Afghan Transit Trade: A Dividend Or Drag On Pakistan’s Economy – OpEd

The significance of Pakistan as a transit route for Afghanistan is evident by the fact that major volume of imports to Afghanistan from countries with which it does not share a border, have been transiting through Pakistan. Islamabad and Kabul signed Afghanistan-Pakistan Transit Trade Agreement (APTTA) in February 2010 to ease the flow of transit trade between the two countries. It is observed that the Afghan transit trade via Pakistan has remained turbulent in the recent times, contrarily to the flourishing volumes being experienced a few decades back. The reasons of declining trend of Afghan transit trade through Pakistan include decrease in aggregate demand resulting from the withdrawal of NATO forces from Afghanistan; financial crisis and closure of a banking system after Afghan Taliban’s takeover; law and order situation; frequent closures of the Pakistan-Afghan border; rising custom tariffs; and diversion of Afghan trade to other neighbouring countries. Ultimately, Afghan traders have switched to Iran as an alternate avenue, replacing Pakistan.

The APTTA calls for various measures to counter smuggling of duty-free goods into both Pakistan and Afghanistan by mandating: tracking devices of goods; financial guarantees and special bonded carrier licenses for transit trucks; vehicular tracking systems; and container security deposits. The Afghanistan-Pakistan Transit Trade Coordination Authority (APTTCA) was created to coordinate the APTTA. The formal five-year term of the APTAA expired in 2015 and the countries have been negotiating a revision since then. Pakistan allowed the temporary extension of the APTTA for another six months beyond November 11, 2021 until Islamabad and Kabul conclude their ongoing discussions on the proposed amendments, suggestions and additions in the updated agreement. 

Implementation of the treaty has been inconsistent, with both sides complaining of continued barriers to trade. Pakistani officials have had concerns over the illegal or unauthorized trade. Therefore, they have placed three security layers under APTTA include insurance guarantees; bonded carriers, tracking devices. Afghan traders consider that these security layers are too tight measures to tackle the underlying problem. That is why, the first issue for them is that insurance guarantees, needed as customs security, equal to the leviable duties and taxes are required to release the goods.  

The Afghan traders consider that they are seriously suffering due to strict insurance guarantee requirement, which are excessively high and time consuming, ranging from Rs. 100,000 to Rs.150, 000 per carrier. Red-tapism and lengthy documentation requirements by the banks of both countries for issuance such guarantees are further delaying customs clearances. Besides, such insurance guarantees are not released even after the goods cross Samarkhhel (for Torkham Crossing Point) and Spin- Boldak (for Chaman Crossing Point) of Afghanistan and reached their destinations. The long delays in release of insurance guarantees significantly increase the transactions costs for Afghan traders.  

The second issue is that the goods have to be carried only through the bonded carriers under APTTA. The requirement has increased the transportation costs in the range of Rs 50,000 to 80,000 from Karachi to Jalalabad. The third issue is that tracking devices must be installed in the vehicles. The required truck-tracking systems have been implemented in Pakistan, while the Afghan side has yet to install such systems on their own trucks. In fact,Afghanistan has complained that anti-smuggling security measures agreed in the APTTA are restrictive, cost prohibitive. In the presence of the lengthy documentation process for goods in transit and insurance guarantees, the requirement for electronic devices complicates the process as well as further increase the cost. Hence, adding to problems of Afghan traders. 

Slow operations caused longer average border-crossing time, which is creating hurdles in the smooth functioning of Afghanistan transit goods. Average border-crossing time has been increased to 38.2 hours. The trucks get clearance to cross into Afghanistan after waiting for many days. The time to cross Chaman was 60.1 hours, ranked as the most time-consuming border crossing point; Peshawar took 45.8 hours, and ranked the third most time-consuming. Torkham border crossing was opened 24 hours a day from 2019 to promote Pakistan-Afghanistan bilateral and transit trades. The sudden and prolonged closure of border after a terrorist attack in Pakistan caused heavy financial losses to Afghan traders. Once the crossing point is closed, it takes weeks to re-open. 

Only the bonded carriers in Pakistan can work with Afghan truck operators, which drive up the cost of road freight transport as the bonded carriers are required to pay US$ 32,000 to the Federal Board of Revenue as a guarantee deposit to receive an operating license. These costs are then passed on through higher fees to the truck operators, ultimately reducing the attractiveness of the transit route. The diesel fuel in an alternative route like Iran is significantly less expensive than in Pakistan, providing an additional edge in terms of cost competitiveness. 

