Majyd Aziz
(Former President Karachi Chamber of Commerce and Industry)
Presentation at the Panel Discussion on “Pakistan’s Relations with Regional Countries (Afghanistan, Iran, and CARs)” At National Institute of Management, Karachi, July 02-2012
Preamble:
PAKISTAN and Afghanistan are two neighbors that have a lot in common. Although a 2600 km border separates the two nations, they have common cultural values, traditions, religion, and even civilization. Notwithstanding a blow hot, blow cold bilateral relationship, the mutual ties have a distinct flavor blossoming with history, language and ethnicity.
PAKISTAN, inspite of its own economic difficulties, provided shelter to millions of Afghans and the Pakistani people welcomed them with warm hearts into their towns and villages.
Islamabad opened up its Treasury to the tune of over $400 million per year to sustain, feed, and maintain the refugees who migrated from their ancestral homes. Pakistan allowed them to work, to conduct business, and to study enabling them to contribute to their welfare through hard work and business acumen. Many prosperous Afghan businessmen of today belong to the families of the refugees, a fact accepted by most of the Afghanis.
PAKISTAN has witnessed and also felt the tremors of the turmoil that Afghanistan is facing for more than three decades and even though there are indications from Washington that over 130,000 NATO troops would withdraw in 2013, the prognosis for peace is bleak. The withdrawal of foreign troops may provide impetus to the Taliban to fight for supremacy and that may ignite the fires of civil war enveloping Pakistan again in its flames.
PAKISTAN also facilitates the landlocked neighbor through the Afghanistan Pakistan Transit Trade Agreement. Two landmark agreements, signed in 1965 and 2010, enabled both countries to channelize trade in a systematic mode and thus ensuring uninterrupted transit of goods even when political manifestations or national security dynamics overwhelmed the bilateral relations. Afghanistan has access to three overland routes to facilitate foreign trade, through Pakistan, Iran and Central Asian Republics, but the economics work out favorably through the Pakistani route. Right now, the United Nations trade embargo on Iran precludes using the Chabahar Port in Iran which is 1700 km from Herat. The Northern route is expensive as NATO/ISAF forces have experienced after the suspension of the Ground Lines of Communication (GLOC) by Pakistan. The US Secretary of Defense recently disclosed that it is costing the coalition forces over $100 million per month due to this decision.
The Trade Scenario:
The extent of trade between Pakistan and Afghanistan largely depends on the nature of diplomatic or militaristic situation at a given time. Over the past decades, official trade was not much in value as Pakistani goods did not have a large market in Afghanistan while Iranian goods were more available and were more in demand. However momentum picked up from the year 2000 and bilateral trade went up from $170 million in 2000-01 to $2,860 million in 2011 with Pakistan exporting $2,660 million and importing $200 million.
The trade figures do not reflect the actual volume of trade taking place between the two nations. There is rampant smuggling, there is the concentrated undocumented trade, and there is the perennial misuse of the APTTA. Although a lot of items from Pakistan make their way into the Afghan market, the main emphasis is on mineral fuel, oil, cement, rice, cereals, and vegetables. From Afghanistan, the imports are mostly iron and steel, minerals, and cotton.
The heavy rush of cargo trucks moving containers under APTTA or for NATO/ISAF plus the official exports has enabled massive undocumented trade to take place. Although GLOC is suspended since November 2011 after the Salala incident, the movement of cargo under the other two sectors continues and thrives. The official exports of cement are around $225 million but these figures do not reflect the actual value and tonnage of cement being imported into Afghanistan. It is estimated that cement of the value in excess of $100 million is transported across the border by the truckers who have direct access to distributors or retailers of cement. In this manner, the official channels are circumvented and the Afghan importers are able to obtain cement cheaper.
The porous borders and the contrivance of Customs authorities and law-enforcing agencies have also facilitated the unscrupulous traders to indulge in the smuggling of livestock, wheat, and other commodities. This has affected the availability and prices of these items in Pakistan. The official imports from Afghanistan also do not indicate the actual value of coal, chrome ore, iron ore, and other such minerals. In Pakistan, the demand for Afghan coal is increasing on a daily basis since industries in Punjab are facing shortage of gas. At the same time, chrome ore and iron ore, to name a few, compete with the mining output of these minerals in Pakistan and thus Pakistani exporters are able to enhance their share in the global minerals market. Afghanistan has more than 10% share in the chrome ore exported from Pakistan whereas share of Balochistan and KPK are 55% and 35%.
