COUNTRY NOTE. Status and Challenges of Trade Facilitation and Supply Chain Efficiency Improvements in Pakistan:

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1 PAKISTAN COUNTRY NOTE Status and Challenges of Trade Facilitation and Supply Chain Efficiency Improvements in Pakistan: Regional Cooperation on Trade Facilitation: Way Forward. by: Syed Tanvir Ahmad Commissioner (Information Processing/Trade facilitation department) Pakistan Customs/VAT Department Asia-Pacific Trade Facilitation Forum Seoul, Republic of Korea, 4-5 October P a g e

2 Introduction/Background: Country Note - Pakistan 2011 A lot of importance has been given to trade facilitation and reduction in cost of doing business during the last decade. Primarily TF measures were focused on customs procedures and hitches at border crossings. A National Trade and Transport Facilitation Committee is also working on other issues, which include continuous review of the trade and transport procedures and system with a view to update their simplification and harmonization; undertaking coordination of efforts of concerned organizations in the field of facilitation of international trade and transport and collecting and disseminating information on international trade and transport formalities, procedures, documentation and related matters. As for WTO Trade Facilitation Agreement, Pakistan is in a good position to achieve compliance with all of the TF provisions within an acceptable period of time. Generally the scope and content of many of the measures required to achieve compliance with the WTO TFA are consistent with existing reform and modernization strategies. Many activities are already underway that will lead to compliance or will require only minimal change in policy or legislative support to achieve this. The actions necessary to demonstrate compliance against a number of measures would simply either require fine tuning of the currently implemented measures with the text of the TFA or involve institutionalizing current practice and procedures by the publication of regulatory or legislative support as a basis for these practices. For a small range of measures, a more substantive work program will be necessary to achieve compliance. Trade Agreements are being finalized for opening of trade with various countries. Some agreements have been ratified but are being made operational. Work is under process for acceding to various international conventions like TIR, Customs Containers etc. 1 P a g e

3 Following are the specific areas/measures that have been prioritized to achieve trade facilitation: n Paperless web based customs clearance system n Electronic linking with other departments (most are already linked like banks, shipping companies, customs agents, stevedores, ministries etc) n Electronic Data Interface with other countries. n Accession to international conventions. n A new Risk Management System is under completion to restrict examination of cargo to only those shipments considered to pose risk. n Modernization of Freight Forwarders. n A number of steps in new transit trade agreement towards liberalization. The main on-going initiatives and projects aimed at facilitating trade and enhancing supply chain efficiency are as under: n Paperless web based system introduced in Pakistan Customs, which is catering for 70% of imports and exports of Pakistan at Karachi port i.e., Pakistan Customs Computerized System (PaCCS). Now a uniform system is being introduced all over Pakistan known as Web Based One Custom (WeBOC). n Effort to reduce customs processing time. n To operationalize electronic linkage of Department of Plant Protection (DPP) and Animal Quarantine Department (AQD) with Pakistan Customs (linkage is already there). n Afghanistan - Pakistan Transit Trade Agreement (APTTA), 2010: Requirement of bank guarantee for the cargo and vehicles delayed the implementation. The bank guarantee requirement has been changed to insurance guarantee for goods. n Electronic Data Interface (EDI) is simply the computer-to-computer exchange of business documents between Afghanistan and Pakistan. n Detail work has been done on Installation of Tracking Devices on transportation units meant for transit trade. Project is going to be launched soon. n Legislations in Parliament: ü Logistics Service Providers Regulatory Authority Bill, ü Transport Legislation which include Carriage of Goods by Road Bill, 2010, Carriage of Goods by Sea Bill, 2010, Carriage by Air Bill, 2010, ü Marine Insurance Bill, 2010, Sea Carriage Shipping Documents Bill, 2010, n Accession to International Convention ü TIR Convention Customs Convention on Temporary Importation of Commercial Road Vehicles (1956) ü Customs Convention on Containers (1972) ü International Convention on the Harmonization of Frontier Control of Goods (1982) ü Convention on International Carriage by Rail (COTIF) ü Convention on International Carriage by Road (CMR) n Bilateral Road Transport Agreements (with Iran, Turkey, Uzbekistan Kyrgyzstan, Kazakhstan, Turkmenistan 2 P a g e

