Transit Trade and National Security of Pakistan

Transit Trade as an Aspect of Economic Security

Economic prosperity enables national security while failing economies obstruct the cause of national security. National security is achieved not only by flexing a military muscle but by ensuring sustainable development and equitable economic growth. Even the long-term military might needs to be sustained through an efficient economic growth. International trade is central to stimulating economic growth. It plays a crucial role in improving social welfare by enhancing the quality and variety of goods available to consumers and by making them more affordable. It further helps states to create employment opportunities, generate tax revenues and income and also promote exports. The resultant economic growth, in turn, helps reduce poverty and increase resources available for primary health care, education and other basic services. Pakistan’s geographical position is such that it shares borders with Iran, Afghanistan, China and India while Arabian Sea connects it to the rest of the world. Pakistan can leverage its geostrategic location in the region to enhance its international transit trade as transit trade is crucial in enabling economic growth and fostering regional connectivity.

Importance of International Laws Facilitating Transit Trade

International trade is crucial for economic growth and poverty reduction. However, transport of goods or products across the borders and their free flow in the markets of another country is what makes international trade a complex phenomenon. Such movement of products is quite laborious and costly especially for the landlocked developing countries. Owing to their geographic positioning, such countries have to face multiple border crossings and the associated transport or transit procedures which prove to be quite complicated and onerous for the transporters in terms of high transport or transit costs. Cumbersome border crossing procedures increase the cost of international trade manifold while remedying these inefficiencies can bolster international trade and the resultant economic growth. Cost-efficient and timely international transport of products require harmonization and streamlining of trade facilitation laws, standardization and simplification of the procedures including customs inspections, border controls and other related documentation. Such harmonization makes international trade time-efficient and cost-effective thus promoting it on a global scale. The chief route to achieving the said harmonization and standardization of transit and trade rules, laws and related documentation is through becoming a party to the relevant international conventions and treaties on facilitation of international trade and transit. These conventions and treaties are as important as developing physical infrastructure for transit trade because the effective legal framework is a precondition to reducing the high costs of trade and improving the export competitiveness of states. There are a number of international legal instruments establishing a legal and regulatory framework to facilitate transit trade at the international level. Pakistan is a party to several such international trade law instruments. It ratified the Convention on the Contract for International Carriage of Goods by Road 1956 which deals with issues of liability in international carriage of goods by road. serves a as a blueprint for modern, efficient and effective customs procedures. United Nations Convention On The Law Of Sea (UNCLOS) 1982 is another important convention ratified by Pakistan. Under Article 125, UNCLOS grants the land-locked states the right of access to and from the sea for the purpose of exercising the rights provided under it. To this end, land-locked states are given the /freedom of transit through the territory of transit states by all means of transport, the modalities of which are to be agreed between the concerned land- locked states and transit states through bilateral, subregional or regional agreements. Further, Pakistan is also a party to the Customs Convention on the International Transport of Goods under Cover of TIR Carnets (TIR Convention) 1975 which facilitates the international carriage of goods from customs offices of departure to customs offices of destination and through as many states as required. Also, Pakistan had acceded to the Convention On Road Traffic 1908 which aims at enhancing road safety by harmonizing traffic rules among the state parties. It also acceded to the Vienna Convention on Road Signs and Signals 1968 which standardizes the road signs, signals, symbols and road markings in use internationally. However, there are still some important international trade law instruments which have not been ratified by Pakistan as yet. These include International Convention on the Harmonization of Frontier Control of Goods 1982; Customs Convention on Containers 1972; Convention on the Liability of Operators of Transport Terminals in International Trade 1991; Customs Convention on Temporary Importation of Commercial Road Vehicles 1956; and United Nations Convention on International Multimodal Transport 1980. These conventions need to be considered for ratification by Pakistan in order for it to be able to take full advantage of the international legal framework on transit trade.

