Transit Trade in Transition: The Afghanistan-Pakistan Transit Trade Agreement and the Afghan Economy

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This report provides an overview of the Afghanistan-Pakistan Transit Trade Agreement (APTTA) and outlines its implications for the Afghan economy.
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    CIVIL-MILITARY FUSION CENTRE AFGHANISTAN IN TRANSITION November 2011Comprehensive Information on Complex Crises The Civil-Military Fusion Centre (CFC) is an information and knowledge management organisation focused on improving civil-militaryinteraction, facilitating information sharing and enhancing situational awareness through theCimicWebportal and our weekly and monthlypublications. CFC products are based upon and link to open-source information from a wide variety of organisations, research centres andmedia sources. However, the CFC does not endorse and cannot necessarily guarantee the accuracy or objectivity of these sources. CFC publications are independently produced by Knowledge Managers and do not reflect NATO or ISAF policies or positionsof any other organisation. Transit Trade in Transition:The APTTA & the Afghan Economy Steven A. Zyck Economic Development Knowledge Manager  This report highlights the relevance of the Afghanistan-Pakistan transit trade for development and its role in the ongoing transition in Afghanistan. The document also reviews the status of the Afghanistan-Pakistan Transit Trade Agreement (APTTA), which was intended to facilitate Afghan exports via Pakistan. Related information is available at  Hyperlinks to source material are highlighted in blue and underlined in the text.   ecent months have witnessed a renewed emphasis on commercial linkages between Afghanistan and thecountries of Central and South Asia. On 22 September 2011, representatives of the American, Germanand Afghan governments formally announced thelaunch of the New Silk Road initiative,which, according to Pajhwok Afghan News , is intended to bolster transport,energy and trade cooperation among Afghanistan and itsneighbours. As part of the New Silk Road, the Afghan andIndian governments signed a strategic agreement in October 2011 which is intended to strengthen commercial andsecurity ties, reports The Washington Post  . This agreement reportedly offers tremendous potential for economicgrowth in Afghanistan. India requires Afghanistan’s mineral resources to fuel its continued growth and presents amassive market for Afghan agriculture products. Expanded Indo-Afghan commerce could generate sorely-neededrevenues for the Afghan government asforeign aid declines and could promote stability by generating employment. However, transporting materials from Afghanistan to India requires a stable and predictable transittrade route across Pakistan. This issue  –  transit trade via Pakistan  –  is taken up in this report, which addresses thedevelopment and implementation of the Afghanistan-Pakistan Transit Trade Agreement(APTTA)from the perspective of economic growth and private-sector development in Afghanistan. R     Note: This report strictly concerns transit tradeissues between Afghanistan and Pakistan. It doesnot address the movement of materials for international forces in Afghanistan, which aregoverned by agreements other than the APTTA.  AFGHANISTAN IN TRANSITION // DEVELOPMENT & STATUS OF THE APTTA  November 2011 Page 2 Source: Adapted from  Hollows Foundation Map ,with information from UN-HABITAT Pakistan.  The APTTA was signed on18 July 2010 in Islamabad by the secretaries of commerce of Pakistan and Afghanistan in the presence of the Pakistani Prime Minister and the US Secretary of State, says the PakistanObserver  . According to the  Associated Press of Pakistan , the APTTA replaced anout-dated transit trade pact established in 1965. In short, it establishes a regulatory framework in which Afghan businesses will be able toexport goods easily through Pakistan to India, China and beyond via air and seaports. Under the agreement,Afghanistan will also be able to import goods with fewer delays and expenses via Pakistan. Similarly, Pakistanibusinesses will be able to export goods with greater ease, with regards to customs and paperwork, viaAfghanistan. Other key elements of the APTTA,which have been extracted and summarised from the full text of  the agreement, include the following:    Transit trade through Afghanistan and Pakistan must take place along pre-determined routes and only utilisingspecified ports and border crossings.    Afghanistan and Pakistan are obligated to ensure that suitable infrastructure and personnel are available atborder crossings.    