The signing of APTTA in 2010 and the decision to allow Afghan goods for India through land route, without any financial security, has bolstered more Pak-Afghan trade. The reconstruction and rehabilitation of Afghanistan inspite of being in a war zone has also increased the demand for Pakistani goods and commodities. Pakistan has also provided a credit limit of $100 million that needs to be enhanced in the future. Both countries have also agreed to reduce the amount of bank guarantee as it will facilitate smaller importers and exporters from Afghanistan. At the same time, Pakistan’s exports to Central Asian Republics through land route in Afghanistan will also be exempted from any financial security or guarantee. The Pakistani Customs authorities have lately been vigilant in controlling the movement of containers destined for Afghanistan with the result that some of the illegal trade has been diverted to official channels thus increasing revenue for the government and also impacting positively on the sales of domestic producers. The government has also agreed to encourage the use of Pakistan Railways for transportation of goods destined for Afghanistan. In this connection, efforts are underway to provide more engines and wagons for this sector.
The Roadblocks:
Pakistan and Afghanistan have managed to survive the violence, hostility, and terrorism that has led to the Global War on Terror, with Pakistan being the frontline state in this war. The presence of 130,000 NATO troops led by the United States in Afghanistan, the drone attacks, the shoot-out in Abbottabad, the escalation of militancy on Pakistan’s side of the Durand Line, the Salala incident, the hawkish statements oozing out of Pentagon and Foggy Bottom, the belligerent environment at Capitol Hill, the non-reimbursement of the Coalition Support Fund, the vocal accusations, blames and bashing of Pakistan’s premier intelligence organization, the loss of 36,000 civilians and 4,000 Army personnel, the financial drain of over $70 billion fighting the war, and the oft-repeated mantra of Do More have disastrously affected Pakistan’s economic, diplomatic, and social sectors.
The suspension of GLOC has seriously provoked Washington and it is to the credit of Pakistani government that it has been able to withstand international pressure for the last eight months. The hardliners in Pakistan have vowed to block any efforts by the government to open GLOC and this is manifested in the inability of the coalition government to succumb to the demands to allow containers destined for NATO/ISAF forces to cross the border. The impasse has to be broken soon, and it mainly depends on how the United States drafts the wording of apology to the people of Pakistan for the Salala massacre. The NATO Summit in Chicago in May where President Asif Ali Zardari was a list minute invitee and where there was optimism that finally Pakistan would reopen the GLOC did not get the response sought from Pakistan. Even the Chicago Summit Declaration on Afghanistan does not mention any reference to Pakistan. President Obama too conveniently forgot to thank Pakistan for help in getting supplies into Pakistan. Although the NATO Secretary General categorically acknowledged that the problems in Afghanistan cannot be solved without a positive engagement of Pakistan, only time would tell whether the Chicago Summit was in the larger national interest of Pakistan.
The situation in the region is further compounded by the USA-Iranian imbroglio. The United Nations embargo has further complicated matters for Afghanistan. The Afghan traders as well as NATO forces were keen to utilize Iran’s Chabahar port for shipments and trade. The Chabahar port has been financed by Indian government to maintain Iranian and Indian influence in Afghanistan after US forces leave Afghanistan in 2014. The second purpose, of course, is to counter the expected influence of the Gwadar port. Inspite of the embargo, the United States has granted waivers to seven countries for procuring oil from Iran. US Secretary of State, Hillary Clinton, in a statement on June 11, stated, “Today I have made the determination that seven economies—India, Malaysia, Republic of Korea, South Africa, Sri Lanka, Turkey and Taiwan--have all significantly reduced their volume of crude oil purchases from Iran. They join the 11 countries for which I made this determination in March. As a result, I will report to the Congress that sanctions will not apply to their financial institutions for a potentially renewable period of 180 days.” Ironically, Afghanistan has been excluded from this waiver. The other eleven countries are Japan and ten EU countries. Although China has not received the waiver, Beijing has tacitly ignored the economic sanctions and continues to receive Iranian oil, albeit clandestinely. The waiver is also a dangerous signal for Pakistan. This recent Washington action could dampen the hopes of Islamabad that the Iran Pakistan Gas Pipeline would be a reality soon. Moreover, the prolonged suspension of GLOC has intensified concerns that Pakistan could be slapped with economic sanctions that would be disastrous and catastrophic.
