Home South Asia Afghanistan Pakistan Afghan Transit Trade: New Opportunities and Challenges

Pakistan Afghan Transit Trade: New Opportunities and Challenges

Managing Editor Global Village Space, analyses the Afghan transit trade and the challenges smuggling poses for lost Pakistani government revenues, and the need for one over-arching institution that can handle the goods from start to finish to remove this issue.

Afghan

Afghan President, Ashraf Ghani, in his June 2019 meeting with Pakistani Prime Minister, Imran Khan requested later to facilitate the implementation of Afghan Transit Trade. He also requested a 24/7 operation at Torkham border terminal.

This must have been an embarrassing climbdown for a man who had, in October 2017, jubilantly announced that the Afghanistan and Pakistan Trade Agreement has expired; and issued a decree banning the entry of Pakistani trucks into Afghanistan.

The Afghan government, on the coattails of New Delhi, had developed an attitude, and later Pakistan closed its Torkham and other border posts in the wake of terrorist attacks in the country originating from Afghanistan.

Ghani was then playing to the Indian gallery. He had been pitching a case for Indian access to Central Asia via Afghanistan without any “quid pro quo” between Islamabad and Delhi. Pakistani reluctance at playing Delhi’s game frustrated Ghani.

His triumphant declaration against the “Afghanistan Pakistan Transit Trade Agreement (APTTA)” also rested upon Indian assurances that the Iranian port of Chahbahar (which India was making) will take care of the landlocked country’s trade needs.

Read more: The War in Afghanistan: Curtains without Climax

Ghani’s climbdown, after three years of foot-dragging, came in the wake of new geopolitical realities. Trump administration’s robust sanctions against Iran have punctured Indo-Afghan pipe dreams of a new regional order forcing him back to address the issue with Pakistan.

Now the Afghan president, who is struggling to win a difficult election, has to diversify transit trade away from both Bandar Abbas, and the as yet symbolic trade from Chahbahar port in Iran.

The earlier 2010 APTTA agreement expired in 2015, and talks collapsed in September 2015, due to Afghan insistence that India should be part of the Afghan transit treaty negotiations. In 2017, Afghanistan banned entry of Pakistani trucks into the country.

Quoting his President, Transport ministry spokesman, Hekmatullah Qawanch, had asserted, “The Afghanistan and Pakistan Trade Agreement (APTA) has expired. Before this Pakistan did not allow Afghan trucks to enter its territory, so now we do the same, and after this, Pakistani trucks will be unloaded at borders and Afghan trucks will carry the goods to Hairatan and Sher Khan ports.”

Trade relations between the two countries had reached a low point in 2017 due to unusually strained ties. The Afghan government, on the coattails of New Delhi, had developed an attitude, and later Pakistan closed its Torkham and other border posts in the wake of terrorist attacks in the country originating from Afghanistan.

Read more: Afghanistan reduces its dependence on Pakistan

Islamabad was also upset on the incident in which Afghan security forces had fired on Pakistani census workers near its border. But given renewed US initiatives towards peace in the region, things are also improving between Pakistan and Afghanistan; and we are now seeing an increase in transit trade.

The import value of transit goods in 2018-19, reached around Rs. 5bn, up from Rs3bn in the previous year – an increase of 66.6 percent. The final turnaround occurred after the June 2019 meeting of the Afghan President Ashraf Ghani with Prime Minister Imran Khan in Islamabad, where both sides agreed to deepen trade relations.

Trade relations between the two countries had reached a low point in 2017 due to unusually strained ties.

The Pakistani commerce ministry and its counterpart are now working on completing a revised Afghan-Pakistan transit trade agreement (APTTA). But Afghan president has also requested a 24/7 operation at the Torkham Border Terminal – which represents a new challenge.

Read more: Afghan cuisine filling Turkish bellies

The Afghanistan–Pakistan Transit Trade Agreement

The Afghanistan–Pakistan Transit Trade Agreement (also known as APTTA) is a bilateral trade agreement that was signed in 2010 by Pakistan and Afghanistan; facilitating the movement of goods between the two countries.

It superseded the 1965 Afghanistan Transit Trade Agreement (ATTA), which granted Afghanistan the right to import duty-free goods through mainly Karachi, but also other Pakistani seaports. The 1965 agreement that was signed between the two countries did not give Pakistan the right to export products to Central Asia via land routes through Afghanistan.

The 2010 agreement allows for both countries to use each other’s airports, railways, roads, and ports for transit trade along designated transit corridors.

Something that became a bone of contention in subsequent decades between the countries and this was addressed in the 2010 agreement. The 2010 agreement allows for both countries to use each other’s airports, railways, roads, and ports for transit trade along designated transit corridors.

Afghanistan and Pakistan share a 2,430 km border, and Afghan trucks can now enter Pakistan, through border crossings at Torkham, Ghulam Khan, and Chaman-Spin Boldak to transit Afghan goods across Pakistani territory.

Read more: U.S-Pak high-level delegation met to discuss the Afghan peace process

Afghan traders can import goods through Pakistani ports at Karachi, Port Qasim, and Gwadar. However, even the 2010 agreement does not allow any road vehicles from any other country, be it from India or any Central Asia country.