4 n Pakistan trade information portal ( has been developed. Regional Cooperation on Trade Facilitation - Way Forward Country Note - Pakistan 2011 Importance of transit trade flows from/to Pakistan to/from other South Asian countries: n There is a vast economic depth in terms of transit trade in the region. Pakistan is geographically located at a very important position as it shares its borders with Afghanistan, India, Iran, and China. There are three major maritime ports in Pakistan (Karachi, Port Qasim and Gawadar). n Landlocked Central Asian States of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan are members of ECO. Nearest route for access to sea for these states is through Afghanistan and Pakistan, or Iran. One of the cheapest routes to Central Asian States is through Pakistan. n Afghanistan imports major portion of its requirement through Pakistan. Afghan imports via Iran are costlier (additional cost of US$ 800 approximately per container). Bilateral trade with Afghanistan is extremely profitable. From a mere $200 million some five years ago, exports from Pakistan have gone up more than seven-fold to $1,500 million, which does not include substantial volume of informal trade. Afghanistan is the second largest destination for Pakistani exports. n For China, it is one of the shortest routes for its provinces located near Pakistan (Sinkiang and other provinces). Transit trade can take place from Gwader sea port. Trade facilitation evolved with neighboring partners (within South Asia) over the past decade: n For Afghanistan/CAS a new route of Sost, Gilgit (in north of Pakistan) has been opened for transit trade with China. n Afghanistan and Pakistan concluded a new Afghanistan Pakistan Transit Trade Agreement, 2010 to be fully implemented as yet. A number of disputed issues were settled down and moved towards more liberalized transit regime. Some issues were however at implementation stage and are being sorted out. n Due to political issues India has not been able to get access through land routes to Afghanistan and Central Asian States (CAS). Similarly Pakistan/Afghanistan/CAS is unable to get transit facilities to Nepal and Bhutan. n New routes have been opened to Kyrgyzstan and Kazakhstan through China. n Following steps have been taken to reduce trade cost for Afghan /CAS trade: 5% examination on the basis of risk criteria (instead of 20-30% in the past). Elimination of negative list. Afghan vehicles allowed to Pakistani sea ports for carrying transit goods. Fruits/vegetables Paperless web based customs clearance system. Electronic Data Interface with Afghanistan. Accession to international conventions. A new Risk Management System is under completion to restrict examination of cargo to only those shipments considered to pose risk. n A number of steps in new transit trade agreement towards liberalization. n Electronic linking with other departments (most are already linked like banks, shipping companies, customs agents, stevedores, ministries etc). n EDI project initiated/conceptualized with Afghanistan/India. n Pakistan trade information portal ( has been developed. 3 P a g e

