Joint Economic Commission meeting: Trade issues likely to dominate Pak-Afghan talks

Kabul resents Islamabad’s restrictions on its transit trade, meant to curb smuggling.

ISLAMABAD:

Pakistan and Afghanistan are scheduled to begin meetings of the Joint Economic Commission between the two countries on October 12, just one day before Islamabad’s waiver of its requirement of financial guarantees for Afghan imports transiting through Pakistani territory is scheduled to expire.

The two-day meetings are to be held in Islamabad on October 12 and 13, and are likely to encompass a wide variety of issues, including Pakistan’s desire to import 1,000 megawatts of electricity from Tajikistan via Afghanistan.

Yet the key issue is likely to be trade. Kabul resents Islamabad’s requirement that all traders importing goods into Afghanistan through Pakistani territory provide financial guarantees from Pakistani insurance companies equal to the full amount of duties applicable on the goods being transported, meant to act as a check against smuggling.

Given the different import tariffs between Pakistan and Afghanistan, many importers have an incentive to import goods saying they are meant for Afghanistan (thus not paying Pakistani tariffs) and then simply selling them onto the Pakistani market.

The financial guarantees would mean that all importers, regardless of whether they are importing to Pakistan or Afghanistan, would pay the duties required under Pakistani law, though the Afghan importers would be able to get a refund for the amount of duties they paid once the government of Pakistan received confirmation that the goods had crossed over into Afghanistan, for which an elaborate tracking system was to be put in place.

This was the newest feature of the new Afghanistan-Pakistan Transit Trade Agreement of 2010, which replaced the agreement signed between the two countries in 1965. Yet this clause has not been implemented yet, since Prime Minister Yousaf Raza Gilani granted a two-month waiver on July 6, and then another one-month waiver on September 8 (which went into effect September 13).

Pakistani insurance companies have thus far refused to provide financial guarantees, since the premiums they calculate they would need to charge would be too high. Islamabad refuses to accept guarantees issued by Afghan financial institutions.

Federal Board of Revenue Chairman Salman Siddique told The Express Tribune, however, that one of the biggest obstacles to implementing this clause has been removed, claiming that insurance companies in Pakistan had agreed to lowering their charges from 1.8% of the value of goods to 0.8%.

US pressure

Both Kabul and Islamabad are coming under pressure from Washington to expand their economic cooperation. The United States has been backing several projects, including Pakistan’s plan to import electricity from Tajikistan via Afghanistan, in a bid to ensure that Islamabad does not gravitate towards Tehran for its energy needs.

The project would be part of the Central Asia-South Asia, known as CASA 1000 initiative, backed by the United States as part of a broader effort by Washington to economically link its allies in the region and help curb the spread of China’s influence in Central Asia.

Yet the projects have yet to get off the ground due to the security situation in Afghanistan as well as disputes over the transit fee that Kabul wants to charge.

Aid to Afghanistan

The Afghan delegation is also likely to bring up the issue of the $300 million in development projects that Pakistan has promised Afghanistan, an initiative that is moving at a snail’s pace owing to Islamabad’s fiscal and resource constraints. Kabul has been pushing Islamabad to send National Highway Authority teams to restart the work.

The Pakistan-Afghanistan-Tajikistan road link from Chitral via Wakhan strip is also on the meeting agenda. Afghanistan has not yet given its commitment to the project, which is estimated to cost $375 million.

Published in The Express Tribune, October 9^th, 2011.