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Old 09-28-2009, 10:09 AM   #1 (permalink)
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Default Pak-Afghan trade: Smuggling across borders inflicts huge revenue losses

Pak-Afghan trade: Smuggling across borders inflicts huge revenue losses


By Alauddin Masood

The smuggling of Afghan Transit Trade (ATT) goods into Pakistan causes a direct revenue loss of over two billion dollars annually to the Pakistani exchequer while it has also stunted the growth of local industry.

The UN brokered ATT Agreement enables Afghanistan to import goods through ports in Pakistan without paying custom duties on transit traffic, except charges for transportation and cost of services. Even railway freight, port and other dues have to be no less favourable than applicable on goods owned by Pakistani nationals. But, over the years, the ATT, facilitated by Pakistan since 1965 and ECO countries since 1997, has been massively abused by unscrupulous elements to import products only to push most of them back into Pakistan clandestinely.

Furthermore, this clandestine trade has continued to grow, over the years, due to collusion between Taliban/militants in Pakistan and Afghanistan and the smugglers, transporters, drug barons, politicians and greedy officials in the two countries.

The specified routes for transit trade between Pakistan and Afghanistan are Peshawar-Torkham, Ghulam Khan Kelli and Chaman-Spinboldak. However, Afghanistan’s seven border provinces (namely Badakshan, Kunar, Ningarhar, Paktia, Zabal, Qandahar and Hilmand), which are connected to Pakistan’s Northern Areas (Chitral, Bajaur, Mohmand Agency, Kuram Agency, Northern Waziristan, Southern Waziristan and Balochistan) are being extensively used for cross-border movement of ATT goods.

Absence of economic activities and legal opportunities for earning livelihood, coupled with limited writ of the state, mountainous arid terrain riddled with deep gorges and over 140 natural passes, provide an ideal environment for cross-border movement of goods. Taking advantage of these factors, the unscrupulous elements are exploiting ATT for massive smuggling of goods into Pakistan.

The nature/type of things imported by ATT traders is invariably linked to their demand in Pakistan rather than their demand in Afghanistan. For example, the Afghans prefer to drink green tea and not its black variety, which is a drink of choice by Pakistanis, yet large quantities of black tea are imported, under ATT, for eventual smuggling into Pakistan. Furthermore, when in the wake of power outages there developed a tremendous demand for power generators, uninterrupted power supply (UPS) systems, rechargeable torches/lights, etc. in Pakistan, ATT traders flooded Pakistani markets with these items.

Today, some 75 per cent of the demand for about 1.5 million bus/truck tyres in Pakistan is fed by ATT rerouting; while the country’s indigenous industry and legal importers meet the remaining 25 per cent of the demand. Resultantly, manufacturing of tyres within the country and also their legal import is on decline inflicting a loss of billions of rupees in revenues to Pakistan. To cite another instance, Pakistan has its own industry for manufacturing air conditioners. In 1994, according to a study by Dr. Sayed Waqar Hussain of the Peshawar University, Pakistan imported air conditioners worth 30 million rupees, but Afghanistan, which was then bereft of electricity, imported through ATT air conditioners worth one billion rupees. Ultimately, most of those air conditioners ended up in Pakistan.

Though the type of goods imported under ATT keep changing depending upon their demand at a particular time, however, there appears to be a perpetual demand in Pakistan for items like black tea, tinned foodstuff, spices, beverages, tyres and tubes, cloth, auto parts, electric and electronic goods and home appliances. This thirst for consumer goods in Pakistan is exploited by ATT traders, who procure goods in demand from international markets and arrange their supply to Bara markets in Pakistan. Consequently, ATT has resulted in a sort of quasi-legal smuggling of goods.

The increase in the abuse of ATT facility not only undermined the local manufacturing industry but also the legal imports of many items, particularly tyres and spices, due to in-competitive prices. Consequently, ATT has virtually strangulated Pakistan’s manufacturing sector, particularly in NWFP, forcing many foreign investors to close their operations and thereby increasing unemployment in the country.

In 1996, when Pakistan placed restrictions on the import of 24 items, the action tremendously pushed up either the indigenous production of some of those items or their legal imports. This is particularly true of television and tyre manufacturing, and also the import of tea and electric/electronics goods. After the issuance of negative list in 1996, the manufacturing of television sets, quadrupled from 72,000 in 1996-97 to around 288,000 in 1999-2000, pushing the industry’s revenues from Rs290 million to almost Rs500 million, writes Dr. Waqar in his research treatise “The Impact of Afghan Transit Trade on NWFP’s Economy.” The production of television sets further increased to 450,000 units during the year 20001-02.

A number of other factors, including narco dollars, facilitate the smuggling of transit goods. The use of narco dollars points to the international ramifications of ATT and involvement in it of powerful foreign actors, who are actually controlling or abetting it from safe havens abroad.

Unfortunately, even the sealing of Pakistan-Afghanistan border and the ongoing operation by the US-led coalition forces on the Afghan side of the Durand Line and by Pakistan troops in FATA has failed to make any visible dent in the cross-border smuggling.

It really poses a daunting challenge to the authorities in Pakistan to protect the local industry from the onslaught of smuggling and to plug the consequent revenue loss from the illegal trade in ATT goods. Cognizant of the ill-effects of the smuggling of ATT goods on the country’s economy, the concerned authorities in Pakistan keep adopting measures to curb the re-entry of ATT goods into Pakistan. But, the smugglers abort those measures one way or the other, using their clout in both Kabul and Islamabad.

Recently, Member Customs FBR Mr. Munir Qureshi has issued directives to all the Directorates of Customs in the country to take strict action against traders involved in the sale of ATT goods. Failing to check the re-entry of ATT goods into Pakistan through the country’s porous borders, the action has ostensibly been taken to protect the local industry and to check the non-payment of duties and taxes on goods clandestinely imported in the country. However, only the time will tell how far FBR succeeds in plugging the re-entry of ATT goods into Pakistan through illegal channels? Meanwhile, the people are anxiously waiting for the results of FBR’s latest directive. Will it yield positive results or its fate will not be different from the abortive attempts made in the past to curb the scourge of smuggling of ATT goods into Pakistan?
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