Rampant smuggling on Afghan-Pakistan border threatens regional security

The prevalence of illicit trade between Afghanistan and Pakistan has deep historical and structural roots. The United Nations Security Council, in its June 2022 report, noted that the Taliban have dismantled road checkpoints, initially intended to regulate cross-border revenues, thereby facilitating the continuation of illicit flows that constitute important sources of income for the terrorist group.

Smuggling of goods and currency across the Afghanistan-Pakistan border has long been a persistent problem, negatively impacting Pakistan’s economic stability. This activity, which includes the illicit trafficking of goods, drugs, and currency (particularly U.S. dollars), exacerbates economic hardship, distorts markets, and impedes legitimate trade.

The Afghanistan-Pakistan Trade Transit Agreement (ATT) of 1965, designed to facilitate trade, has unintentionally exacerbated the smuggling problem. Goods destined for Afghanistan often end up being sold in Pakistan without paying customs duties, giving rise to one of the largest smuggling networks in the world. Recent estimates show that the volume of smuggling has increased from $2.287 billion to $3.731 billion, or 63% of the trade volume.

Extent of smuggling and its economic impact

The international border between Afghanistan and Pakistan stretches 2,640 km, making it a hotspot for illegal trade, complicating the Pakistani government’s control efforts. Smuggling operations thrive in this environment, facilitated by difficult terrain, political instability, and a lack of strong enforcement mechanisms. Goods such as electronics, fuel, textiles, and food products are smuggled into Pakistan, avoiding customs duties and taxes. A recent international report published in May 2024 by Jeff Hardy of the Transnational Alliance to Combat Illicit Trade (TRACIT), found that illicit trade in major sectors costs Pakistan’s national economy more than $2 billion annually. This substantial loss not only impacts the profitability of the formal sector, but also contributes to broader issues such as corruption, money laundering, and tax evasion.

Currency smuggling remains a critical problem, with customs officials seizing around Rs 930.46 crore between 2019 and 2023. Despite official denials, reports suggest that around $5 million is smuggled across the border every day. Widespread smuggling of goods, including textiles, steel and consumer electronics, further compounds the problem.

The steel industry, a vital economic pillar, is particularly affected: an estimated 500,000 tonnes of steel are smuggled from Pakistan to Afghanistan each year, resulting in a loss of Rs 25 billion in tax revenue. This illicit trade undermines the local market, leads to potential job losses and jeopardises the viability of the sector.

Drug trafficking and trafficking

Drug trafficking is another dimension of the smuggling problem, with Pakistan serving as a transit route for Afghan narcotics. The United Nations Office on Drugs and Crime (UNODC) estimates that the illicit opium economy in Afghanistan is worth $102 billion annually, a substantial portion of which transits through Pakistan.

The consequences of drug trafficking are multiple. In addition to the health and social problems associated with drug addiction, drug revenues often fund terrorist and insurgent groups, further destabilizing the region. In addition, the informal economy generated by drug trafficking distorts economic data and complicates efforts to formulate effective economic policies.

Socio-economic and security consequences

The socio-economic implications of smuggling are profound. The influx of smuggled goods depresses the prices of local products, harming domestic industries and leading to job losses. From 2018 to 2023, customs officials seized vehicles worth Rs 1,352 million, mainly under the Customs Act, 1969. Narcotics worth around Rs 484 million were also intercepted, along with arms and ammunition worth Rs 145 million. The illegal arms trade has contributed to the proliferation of the “Kalashnikov culture” across Pakistan.

Smuggling activities along the Afghan border are often linked to militant groups and organized crime. These groups use smuggling not only as a means of financing their operations, but also exploit the porous border with Pakistan for movement, further complicating efforts to maintain regional security.

Government response and challenges

Recent efforts by the Government of Pakistan to combat currency smuggling have led to significant confiscations. Data presented to the Higher Committee of the Provincial Government of Khyber Pakhthunwa revealed that Rs 6 billion worth of smuggled goods and 78 tonnes of contraband were confiscated in 2023-24, while Rs 1.39 billion worth of currency notes were seized in actions against illegal hundi-hawala trade and profiled 100,000 NCP vehicles.

These recent crackdowns are part of a broader effort to curb smuggling and illicit financial flows, which have long plagued the Pakistani economy. Smuggling activities not only undermine local industries, but also result in significant losses in tax revenues. In addition, many essential goods, including textiles and electronics, enter the Pakistani market through illegal channels, further exacerbating economic distortions. The Government has stepped up its efforts, but challenges such as corruption and inadequate enforcement capacity continue to hamper effective control of smuggling routes.

The challenge is daunting, but sustained efforts and international cooperation can help mitigate the impact of smuggling on Pakistan’s economy. In the long term, addressing the root causes of smuggling, such as poverty, lack of economic opportunity, and political instability, will be essential to breaking the vicious cycle that is currently undermining the country’s economic stability.

(The author is a graduate in international affairs with interests in foreign policy, national security and geopolitics. She has worked with the National Assembly of Pakistan. Her views are personal. She can be contacted at [email protected])