Pakistan Afghanistan transit trade: Trucks may finally start their engines next month

Pakistan softens stance that Afghanistan must provide guarantees through either Pakistani or international banks.

ISLAMABAD:

Pakistan has stepped back from its stance of accepting only bank guarantees and agreed to accept insurance companies-backed financial guarantees for goods being transported to Afghanistan via Pakistan, paving the way for the new transit treaty to be operational by June 12.

The consensus was reached in a meeting of the Afghanistan Pakistan Transit Trade Coordination Authority sub-committee recently held in Kabul. The treaty was supposed to be effective from February 12 but was delayed for four months due to disagreement on the guarantees clause.

A bank guarantee ensures that the payment will be made, as the bank will cover the payment if the debtor fails to pay.

Pakistan had earlier demanded Afghanistan to provide guarantees, equivalent to customs duties, by either Pakistani or international banks. A commerce ministry official told The Express Tribune that the next meeting of the coordination authority will be held in the first week of June in Kabul that will give approval to the understanding reached on the issue of financial guarantees for goods.

A two-day meeting of the Afghanistan Pakistan Transit Trade Coordination Authority in February had ended without a consensus on clauses pertaining to en-cashable financial guarantees to ensure exit of transit goods, international requirements for sealable trucks, biometric system and installation of tracking system.

The business community has been opposing the Afghanistan Pakistan Transit Trade Agreement fearing it would hurt the local industry, as the transit trade with Afghanistan is widely considered to be a root cause of smuggled goods. Authorities had inserted the en-cashable bank guarantees clause to address the concerns of the local business community.

The APTTA will replace the Afghanistan Transit Trade Agreement (ATTA) of 1965. The agreement allows Afghanistan, a landlocked country, to import goods from abroad including India to Karachi sea port and transport them by trucks to Afghanistan via Pakistan.

However, the issue of bank guarantees for transporters still needs to be resolved. The issue of bank guarantee will be discussed in the next meeting. According to the agreement “transporters shall provide a bank guarantee or revolving bank guarantee as a prerequisite for temporary admission document … acceptable to the host country”.

Both the sides also discussed the issue of installing tracking devices on trucks but it seemed that they may postpone the implementation.

Pakistan has indentified eleven routes for transit of goods to Afghanistan. The APTTA will also allow Pakistan to trade with Central Asia – also a landlocked region – that has great trade potential. For trading with Tajikistan and Turkmenistan two routes to each country have been allocated on a permanent basis whereas for trading with Uzbekistan, Pakistan has secured two routes via Torkham.

Published in The Express Tribune, May 20^th, 2011.