The Asian Development Bank (ADB) has pointed out major impediments that are detrimental to Pakistan's competitiveness in cross-border trade, ie, time taken to clear border-crossing point, transportation cost and cost incurred at border clearance.
The ADB in its latest report titled "CAREC Corridor Performance Measurement and Monitoring Annual Report 2018" has recommended reducing container dwell time in seaports. The long container dwell time at ports of Gwadar, Karachi and Qasim should be shortened to avoid losing competitiveness to nearby seaports such as Chabahar.
Average border-crossing times at border-crossing point (BCPs) with Afghanistan (Chaman and Peshawar) remained lengthy, but reverted to pre-2017 trends and showed improvement. Corridor Performance Measurement and Monitoring (CPMM) data for 2018 identified major inefficiencies, including a long dwell time at Karachi seaport, long delays at BCPs due to customs clearance, and relatively high transport costs.
The report has recommended including private sector stakeholders in development of the National Transport Policy for Pakistan. Domestic carriers, fleet operators, stevedores, integrated logistics service providers, and freight forwarders should be included as active stakeholders in this process to capture a comprehensive private sector perspective.
It further recommended initiating a truck renewal program. The road sector is dominant in Pakistan and road freight costs are high, leading to perennial problems of lack of access to capital and the trucking industry's low profitability.
Despite the Ministry of Commerce recognizing in 2005 that freight and logistics is an industry, little benefit accrued to industry players, including access to low-interest financing enjoyed by other recognized industries. Domestic truckers also compete on price and resort to overloading because of very thin profit margins. As a result, truckers are unwilling or unable to renew and modernize their fleets: policy-level examination of financing options and competition issues could address this problem.
The ADB further recommended reducing container dwell time in seaports. Seaports are Pakistan's main gateway to integrate into global trade, with the ports of Gwadar, Karachi and Qasim playing very important roles. Seaports also have a systematic impact on the time and cost of shipments, and addressing seaport-related issues could yield significant and immediate benefits. The long container dwell time estimated by the 2018 CPMM should be shortened to avoid losing competitiveness to nearby seaports such as Chabahar.
The CPMM samples for 2018 showed that customs procedures in the Karachi seaport took 4-5 days, affecting throughput and resulting in long dwell time, as well as creating other problems such as demurrage.
The ADB recommended examining the potential to increase Central Asian countries' international transit through seaports. The CPMM observed that transit trade occurred mainly through the Iran-Turkmenistan-Uzbekistan route, where goods then moved to Kazakhstan, the Kyrgyz Republic, and Tajikistan. However, there were no 2018 CPMM samples of similar movements across Karachi seaport. Policymakers should consider formalizing regional and international agreements, such as the Afghanistan-Pakistan Transit Trade Agreement (APTTA), the Quadrilateral Agreement on Transit Trade, and completing accession to international conventions such as the Contract for the International Carriage of Goods by road.
Current shipment of agricultural products from Pakistan to Tajikistan is cumbersome, requiring different trucks in Afghanistan, Pakistan and Tajikistan due to a lack of transit agreements among the countries. It is also important to develop PRC-Tajikistan-Afghanistan trade routes, which will facilitate transit from East Asia to South Asia.
Over time, Uzbekistan could increasingly attract trade and transit, such as shipments from Afghanistan and Pakistan to Kazakhstan, which may, in turn, lead to trade diversion from sub-corridors. Policies and strategies to improve the competitiveness of sub-corridor should be considered.
The report stated that Afghanistan with its main transit trade gateways through BCPs with Pakistan still facing serious delays. Afghanistan is diversifying its trade routes. Border crossing at the Torkham and Spin Buldak BCPs, despite showing improvement compared to 2017, remains time-consuming and costly.
The report stated that Corridor 5 connects the PRC to the ports of Pakistan, traversing Afghanistan, the Kyrgyz Republic, and Tajikistan. A corridor of strategic potential for connecting East Asia, Central Asia, and South Asia, progress is difficult due to geopolitical tensions, high altitude, and underdeveloped infrastructure. All three sub-corridors move in north-south orientation and link to blue water seaports in Pakistan (Karachi and Gwadar).
Corridor 5 proved a time-consuming and costly passageway for cross-border transit. One main problem was that Afghanistan and Pakistan restricted access of each other's trucks, partly due to the stalled Afghanistan-Pakistan Transit Trade Agreement 2010, which lapsed after 2015. In addition, Afghan and Pakistani trucks could not easily enter Central Asian republics due to security concerns and the lack of harmonized vehicle and transit trade practices - factors which ultimately necessitated a change of trucks at the borders. The long dwell time of containers at Karachi seaport is also pertinent to these delays: shipments from Karachi to Jalalabad averaged 10-14 days, with half of this time spent in Karachi seaports due to complicated customs clearance and port congestion.
Afghanistan has traditionally relied on Pakistan for imports and exports, using Karachi as the main gateway. However, there are two problems with this approach: containers are not cleared quickly and typically take 5-7 days to complete customs controls, and border crossing at Peshawar-Torkham (PAK-AFG) and Chaman-Spin Buldak (PAK-AFG) is time consuming and costly. Afghanistan has been actively diversifying trade routes such as via Chabahar, Iran to move goods to India.
Afghanistan is developing new transit corridors quickly. Traditionally, Pakistan has been the largest trading partner and transit country, where imports are moved from Karachi into Afghanistan, and exports in the opposite direction. In recent years, however, Afghanistan has diversified its traded goods into alternative routes as a consequence of the stalled Afghanistan-Pakistan Transit Trade Agreement (APTTA) 2010, which lapsed in 2015 after 5 years' validity.
The APTTA states that either party has the right to renegotiate terms every 5 years, yet the administrations could not find agreement on such terms after 2015. This affected the transit routes in both countries, compelling Afghanistan to divert trade using other corridors.
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