Pak-Afghan Transit Trade Agreement-Drastic Corrective Actions To Combat Crucial Issues of Smuggling, Hoarding & Illegal Immigrants

The Afghanistan-Pakistan Transit Trade Agreement (APTTA) is a successor to the Afghanistan Transit Trade Agreement (ATTA) signed in 1965 between Pakistan and Afghanistan to facilitate the transit of goods exported from and imported to Afghanistan using the Pakistani port.   

The landmark Afghanistan-Pakistan Transit Trade Agreement (APTTA), a bilateral trade agreement was signed in October 2010 for facilitation of movement of goods between the two countries. The 2010 APTTA allows for both countries to use each other’s airports, railways, roads, and ports for transit trade along designated transit corridors. The agreement does not cover road transport vehicles from any third country, be it from India or any Central Asian country. The APTTA was for ten years which has been ended in 2020. However, the same was extended for three months before implementation of the new transit trade agreement.

Afghan Transit Trade has become a bone of contention between the two countries. Afghanistan complains unfounded accusations that Pakistan is a major obstacle to transit trade with frequent changes in rules. Pakistan on the other hand accuses Afghan traders of blatant misuse of the Afghan Transit Trade leading to rampant smuggling and the closure of domestic industry. Pakistan Business Council Study shows that Pakistan is still major transit route for Afghan imports accounting for 70 % of Afghanistan’s trade.  In July 2010, the MoU was signed between Pakistan and Afghanistan for Pak-Afghan Transit Trade Agreement (APTTA). Afghan trucks are to enter Pakistan via border crossings at Torkham, and Chaman to transit Afghan goods across Pakistani territory, and to import goods from Pakistani ports in Karachi and Gwadar.

The APTTA agreement allows Afghan trucks to transport exports to India via Pakistan up to the Wagah crossing point, but does not allow Afghanistan the right to import Indian goods across Pakistani territory. The Afghanistan-Pakistan Transit Trade Coordination Authority (APTTCA) was created to coordinate the Afghanistan–Pakistan legal Transit Trade Agreement, because its implementation had been inconsistent and much of the APTTA provisions remained unexploited due to tension on both sides. The required truck-tracking systems have been implemented in Pakistan, while the Afghan side has still not developed such system. Afghanistan does not provide Pakistan equal transit access to Central Asia for Pakistani trucks but demands Pakistan to include India as part of the 2010 Afghanistan–Pakistan Transit Trade Agreement.

Strengthening Of China-Pakistan Economic Corridor (CPEC) After Frustration From Behavior of Afghanistan

In April 2015, China and Pakistan agreed to construct various infrastructure projects worth approximately $46 billion under the China-Pakistan Economic Corridor, which is part of China’s proposed 21st century Silk Road project, which is currently under construction included with motorways and upgraded roads from the Pakistani coastal cities of Karachi and Gwadar and all the way to the Chinese border and onwards to Kashgar and Xinjiang province. From Kashgar, transport links to Kyrgyzstan and Kazakhstan have been upgraded, while seasonal road access

to Tajikistan is provided by the Pamir Highway. Upgrading of Pakistan’s roadway network is under way, and will allow Pakistan access to those states via China rather than Afghanistan by 2020.

Pakistan continued to be frustrated by Afghanistan’s refusal to allow Pakistani goods access to Central Asia until Afghan exports were granted reciprocal access to Indian markets. Owing to this frustration, and ongoing construction of roadway projects to China under CPEC in February 2016, Pakistan desired to avoid Afghanistan in its quest to access Central Asia thereby allowing the Central Asian republics to access Pakistan’s deep-water ports without having to rely on a politically unstable Afghanistan as a transit corridor.

Enough is enough; Time Has Come, Pakistan Must prohibit All Smuggling Prone Imports Through Afghan Transit Trade.

This is for the first time that Government of Pakistan has officially and categorically accepted that Afghan Transit Trade facilities are being misused by the connivance of businessmen from both sides.  There is an organized network of smugglers upon sides. Many Pakistani traders use anonymous (Benami) Afghans to import in the name of Afghanistan and use Hawala and Cash Purchase of USD for financing such imports. This badly causes constant unexpected burden on exchange rate in Pakistan.  These smuggled goods without any trail of purchase are placed in Pakistani markets and this is the vicious cycle of undocumented and beyond tax system from so called imports to ultimate consumption.   There is organized Network of Smugglers from Both Sides Who Abuse Afghan Transit Trade and therefore it is a challenging Task for Pakistan to eradicate the Network. The Federal Board of Revenue (FBR), and the Ministry of Commerce, in multiple notifications, have strictly tightened Pakistan’s policy stance on being a transit country of commercial imports to Afghanistan. The Ministry of Commerce by the means of SRO 1397(1) has banned various goods to be transited through Pakistan into Afghanistan. This includes various categories of Fabrics, Tyres, Black Tea, Vacuum Flask and Home Appliances, Toiletries, Cosmetics, and Nuts and Fruits. The banned items have been rendered “prone to smuggling” by the ministry of commerce. Moreover, on recommendation of the Ministry of Commerce,

