From NATCL Barter Trade to Border-Pass Livelihood The Case for a Tax-Free Baggage Regime for Gilgit-Baltistan

By  Syed Shamsuddin

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From NATCL Barter Trade to Border-Pass Commerce

The Case for a Rational Tax Exemption for Local Traders of Gilgit-Baltistan

The special economic relationship between Gilgit-Baltistan and China's Xinjiang region has a history extending far beyond the present-day Sost Dry Port and the modern China-Pakistan trade corridor. It is rooted in a conscious policy of facilitating cross-border commerce for the inhabitants of a remote and economically disadvantaged mountain region.

That history deserves to be recalled when considering whether locally issued China-Pakistan border passes should carry a rational and clearly defined tax exemption for small-scale imports brought by unemployed and economically vulnerable residents of Gilgit-Baltistan.

The beginning: the 1967 border-trade arrangement

The Pakistan-China Border Trade Agreement of 1967 sought to revive the traditional commercial links between the two sides of the Karakoram. In its wake, the Northern Areas Trading Cooperative Limited (NATCL) was established at Gilgit, and the organised barter trade was inaugurated.

There is some variation in secondary sources concerning the exact year of NATCL's establishment. One important World Bank chronology places the establishment of NATCL in 1969, whereas other scholarly material gives 1968. What is beyond serious doubt is that the institution emerged in the late 1960s specifically in connection with Pakistan-China border trade.

The actual caravan trade commenced in 1969. The first organised post-war caravan movement across the Karakoram represented the revival of an ancient commercial relationship between Gilgit-Baltistan and Xinjiang.

This was not merely ordinary international commerce. It was a special border-trade arrangement devised for a special geographical and economic environment.

NATCL and the economic welfare of the Northern Areas

The significance of NATCL lies not merely in the movement of goods. It provided the people of the Northern Areas with an organised means of earning a livelihood in a region where modern industry was virtually non-existent, cultivable land was scarce and alternative employment opportunities were extremely limited.

The fiscal treatment accompanying the barter system must therefore be understood in that context. The state did not simply open a commercial route and then subject its impoverished inhabitants to the full range of ordinary fiscal burdens applicable elsewhere. Rather, a special regime evolved around the particular circumstances of the region.

Research into the fiscal history of Gilgit-Baltistan identifies NATCL, Pakistan Customs and the taxation of Pak-China barter trade as interconnected elements of this earlier phase.

The underlying principle was simple and compelling:

Where geography, isolation and lack of economic opportunity placed an extraordinary burden upon the inhabitants of the region, the state could legitimately adopt extraordinary fiscal facilitation to enable them to earn a livelihood.

That principle has not lost its relevance.

From caravan trade to the opening of Khunjerab

The completion of the Karakoram Highway fundamentally changed the character of the trade. The old camel and caravan system gradually gave way to motor transport.

A further landmark came with the Pakistan-China arrangements of 1985. The two governments agreed that the Khunjerab Pass would be opened to personnel of third countries from 1 May 1986. Importantly, the agreement did not simply establish an unrestricted tourist crossing. It also recognised a special China-Pakistan Border Pass issued by the local authorities for members of border meetings and caravans. Accompanying luggage and goods remained subject to customs examination.

Thus, 1986 marked a transition rather than a complete break with the past.

The NATCL caravan system was superseded by a wider system of movement through Khunjerab, and residents of Gilgit-Baltistan increasingly participated in small-scale cross-border commerce.

The border pass was never merely a tourist document

This distinction is important.

The border pass developed within a special borderland arrangement. It was not simply another form of international travel document issued to an ordinary tourist.

Subsequent research records that residents of Gilgit-Baltistan were permitted to cross Khunjerab on locally issued border passes and could officially bring up to 300 kilograms of merchandise as personal baggage without customs duties. The same research describes cross-border trading as an important component of the diversified family economy of local traders.

This is a crucial historical fact.

It demonstrates that the economic function of the border-pass system was recognised in practice. The holder was not necessarily travelling merely for recreation. For many residents, the journey to Kashgar and other markets in Xinjiang was an economic activity through which household income could be supplemented.

The system therefore represented, in effect, a transformation of the old NATCL model:

NATCL caravan → individual/local border-pass trader.

