Pakistan ruled out the possibility of making the Pak-Afghan Transit Trade Treaty operational without enforcing the condition of getting cashable financial guarantees on Kabul-bound goods to curb smuggling, said a top commerce ministry official on Tuesday.
In the first formal statement on the delay of the agreement, Commerce Secretary Zafar Mahmood at a press briefing said that differences surfaced due to Kabul’s refusal to extend financial guarantees backed by Pakistani or international banks.
The enforcement of the treaty was postponed on February 12 for an indefinite period.
Under the agreement, importers or brokers of Afghanistan bound goods have to extend financial guarantees equivalent to the amount of duties on import of such goods, which will be returned after confirmation that the goods have crossed into Afghanistan and are not dumped in a Pakistani market, which is a common practice.
“Afghanistan wants to give financial guarantees of Afghan banks, which are useless as these cannot be encashed in Pakistan,” said Zafar Mahmood. “If Afghanistan wants to make the agreement effective, it cannot run away from extending financial guarantees”.
The countries will meet again in six weeks to come up with a solution on the issue and agree on a new date for making the treaty operational.
Pakistan is losing millions of dollars in taxes annually because of smuggling of goods imported under the Afghanistan-Pakistan Transit Trade Agreement of 1965. The smuggling is also negatively affecting the local industry.
Another official of the commerce ministry said that according to rough estimates the volume of smuggling is in the range of $1.5 billion to $2 billion per annum. The major smuggling prone items are tea, tyres and electronic goods.
Regulatory duty on imported items to be slashed in next budget
Commerce Secretary Zafar Mahmood said the government is working on a proposal to reduce custom duties on the imported items to discourage their smuggling.
“Regulatory duties will be reduced in the next federal budget”, he added. An inter-departmental committee is working on the proposal to reduce duties on 350 items.
In the long-term, smuggling can only be discouraged by cutting its profit, said the commerce secretary.
“An effective control of transit goods through a scanning, tracking and data interface system can help curb smuggling,” said Federal Board of Revenue customs member Mumtaz Haider Rizvi.
However, Pakistan has agreed to delay the installation of the tracking system on Afghanistan bound trucks. The device is meant to ensure cargo movements stay on their designated routes.
Both the countries have agreed that “the traffic in transit will not be hampered due to want of tracking system device.” The decision was taken in a meeting of Afghanistan Pakistan Transit Trade Coordination Authority. Besides the parties also agreed to use the existing system till the installation of bio-metric system that is also facing delays.
“The delay in implementation of bio-metric and tracking systems should not impact the agreement,” said the commerce secretary.
He said in the next meeting of the Coordination Authority, to be held in Kabul, both states would try to firm up dates for making these advanced systems operational.
The secretary said that delays in implementation of the agreement hurt Pakistan as it will deprive Islamabad from the opportunity to enhance its trade with Central Asia
There are also chances that Karachi Port may lose business if Afghanistan shifts its imports to Iranian ports, he added.
The total trade volume of five Central Asian Republics is estimated at $20 billion and of that Pakistan’s export share is merely $20 million. Afghanistan’s imports via Pakistan currently amount to one-third of its total imports. The remaining two-third imports come through Iran and Tajikistan.
On a question, the secretary said Afghanistan has raised objection over Sindh government’s recent decision of levying 0.85 per cent transit duty on the Kabul-bound goods. The federal government will raise the issue with the provincial government, he added.
Published in The Express Tribune, February 16th, 2011.
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