By Asghar Nasar

Pakistan occupies a strategically significant geographic position at the crossroads of South Asia, Central Asia, the Middle East, and China. Sharing borders with Iran, Afghanistan, and China, Pakistan possesses immense potential to benefit from regional trade and connectivity. Historically, relations with these neighboring countries have been influenced by political developments, security concerns, geopolitical rivalries, and changing regional alignments. Despite these complexities, border trade has remained an essential component of Pakistan’s economy, especially for populations living in border regions.

Border trade contributes to employment generation, economic integration, regional connectivity, and access to foreign markets. At the same time, informal and illegal trade practices, including smuggling, transit trade misuse, narcotics trafficking, and fuel smuggling, create major economic and security challenges for the Pakistani state. This article examines Pakistan’s border trade relations with Iran, Afghanistan, and China, highlighting both the opportunities and the structural problems associated with these economic interactions.
Pakistan and Iran Border Trade

Pakistan and Iran share deep historical, cultural, and religious ties. Their long border stretching from Taftan to Gwadar has historically facilitated movement of people, goods, and informal commercial activity. Iran also offers Pakistan an important trade route to Türkiye, Azerbaijan, Central Asia, and European markets through overland connectivity.

Although diplomatic relations between the two countries have remained generally stable, economic cooperation has not achieved its full potential. Formal bilateral trade remains limited despite the existence of the Pakistan–Iran Preferential Trade Agreement (PTA), signed in 2004 and operationalized in 2006. Pakistan’s exports to Iran declined significantly after 2011 due to sanctions-related restrictions, banking limitations, and tariff barriers imposed by Iran on agricultural and manufactured goods such as fruits, vegetables, cereals, leather products, and footwear.

Pakistan mainly exports rice, textiles, fruits, vegetables, meat, and machinery parts to Iran, while importing petroleum products, natural gas, chemicals, iron ore, and hides. However, the absence of banking channels between the two countries remains a major obstacle to formal trade expansion. Iran does not allow Pakistani banks to operate within its territory, while negotiations regarding Iranian banking access in Pakistan have remained unresolved.

- Informal and Illegal Trade

One of the most significant aspects of Pakistan–Iran border trade is the large-scale informal economy that exists in border regions of Balochistan. Millions of people living in areas such as Turbat, Panjgur, Mashkel, and Taftan depend directly or indirectly on cross-border trade for survival.

Fuel smuggling has become one of the most profitable forms of illegal trade. Iranian petrol and diesel enter Pakistan through informal routes and are distributed across the country due to the price difference between Iranian and Pakistani fuel. Smuggling networks involve transport vehicles, storage facilities, local traders, and distribution channels extending to urban markets including Karachi and Rawalpindi.

According to official estimates, Pakistan loses billions of dollars annually because of oil smuggling. Investigative reports have also indicated the involvement of organized criminal networks, corrupt officials, and militant organizations operating in Balochistan. Despite its harmful impact on state revenues, informal trade functions as an economic lifeline for border communities suffering from poverty, unemployment, underdevelopment, and lack of industrial opportunities.

The persistence of smuggling highlights the need for comprehensive economic reforms in border areas. Without alternative livelihoods, strict crackdowns on informal trade may worsen social and economic conditions for local populations.

- Pakistan and Afghanistan Border Trade

Pakistan and Afghanistan share centuries-old cultural, ethnic, religious, and economic connections. Their long and porous border has facilitated trade, migration, and regional interaction for decades. Afghanistan’s strategic location has historically made it a key transit corridor linking South Asia with Central Asia.

The Afghanistan–Pakistan Transit Trade Agreement (APTTA), originally signed in 1965 and later revised, was designed to facilitate the movement of goods between the two countries and guarantee transit rights through Pakistani ports and highways. Major trade routes include Karachi–Peshawar–Torkham and Karachi–Chaman–Spin Boldak.

Pakistan exports a wide range of products to Afghanistan, including rice, cement, pharmaceuticals, plastics, tractors, motorcycles, fruits, vegetables, and processed food items. Imports from Afghanistan include coal, cotton, onions, tomatoes, lentils, dried fruits, and agricultural products.

