Smuggling - A Lucrative Vocation

Ilyas Khan

Publishing Date: Thursday, April 24 2003

Trading has been at the centre of the Frontier's economy since time immemorial. It assumed added significance during the Durrani empire both because the Pakhtoons were for the first time able to operate from their own national state and because the rising power of Russia during the early nineteenth century opened new prospects of trade between India, Central Asia and the Middle East.

This situation came to an end with the communist revolution in Russia in 1917, when the so-called Iron Curtain shut Central Asia off from British India. But the local traders were still left with a lucrative avenue of business, the Afghan Transit Trade (ATT). After the partition of India, this trade increasingly came to be associated with smuggling, and flourished unhindered until last year, when the military government decided to crack down on border trade.

The ATT was formalized in the Rawalpindi Peace Treaty of 1921 between British India and Afghanistan. Under Article VI of the treaty, the British allowed the Afghan government to use Indian ports for the import of "whatever quantity of material is required for the strength and welfare of Afghanistan, such as all kinds of factory machinery, engines and materials and instruments for telegraph and telephone etc". The said article also allowed Afghanistan to import arms and ammunition through India "as long as it is assured that the intentions of the government of Afghanistan are friendly" towards India.

Under Article VII of the said treaty, the British government further agreed not to levy any custom duties on imports ordered by the Afghan government, "provided that a certificate signed by such Afghan authority or representative as may from time to time be determined by the two governments shall be presented at the time of importation to the Chief Customs Officer at the port of import..."

As the successor-in-interest to the British government, Pakistan renewed its commitment to allow ATT in an agreement signed between the two governments in 1955. During the Ayub era (1958-68), a trend emerged whereby tribal and Afghan traders holding the Afghan government certificates of import started ploughing a portion of the imported material, specially consumer items, back into Pakistan. In addition, material imported into Afghanistan through other routes (mainly from Iran, but later also from Dubai and Europe) also found its way into Pakistan. The major attraction of this trade was the price differential: Afghanistan being a free port, profit margins soared when goods entered Pakistan.

The earliest bazaar of smuggled goods on Pakistani territory was established in Landikotal, Khyber Agency, which offered imported fabrics, cosmetics, crockery and electronic goods at mouth-watering prices to a clientele that stretched from Peshawar to Lahore and from Islamabad to Karachi. The sheer success of the bazaar led the traders to move closer to Peshawar. So in the late 1960s, most Landikotal traders opened shops in Bara, the headquarters of Khyber Agency's eastern-most subdivision.

But the real boost for the smuggling trade came in the 1980s, when the Afghan war was at its peak and the elements connected with the Mujahideen groups were generating huge amounts of money to be invested in this trade. Suddenly, smuggling became an open secret in Pakistan, and Bara traders left tribal areas to move into the Hayatabad area of Peshawar. Here, the largest smuggling bazaar of the country was established with over 2,000 shops and business volume approaching two billion dollars a year.

During 1960s and 70s, the Pakistani government had looked the other way because in the absence of other sources of employment in the tribal areas, trading was considered by the policy makers as essential for the phased integration of the tribal people into the Pakistani economy. In 1980s, the government looked away because all the major traders involved were the clients of the secret agencies. This time, however, it was the Afghan citizens who were being integrated into the Pakistani economy.

Though there had been sporadic hue and cry over the smuggling trade from Pakistani industrialists, successive governments throughout the 1990s kept their hands off the smugglers, fearing adverse repercussions in both economic and political realms. Much of these problems became obvious in April 2000, when the present government decided to levy import duties on smuggled goods. The most serious aspect of the government's drive was the question of survival of close to 100,000 families, depending directly on the smuggling trade, and some two million people who were associated with it indirectly.

Government estimates at the end of 2000 put the number of total smuggling outlets in the Frontier at 8,200, employing 85,000 people. A majority of this workforce were goods carriers. As soon as the government increased vigil at the checkposts in tribal areas, these carriers switched to alternative routes. Man-packs took the place of trucks for transporting goods from one point to another between the border and Hayatabad. This still continues, and as recently as March 2001, it led to the death of one carrier at the hands of the anti-smuggling staff, posted near Ali Masjid in Khyber Agency. The incident resulted in a three-day stand-off between the tribal people and the government.Meanwhile, the Frontier traders are also resisting the government's move to charge customs on the border trade, saying the government has the powers to seal the borders and prevent the inflow of goods but it has no right to charge duties on goods already on the Pakistani territory. Many independent observers share the traders' view, and suggest that the menace of smuggling from the Frontier is not as great as it is made out to be.

Both the federal interior ministry and the CBR put the annual smuggling volume at around Rs120 billion. The interior ministry's contention that more than 10 per cent of this comes via the ATT is rejected by these observers on the grounds that the entire volume of ATT varies between Rs12-14 billion, not all of which is smuggled back into Pakistan.

Besides, while total levies on imports including sales tax etc come to around Rs200 billion a year, this would mean that 50 per cent of all foreign goods in the country are smuggled goods. This is impossible, these observers say. According to one financial analyst in Islamabad, total value of smuggled goods in Pakistan would be between Rs20-25 billion. A major portion of this trickles through the Indian border. Smuggling from the borders of Afghanistan and China does not exceed two billion rupees, he says. In this situation, the people in the tribal areas feel that the amount of hysteria whipped up over the issue of smuggling from Afghanistan is not justified, especially in the almost total absence of any alternative means of livelihood for the people of this region.