Pakistan was the first choice of landlocked Afghanistan for its transit trade, but it has lost that position to Iran. The high cost of handling charges at Pakistani ports and for onward transportation of transit goods to Afghanistan has induced Kabul to turn to Iran.
Consequently, Pakistan has lost its share in Afghan transit trade as imports counted in terms of containers declined by more than 50pc in the last few years; going down from 75,288 in 2009-10 to 36,274 in 2013-14.
Contrary to this, the flow of Afghan commercial containers via Iran recorded at 30,182 in 2008-09 jumped to an all-time high of around 80,000 in 2013-14. The decrease in traffic through Pakistan during these years indicates diversion of transit cargo to Iran.
This is owing to three main factors: the revision of Pak-Afghan transit treaty in 2010 with stringent regulatory conditions, high cost of transit handling charges, and a general negative approach to the transit trade.
On the other hand, Iran took several facilitation measures to attract Afghani importers to use its ports for transit cargo.
Pakistan revised its transit treaty with Afghanistan effective from June 13, 2011. This agreement increased the cost of doing business. The transportation cost rose in the range of Rs50,000 to Rs80, 000 from Karachi to Jalalabad because of the requirement of transportation through bonded carriers.
Similarly, the condition of furnishing an insurance guarantee equal to the amount of leviable duty/taxes also raised the cost of business, as insurance companies are charging a premium of 0.5-0.7pc of the amount. No such conditions are in place in the Iran-Afghan transit trade agreement.
The government recently took some positive steps, like introducing electronic data interchanges by this month, which will help document, regulate and reduce the cost of cargo processing
Afghanistan and Iran signed their first transit trade agreement in 1973, which was revised in 2005 to expand its scope. These agreements cover duty-free transit goods and the re-exporting of transit goods to third countries via the Bandar Abbas port. In February 2013, Iran and Afghanistan signed another agreement to facilitate road transportation and transit of goods.
A trilateral transit trade agreement via Chabahar port has also been recently finalized between Afghanistan, Iran and India. Meanwhile, Pakistan revised the treaty to discourage transit cargo.
On the Pakistani side, the requisite infrastructure to handle Afghan cargo has also been deteriorating. Iran has constructed 1,800km of new rail tracks and upgraded its existing road and rail links to cater to the transit trade traffic with Afghanistan and Central Asian countries. It is currently pursuing new rail links to Herat (Afghanistan) and Turkmenistan.
Pakistan has yet to ratify a convention on Transport Internationaux Routiers (TIR) or International Road Transport, which allows the establishment of an international transit system, providing maximum facility to move transit goods. Iran had ratified this agreement in 1984. The leviable duty/taxes on transit goods are covered through the TIR carnet, which also ensures the security of transportation. This eliminates the need for the current requirement of insurance guarantees.
Pakistan can, no doubt, offer a shorter route as compared to Iran, but the various charges for the Afghan transit cargo are about twice as high as compared to those for domestic cargo. The port-handling and other charges at Karachi for Afghan importers is around Rs29,174 per container, while the same for Pakistanis is Rs14,268.
There is a political and economic side to the transit trade cargo as well. It imparts some leverage to Islamabad in dealing with Kabul. The emergence of new two routes — through Bandar Abbas and Chabahar — for Afghan cargo enables Kabul to reduce its reliance on Pakistan for trade with the rest of the world.
Owing to a negative perception about transit trade, policymakers tend to ignore its contribution to diverse economic activities, including clearing and shipping services, unloading, trucking, transportation and other allied services.
According to customs estimates, 40,000-50,000 containers, on average, move from Pakistan to Afghanistan and vice versa on Pakistani trucks. The fare of each truck from Karachi to Kandahar and Jalalabad ranges between Rs250,000 to Rs400,000 respectively. This alone adds Rs13bn per annum to the national economy.
There is also the human face of transit trade. Transit trade provides employment opportunities to vehicle drivers and their helpers, for instance, catering to the livelihood of lots of families in poverty-stricken areas. Vehicle maintenance shops and hotels also get a lot of business from the movement of cargo.
Recently, the government took some positive steps, like introducing electronic data interchanges (EDI) by this month, which will help document, regulate and reduce the cost of processing of cargo.
Other measures like reducing the scanning requirement of Afghan cargo were also announced.
However, there is a need to equip the office of the separate directorate general, set up in 2012 to handle Pakistan-Afghan transit trade, with better and trained human resource.
Published in Dawn, Economic & Business, March 2nd , 2015