While each country remains responsible for licensing transport operators (e.g., trucking firms) registered intheir territory, Afghanistan and Pakistan should seek to harmonise their standards and regulations in this area.    Transport operators from Afghanist an and Pakistan which receive a “temporary admission document” will beable to transport goods through the other country’s territory. That is, Afghan trucks may send carry goods via Pakistan to India rather than having to re-load them onto Pakistani trucks at the Afghanistan-Pakistan border,as had previously been the case.    The Afghan government shall recognise Pakistani driver ’ s licenses and vehicle registration documents, andvice versa. In addition, Pakistan and Afghanistan shall begin to harmonise the regulations and standards forinspecting and certifying trucks used in the transit trade.    The Afghan and Pakistani governments shall expedite and simplify the process for awarding multiple-entry visas to truck drivers from one another’s countries.      With the exception of selected items, goods transitingthrough Afghanistan and Pakistan shall be stored insealed containers which meet internationalspecifications.    Customs officials may inspect the contents of up to 5%containers at the point of entry into Afghanistan orPakistan and may not undertake additional inspectionsunless signs of regulatory violations are found.    The Afghanistan-Pakistan Transit Trade CoordinationAuthority (APTTCA), which is established under theAPTTA, is responsible for monitoring and facilitatingthe implementation of the agreement.The text of the agreement authorised a number of routes by which Afghan goods could transit via Pakistanen route toIndia or other international markets. These routes begin andend at the following ports and border crossings ( see Fig. 1 ):Peshawar-Torkham, Chaman-Spin Boldak, Ghulam Khan,Sost-Tashkurgan, Port Qasim, Karachi and Gwadar port. Itshould be noted that the APTTA concerns only trade      Chaman-Spin Boldak   Peshawar-Torkham  Wagah  Karachi & Port Qasim  Ghulam Khan Figure 1. Border Crossing/Ports in the APTTA      Gwadar   Sost-Tashkurgan  AFGHANISTAN IN TRANSITION // DEVELOPMENT & STATUS OF THE APTTA  November 2011 Page 3 through Afghanistan and Pakistan but not trade between Afghanistan and Pakistan, which is governed by separatetrade, border and customs regulations and agreements.  The Significance of the APTTA to Afghanistan According to a number of experts and international organisations, the successful implementation of the APTTA iscrucial to Afghanistan for a number of reasons. As the World Trade Organization(WTO)highlight, at least half of  Afghanistan’s exports  went either to or through Pakistan in 2010. In addition, the volume of Afghan exports toIndia is already high and likely to increase substantially in the coming years, as suggested by the recentIndo-Afghan strategic agreement.Between 2009 and 2010, for instance, the proportion of Afghan exports destined forIndia increased by 35.6%. However, in order to sustain such growth, trans-Pakistan trucking must be predicable, relatively cheap and fast , according to a 2009 report on “ Trade Promotion in Afghanistan ” . Air freight may allowsome high-value Afghan exports to bypass Pakistan and other neighbouring countries, but, as a report on“ MarketProspects ”in Afghanistan suggests , shipping agricultural goods via plane is not commercially viable given theprohibitively high costs involved. Figure 2. Afghanistan’s Annual Export Value (in USD Millions), by Trading Partner   Smooth and predictable exports and imports via Pakistan also appear to be important for Afghanistan’s most  promising and strategic industries: mining and agriculture. The US and Afghan governments have recently madeconcerted efforts to promote  Afghanistan’s mining sector  ,which The Guardian says could be decisive in movingthe country out of poverty. One2010 study of economic growth in Afghanistan , entitled “Afghanistan and the   $53.2$64.9$89.5$264.3$191.1$54.4$46.6$76.0$132.0$76.0$67.7$48.8$76.9$17.3$264.1$251.1$408.0$540.1$403.4 $0$100$200$300$400$500$600$700$800$900$1,00020052006200720082009 PakistanIndiaUnited StatesWorldwide Source:  International Trade Centre ,Trade Competitiveness Map, accessed October 2011  Note: Data for 2010 and 2011 or for years before 2005 is not available from this source. The “Worldwide” figure includes  Afghan exports to Pakistan, India and the United States.  