5 Following are the main barriers to intra-regional trade: n The transit goods imported for Afghanistan are smuggled back to Pakistan. Some of these duty free imports imported by Afghanistan through its transit trade arrangement with Pakistan never make it to Afghanistan and the bulk somehow find their way back to Pakistan, thus badly affecting the industry and official revenues in shape of customs duty, VAT, Federal Excise duty and income tax. n Bulk of the present exports of Pakistan to Central Asia through Afghanistan is being declared as of Afghan origin. Pakistani Exporters are currently paying 110% of the value of the goods as security to Afghan Government for Transit to Central Asia irrespective of the ownership of transporting vehicles. It takes more than a year to get the security released from the Afghan authorities through a non transparent mechanism. Problem has been taken care of in new agreement but not implemented as yet for last one year. The exporters from Pakistan are required to file registration with multiple Ministries and Agencies of Afghanistan. n Financial Security acceptable to Customs (Bank guarantee/pay Order/DD/etc) for Goods and Transport is posing a major hurdle in new agreement. Installation of Tracking Devices on transportation units and biometric devices at border to be implemented. n Afghan cargo is off loaded on to Indian trucks at Wagha border (Lahore /Delhi route). Afghan trucks are not allowed to go to India. The trucks on return are not allowed carry Indian Exports to Afghanistan. n At present very nominal trade is going on with the Central Asian States under the Quadrilateral Agreement on Traffic in Transit signed among Pakistan, China, Kyrgyzstan and Kazakhstan as the transit transport route is very long. The transit traffic has to move through the territory of China for onward journey to Kyrgyzstan and Kazakhstan. Majority of the Transporters /Traders do not prefer this lengthy route besides cumbersome procedures at the borders. n As per agreed mechanism between Pakistan and China, 6000 Permits for the Bilateral Agreement on International Road Transport were exchanged but only 865 permits were utilized during 2009 and 2010 because of the formation of Lake at Attabad, Hunza (near Pak-China border), after the massive land slide in January last year. The restoration of about 14 Km stretch of Karakuram Highway (KKH) will take time. Following are also the barriers: n Permits are issued to goods vehicles from Gilgit to Kashgar. Chinese do not allow the vehicles to go beyond Tashkurgan. (A town about 120 kms away from Pak China border). Pakistani Trucks should be permitted to go up to Kashgar as given in the Agreement. n Heavy Port and Quarantine charges (just by spraying chemicals on the tyres of the trucks) are levied by Chinese authorities on Pakistani trucks. These should be lowered. n The delay in clearance of passengers at Tashkurgan forced them to stay at Chinese Hotel thus bearing extra cost. n Delay in granting visas to the drivers/personnel. Multiple entry Chinese visas should be given to the Drivers and Staff of Companies operating under Bilateral and Quadrilateral Agreement. n Custom/Immigration authorities of China and Kyrgyzstan cause unnecessary delays in the inspection & clearance of Pakistani vehicles in transit. Chinese waste lot of time at entry points especially at Tashkurgan by sending a fax message to Kashgar to ask for authorization of the Pakistani trucks to transit and then wait for its reply (which normally takes more than 3-4 days). Any transiting truck under Quadrilateral Agreement should be sealed and allowed to proceed ahead immediately. 4 P a g e

6 n Due to lack of knowledge regarding agreement and allied Protocols, Chinese authorities stop unnecessarily, the Pakistani vehicles in transit through their territory. n On the introductory letter issued by Ministry of Communications, Embassies of Kazakhstan and Kyrgyzstan do not grant visas to the Transporters despite the agreed visa mechanism of diplomats of all the four Signatory States. Following measures had been implemented by Pakistan to reduce intra-regional trade costs: n Pakistan Customs Computerized System (PaCCS) was introduced few years back as pilot project. It operates in paperless web based environment. It has connectivity with carriers, terminal operators, shipping agents, clearing agents, National Bank for payment of Customs dues and other related government departments. System provides complete picture of regulations for import or export of cargo. Risk Management system restricts physical examination of cargo to only those shipments considered to pose risk. n Following standardized documents based on UNLK were introduced: Certificate of Origin issued by authorized Chambers of Commerce and Industry Phytosanitary Certificate issued by Department of Plant Protection Commercial Invoice of exporters n Container scanning under US Homeland Security Department has been introduced at Port Qasim to scan export cargo, which is not further examined. n Export of perishable goods in transit (like fruits and vegetable etc) shall be transported in open trucks. n For a period of three year the cargo shall be allowed in internationally acceptable and verifiable standard of sealable trucks after which the transportation shall be in container. n 5% of the consignments shall be examined under risk management system. n No further inspection is allowed en-route unless irregularity is suspected explicit tampering of seals or locks. n No Negative list of items for transit trade. n Facilitate and speed up the transport of perishable goods and to grant a priority regime. n Following documents have been standardized according to IMO FAL Convention for the same forms to be submitted to all organizations: Ship s General Declaration Crew List Crew s Effects Declaration, Passenger List n Ship s Stores Declaration. n ISPS Code of IMO has been implemented at all designated port facilities and on ships registered in Pakistan. n Awareness of SPS standards of major markets for fruits of Pakistan is being created. Producers are being encouraged to adopt certification to Global Good Agricultural Practices (GAP) and HACCP. n Created awareness by conducting training seminars on international standard banking practices and ICC UCP 500. Banking opened to foreign investment, resulting in greater competition and introduction of electronic banking. Awareness of ICC UCP 600 is also being created. n Freight forwarders standard trading conditions, minimum qualification standards, and code of conduct introduced. Freight forwarders training for trainers course conducted with support of FIATA 5 P a g e

