Regional connectivity through Transit Trade

TEXT: In the aftermath of the Second World War the world realized that major realignment of international economic institutions was needed for political and economic stability and dependability. Besides groups of countries started down the path of economic and trade connectivity leading to integration and cargo facilitation for mutual benefits.

The trailblazing role of European Union and more recently of ASEAN is worth emulating. Regional connectivity though transit trade has always been part of such initiatives. Due to geo-strategic location of Pakistan enabling it to be a gateway to Central Asia and beyond, utilizing transit trade as the jumping board for mutual economic and allied benefits is a viable option which till late has been under emphasized. Fortunately, now with renewed focus of the Government on regional connectivity swift progress is being made on this front.

Taken together, the landlocked region of Central Asia comprising of Uzbekistan, Kirgizstan, Kazakhstan, Tajikistan, the adjoining areas of Russia and Xinjiang province of China have a population of 120 million, GDP of US$ 800bn, imports of US$ 140bn and exports of US$ 160 bn. The access to waters to US$300bn international trade of this region is available through Russian ports of St Petersburg and Kaliningrad on Baltic Sea, Vladivostok on the Pacific and Murmansk on Barents Sea, Chinese ports on its Eastern coast and Pakistani ports of Gwadar, Karachi and Port Qasim. However, the route to waters through Pakistani ports is shorter and the number of days required for the journey are lesser by one day to five days depending upon the destination. The National Freight and Logistics Policy of Pakistan, 2021, while highlighting the potential benefits of an effective logistic system stated that for each day less that freight spends in a supply chain, the corresponding trade can increase by 4.5%. Hence for the aforementioned region having international trade of US$ 300bn, utilizing the ports of Gwadar, Karachi and Port Qasim and transit of cargo through Pakistan to respective destinations is economically the most viable transportation option.

Unfortunately, over the years the International transit trade through Pakistan has been restricted to Afghanistan only. The total International trade of this country in 2019-20 was US$ 8.5 bn. Out of this, trade worth US$ 5.5 bn weighing 2.5 million tons transited through Pakistan. It is very pertinent to mention that one twenty feet container (TEU) of transit goods travelling through Pakistan adds at an average US$ 2000 to its economy in terms of transport charges, tolls, premium to insurance companies for the security provided against goods being transited, employment and auxiliary benefits. The 2.5 million tons of Afghan cargo valuing US$5.5bn transiting through Pakistan in 2019-20 injected minimum benefit of US$0.25bn implying that the contribution of transit trade to the economy of the transit country is 4.6% of the value of the transited goods. Through development of appropriate infrastructure and facilitative regulatory regimes, Pakistan can succeed in attracting the additional transit trade of US$300 which will annually inject US$ 14bn to its economy.

Besides, direct economic benefit @ 4.6% of the value of goods transiting through Pakistan, the expansion of transit trade is likely to help in strengthening diplomatic ties with the respective countries. The activity is also expected to increase tourism to and from Pakistan. Moreover, there will be every likely hood that taking advantage of shorter distances the Pakistani exporters will be able to capture larger share of US$140bn import market of the under discussion region.

Keeping in view the abovementioned benefits of increased transit trade through the country, the honorable Prime Minister, in November, 2019, directed that immediate steps be taken for expansion of transit trade through Pakistan. Ever since and within a span of two years, meaningful progress has been made towards the target given by the Prime Minister under the dynamic leadership of the Chairman FBR Dr. Ashfaq Ahmad Khan, Member Customs (operations), Tariq Huda, Member Customs (Policy), Saeed Jadoon, the former Director General Transit Trade, Ahmad Raza and the present Director General Iftikhar Ahmad.

To begin with, the existing Afghan Transit Trade regime was overhauled for enhanced facilitation and reduction in dwell time: three major improvements were made. The manual assessment of cargo was replaced with human free automatic assessment, compulsory examination was removed and submission of one time Revolving Insurance Guarantee in place of GD wise insurance guarantee was introduced vide SRO 1013(I)/2021 dated 5.8.2021.The new regime for Afghan Transit Trade is expected to be rolled out in January 2022. Another landmark step forward for expansion of Afghan Transit Trade was taken in November 2021 when road-air corridor was introduced through CGO 10/2021 dated 22.11.2021. It provided for arrival of Afghan cargo at Islamabad International airport for onward transportation by land to the land border station, Torkham. After its successful operation at Islamabad airport, there is every likelihood that this facility will also be extended to Peshawar and Quetta airports.

