Saturday, October 3, 2015

Smuggling impact of APTTA

Majyd Aziz

Afghan Pakistan Transit Trade Agreement, a facilitation accorded by Pakistan to Afghanistan, is also a contentious issue. Pakistani industrialists are more concerned about APTTA than other stakeholders are. The misuse of the original APTA was widely reported and accepted by even the respective governments. Despite the inclusion of safeguards and presumed tightening of the monitoring process, the fact is that APTTA is still a matter of consternation for Pakistani manufacturers as well as importers. Moreover, since many safeguards have not been properly implemented, the unscrupulous traders dealing under the APTTA regime as well as the clearing agents, truckers, government officials and politicians have continued to take illegal, favorable and lucrative advantages of the facility.

The bare truth is that no independent or reliable study has been carried out to determine whether the quantity of the different products imported under APTTA are in conformity with the actual demand of the products or commodities. This is the highlighted fact. The excessive imports are made to misuse the facility and transfer the products and commodities for domestic Pakistani utilization and consumption.

The government usually gives lip service when there is hue and cry over the misuse of APTTA. These lead to high-level meetings and important decisions are given. However, most of these decisions fail to see the light of the day. The primary reason being the large monetary stakes involved in facilitating the supply chain. The issue is further compounded when this laxity is allowed because the political, diplomatic and security compulsions outweigh the ramifications of the APTTA.

Tea is a major item of concern. About 50% of Pakistan's requirement is met through the APTTA and this has been documented by Pakistan Tea Association on a regular basis. A visit to Peshawar or Chaman would immediately lend credibility to this tea business. Tyre and tubes for vehicles are another prime source of blatant smuggling. Again, no efforts are made to control the movement of these products. Electronic items are regularly imported under APTTA and most of these are destined for the Pakistani markets. Moreover, although they do not fall under the ambit of APTTA, cement, livestock, and wheat are openly smuggled into Afghanistan from Pakistan.

Afghanistan generally has an import duty of 5% on most of the imports. Furthermore, truckers and Pakistan Railways give preference to goods destined for Afghanistan. This has a negative impact on goods transport within Pakistan. Domestic customers of trucking industry and Pakistan Railways are compelled to pay a premium to book wagons or trucks for their needs. There is a perennial shortage of wagons and, at the same time, Pakistan needs nearly 100,000 more trucks to cater to local requirements and to ply on the Pakistan-Afghanistan route. This is a double whammy for Pakistani users since the transport cost becomes exorbitant and unfeasible. They are always dependent on the whims of the Railways officials or the truckers and thus corruption becomes the justifying factor whenever wagons are requisitioned. The goods and commodities under APTTA are charged duties at destination and when these goods are diverted either before crossing the border or even after entering the Afghanistan territory, the overall expenses are much lower than if officially imported into Pakistan.

The volume of smuggling is huge. The irony is that official exports to Afghanistan are reducing every year while informal trade has exhibited a marked increase. Individual truckers are buying cement from local market and transporting it into the depots inside Afghanistan, bypassing the manufacturers and intermediaries. This has led to a decrease in official exports of cement from Pakistan although locally, the sales have maintained a steady increase. At times, there is a wheat shortage in Pakistan but flour as well as wheat make their way across the border. The Pakistani consumer pays a higher price due to this artificially created shortage and loose controls at the border. If there were no increases in local production of vehicles, then most of the tyre manufacturers would have closed down or faced colossal losses due to the smuggling of tyres under the APTTA. Imported fabric is available in nearly every cloth market because it is cheaply brought in under APTTA. This has severely affected local production and, today, even most of the producers of lawn use imported fabrics for the Dupatta for their sets.

The dynamics of Afghanistan give impetus to reliance on smuggling and informal trade. Negative factors include corruption, the diversion of aid money into financing informal trade, weak financial controls, huge profits due to narcotics, and the subversion of money from natural resources being used to finance terrorism as well as enhancing informal trade. A case in point is the substantial smuggling of Chrome Ore that is channelized into Pakistan and exported, mostly, to China as Pakistani Chrome Ore. There are over 1000-1300 illegal mines in Afghanistan that are controlled by warlords, corrupt officials, and other non-state stakeholders. Another damaging example is narcotics. More than 35% of it is routed through Pakistan and this enables dishonest stakeholders to circulate the cash through procurement of products and commodities through the APTTA.

The Middle East, especially Dubai, is the focal point for money laundering, imports and exports under APTTA, and investment in real estate. These are used to finance products and commodities that are sent to Afghanistan or for Pakistan under APTTA and in this way, the informal traders and financiers rake in exorbitant profits as well as gaining influence and thus they can maneuver politicians and government officials and get political and official support for their activities. The parallel economy operates with impunity and all roadblocks in its way are removed or paved. Hawala and Hundi system are used openly and this paper financing come into the system because the profits are alluring. The amounts mentioned ranges from $50 to $100 billion and there is no end to it. Of course, since most of the transaction is in cash or non-banking paper, the terrorist and extremist organizations have also entered the game to finance their activities.

No illegal or informal activity can be supported without the connivance of the corrupt government officials. The manpower at the borders is actively involved in this racket and, it is said, the personnel pay a premium to obtain posting at the borders. The withdrawal of the ISAF Forces would result in heavy reduction of external assistance to Afghanistan. The country would need $15-17 billion every year for its expenses and development. However, the government is hard-pressed to source funds. Notwithstanding this factor, the government has not put into operation an Action Plan to reduce smuggling, narcotics, misuse of APTTA, or containing terrorism and extremism. This is basically due to the overarching influence of the warlords and people with access to the corridors of power.

The underlying concern is that the possibility of stagnant or gradual reduction of official imports and exports between both the countries would be prominent, and off-books availability of finance would continue to be the norm. Monitoring and control are technically in place but loopholes and lax action enable informal trade to flourish. Bringing sanity is an onerous task and, frankly speaking, governments in both countries lack the critical mass to enforce the laid down systems.

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