AFGHANISTAN IN TRANSITION // DEVELOPMENT & STATUS OF THE APTTA  November 2011 Page 4 Search for a Sustainabl e Economy”, indicates that the mining sector could provide from USD 300 to USD 730million per year during initial exploration and development of mining infrastructure; subsequently the Afghangovernment could receive up to USD 1 billion in income annually. Former US Ambassador to AfghanistanZalmay Khalilzad wrote in Foreign Policy in October 2011 that “[a]s foreign aid dries up, Afghanistan willbecome increasingly dependent on mineral and energy development contracts to finance its reconstruction efforts and sustain its security forces .” Extraction would also produce a massive potential for employment which could stabilise Afghanistan, according to theWorld Bank .China first won the rights to the Aynak copper deposit in central Afghanistan in 2007, and a range of companies, primarily from India, are in the final bidding stages for theHajigak iron ore deposit,according to the  Indian Express newspaper. However, actual ore extraction has not yetbegun on a large scale in Afghanistan, and growth in this sector could be jeopardised if mining firms facedifficulties importing equipment into Afghanistan and, above all, in exporting the ore.The ability to export goods in a timely and predictable manner is particularly crucial for agricultural productsgiven their perishability. Last year, licit agricultural products accounted for more than half of the total value of Afghan exports,according to the WTO. International emphasis has recently been placed on enhancing theproduction, marketing and export of high-value agricultural products from Afghanistan, thus making this sectorpoised for growth in the short-to-mid-term. For instance,  MSNBC  notes that international and Afghan agencieshave promoted crops such aspomegranates and saffron as alternatives to poppies and as sources of future economic growth. The importance of Afghan agricultural exports to India  –  and other foreign nations  –  can beseen in the October 2011 establishment of the India Fresh Fruit Trade Office in Afghanistan, which was supported and highlighted by the United States Agency for International Development(USAID). This office builds upon large-scale purchases of Afghan fruits by Indian wholesalers in 2010, according to Tolo News . Concerns Regarding the APTTA While the APTTA is crucial to Afghanistan and to sectors such as mining and agriculture, in Pakistan theagreement encountered virulent opposition from within government and business community, says the PakistanObserver  and a variety of other Pakistani news outlets. As a US Department of Agriculture(USDA)report suggests, the APTTA would haveparticularly negative implications for the Pakistani National Logistics Cell (NLC ), a “Pakistani military run trucking and rail company” with a dominant role in commerci al transport. NLCtrucks and NLC-bonded trucks play a major role in Afghan imports and exports. Currently, the NLC transportsgoods into Afghanistan from relevant ports, particularly Karachi, to their final destination, and they pick upAfghan exports at the Afghanistan-Pakistan border and bring them to locations within Pakistan or to Pakistaniports. Under the APTTA, Afghan trucks and trucking firms are allowed to carry their loads to the Indo-Pakistaniborder or to Karachi for export further abroad, thus reducing the role and influence of the NLC. However,according to a 2007 report from a senior Afghan Ministry of Commerce and Industries(MoCI)official, loosening the grip of trucking cartels such as the NLC may play a major role in reducing transport costs for Afghanbusinesses seeking to export and import goods more economically via Pakistan. One representative of thePakistani private sector, in arguing against the APTTA, told The News   that Pakistan’s transport sector  could lose300,000 jobs if the transit trade agreement was implemented.Furthermore, Pakistani officials and the Pakistani private sector were also concerned that the APTTA would createadditional opportunities for smuggling goods into Pakistan, says the Pakistan Observer  . While the APTTA hasbeen specifically designed to prevent smuggling by enhancing the management of trade and customs data amongAfghan and Pakistani institutions, some still fear that simplifying transit trade regulations would also makesmuggling easier. The primary form of “smuggling”  between Afghanistan and Pakistan, according to The News International , does not involve the clandestine transport of goods across borders. Rather, smugglers takeadvantage of the fact that goods passing through Pakistan en route to Afghanistan are not charged any Pakistani
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