A thorny issue that has muddied the waters is the Indian influence, politically, culturally, economically, and financially, over Afghanistan. The financing and construction of the Chabahar Port and the highway from the Port to Jalalabad in Afghanistan are alarming issues. The other sore point is the number of Indian “Consulates” in Afghanistan. Officially, there are 14 “Consulates” in Afghanistan and there are intelligence reports that these are primarily used for non-consular affairs which are a source of consternation for Pakistan, especially in the domain of national security. The acceptance by Pakistan to allow land route for Afghan goods to India through Wagah is another case of Indian influence, although it was the United States that prodded Islamabad to grant this facility.
The official Afghan-India bilateral trade figures of less than $200 million do not reflect the true scope of trade activities between both the countries. In October 2011, India and Afghanistan signed the Strategic Partnership Agreement that has three significant provisions. First point is the training, mentoring, and even assisting in the equipping of the Afghan National Security Forces both in India as well as in Afghanistan. Second point is providing economic aid and assistance to the tune of an additional $500 million on top of the $1 billion India has already spent since 2002. India and Afghanistan will cooperate in the development of mining and energy production. Kabul has awarded India mining rights for the country’s biggest iron deposits. Afghanistan expects $15 billion in foreign investment over 30 years in mining and energy with over $10 billion from India. An Indian investment consortium is negotiating the building of Afghanistan’s first steel mill costing $ 8 billion plus a power plant and facilities for ore extraction and processing. Third point is to establish a strategic dialogue to provide a framework for cooperation in the area of national security. This seems to be primarily Pakistan-specific.
The noteworthy remark made by Indian Prime Minister Manmohan Singh that “India will stand by the people of Afghanistan as they prepare to assume the responsibility for their governance and security after the withdrawal of international forces in 2014” also reveals the thinking in New Delhi that after the withdrawal of the Coalition force, it is imperative that India becomes the driving power in the region. One consolation for Pakistan is that the Afghanistan-China cooperation would provide tough competition to India in the area of economic influence. This, of course, does not bode well for Washington.
The APTTA is a volatile as well as a sensitive issue. Although the agreement is really Pakistan’s obligation as a neighbor and is in reality a credit to Pakistan, the unfortunate position is that this agreement has been blatantly misused, violated and corrupted. The agreement has always been detrimental to many of the industries in Pakistan and the main reason has been the blatant laxity demonstrated by those who are responsible for honest clearance and monitoring of the transit cargo. The 1965 APTTA had many loopholes and these became the base for dishonesty and deceit. The 2010 APTTA has endeavored to address most of the flaws in the previous agreement but Pakistani industrialists still view APTTA with suspicion and distrust.
APTTA is estimated to be the source of more than 70% of the smuggled goods that enter Pakistan. A conservative figure of total smuggling, without considering under-invoicing and mis-declaration, is in excess of $5 billion per annum. Tea is a case in point. Pakistanis drink over 230 million kg tea every year. The official tea imports are about 130 million kg while over 100 million kg is smuggled in from Afghanistan, and to some extent from Iran. It is a fact that Afghanis prefer green tea and genuine Afghani importers do import green tea for domestic consumption. The APTTA channel is conveniently used to import black tea that makes its way to Pakistan. In the month of May 2012, Pakistani ports received 28 consignments under APTTA from seven countries totaling 4921 metric tonnes. This included tea from India, China and Dubai too. This exhibits the quantity of tea imports purportedly for Afghanistan but in practice meant for the Pakistani consumer.
The misuse of APTTA results in revenue loss of around $3 billion annually in taxes, duties, and other levies. Pakistan’s road infrastructure is also greatly damaged due to overuse of trucks destined for Afghanistan. Moreover, APTTA is responsible for inculcating a massive corruption culture not only at the Customs stage but also in Pakistan Railways as well as at the border. The Afghan traders have also agitated strongly against a Pakistani decision taken in 1996 and 2000 to establish a negative list of items that would not be covered under APTTA.
The intensity of the misuse of APTTA can also be gauged from the fact that a large number of containers destined for Afghanistan go missing after clearance from the two ports of Karachi. So much so, even containers for NATO/ISAF lose their way and never cross the Durand Line. According to FBR official data, a total of 157,736 containers of United States destined for Afghanistan before the Salala incident of November 26, 2011 never reached there and disappeared inside Pakistan. Even Pakistan’s Customs does not have any record of 77,884 containers from the above missing figures. Pakistan’s Treasury lost over Rs 55 billion in revenue due to this chicanery.
It is also disheartening to note that inspite of the facilities provided by Pakistan, the Afghan authorities resort to Non Trade Barriers and discriminatory treatment of goods imported from Pakistan. Afghan Customs levy Rs 50,000 per container for imports from China and India but charge Rs 270,000 for each container imported from Pakistan. The discrimination is also prominent in exports of crockery items and motorcycles by Pakistan.