The institutional form changed; the underlying economic rationale did not disappear.

From collective barter to individual livelihood

The old system was based upon organised caravans. The new system enabled individual residents to participate.

This was particularly significant in a region where formal employment opportunities remained extremely limited.

A local person possessing a border pass could undertake a modest trading journey, purchase light merchandise in Xinjiang and bring it back as baggage for sale in the local market. The income generated could support a household without requiring the trader to establish a large business, obtain substantial capital or leave the region in search of employment.

Modern scholarship on the Karakoram trade describes precisely this phenomenon: local GB traders used cross-border commerce as one element of a diversified household economy, alongside agriculture, livestock and seasonal employment elsewhere in Pakistan.

This is especially relevant today.

Why should an unemployed border-pass holder be treated like a large commercial importer?

This is the central question.

There is a fundamental difference between:

1. a multinational or large commercial importer bringing containers of goods into Pakistan for commercial distribution; and
2. an unemployed or economically vulnerable resident of Gilgit-Baltistan travelling on a locally issued border pass and bringing a limited quantity of merchandise in personal baggage to sell in the local market.

Treating both categories identically for taxation purposes may satisfy a formal concept of uniformity, but it does not necessarily produce substantive fairness.

A person bringing a modest quantity of goods in baggage is not operating on the same economic scale as a commercial importer bringing a truckload or container-load of merchandise.

The tax system should therefore recognise the distinction.

The case for a rational exemption

The proposal should not be for an unlimited or indiscriminate exemption.

Rather, the Government could establish a carefully regulated Border-Pass Local Livelihood Scheme, under which an indigenous resident of Gilgit-Baltistan holding a valid China-Pakistan border pass would be permitted to bring a prescribed quantity and value of merchandise in personal baggage free from customs duty and other applicable import taxes, subject to reasonable safeguards.

For example, eligibility could be restricted to:

• permanent/local residents of Gilgit-Baltistan;
• genuine holders of a valid China-Pakistan border pass;
• individuals rather than large commercial firms;
• merchandise within a prescribed weight and value ceiling;
• goods intended for the local GB market;
• a specified number of journeys during a defined period; and
• goods that are not prohibited, restricted or otherwise regulated under national law.

The purpose would not be to create a channel for commercial-scale imports under the guise of personal baggage.

The purpose would be to restore a modest livelihood opportunity to local people through a historically recognised border-trade mechanism.

The 300-kilogram precedent

The historical precedent is particularly instructive.

If residents of Gilgit-Baltistan were once permitted to bring up to 300 kg of merchandise as personal baggage without customs duty, then a modern policy could examine that precedent objectively and determine whether an appropriate limit should be restored, revised or reduced according to present economic conditions.

The question should not be whether the state can design safeguards. It plainly can.

The question should instead be whether a person from a remote region with limited employment opportunities should be denied a modest opportunity to earn a livelihood merely because the fiscal system treats his or her baggage in the same manner as the commercial consignment of a large importer.

Preventing abuse

Any exemption must, of course, be protected against abuse.

There is a legitimate concern that commercial traders from outside the region could exploit local residents as carriers. Indeed, research on the historical border regime records that traders from Punjab and Khyber Pakhtunkhwa sometimes employed GB residents to shuttle merchandise across the border precisely because of the preferential baggage treatment.

That experience provides an argument for regulation, not for abandoning the principle altogether.

A modern scheme could therefore introduce:

• biometric linkage of the border pass with the trader;
• a digital record of every crossing;
• an annual or quarterly baggage allowance;
• a maximum monetary value;
• prohibition on carrying goods for another person;
• random inspection;
• electronic baggage declarations;
• suspension of the privilege after repeated violations; and
• a separate commercial channel for quantities exceeding the prescribed limit.

Such safeguards would protect government revenue while preserving the livelihood function of the concession.

The distinction between local livelihood and commercial importation

The most important principle should be scale.

A local resident carrying a limited quantity of goods should not be confused with a commercial importer.

Once the prescribed personal-trade ceiling is exceeded, the ordinary customs and tax regime could automatically apply.

This would create a graduated system:

Small-scale local livelihood trade — tax-exempt within a defined ceiling

Medium-scale trade — simplified customs treatment at preferential rates

Commercial-scale imports — normal customs and taxation regime

Such a system would be both economically rational and administratively manageable.