  1. The Federal Government has imposed processing fee at the rate of 10% ad valorem on major categories of items include Confectionaries and Chocolates, Footwear, Machinery (Mechanical & Electrical), Blankets and Home Textiles and garments imported into Afghanistan via Pakistan.
  2. The requirement of resolving Insurance Guarantee for all Afghan Transit goods has to be substituted by FBR with Bank Guarantee @ 100 % of the assessed value.

Afghanistan is a landlocked country that does not have its own port and major trade of Afghanistan occurs through Afghan Transit Trade via Pakistan. The selling of transit goods inside the transit country Pakistan is considered illegal and under the ambit of smuggling. Due to low number of custom duties in Afghanistan, and a restriction on the import of certain items in Pakistan, businessmen from both countries get illegal benefit from the transit trade.     According to the Ministry of Commerce, the volume of Afghan Transit Trade increased by an abnormal amount of 67% during FY 2022-23 to US $ 6.71 billion from US $ 4.016 billion during FY 2021-22. The substantial increase in smuggling has not only caused loss of revenue for Pakistan but has made the measures of the government to curtail imports ineffective and our domestic industry has seriously injured.

Magnanimous Role of Army Chief and Pakistan Army To Eradicate Abuse of Afghan Transit Trade and Strengthening Economic Development of Pakistan.

The Army Chief General Asim Munir and Pakistan Army have contributed tremendous inputs in all such decisions to eradicate smuggling and trafficking of anonymous (Benami) imports in the name of Afghans and role of Apex Committee of Special Investment of Facilitation Council  (SIFC) under direct surveillance and scrutiny of the Army Chief is marvelous and upright. The decisions aim to deter smuggling and ensure pro­per taxation therefore the government has taken stern action to expel illegal immigrants, including 1.73 million Afghan nationals; to leave the country by 31st October 2023 failing strict action would be taken against them for immediate expulsion. All stakeholders are being taken on board. The other steps to crackdown against illegal and undocumented business by some Exchange Companies have also been initiated with full swing. The aforesaid actions are one of the important economic decisions which were delayed in the previous time for political expediency of respective past regimes and our GDP has suffered a lot due to abuse of Afghan Transit Trade.  On account of corrective decisions, it is expected that the size of the documented economy will increase by at least 5 % leading to strengthening of our foreign exchange market and ultimately to economic development and standard of living of people of Pakistan. The government has taken another most befitting action to disseminate General Public information and notices to transit drivers that any Loader/Vehicle whatever will cross Pakistan Border, the entry of its tyers and rims will be registered. If found that while entering into Afghanistan its rims were empty and tyers were old and on return its rims and tyers were changed with new ones, the strict action will be taken against concerned Loader/Vehicle under Custom Act and other relevant laws. The good news is that under strict surveillance and control of Pakistan Army and present civil regime, not only Consumer Price Index (CPI) and general inflation in Pakistan are tending to decrease day by day but other economic indicators and parameters of the country are also very pleasantly getting improved.  Now we are moving toward documented economy under Afghan Transit Trade.

Additional Recommendations Under Dire Need

The best of all developments is that Pakistan is taking all such corrective actions in a bona fide way not only to eradicate all criminal practices in business in the name of anonymous Afghans but to make the Afghan Transit Trade legal, transparent and documented. It is further highly objectionable for our country’s point of view that Pakistan receives transit fee in PKR instead of USD right from Karachi to Afghanistan, what benefit we are getting when Pakistan has scarcity of USD, therefore we must receive transit fee in USD instead of PKR. Furthermore we receive transportation cost in the form of PKR instead of USD against consumption of our own fueling for transportation, so we must receive transport expenditures in USD and not in PKR.    Therefore Pakistan needs to bring about drastic measures to receive USD instead of PKR against rendering of transaction services like transit fee, transportation costs and all other services rendered through Afghan Transit Trade about. The action against illegal Exchange Companies is also yielding good results and strengthening Pakistani Rupee. It will efficiently facilitate Pakistan to strengthen its reserves of foreign exchange and documented economy.