Regional and Bilateral Trade Agreements

Regional and bilateral trade agreements make up a great part of international trade today, functioning alongside other international multilateral agreements, conventions, and treaties. These regional and bilateral agreements have been in place for quite long but their scope has considerably broadened in recent times with an aim to enhance trade and economic growth. The present proliferation of regional and bilateral trade agreements is reflective of a need. for deeper economic integration than what has been attained by other multilateral arrangements. States enter into regional and bilateral agreements for a plethora of reasons which involve both economic and strategic gains. The most conventional aim that drives a state’s involvement in any trade negotiation is that through mutual relaxations on trade barriers, market access can be improved from which all parties to the negotiation can benefit’. Another possible objective in negotiating bilateral and regional trade agreements is that such agreements can help support security arrangements among the integrating states. Pakistan is a party to multiple regional trade and transit agreements which include Quadrilateral Traffic in Transit Agreement 1995 between China, Pakistan, Kazakhstan and Kyrgyzstan; ECO Transit Transport Framework Agreement 2013 between Afghanistan, Azerbaijan, Iran, Kazakhstan, Krgyz Republic, Pakistan, Tajikistan, Turkey, Turkmenistan; Central Asia Regional Economic Cooperation Program between Afghanistan, Azerbaijan, China, Georgia, Kazakhstan, Krgyz Republic, Mongolia, Pakistan, Tajikistan, Turkmenistan, Uzbekistan.

Pakistan has also entered into several bilateral trade and transit agreements. One such agreement has been made with Afghanistan which is called Pakistan-Afghanistan Transit Trade Agreement 2010. This agreement contains provisions relating to counter-smuggling initiatives; commitments to improve both countries’ customs facilities and to use each other’s rail, road, and airport infrastructure on certain routes. It further provides for one-way transfer of Afghan goods to India via the Wagah border crossing. In practice, however, strict compliance with the agreement is still absent in many respects”, Another bilateral trade agreement has been entered into with Uzbekistan called the Agreement between Uzbekistan and Pakistan on Transit Trade (AUPTT) 2021. AUPTT will give Uzbekistan access to Pakistani seaports. It will guarantee free movement of Uzbek trucks carrying goods in Pakistan and, in return, Uzbekistan will allow Pakistan to transport its goods in Uzbekistan and its border points with other Central Asian Republics. From there, Pakistan will be able to reach markets of other Central Asian Republics. This would boost trade and regional connectivity and would enable Pakistan to enter into Central Asian markets to harness the potential of a huge market there. As per the AUPTT, transit trade between Uzbekistan and Pakistan must take place only via the specified routes, seaports and borders. Both countries must make certain the availability of appropriate infrastructure and staff at border crossings and would provide one another separate spaces for off-dock terminals and warehouses at entry/exit points and other customs notified places. Further, Uzbekistan and Pakistan would issue Road Transport Permits on the basis of which transport operators would be able to move goods through the other country’s territory without having to reload them to the other country’s trucks. Both countries would recognize the driver’s licenses and vehicle registration documents of each other. Moreover, the two countries would make multiple-entry visa process for truck drivers from each other’s country quick and simple. A committee called The Uzbekistan-Pakistan Transit Trade Coordination Committee (UPTTCC) has also been established under the AUPTT which is responsible for monitoring and facilitating implementation of the agreement. Pakistan has also entered into several bilateral agreements and Memorandums of Understanding (MoUs) with Turkmenistan, Tajikistan, Kyrgyz Republic, Uzbekistan and Afghanistan.

Some of these agreements and MoUs are of great significance from the perspective of business enterprises, for example, Agreement for the Establishment of Joint Business Council OBC) between Chambers of Commerce and Industry of Tajikistan and Federation of Pakistan Chambers of Commerce and Industry; Memorandum of Understanding on Establishment of Turkmenistan- Pakistan Joint Business Council OBC) between the Chamber of Commerce and Industry of Turkmenistan and the Federation of Pakistan Chambers of Commerce and Industry; Memorandum of Understanding on the Establishment of a Joint Business Council between Chamber of Commerce and Industry of Uzbekistan and the Federation of Pakistan Chambers of Commerce and Industry. These Joint Business Councils will act as an established working plan between the national chambers of the concerned countries to help their business circles foster and enhance bilateral economic relations.

This is crucial because businesses are important for economic development. They are the source of revenue generation, create investment opportunities and also serve as a significant medium for the development of national and international
relationships. However, business should be left in the domain of private sector as economics is the function of private sector. The private sector is the driving force for economic growth: creating jobs, boosting trade, providing goods and services and producing tax revenue to fund basic public services such as healthcare and education. Business success depends, to a crucial extent, on the economic system of a country where it operates. A country’s economic system is the amalgamation of policies and laws made by its government; so, what is needed is good economic governance facilitating our domestic business enterprises and revitalizing our industries by upgrading trade facilitation and infrastructure.