Afghanistan’s concern is that loading and unloading of containers, suspension of the transit trade under one or other pretext and the system for clearance of documentation at the Customs at Pakistani ports cause unnecessary delays, which have cost implications in the form of demurrage charges for Afghan traders. On the contrary, Afghan traders do not have to go through these troubles while transiting via Iran. There is a specific time period i.e. 12 days within which the trader has to receive the container from the firm, which has sold the goods. After the mentioned number of days, the company charges the trader US$ 60 per day. These charges then increase to US$ 80 per day and the fine increases after every 20 days. On the other hand, Pakistani government charges US$ 20 per day for each 40 feet container after 12 days, which is doubled after every 20 days. This not only increases time and cost but also has impact on the prices of goods imported to Afghanistan.  

Likewise, Pakistan also raised the transit issue in the vicinity of Afghanistan highlighting that when Pakistani trucks carrying goods for Central Asian States are unnecessarily stopped, then they have to pay demurrages knowing the fact that Pakistan trucks meant for exports to Central Asian states are to cross the territory of Afghanistan in 5 days, but trucks movement is made too slow by authorities in Afghanistan.

At the moment, Afghanistan can trade with India via Pakistan under APPTA. The Afghan trucks are allowed only up to Wagah and returned empty. Therefore, Afghan trucks have to charge for return journey as well, which increases transportation costs. Afghanistan wishes to have bilateral trade with India via the Wagah border while Pakistan’s principled position in this regard is that the trade corridor agreement between Islamabad and Kabul is not tripartite but bilateral due to which Pakistan cannot facilitate bilateral trade to Afghanistan via Wagah in view of often tense and strained relations with New Delhi. Even, neither Afghanistan has persuaded India to convince Pakistan for loading Indian goods on Afghan trucks nor India requested the same to Pakistan. India is rather reluctant to grant the permission for Pakistan’s transit trade to Nepal, Bhutan and Bangladesh.

Pakistan wants free trade with the CARs through Afghanistan. During President Ashraf Ghani’s government, the Pakistan government had been frustrated due to Afghanistan’s refusal to allow Pakistani goods access to Central Asian markets until Indian exports were granted reciprocal access to Afghan markets, directly contradicting Article 5 of the Agreement, which explicitly excludes Indian exports from the Agreement. However, after the return of Taliban in Kabul, Pakistan’s concern of not allowing the transit route to CARs seems to be largely addressed by the incumbent government in Kabul. In this regard, the first-ever consignment of trucks from Uzbekistan under a Convention on the International Transport of Goods for traffic-in-transit of goods across the border has reached Pakistan via the Torkham border. Besides, a similar consignment from Pakistan has already reached Uzbekistan via the Torkham border. 

Pakistan extends a transit facility in the form of Afghan Transit Trade to the landlocked Afghanistan, which has substantially declined during the last decade. Pakistan-Afghan Joint Chamber (PAJC) senior vice president, Zia-ul-Haq Sarhadi said that in the “last 10 years, 832,000 containers of Afghan transit trade worth US$ 33 billion passed through Pakistan, meaning a 30 per cent reduction in transit trade from 60 per cent in 2008 as it shifted to Iran.” In this context, India, Iran and Afghanistan signed a trilateral transit agreement in 2016. In its report on CAREC Corridor Performance Measurement and Monitoring (CPMM) 2019, the Asian Development Bank also stated that around 70 per cent of Afghan transit trade has been diverted through Iran due to lower costs, more attractive security deposit, and detention tariffs, as Pakistan is still facing severe challenge in reducing structural barriers for road transport that keep costs high. 

After the return of Taliban to Kabul, the bilateral trade between India and Afghanistan was affected because in these circumstances the future seems to be uncertain. However, after the brief discontinuity of transit trade from Iran, the first export cargo from Afghanistan to India is expected to ship through Iran’s Chabahar Port soon, a government press release from Iran quoted Husne Mubarak Azizi, the head of foreign affairs at Afghanistan’s Ministry of Transport. 

Keeping in view the hurdles and to boost the Afghan Transit Trade, the government of Pakistan has overhauled the existing Afghan Transit Trade regime for enhanced facilitation and reduction in dwell time: three major improvements have been made. The manual assessment of cargo has been replaced with human free automatic assessment, compulsory examination has been removed and submission of one time Revolving Insurance Guarantee in place of Goods Declaration (GD) wise insurance guarantee has been introduced vide SRO 1013(I)/2021 dated 5.8.2021. Additionally, Pakistan has removed 5 per cent levy for scanning empty containers and demurrages and detention charges.  

Afghan transit trade needs to be modernised with infrastructure for smooth functioning. Pakistan needs to substantially improve speed, reliability of logistics and border handling. Therefore, it needs to improve processing at border posts for reducing the cost of business. In this regard, number of scanners at border crossing should be increased in order to expedite goods handling. Banking contacts between the two countries remain under developed. There is a need to improve trade facilitation through streamlined payment settlements and improved insurance mechanisms, trade financing, and documentation.

The writer is a researcher at the Islamabad Policy Research Institute. He can be reached at [email protected]