7 and a faculty of trainers created. Developed a national course, validated by FIATA, for training of freight forwarders. Following are the main bilateral and regional mechanisms/agreements to address these barriers: n Afghanistan Pakistan Transit Trade Agreement, 2010 was concluded in October, However, it has not been made fully operational. The agreement is comprehensive and as per international practices. However, the trade has been slowed down and diverted to Iran due to some new provisions (bank guarantee for goods and vehicles). There used to be a negative list for Afghan transit trade, however, in last decade the list has been abolished. The vehicles of both countries are still not able to carry goods in other country as per new agreement. n A new Afghanistan-Pakistan Transit Trade Agreement-2010 (APTTA) has now been signed which is anticipated to open new vistas of trade opportunities for Pakistan. One major hurdle in the way of trade with Central Asian States will be eliminated. n Accession to the International Conventions will further clear the way for this trade. There are a number of important international conventions to which Pakistan should accede to ensure that its procedures are harmonized with international practices. In its Resolution 48/11 of 23 rd April 1992 on Roads and Rail Transport Modes in relation to facilitation measures, the ESCAP has recommended accession to following seven international conventions that provide for simplified and harmonized systems for international land transport and inter-model transport across regions: The Convention on Road Traffic of 1968; The Convention on Road Signs and Signals of 1968; The Customs Conventions on the International Transport of Goods under Cover of TIR Carnets (TIR Convention) of 1975); The Customs Convention on the Temporary Importation of Commercial Road Vehicles of 1956; The Customs Convention on Containers of 1972; The International Convention on the Harmonization of Frontier Controls of Goods of 1982; and The Convention on the Contract for the International Carriage of Goods by Road of 1956 n Bilateral Road Transport Agreements (with Iran, Turkey, Uzbekistan Kyrgyzstan, Kazakhstan, Turkmenistan. Effectiveness of these mechanisms/agreements: n These mechanisms have been proved very fruitful as far as Afghan Transit Agreement is concerned. National Trade and Tariff Committee has played an important role and playing role of coordinator, facilitator and technical support provider NTTFC. n India and Pakistan started negotiations and issued a Joint Statement in As a result Joint technical Committee was established in April, Customs Co-operation Committee was also formed. Containerized cargo is to be started to avoid examination. Joint examination is to be conducted jointly. EDI is also under consideration. Before 2007 only small trucks were plying. Later 10 wheeler trailers were allowed. Timings were from 8.00 am to 2.50 pm. Truck were not practically entertained after 1.30 pm but now timings have been increased to 7.00 pm or even up to midnight depending on both countries customs administrations. Infrastructure development was made. Trade and passengers offices have been separated. Integrated check posts or cargo dedicated gate is being established. Hotline has also been established between customs officers of India and Pakistan. The following needs to be done to make TF efforts more effective: n Political will and commitment at highest level. 6 P a g e