There is also this rule that only National Logistics Cell is authorized to transport transit goods by land route. Since NLC does not have a large number of vehicles, it sub contracts the transportation to private truck owners and charges a hefty frontloading percentage from the importers. Moreover, transit goods cannot be transported in open trailers due to the fear of pilferage and other reasons. Under APTTA this practice would be discontinued and the licensed and authorized private sector trucking companies will be allowed to undertake the transportation directly. Under NLC procedures, the transit cargo is first unloaded at the NLC warehouse at Amangarh in KPK and then sent across the border. Unfortunately, this storage area is incapable of providing ample space for unloading and storage resulting in long and time-consuming queues of the vehicles.
The APTTA 2010 envisages some laudable steps to regulate the trade under APTTA. The key steps to be taken include sealing of containerized cargo, tracking and checking of the containers thru biometric devises and satellite, scanning of containers, extensive monitoring by Customs authorities, forbidding partial shipments, and transporting only through Customs licensed bonded carriers. There is this hope that misuse would be minimized to a large extent and that reciprocity would be shown by the Afghan government in removing all discriminatory barriers and levies.
Role of Business Community:
Pakistani and Afghani business community must play a dominant role in furthering the bilateral relations between the two countries. Whether it is the issue of GWOT or GLOC or APTTA or even the sometimes tense relationship at the political level, the fact is that each and every issue impacts on businessmen and industrialists in both countries. There is a need to jointly form pressure groups to convey the apprehensions and concerns to the political leadership in Kabul and Islamabad.
One such initiative has been undertaken by businessmen from both the countries. On March 13, 2012, the Pakistan Afghanistan Joint Chamber of Commerce and Industry was established. PAJCCI is strongly supported by the Afghanistan Chambers of Commerce and Industries (ACCI) and three Chambers of Pakistan with the support of governments of the two countries in an attempt to boost trade, commerce and investment. The three Pakistani Chambers are Karachi Chamber of Commerce and Industry (KCCI), Khyber-Pakhtunkhwa Chamber of Commerce and Industry (KPCCI) and Chaman Chamber of Commerce and Industry (CCCI).
The obvious drawback in the setting up of PAJCCI has been the opposition of Federation of Pakistan Chambers of Commerce and Industry (FPCCI) who deem the initiative should be under its umbrella and patronage instead of three Pakistani Chambers undertaking this venture. The Mardan Chamber of Commerce and Industry is agitating its exclusion and has formally appealed to FPCCI to take measures against the formation of PAJCCI. However, the Joint Chamber is within the ambit of APTTA and is being financed initially by the British High Commission through the Center for International Private Enterprise, an organization under US Chamber of Commerce.
A pragmatic step taken with the support of USAID has been the formation of the Talc Association with 250 members in Jalalabad. Over 200 truckloads of unprocessed talc are daily exported to Pakistan. In 2010, the annual quantity was 80,000 metric tonnes and it is estimated that the figure would cross 100,000 metric tonnes in 2013. There are more than 50 quarries in the area and the Association is also planning to attract other international markets too. This is one area where Pakistanis can invest in joint ventures and set up more processing plants in Pakistan.
It is also proposed that an Annual Joint Dialogue mechanism be developed with meetings alternating between the two countries. The format should be business-to-business and business-to-government so that everyone is on the same page. Moreover, there is a need to enhance trade and investment delegations and also to regularly organize single country exhibitions in major cities in both the countries.
Pakistani universities and institutes should have a business student exchange program under which the Afghani students are provided education in modern business methods and dynamics. PAJCCI can establish an endowment fund that could sponsor students desiring business degrees. Preston University has nearly 300 Afghani students pursuing BBA degrees at its various campuses. In the last three decades, more than 28,000 Afghans have graduated from Pakistani universities in various disciplines. 30 students have completed their Doctorate degree from Pakistani universities too.
Conclusion:
Pakistan and Afghanistan have to look towards the future. The two countries cannot isolate one another nor can they can remove themselves from the ground realities. Peace can only be ushered through mutual cooperation and trust. The antagonizing statements emanating out of the government corridors or from military barracks must be toned down considerably so that terrorism, extremism, suicide attacks, deaths, and losses are controlled. Both countries have to jointly work to achieve the objectives. Peace is possible and peace is imperative. The barricade is the lack of mutual trust and more reliance on external forces and ideas instead of each other. The business community can be the game changer in ensuring that the powers that be really smoke and relish the peace pipe. The countdown must begin, now.