The argument from regional development

There is another compelling consideration.

Gilgit-Baltistan is geographically remote, mountainous and separated from Pakistan's major economic centres by great distances. The region has historically had a narrow economic base and limited industrial employment.

A resident of Gilgit-Baltistan does not enjoy the same economic opportunities as a resident of Lahore, Karachi, Islamabad or Faisalabad.

A border-pass concession can therefore be viewed not as an arbitrary privilege but as a modest form of regional economic facilitation.

Indeed, the present Government of Gilgit-Baltistan itself continues to describe the border pass as a document enabling authorised persons and companies to travel across the Pak-China border at Khunjerab.

The challenge is to ensure that this facility benefits ordinary local people rather than becoming merely another instrument of large-scale commercial trade.

The historical argument is compelling

The historical sequence deserves to be kept in view:

1967 — Pakistan-China border-trade arrangement;

1968/69 — establishment and operation of NATCL;

1969 — commencement of organised barter-caravan trade;

1970s–1980s — special fiscal and institutional arrangements surrounding border trade;

1985 — revised Pakistan-China arrangements concerning Khunjerab;

1 May 1986 — opening of Khunjerab to a wider category of travellers;

post-1986 — expansion of the local border-pass system and small-scale shuttle trade;

later period — gradual erosion of the special tax treatment and increasing application of ordinary customs and taxation mechanisms.

The historical transition was therefore from organised collective barter trade to individualised border-pass commerce.

What should not be lost in this transition is the original purpose: enabling the people of this remote border region to participate in economic activity.

A modest proposal with a large social purpose

The proposal, therefore, is not for the restoration of an unrestricted tax-free import regime.

It is for a limited, transparent and accountable livelihood exemption for genuine local border-pass holders.

The exemption could be restricted to merchandise imported in personal baggage up to a specified weight and value, subject to annual limits and strict anti-abuse measures.

Such a policy would have several advantages:

• it would provide employment to otherwise unemployed residents;
• create small-scale entrepreneurship;
• retain purchasing power within Gilgit-Baltistan;
• support local shops and markets;
• reduce dependence on seasonal migration for employment;
• revive the economic purpose historically associated with the China border;
• provide a legitimate alternative to informal cross-border practices; and
• recognise the special geographical and economic circumstances of the region.

It could also be revenue-neutral or even revenue-positive in the broader sense if it converts informal economic activity into a regulated local trading system.

A question of equity, not privilege

The proposed exemption should consequently not be portrayed as a demand for an unjustified privilege.

It is better understood as a question of equitable fiscal treatment.

The people of Gilgit-Baltistan did not create the geographical isolation that has historically constrained their economic opportunities. Nor did they choose to live in a region where cultivable land is scarce, industry is limited and transportation to Pakistan's principal markets is expensive.

For decades, the state itself recognised these special circumstances through the NATCL barter-trade system and the subsequent border-pass regime.

The time has therefore come to ask whether the original economic philosophy can be intelligently adapted to present circumstances.

Conclusion

The history of Pak-China border trade in Gilgit-Baltistan reveals a clear evolution.

The 1967 border-trade arrangement produced the institutional framework for NATCL. The 1969 caravan trade revived organised commercial exchange with Xinjiang. The opening of Khunjerab in 1986 transformed the system, allowing wider movement and facilitating a local border-pass trade in which ordinary residents of Gilgit-Baltistan could participate.

The caravan disappeared, but the economic need did not.

If the objective of the original arrangement was to provide the inhabitants of this remote border region with an opportunity to improve their economic circumstances, then that objective remains relevant today.

The appropriate response is not an indiscriminate return to tax-free imports. It is the creation of a limited, locally targeted and abuse-proof tax exemption for merchandise brought in personal baggage by genuine Gilgit-Baltistan border-pass holders, particularly unemployed and economically disadvantaged residents.

Such a policy would not merely be a tax concession.

It would be a recognition of history, geography and economic reality.

The border pass should be more than a document permitting a journey to Xinjiang; for the ordinary resident of Gilgit-Baltistan, it should once again be capable of serving as a modest passport to livelihood.