Pak-Afghan transit trade being abused

Transit trade between Afghanistan and Pakistan has witnessed a steep rise of over 900 per cent during the last decade. The trade bonanza between the two neighbouring countries is being abused by smugglers as a major chunk of duty free imported goods are being openly sold in local markets in Pakistan.
Figures indicate that transit trade between Afghanistan and Pakistan has been swelling since 2000. According to data Afghan Transit Trade (ATT) through Pakistan was hovering below $200 million in 2001 and started rising sharply after revision of negative list in 2005 and touched $1.957 billion in 2009.
Analysis of the data reveals that Afghan traders along with their Pakistani counterparts are abusing the transit facility.
They are importing huge quantities of goods which is a great cause for concern for local trade and industry.
The top 10 imported commodities under the Afghanistan Pakistan Transit Trade Agreement (APTTA) includes yarn and synthetic staple fibers fabric; electrical appliance and equipment; yarn and fabric of synthetic filament; machinery and mechanical appliance; paper and paperboard; animal and vegetable oils; coffee, tea and spices; rubber and article thereof; sugar and sugar confectionaries; auto parts and accessories that registered a tremendous increase during the period under review.
Figures state that yarn and synthetic staple fibers fabric are the most favourite commodities of Afghan traders, and registered over 1,400 percent increase after revision of negative list in 2005. Data indicates that in 2005, yarn and synthetic staple fibers fabric imports through Pakistan transit route reached $21 million for the first time. This volume swelled to $321 million in 2009. Similarly, yarn and synthetic filament fabric imports went from $2 million in 2005 to $127 million in 2009.
Speaking to Pakistan Today, All Pakistan Textile Mills Association (APTMA) spokesman said that illegitimate import of synthetic fabric from Afghanistan and other channels has become a matter of great concern for the domestic textile industry. It is a major impediment in the development of domestic textile industry as markets in the country have been flooded with huge quantities of smuggled fabric.
He added that textile is mainly an export oriented industry as 85 per cent of textile manufacturing products are exported and the rest are insufficient for domestic requirements. The local demand is being met through smuggled fabric, second hand clothing and personal baggage. He underscored that owing to the massive influx of smuggled products the domestic textile industry could neither diversify nor become competitive.
Another favourite commodity of Afghan traders includes electrical appliance and machinery, which has also registered a 267 per cent increase since 2001. Figures state that Afghanistan was importing some $31 million worth of electrical appliance and machinery in 2001, which swelled to $34 million in 2005 and increased to $298 million in 2009. The steep rise in import figures indicates massive misuse of the transit facility.
Other goods in which Afghan importers are abusing APTTA include paper, paperboard, coffee, tea, spices and auto parts. Data shows that paper and paperboard imports witnessed 10,200 per cent increase whereas, coffee, tea and spices registered 308 per cent increase. Auto parts and accessories showed a 925 per cent increase during the period under review.
The government has revised the Afghanistan Pakistan Transit Trade Agreement and has included safeguards like installation of tracking devices on transport units, customs to customs information sharing and provision of financial guarantees equivalent to Pakistan import duties. However, legislation between the two neighbouring countries is flawed as it encourages smuggling. In a study Pakistan Business Council highlighted that the APTTA agreement offers incentives for smuggling.
It points out, for example, that on tobacco rate of customs duty in Afghan tariff is 16 per cent, while in domestic tariff it is taxed at a rate of 25 per cent customs duty, 16 per cent sales tax, four per cent withholding tax and excise duty. Similarly, on auto parts rate of Customs Duty is five percent in Afghan tariff while it is 35 per cent Customs Duty and 16 per cent Sales Tax in the Pakistan tariff. The study underscores that great disparity in tax rates encourages smugglers by kicking out legitimate and formal sectors. It says that avoidance of sales tax and excise duty is a major incentive for smugglers.