8 n Correct understanding and definition of public and private sector role. n Ownership and commitment of key stakeholder. n Committed lead agency. n Representation of concerned ministries and public & private sector organizations at senior level. n Institutional arrangement for functioning on permanent basis. n Strong linkage with international trade facilitation institutions. n Prior identification of key issues. n Development of a project with well defined objectives and action plan. n Technical and financial support of international organizations to implement the project. n Permanent secretariat with experienced professionals rewarded at market rates. n Sound financial arrangement for running NTTFC Secretariat on permanent basis. n NTTFC Secretariat to play role of coordinator, facilitator and technical support provider. n Execution by the concerned organizations. What can be done at the regional/sub-regional level (by ESCAP, UNECE, ADB) to facilitate more effective intra-regional cooperation initiatives on trade facilitation. It can act as a bridge, coordinator, facilitator and catalyst between different countries. It can share international experience and good practices with countries. Benefits and challenges in moving forward with a sub-regional SW or paperless trade initiative: Electronic Data Interface is less expensive than handling paper based record. Much less effort/time is required and fewer errors occur because computer systems process the documents rather than manual processing. EDI transactions flow faster and and shall reduce consignment release time. Export declaration shall match with the Import declaration. It shall enable the countries to get correct value, description, weight, origin and other details. It shall help in increasing the revenues and discourage traders from indulging in malpractices. It shall help the industry against under valuation and by passing import policy of a country. Are any mechanisms/agreements/pilot projects in place for exchange of electronic trade documents across countries of the sub-region? EDI for Afghanistan is under conceptualization stage. Basic home work has been done and a scheme on papers has been finalized. Response from Afghanistan is awaited. EDI with India is also under consideration and initial proposal has been discussed between the two countries. Given the very early stage of national single window initiatives, what may be initial steps to be taken at the sub-regional level? It was discussed at Customs Committee of SAARC. Coordination was required between customs experts and software specialists of each country and then to be discussed at a common forum. Some technical solution or a model shall help in designing new system. In SAARC four different systems are being used by the countries. A leading agency with required expertise and dedication is required. 7 P a g e

9 Summary of key actions needed at national level trade facilitation: n Presently the information limited to legislation & notifications, which have been put on web site. The usefulness is limited to expert level users. Common trader can hardly understand and interpret such information. Practical steps how-do-i guides are not included. n Currently one or more enquiry points exists but need to be institutionalized. To answer reasonable queries regarding trade laws, procedures including forms and documents single National Enquiry Point (NEP) is a preferred option. All requirements are in place but need further refinement. n Except for tabling of federal budget and trade policy, interval is not given between the publications of trade related laws and their entry into force. Changes in operation take place immediately. Information need to made available in advance of changes taking effect. n There should be regular consultations between border agencies, traders and other stakeholders. Except for tabling of federal budget and trade policy consultation rarely takes place. Formal mechanism for industry consultation need to be established. n Additional facilitation to be provided to authorized operators meeting specified criteria. The concept is recognized but only applied in limited circumstances. Limited legislative guidance is available. Eligibility criteria need to be more transparent. n There is a provision that member shall ensure coordination between agencies responsible for border controls at national level and cooperate with other members who share a common border and coordinate procedures at border crossings. Already compliant on national level but could be improved. Complexities of cross-border cooperation makes progress difficult specially in case of India and Afghanistan. Joint border posts are long term goal and cannot be achieved in isolation. n Traders are not given time to comment on the proposed introduction on amendment of trade laws and regulations. Pakistan is non-compliant but implementation is not difficult, however, private sector may lack capacity to engage fully. Process and guidelines (based on exisitng budget process) need to be formally defined. n The areas covered in advance rulings are tariff classification, appropriate method of valuation, origin of goods and duty drawback. Technical capacity exists but presently it is only applied on post transaction basis. No institutional mechanism exists to issue such rulings in advance. It shall require staff, new proceses and supporting legislation which is a costly affair. n Averages release time of goods is not published periodically, though currently some data is collected for management purposes is collected. There is no agreed standard to measure release times. It is not technically difficult, but policy decison is required. n Single Window exists presently and linking with different departments exists in the system but some departments are not operational as yet. Some require resources others are not willing (mindset problem). Higher level policy decision is required. 8 P a g e