- Transit Trade Misuse and Illegal Activities

Despite the importance of formal trade, illegal economic activities continue to undermine bilateral relations and Pakistan’s economy. One major challenge is the misuse of the Afghan transit trade system. High-value goods imported duty-free for Afghanistan are often smuggled back into Pakistan without payment of customs duties. Electronics, tires, textiles, and consumer products are commonly involved in this process, causing significant revenue losses for Pakistan.

Another major concern is narcotics trafficking. Afghanistan remains one of the world’s largest producers of opium, and a significant share of narcotics passes through Pakistan. Drug trafficking contributes to organized crime, addiction, corruption, and the financing of militant organizations.

The illegal movement of firearms, petroleum products, and foreign currency has also created serious security concerns. The inflow of illegal weapons during the Afghan conflict contributed to the rise of the so-called “Kalashnikov culture” in Pakistan, particularly during the 1980s and 1990s.

Overall, while trade with Afghanistan provides economic opportunities and strengthens regional connectivity, porous borders and weak enforcement mechanisms continue to create challenges for governance, taxation, and national security.

- Pakistan and China Trade Relations

Pakistan and China maintain one of the closest strategic partnerships in Asia. Their relationship, often described as an “all-weather friendship,” is based on mutual trust, economic cooperation, and geopolitical alignment. China has become Pakistan’s largest trading partner and one of its largest sources of foreign investment.

Trade relations between the two countries expanded significantly after the signing of the Pakistan–China Free Trade Agreement (FTA). Economic cooperation further intensified under the China-Pakistan Economic Corridor, which forms a central component of China’s Belt and Road Initiative.

The China–Pakistan Economic Corridor has brought major investments in infrastructure, energy, transportation, and industrial development. Chinese machinery, industrial equipment, steel products, and technology dominate Pakistan’s imports from China, while Pakistan primarily exports cotton yarn, textiles, fabrics, and raw materials.

- Persistent Trade Imbalance

Despite the growth in bilateral trade, Pakistan faces a large and persistent trade deficit with China. Chinese exports to Pakistan continue to exceed Pakistani exports by a significant margin. One major reason for this imbalance is Pakistan’s limited export diversification. Most Pakistani exports to China consist of low-value raw materials and semi-finished products, while imports from China include high-value industrial and technological goods.

Pakistan has also been unable to fully utilize tariff concessions available under the Free Trade Agreement. Weak industrial competitiveness, outdated technology, and insufficient value addition reduce Pakistan’s ability to compete effectively in Chinese markets.

Nevertheless, Chinese investment under CPEC may improve Pakistan’s industrial capacity and export potential over the long term. Infrastructure modernization, improved energy supply, and industrial development could eventually strengthen Pakistan’s manufacturing sector and increase employment opportunities.

- Conclusion

Pakistan’s border trade with Iran, Afghanistan, and China demonstrates both the opportunities and the structural challenges associated with regional economic integration. Geographic proximity, historical linkages, and strategic connectivity provide Pakistan with significant potential to expand trade and strengthen regional cooperation. However, political instability, weak institutional mechanisms, trade imbalances, and widespread informal trade continue to limit these benefits.

Trade with Iran remains constrained by sanctions, banking restrictions, and tariff barriers, while fuel smuggling has created a large informal economy in Balochistan. Trade with Afghanistan supports regional connectivity but is undermined by transit trade misuse, narcotics trafficking, and illegal commerce. Meanwhile, economic relations with China have expanded rapidly under the Free Trade Agreement and CPEC, but Pakistan continues to face a widening trade deficit due to weak industrial competitiveness and limited export diversification.

To fully benefit from its strategic location, Pakistan must strengthen border governance, modernize customs systems, improve trade infrastructure, encourage industrial development, and create economic opportunities in underdeveloped border regions. Effective regional cooperation, balanced trade policies, and institutional reforms are essential for transforming border trade into sustainable economic growth and long-term regional stability

* The writer is a final year student of economics at the Islamic University of Islamabad, and head of the Poverty, Future Pakistan team )