Pakistani authorities fear an influx of Indian goods in the black market. So, Islamabad allows Afghan trucks, under the APTTA 2010 agreement, to transport exports to India via Pakistan up to the Wagah crossing point, but it does not allow them to bring back Indian goods across the border.

The final turnaround occurred after the June 2019 meeting of the Afghan President Ashraf Ghani with Prime Minister Imran Khan in Islamabad, where both sides agreed to deepen trade relations.

This is to avoid the situation found after the 1965 agreement when Indian products without paying duty and taxes, flooded the black markets in Pakistan. In addition to the smuggling challenge, Pakistani governments will perhaps not like to hand over to India much-needed road access to Central Asia without any direct negotiations leading to a quid pro quo.

Read more: Why Pakistan’s exports are not growing? – Dr Kamal Monnoo

Smuggling: Major challenge for transit trade

Pakistani tax authorities have painful memories starting with ATA-1965 and continuing onwards. Under the cover of the transit trade, a massive unauthorized economy booms through the connivance of Pakistani and Afghan importers and corrupt customs, excise and law enforcement officials.

Goods declared, cleared and bound for Afghanistan, either immediately return to Pakistan from Torkham or more often do not even leave Pakistan’s national borders as they are offloaded or ‘lost’ on the route from Karachi to Peshawar and onto Afghanistan.

Afghan Transit

The ‘bara’ (black) markets still thrive all over the country; famous ones like the Karkhano Market in Peshawar became famous for selling all kinds of smuggled goods from imported fabrics, teas, televisions to automatic weapons.

Pakistan, having the larger domestic market, has faced a massive loss of revenue since the inception of the 1965 agreement; from smuggled goods diverted into Pakistani black markets, not paying due duties or taxes.

Pakistani tax authorities have painful memories starting with ATA-1965 and continuing onwards.

Afghan traders in collusion with Pakistani importers and customs officials had often imported goods much beyond the needs of Afghanistan – both in terms of volume and nature.

According to the Directorate of Afghan Transit Trade, Peshawar, around 40 percent of transit goods find their way into Pakistan. Billions of rupees are lost to the Pakistani exchequer from unpaid duties or taxes. In particular, smuggled pencils, tv sets, and black tea are all big items that specifically hit government revenues.

Read more: Pak-Afghan ties: Any way to end the blame game?

One study estimated this loss in revenues up to $3 bn in 2015 alone. A World Bank study estimated that smuggling in Afghan transit trade alone caused $35 billion revenue loss between 2001 – 09.

In July 2019, the Competition Commission of Pakistan (CCP) conducted a study on the tea market and concluded that the cost of imported tea is around 32 pc higher than tea smuggled into Pakistan under the ATTA. Due to the cost difference, legally imported tea (with due taxes and duties paid) cannot effectively compete with smuggled tea.

The product leaves the port, but instead of crossing the border, it flows back into the Pakistani market, particularly into the towns of Khyber Pakhtunkhwa. A research study in 2015 had put the value of smuggled tea, that was being traded in the country, at Rs. 16 billion.

Afghan traders can import goods through Pakistani ports at Karachi, Port Qasim, and Gwadar.

Similarly, the volume of smuggling was estimated at Rs. 18 billion in cigarettes, Rs. 22 billion in petroleum products, including smuggled LPG, Rs. 25 billion in auto-parts as well as vehicles and Rs. 200 billion in other products, including cosmetics, clothing, footwear, medicines, spices, juices, electronics, and other items are smuggled in the country.

Monitoring, in the past, has been difficult due to the porous border, non-electronic tagging of containers and of course, corrupt officials. The government of Pakistan has used several strategies, including using a negative list of products under the transit trade to counteract smuggling in those products.

Afghan Transit

Afghan importers also have to deposit duties and taxes at the port in Pakistan which they can be reimbursed for after the consignment crosses Pakistan. However, this is a tedious bureaucratic procedure for the importer that increases his upfront cost making it difficult for many small traders.

Pakistan has also tried reducing smuggling by initially scanning all goods but till recently around one in five were being scanned. A perfect practical solution is still being awaited.

Read more: Pak-Afghan border closure is unfair: Imran Khan

24/7 Operations at Torkham Border Terminal: Challenges

High-level meeting on this subject was held on 1st July 2019 at PM Office Islamabad. Advisor to the PM highlighted that PM of Pakistan had given his commitment to Afghan President during his recent visit to Pakistan for operationalization of Torkham Border Terminal round the clock from September 2019.

Decisions taken during the meeting were conveyed to all departments, including Customs that has to ensure that Pakistan’s revenue base does not suffer and NLC will provide operational support and facilitation.

Border Terminals

Pakistan, over the past decade or so, has gradually developed a well-managed system of effective border terminals. These terminals have modernized the infrastructure, improved cargo tracking, reduced delays, and helped with smooth implementation of government’s policies, rules, and regulations.

