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Trade Project
Transit, Regional Connectivity and
Integrated Border Management:
The Way Forward
Trade Project
Regional Conference on Strengthening
Transport Connectivity and Trade Facilitation
December 10, 2013
Trade Project
Agenda
• Background: Pakistan’s Strategic Location
• Pakistan’s Regional Framework
• Regional Connectivity and Transit Issues – Strengths, Weaknesses,
Opportunities, and Threats (SWOT) Analysis
• Way Forward: Improving Regional Connectivity o Grant Most Favored Nation (MFN) Status to India
o Implement TIR Convention
o New Trade Routes
o Trade Facilitation
o Building Supply Chains
• Conclusion
Trade Project
Pakistan’s Regional Framework
• SAFTA: South Asia Free Trade Agreement (2006)
• CAREC: Central Asia Regional Economic Cooperation Program (2010)
• APTTA: Afghanistan-Pakistan Transit Trade Agreement (2010)
• QTTA: Quadrilateral Traffic in Transit Agreement among Pakistan,
China, Kyrgyzstan and Kazakhstan (2004)
• ECOTTA: Economic Cooperation Organization Trade Agreement (1998)
• CBTA: Cross-Border Transport Agreement among Kyrgyzstan,
Tajikistan, and Afghanistan (Pakistan has observer status)
Trade Project
Regional Connectivity and Transit Issues:
SWOT Analysis (I)
Strengths
• Strategic location provides the shortest route to seaports
• Three seaports open throughout the year
• Road connectivity to the seaports is in reasonable condition
Weaknesses
• None of the transit agreements is fully functional
• APTTA partially functional but trade substantially reduced
• Pakistan has not acceded to TIR Convention
• Security concerns and political uncertainty
Trade Project
Regional Connectivity and Transit Issues:
SWOT Analysis (II)
Opportunities
• Pakistan borders the two fastest growing economies in the world: India
and China
• Pakistan’s western neighbors are rich in energy resources
• China’s Western Provinces (bordering Pakistan) need a link to the
nearest seaports
• Donors investing in CAREC corridors
• Current Government of Pakistan keen on increasing regional
connectivity
Threats
• Transit trade not viewed favorably by general public
• Vested interests prevent full utilization of Pakistan’s potential
• Local industry may oppose due to perceived increase in smuggling
Trade Project
Way Forward: Improving Regional
Connectivity
• Grant MFN Status to India
• Implement TIR Convention
• Open New Trade Routes o Provide links with inland dry ports
• Trade Facilitation o Accelerate implementation of the World Trade Organization (WTO)
Agreement on Trade Facilitation/Revised Kyoto Convention (RKC)
o Negotiate/fully implement bilateral transit agreements
o Integrated Border Management Systems
• Build Supply Chains
Trade Project
Implementing the TIR Convention
• Pakistan is the only ECOTTA country (of 10 total) not yet implementing the TIR system
• Its implementation was approved in 2002 but is still pending
• Implementing TIR involves the following: o National guarantee associations and customs authorities control access o Goods accompanied by TIR Carnet, which serves as the control document
in the countries of departure, transit, and destination
o Duties and taxes covered by an internationally valid guarantee
o Goods travel in approved secure vehicles and containers
o Customs control measures taken in country of departure are accepted by the countries of transit and destination
Trade Project
Open New Trade Routes
• At present only (A) Wagah – Attari is open for limited trade
• Other land crossings that can easily be re-opened: (B) Lahore – Patti (Burki road)
(C) Kasur – Ferozpur (Ganda Singh)
(D) Sahiwal – Fazilka (linking Southern Punjab)
(E) Munabao – Khokhrapar rail (linking Sind)
• Open direct shipping routes o Karachi-Mumbai
Trade Project
Trade Facilitation: RKC
Adopting the following measures would significantly increase connectivity
and cut trading costs:
• Risk management
• Streamlined border procedures
• Harmonization and simplification of documents
• Automated processes
• Information availability
RKC: To achieve these objectives, full compliance is necessary
Trade Project
Trade Facilitation vs. Tariff Reduction
Increase in Global Trade and GDP (USD $ trillion)
2.6
1.6 1.5
1.0
0.4
1.1
(US
D $
tri
llio
n)
4.7%
14.5% 2.6% 9.4%
0.7%
10.1%
Trade GDP
Tariffs
All tariffs removed globally
Modest scenario Ambitious scenario
Countries improve trade
facilitation halfway to
regional best practice
Countries improve trade
facilitation halfway to global
best practice
Note: Based on export value; includes only the effect of “Border Administration” and “Telecommunication and Transport Infrastructure”
Source: Ferrantino, Geiger and Tsigas, The Benefits of Trade Facilitation – A Modelling Exercise; World Economic Forum (2007
baseline)
0
Trade Project
Trade Facilitation: Integrated Border
Management
Cooperation at the National Level:
• Grouping border management-related functions in a single body
• Introduce a layer of coordinated governance (e.g. joint services or
groups) while relevant organizations continue to function separately
Cross-border Dimension:
• Establish cross-border cooperation among Customs authorities
• Establish joint controls, align opening hours of border stations and the
construction of juxtaposed Customs offices
• Advance electronic information on cargo and container shipments
Trade Project
Integrated Border Management: Cross-border
Movement of Trucks
• Joint scanning and weighing could reduce equipment needed
• Allowing cross-border movement of trucks to the nearest dry-ports could
reduce the cost of building infrastructure at ports
Source: Wagah - Attari Border, tribuneindia.com Source: Wagah - Attari border, dawn.com
Trade Project
Supply Chains: Surgical Goods
Increasing Exports through Partnerships
• Sialkot produces high quality surgical
goods
• Sialkot’s exports remain low (USD $300
million in 2012)
• Cheaper raw-materials and coordination
with India can increase exports
substantially
• Similar examples in sporting goods from
Sialkot
0%
20%
40%
60%
80%
100%Raw materials (35.0%)
Forging & shaping (1.5%)
Miling & machining (5.9%)
Rough grinding (4.6%)
67
29 26 11 6 5 5 5 4 4 -
10
20
30
40
50
60
70
80
US Germany UK France Italy India Brazil China Australia Japan
(US
D $
mil
lio
n)
Pakistan’s Surgical Goods Cost Margins
Pakistan’s Top 10 Countries for Surgical Goods Exports (USD $ million)
Source: Surgical Instruments Manufacturers Association of Pakistan (2012)
US 41%
EU 44%
Asia 9%
Other 6%
Top ten destinations
Trade Project
Supply Chains: Plastics and Chemicals
Plastics
• Pakistan imports over USD $1 billion of Polyethylene (300kt) and Polypropylene (300kt)
• Less than 10% are imported from India, whose petrochemical plants are located near
Lahore
• Most plastic manufacturing units (over 400) are located near Lahore
• India can import cheaper, high quality plastic goods such as water coolers, bottles and
parts from Pakistan
Chemicals
• Pakistan has surplus capacity for soda ash and caustic soda
o India currently imports these products from more expensive sources
• Huge demand in Pakistan for dyes, colouring materials and organic chemicals
PET (Resin)
Polyethylene Granules
Plastic goods (e.g. water coolers)
Dyes and coloring materials
Textiles
Trade Project
Conclusion
• Pakistan needs to redesign its transit trade policies
• Five big steps needed: o Grant MFN Status to India
o Accession to TIR Convention
o Open New Trade Routes
o Trade Facilitation:
– Implement recent RKC/WTO Agreement on Trade Facilitation
– Integrated Border Management Systems
o Reduce Taxes on International Trade
• Improving regional connectivity may not require major resources