialists and policy makers alike about the untapped trade benefits Pak-Afghan trade can reap.

There is also a need to reduce an over-emphasis on security challenges and border tensions at the Durand line. Despite substantial investments in the security sector, both countries continue to grapple with the menace of terrorism. Now maybe a good time to shift towards an ‘economic prosperity leading to better security approach’. Better economy would enable an even better infrastructure for Pakistan and Afghanistan, with better educational institutes and a versatile job market. This would address the root causes of insecurity and fewer youngsters would then become a target of terrorist recruits.

It is no doubt that Pak-Afghan trade can be enhanced if the diplomatic relations between the two countries are improved. This can be done by developing projects such as CASA-1000 and TAPI on a priority basis. CASA-1000 (Central Asia-South Asia) is meant to provide electricity infrastructure from central Asia to Afghanistan and Pakistan. TAPI (Turkmenistan-Afghanistan-Pakistan-India) is a gas pipeline project meant to provide gas to India, Pakistan and Afghanistan from the gas fields in Turkmenistan. TAPI pipeline was completed from the Turkmenistan side in 2024. Such initiatives power industries and strengthen economy leading to brighter prospects of Pak-Afghan bilateral trade.

A major hurdle to Pak-Afghan trade is the resurgence of terrorism in Pakistan especially following the Taliban takeover of Kabul. In Pakistan terrorist activities rose to 28% in 2022 and then to a staggering 79% in 2023. Pakistan claims that Tehreek e Taliban Pakistan has been provided a safe haven in Afghanistan from where they coordinate their cross-border attacks on Pakistan’s side. Although the Taliban government denies providing any hide-outs to these terrorists, a UN Security Council report suggests that TTP has benefitted more than any other militant group from the Taliban takeover of Afghanistan. To improve both bilateral and transit trade, the sitting government in Kabul needs to eliminate elements of terrorist militants within their country. This will address the grievances of Pakistani government and create a trade conducive environment between the two states.

Smuggling at the Pak-Afghan border should be seriously addressed to improve trade ties. It reduces the legal trade between the two countries. Afghan authorities claim that Pakistan stops hundreds of Afghan containers at Bin Qasim port demanding duty payments from them. Pakistan has responded with its counterclaim that containers are being sent from Karachi port to Afghanistan, without paying duty fees and Pakistan has lost millions of dollars in taxes because of this practice. Hence smuggling adversely affects Pak-Afghan diplomatic relations and hence decreases trade between the two.

Another recommendation to improve Pak-Afghan trade ties is reduction of port charges and excise duties for Afghan goods passing through both Karachi and Gwadar ports. It has been seen that Pakistan is imposing fresh tariffs on cargo originating from Afghanistan. Like the enforcement of 2% IDC (infrastructure development cess) by the government of Khyber Pakhtunkhwa has discouraged Afghan traders from increasing trade partnerships with Pakistan. Similarly temporary admission document (TAD) for containers from Afghanistan has further strained trade ties. A fee of USD$100 is charged for freight by the border authorities to regulate cargo movement from Afghanistan into Pakistan. Instead of adding new tax duties, Pakistan must work to incentivise trade with Afghanistan.

Pakistan should expand its own industry to increase imports to Afghanistan. This will also remove most of the items from the ‘Negative List’ generated by this country which bans the selling of certain products to Afghanistan. For example, cooking oil is included in this list because Pakistan imports its cooking oil from Malaysia which is smuggled into Afghanistan. If industries in Pakistan start manufacturing their own cooking oil, it could be imported to Afghanistan which has little to no cooking oil manufacturing units. This will also put a stop to smuggling practices associated with cooking oils at least.

Afghanistan and Pakistan need to embrace their enormous trade potential. They should then work to improve their economic and security condition so that anti-state elements don’t infiltrate through the porous border. Rather than being subject to external power competition, both can mutually develop their own platforms for regional trade and linkages.