At present, there are seven border terminals in Pakistan, all of which are being operated by the National Logistics Cell (NLC). These terminals, in the chronological order of establishment, are as follows:

  1. Wahga Border Terminal, Lahore (May 2008) – with India
  2. Khyber Border Terminal, Jamrud (June 2008) – with Afghanistan
  3. Chaman Border Terminal, (January 2011) – with Afghanistan
  4. Torkham Border Terminal, (May 2015) – with Afghanistan
  5. Taftan Border Terminal, (May 2017) – with Iran
  6. Kharlachi Border Terminal, (February 2018) – with Afghanistan
  7. Ghulam Khan Kalay Border Terminal, (March 2018) – with Afghanistan

Read more: Bilateral trade with Afghanistan reduced to $500M

New Border Terminals

Establishment of two new border terminals at Angoor Adda (Khyber Pakhtun Khwa – KPK Province) bordering with Afghanistan, and Gabd (Balochistan Province) bordering with Iran, are being planned. The border terminal at Gabd will be a giant leap towards facilitating the move and administration of Zaayreen (pilgrims) from Karachi and lower Sindh province to Iran, Iraq, and Syria.

At present, all road traffic from pilgrims is through Taftan Border Terminal, for which these people (mostly from poor financial backgrounds), have to first travel to Quetta, before moving on to Taftan (650 Km from Quetta), thus spending extra time and money.

Improved Facilities at Border Terminals

NLC currently is the primary service provider to Pakistan Customs for accommodation, office equipment, electricity and internet for the operation of Web-Based One Custom (WeBOC) system at the border terminals.

In addition, the organization manages the handling of cargo through weighing bridges, vehicle scanners, reach stackers, cranes, fork lifters and even manual labor (where required), thus facilitating Customs in the collection of revenue through duties on imports and exports.

The product leaves the port, but instead of crossing the border, it flows back into the Pakistani market, particularly into the towns of Khyber Pakhtunkhwa.

Large container yards, adequate parking facilities, and availability of covered storage warehouses assist the traders in rapid clearance of their goods and ensures smooth flow of trade at very compatible low costs.

There are other logistic issues: apart from facilitating the government departments and agencies (National Plant Protection Department- NPPD and National Database Registration Authority – NADRA ), traders, clearing agents and even drivers of vehicles have to be assisted by arranging office accommodation, courier services, bank booths, resting places, canteens, and  cafeterias.

Afghan Transit

Regulation of trade flow plays a significant role in enforcement and uniform implementation of various international trade treaties, e.g., Afghan Transit Trade, etc. What is now needed is one comprehensive inter-connected system to be managed by one overarching agency that can ensure admission of transit cargo at the ports of entry (Karachi & Gawadar).

Digital tagging and continuous electronic monitoring of vehicular traffic, and containers are needed, to ensure that the transit goods are delivered inside Afghanistan, and do not come back without custom duties and taxes. Use of bank guarantees and security deposits are other mechanisms that remain available for preventing the loss of revenue.

Read more: Pak-Afghan border closures: It’s business that suffers the most!

Integrated Transit Trade Management System (ITTMS)

Lowering of transaction costs and adding more predictability to export and import supply chains would be of immense value to the local traders and manufacturers and is the government’s next goal. With this aim in view, Asian Development Bank has agreed to fund construction of state of the art border crossing terminals at Torkham, Chaman, and Wagha.

Large container yards, adequate parking facilities, and availability of covered storage warehouses assist the traders in rapid clearance of their goods and ensures smooth flow of trade at very compatible low costs.

The master plan for these three border terminals has already been approved under the Integrated Transit Trade Management System (ITTMS) regime, and development work has commenced at Torkham Border Terminal.

The multi-million dollar project envisages revamping the entire infrastructure including integrated administrative offices, widening roads, layout new angled vehicle parking, installation of multi-lane traffic lanes, erection of new pedestrian processing facilities along with new canopies and bridges.

Afghan Transit

Installation of new equipment, such as cargo X-ray scanning, vehicular weighbridges, scanning and detection equipment for multi-entry and exit pedestrian lane also form part of the project.

Also, new Information and Communication Technology (ICT) hardware and software will be installed as part of the transition to a Single Window System (SWS). In short, the project aims at providing and implementing all internationally recognized best practices in transition and handling of cargo and passengers at the border terminal.

Read more: Pak-Afghan Border Reopened: Alternatives for Pakistan?

Currently, transit goods are transported, from Karachi and Gwadar upcountry towards Afghanistan via Pakistan Railways and numerous individual private trucking companies in addition to NLC and are being monitored by different agencies.

What is needed is to assign the responsibility to one responsible entity that will manage the upload of goods from the port terminals ensure that they are electronically tagged and each container is electronically transferred and monitored from inception to its endpoint.

They have to be effectively sealed that does not allow for pilferages, while the container is on the route within Pakistan and when it crosses the border into Afghanistan, it cannot come back once the seal is broken.

Najma Minhas is Managing Editor, Global Village Space. She has worked with National Economic Research Associates (NERA) in New York, Lehman Brothers in London and Standard Chartered Bank in Pakistan. Before launching GVS, she worked as a consultant with World Bank, USAID and FES and is a regular participant of Salzburg Forum. Najma studied economics at London School of Economics and International Relations at Columbia University, NewYork. she tweets at @MinhasNajma.

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