Byline: Dr Zafar Mahmood - Email: email@example.com Different production structures and geographical proximity between Pakistan and Afghanistan present a classic case for voluminous legal trade between the two countries. The legal trade between the two countries, however, represents only a fraction of their total trade potential. Ironically, as compared to the legal trade, the size of illegal trade is exceptionally large. In Pakistan high tariff and non-tariff measures, and weak enforcement of trade controls and laws on the one hand, and, poor governance and fragile economic conditions in Afghanistan on the other create incentives for smuggling of goods. The cost of this smuggling is low which makes the price of smuggled goods in Pakistan not much different than their international market prices.