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Afghanistan: Regional Smuggling Thrives -- Part 2

As fighting continues in Afghanistan more than a decade after the Soviet withdrawal, international organizations have repeatedly called on regional powers to stop their armed support for the country's rival factions. But are few signs any of the regional powers -- notably the Taliban's major backer, Pakistan -- intend to do so. In part two of a two-part series on Pakistan and Afghanistan, RFE/RL correspondent Charles Recknagel looks at how the conflict has boosted regional smuggling, creating strong economic interests in maintaining the status quo.

Rawalpindi, Pakistan; 5 April 2001 (RFE/RL) -- None of the shopkeepers waiting like spiders in the dark labyrinth of Rawalpindi's electronics bazaar will admit to selling smuggled goods to lure in their customers.

But many will suggest that their rivals up and down the aisles of this covered market do so.

Here the lowest cost is king as consumers hop from shop to shop poring over exactly the same stocks of air conditioners and televisions and haggling hard for the best price. No products can be offered as inexpensively as smuggled imports which, because no one pays customs duty, can retail for even less than domestic brands.

Most of the bazaar's televisions, radios, fans, and air conditioners are made in Japan and China and have made a long, partly honest, partly dishonest, journey to go on sale in Rawalpindi's bazaar.

Local journalists say the journey usually starts in Dubai, in the United Arab Emirates, where Pakistani import companies order the electronic goods by the container-load for shipment to Karachi.

But the importers do not mark the goods for final delivery in Pakistan. Instead, they designate the final destination as Afghanistan, a country wracked by continuous warfare whose own consumer economy disappeared decades ago.

That part of the operation is all legal, thanks to a Pakistani-Afghan trade agreement signed in 1950. Under the accord, called the Afghan Transit Trade -- or ATT -- facility, Pakistan gave land-locked Afghanistan permission to import goods in sealed containers without paying Islamabad any duty.

But once the containers cross into Afghanistan, the legality ends. In Afghan border towns, the contents are immediately unpacked and smuggled back into Pakistan. Many of the goods also continue across Afghanistan for smuggling into Central Asia, where they again will sell at prices that substantially undercut legally imported and domestic goods.

One of the shopkeepers (unnamed) in the Rawalpindi electronics bazaar says the price for a smuggled Japanese television can be some 4,000 rupees, or nearly $75, less than the price of the same set produced under foreign license in Pakistan. He says that price difference is decisive for most customers:

"There is around three or four thousand rupees difference. It is human nature that everybody goes for the cheapest thing. If the product is the same and the price is cheaper, I think if you are going to buy a television and [if] there is three or four thousand rupees difference, I think you will go for the cheaper one."

The shopkeeper says that most consumers agree that the quality of the smuggled and domestically produced television sets is the same. They understand, too, that the smuggled sets do not come with any service warranty. Yet they still buy the smuggled goods because they consider the price difference too good to resist.

But the customers' savings exact a high cost on Pakistan's official economy, which each year loses millions of dollars in tax revenues because of the smuggling..

Farhan Bokhari, a Pakistani correspondent for Britain's "Financial Times," says that the tax losses run close to $1 billion annually.

"A few years ago, one (Pakistani) government came up with the figure that as much as the equivalent of $2.5 billion worth of smuggled goods are brought into Pakistan in this way [each year]. At that time, someone also took the view that if you were to calculate the custom's duty in terms of 40 percent, you could say that $1 billion worth of revenue is lost [to the government] every year."

Bokhari says that the trade also poses a serious threat to Pakistan's efforts to build up its own industrial base:

"The irony is that there are many items which are brought in [through the ATT] for which there is no demand in Afghanistan. For instance, the Taliban have banned people from watching television, yet there is a large number of TV sets which are imported in this way. Pakistani television manufacturers have suffered enormously and I know one company said that it might have to shut down shop in a couple of years if this kind of smuggling doesn't come to an end."

But despite the high costs for the legal economies of Pakistan and Afghanistan's other neighbors, the transit trade is in no danger of being stopped because there are powerful interest groups to defend it.

In Pakistan, these include the truck transport firms which carry the goods to and from Afghanistan and are highly influential in Pakistan's economic and political life. There are also elements within the Pakistani government and intelligence services who back the ATT because it provides Afghanistan's ruling Taliban militia with its largest source of revenue.

Ahmed Rashid, a journalist and author of a book on the Taliban, says that the militia's taxes on smuggling goods back into Pakistan or to Central Asia accounts for some 60 to 70 percent of its annual war budget of $100 million.

Rashid estimates the Taliban has earned another 30 to 40 percent of their war budget in the past from taxes on opium farmers, with the remaining five to 10 percent coming as direct financial aid from Islamabad.

Now, after the Taliban last year banned opium poppy cultivation, the taxes generated by the smuggling are likely to become even more important for funding the militia's continuing war with Afghanistan's opposition forces.

Regional experts say that today Afghanistan is the hub of a vast regional trade in smuggled consumer goods which links the United Arab Emirates, Iran, Pakistan, the five Central Asian republics, and the Caucasus.

Barnett Rubin, an expert on Afghanistan at New York University, says the country appears to have become the second largest trading partner of the United Arab Emirates which, along with Pakistan and Saudi Arabia, is one of only three states which recognize the Taliban.

Correspondent Bokhari says that from time to time, Pakistani officials discuss trimming the list of consumer items permissible under the ATT to ease the competition faced by some Pakistani domestic firms. One item recently eliminated was automotive parts.

But he says any attempts to reign in the smuggling overall have failed, largely due to widespread worries that anything that hurts the Afghan economy will only create larger problems for Pakistan:

"There are people who take the view that Afghanistan has now become a part of Pakistan in economic terms even though it is a separate state. So, if the government was to completely close off what is an important source of revenue for many people in Afghanistan, then it begins to take care of a major problem faced by Pakistan. But then the fallout would also be there: more refugees coming into Pakistan, more poverty across Afghanistan."

That is a persuasive argument for many in Pakistan, where officials have said they cannot afford to take in any more Afghan refugees without substantial new help from the international community.

There are currently an estimated two million registered Afghan refugees in Pakistan and another two million unregistered. Some 200,000 more refugees have entered the country since Pakistan officially closed its border last year. They are fleeing continued fighting and drought conditions that UN aid workers say are now threatening some areas of Afghanistan with famine.

(This concludes the two-part series on Pakistan and Afghanistan.)