In July 2021, after the visit of the Prime Minister of Pakistan to Uzbekistan, the Ministry of Commerce finalized the Transit Trade Agreement with Uzbekistan; the Central Asian State having population of 30 million and international trade of US$ 38 billion. Within a short time of four months Pakistan Customs finalized the respective rules which were issued through SRO 1466(I)/2021 dated 11.11.2022. These rules outlined same facilitative measures that had been introduced for Afghan Transit Trade. However, for the growth of logistic business in the country provision for cross stuffing of containers at Karachi has also been introduced under Uzbekistan Transit Trade Rules. This new regime of Transit Trade is expected to be operationalized in March 2022.

In addition to the abovementioned two bilateral transit trade agreements, Pakistan is also part of Quadrilateral Transit Trade agreement (QTTA) since 1995. The other three countries in this multilateral agreement are Kazakhstan, Kirgizstan and China. However, as the Rules for implementation of QTTA were not made, the quantum of transit trade through Pakistan under this agreement has so far been NIL. The exercise for preparation of QTTA Rules has also been initiated by the Directorate General of Transit Trade on 10.1.2022.

Lastly, one transit convention i.e. Transport International Routiers (TIR) which has immense potential for regional connectively is yet to take of in true sense in Pakistan. This convention has a long history way back to 1948 when International Road Transport Union (IRU) was founded in Geneva to facilitate international road transport in Europe. In 1949 it developed a system for transportation of goods from country A to country B without being examined at the enroute countries. Ten years later, in 1959 the United Nations Economic Commission for Europe turned this system into a UN Convention and IRU was mandated to manage it. In 1975 the new version of TIR convention was approved which included the concept of containers and intermodal transport. Though Pakistan signed TIR convention in 2015 no meaningful progress was made to tap this extremely useful regime till 2020.

Soon after the directions of the Prime Minister of Pakistan for expansion of Transit Trade, the underutilization of TIR regime was also examined. The bottlenecks in the existing Rules were removed and new SRO 1433 (I)/2020 was issued on 30.12.2020; the minimum vehicle requirement for a transport operator under TIR was reduced from 5 to 1 and the Bank Guarantee was replaced by Insurance Guarantee as a security instrument. Realizing that the true potential of TIR could not be realized unless journey by sea is integrated to the journey by road, the procedure for road-sea multimodal TIR operation was developed and sent to International Toad Union (IRU). The said procedure was approved by IRU in September 2021. Its implementation in WeBOC is under process.

The contractual responsibilities of sender, carrier and receiver in respect of transportation of goods by road are defined in CMR Convention 1956. Pakistan signed this convention in August 2021. The draft rules for CMR consignment note were prepared in September 2021 and sent to the concerned Ministries for comments. The nineteen customs stations which had been notified by FBR for TIR operations were enabled for import, export and transit activities in the Customs Computerized system in December 2021.

It is worth highlighting that two export consignments were transported from Karachi to Turkey under TIR regime by the National Logistic Cell (NLC) in September, 2021. These consignments reached the destination in 11 days after travelling 4890 Km and crossing land borders of Pakistan, Iran and Turkey. It is pertinent to mention that normal sea route through Red sea-Mediterranean Sea is around 35 days.

The United Nations Economic Commission for Europe envisaged paperless TIR regime, Pakistan was amongst the first eight of the seventy-seven member countries which opted and was approved by UNECE for e-TIR project. The initiation and design stage constituting 30% of the project has been completed. Meanwhile, an intermediary version namely digital TIR which is a step towards e-TIR was developed by IRU, again Pakistan was amongst the first few member countries to sign the agreement with IRU for implementation of digital TIR in December 2021.

It is strongly believed that through continuation of the existing drive and momentum towards expansion of transit trade, the annual quantum of International trade transiting through the territory of Pakistan will soon witness an exponential growth making it the leading transit country of the world.

ENGR. HABIB AHMED Director, Directorate General of Transit Trade, Karachi

Copyright Business Recorder, 2022