Afghan transit trade

For all the talk of Pak-Afghan brotherly relations touted by Pakistani businessmen and policymakers, actual trade relations somehow did not exactly reflect the same warmth in recent years.
There is no doubt that total bilateral trade has been increasing from $0.83 billion in FY07 to more than $2 billion at present. But, the eyebrow raising factor is the two consecutive year-on-year decline in total trade, from $2.51 billion in FY11 to an estimated $2.38 billion in FY13.
A recent business perception survey report published by the Pak-Afghan Joint Chamber of Commerce and Industry (PAJCCI) says that the fall is rather intriguing when in fact Afghanistan’s total annual imports have been on the rise.
Two possible reasons are being cited for this recent decline in trade, which is predominately in Pakistan’s favour. One is the possible rise in informal trade, implied from the leakages and weakness in Afghani customs and other administration. The other is the rise in Iranian exports to Afghanistan, which is believed to chipping away the share of Pakistani export to Afghanistan.
The decline in bilateral trade, however, isn’t as worrying as the fall in Afghan transit trade via Pakistan. PAJCCI’s report highlights that Afghan transit trade via Pakistan has gone down significantly on account of what is being called ‘security overkill’. The interesting bit is that the reported shift in Afghan transit from Pakistan to Iran comes despite the obvious cost advantages that Pakistan has over Iran.
In terms of official costs and number of days to process cargo, Pakistan is at least 50 percent more efficient and effective compared to Iran. However, the report says that unofficial and under-the-table costs and ‘unnecessary delays’ by Pakistani customs are forcing Afghani traders to transit their cargoes via Iran.
At the launching conference of PAJCCI’s recent report in Kabul, Afghanistan’s Deputy Minister of Commerce and Industries Mozamil Shinwari said five types of guarantees have been imposed on Afghan transit that have negatively affected transit trade. He asserted Pakistani government should choose and stick to one.
The conference titled ‘Pakistan Afghanistan Bilateral and Transit Trade Economic Cooperation’ also discussed other matters of mutual interest such as cross-border smuggling and prospects of investments by Pakistanis in Afghanistan. However, little progress was made in either case.
Ali Salman, Executive Director of Pakistani think tank called Prime, says talks on how to curb smuggling remained inconclusive. “The key policy stick that Pakistan was depending upon was to persuade Afghan counterparts to increase tariffs to which the Afghan side had not agreed,” said Salman who attended the conference in Kabul as the lead consultant for PAJCCI’s recent Pak-Afghan business perception report. The Afghan side, however, disagrees with the idea of increasing import tariffs on their end.
PAJCCI’s report says while there are no taxes on Afghan goods in transit, there is a series of taxes imposed on the same goods imported in Pakistan.
“Those taxes have a cascading effect of up to 35-40 percent on product to product basis. This differential creates an incentive for Pakistani traders to join hands with Afghan traders to import the goods under Afghan transit, transport them across the Pak-Afghan border, and then smuggle them back into Pakistan,” says the report.
Despite an apparent lack of preparation and success on that front, however, the Pakistan side did manage to get a few successes. These included getting the Afghani approval to issue six-month multiple visas to Pakistani businessmen and the abolishing of fees of $100/container charged by Afghanistan on Pakistan exports to Central Asian States.
Reflecting on Shinwari’s comment on the need to revisit certain areas of the Afghanistan Pakistan Transit Trade Agreement, Salman asserted that Pakistan and Afghanistan need to learn from the transit agreement between Nepal and India, where there is tariff parity as importers in Nepal pay the same import duty on goods as paid by Indian importers. Perhaps PAJCCI and policymakers on both sides of the border would like to a take a leaf or two from that.