Pakistan has finally resorted to fencing its borders with Afghanistan and Iran to restrict the illegal movement of people and smuggling of goods. Mindful of the socio-economic plight of the residents of the border area, the government of Pakistan (GoP) has recently announced to establish 18 border markets along the Afghanistan and Iran borders. Establishment of these markets is expected to eradicate the menace of smuggling, boost legal trade, reduce out-migration from the area and improve the socio-economic well-being of the residents living in the border areas. Moreover, this would reinforce the relationship between people of the border areas of neighboring countries. More legal trade would create greater space for legal activities and hence would reduce border security risks.
The GoP has decided to begin by establishing three border markets as a pilot project — two in Balochistan and one in Khyber Pakhtunkhwa. These three markets are expected to start operating by February 2021. Successful experience of these border markets on the Pakistani side would encourage neighboring countries to establish such markets jointly or independently later.
Without trade, countries lose gains from trade whether static or dynamic in terms of better prices, quality, and innovation, etc. In the aftermath of trade, with an increase in the size of markets, the benefits of the economies of scale are realized that not only do they reduce prices of traded goods but also provide a bigger variety of choices to consumers. Products that are not produced on one side of the border can be exchanged in the border markets with products produced on the other side of the border – allowing people access to non-local products. One can always find goods for which there is oversupply on one side of the border at very low prices. The border markets enable producers to sell their products in excess supply in a larger border market where there is excess demand and hence receiving better prices and eliminating wastage of excess supply of products; thus, resulting into higher incomes.
Border markets are likely to offer a number of benefits to local residents and producers cum traders, in terms of: (i) easy access to exchange locally produced goods; (ii) bigger and additional means of income and wealth accumulation; (iii) eradication of illegal activities and smuggling; (iv) controlling of out-migration from the region with the creation of local employment opportunities; (v) development of the remote and border areas; (vi) creation of conducive environment for better bilateral political relations; and (vii) formation of mutual dependencies that will ensure sustainability of bilateral relations.
In these markets, local traders will trade goods that are produced with the services of local labor. These goods should not go through the usual customs’ documentation procedures. In principal, these markets will be duty free, i.e., no customs duties and no non-tariff barriers. Moreover, sellers and buyers in these markets will not go through any travel documentation formalities, rather they may be issued a ‘visit pass’ to buy and sell in these markets.
Specifically, border markets allow local people from both sides of the border to trade only locally produced goods. These markets may allow people to buy an equivalent of up to $200 to $300 worth of goods per visit, in local currencies. Moreover, initially, the government needs to fix two or three working days for these markets.
It may be noted that over time, trends in bilateral formal trade between Pakistan, Afghanistan and Iran have remained erratic, whereas at the same time, smuggling of goods has been flourishing. Large size of smuggling takes place in goods coming from third countries, alongside smuggling of goods produced locally in neighboring countries depending on the demand and supply conditions.
One of my earlier studies explaining the commodity composition of smuggled goods between Pakistan and Afghanistan, found that the major commodity groups in illegal trade include: fruits (fresh and dry), vegetables, herbs, spices, cheese, flour, rice, petroleum products, sugar, beans, medicine, cotton, wool, carpets, animal skins, edible oils, fertilizers, fabrics, garments, cement, precious stones, electrical and electronic goods, automobiles, and scrap of metals, etc. Many of these commodities are not produced locally in the border areas. Therefore, the challenge before the government is to control products that are not produced locally in the border areas but may reach the border markets that are being planned to be exclusively established for border area producers and consumers.
In addition, to trade in locally produced goods, there is a large potential that needs to be harnessed by establishing some, say, dry fruit processing units as well as establishing workshops for the maintenance of automobiles and electrical and electronics products. If Pakistani enterprises offer their products or services to neighboring countries’ customers at competitive prices, it will promote growth in the area and create further employment opportunities. Pakistani workers have a vast experience and capabilities in processing as well as repair and maintenance activities; it is in this very context that this potential needs to be exploited. This can lead to establishment of small and medium enterprises (SMEs) and repair shops in the border areas. Thus, in the near future many more opportunities for bilateral cross border value chains for the residents of the remote and backward areas can be forged.
To facilitate the processing and maintenance activities in the adjoining areas of the border, both the World Trade Organization (WTO) and the World Customs Organization (WCO) rules allow temporary trade. In this context, it may be noted that for outward processing and maintenance procedures, intermediate goods may be temporarily exported for further processing, manufacturing or repair abroad, and afterwards the processed products are re-imported with complete exemption from trade and other taxes.
While planning for these markets, the GoP needs to pay full attention to goods that would be produced for their sales purposes. There is a need to conduct a survey to understand the production and trade potentials in the areas where markets are planned to be established. For the success of the border markets to achieve its stated objectives, the GoP and provincial governments need to ensure availability of required resources, efficient transport and logistics services, supply of utilities, communication networks, efficient border management, harmonious regulatory standards and a regime that would ensure free trade at local level.
The success of the border markets would be determined by the people who will be engaged in production and trade in the border areas. Without an innovative and vibrant local community of entrepreneurs the very purpose of establishing border markets may be compromised. Moreover, the success of the border markets would require close cooperation and coordination between neighboring countries in terms of joint investments in infrastructure that will ensure their commitment to joint border markets rather than unilaterally established markets.
The GoP needs to be supported by border area residents in its endeavor to create mutual synergies to establish border markets. By connecting people, this initiative will lead to the development of border areas and ensure long-term peace, security, stability and prosperity in the region.
The writer is Professor of Economics & HOD Research, School of Social Sciences and Humanities, National University of Sciences and Technology (NUST).
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