Pakistan is also an active member of many international and regional organizations which work for the promotion of trade and commerce, one of the most important ones being the United Nations Commission on International Trade Law (UNCITRAL). In a highly economically interwoven world, there is a great need and importance attached with developing and maintaining a strong cross- border legal regime for the facilitation of international trade and investment. UNCITRAL plays a vital role in establishing the said legal regime and in working towards the harmonization and upgradation of international trade laws. To this end, UNCITRAL has been producing legislative and non- legislative instruments in a number of crucial areas of trade and commercial law. In pursuance of its mandate, UNCITRAL keeps close relations with international and regional organizations that actively contribute to the field of international trade and commercial law. UNCITRAL has also done substantial work in the area of international payments. In 1987, the CITRAL Secretariat fromulated the UNCITRAL Legal Guide on Electronic Funds Transfers (1987) to furnish a set of guidelines in the area of electronic payments. Similarly, the UNCITRAL Model Law on International Credit Transfers (1992) provides guidance on the legal treatment of cross-border payments and further lays down the obligations and liabilities of the parties. The United Nations Convention on International Bills of Exchange and International Promissory Notes (New York, 1988) sets out, for optional use in international transactions, a detailed set of rules for international bills of exchange and international promissory notes satisfying its requisites of form.

The United Nations Convention on Independent Guarantees and Standby Letters of Credit (New York, 1995) aims to simplify the use of independent guarantees and standby letters of credit. Further, a Secretariat Informational Note on Recognizing and Preventing Commercial Fraud: Indicators of Commercial Fraud (2013) has also been published for informative purposes and fraud prevention. Adding to their importance and utility is the fact that all of the above are Financial Action Task Force (FATF) sanctioned payment regimes, so by joining these a state also becomes FATF compliant.

Pakistan to Become a Transit Trade Hub

Pakistan can access Central Asian States via Afghanistan and China. On the other hand, Afghanistan and the Central Asian States are landlocked. Pakistan’s geostrategic positioning bestows it with the potential of becoming a transit trade hub by connecting these landlocked countries with Middle East, Africa and Europe through its transit passages and seaports.

Pakistan has been making serious efforts to realize its potential as a transit trade hub and to improve efficacy along its chief transit corridors thus boosting its economic growth. Pakistan has made significant improvements at an important border with Afghanistan for sustainable mobility, which includes the making of a National Transport Policy in 2018.

Pakistan has also been working on the development of an Integrated Trans Trade Management System (ITTMS) under the Asian Development Bank’s (ADB) Regional Improving Border Service Projects. The project aims to establish state-of-the-art facilities at Wagah, Torkham and Chaman border crossing points to ensure quick clearance at these crossing points by establishing one-window ICT-based system. The project would also ensure the protection of borders against any incidences of smuggling by ensuring an appropriate exit of outbound cargoes and also keeping a check on the backward flow of goods.

The country has also been taking other initiatives to make the conditions more conducive for transit trade. These include entering into an agreement with Afghanistan to exchange customs information, improving the efficiency of border agencies through major civil infrastructure works, and hiring specialized staff for competent management of the transit trade, The clearance procedure has also been modified to accelerate the cross-border movement of cargo at Torkham. Further, perishable and other vital goods and products imported from Afghanistan have been given priority clearance thereby reducing their clearance time duration from 160 to 60 minutes.

Owing to these initiatives and efforts, the growth rate of Afghan transit trade between Afghanistan and Pakistan has been increasing at 40% annually (in USO), and a 2% increase (in USO) was recorded in 2020 as compared with 2019⁸. Now, with the new Taliban regime in Afghanistan and the withdrawal of US forces from the country, there is an opportunity for Pakistan to enhance its engagement with Afghanistan in terms of trade especially with the affirmations from Taliban that steps will be taken to encourage trade.

This is needed to support Afghanistan’s faltering economy. So, Pakistan has an opportunity to cooperate with the private enterprises in Kabul and other areas of Afghanistan to their mutual benefit. Opportunities for trade, investment, and cross-border engagement are likely to provide huge benefits to both sides. This relationship is also critical to ensuring long-term peace in both states and in the wider region. Further, meetings and conferences of Afghanistan’s neighbours have also started to take place. The idea behind these meetings and conferences is to highlight the importance of developing a regional approach to address common challenges and to appreciate the new opportunities arising from Afghanistan once the stability is achieved. It is highlighted that prosperous and peaceful Afghanistan would provide stimulus for deeper economic integration, strong people-to-people connections, improved trade, and regional connectivity.

An Uzbek cargo truck then took a shipment ofleather products from Tashkent to the Afghan-Pakistani border (Torkham), from where itwas transported to Faisalabad. The shipments were a part of five planned trial runs to evaluate the viability of various transit routes in the region and to boost regional trade and connectivity. The shipments were made under the Customs Convention on the International Transport of Goods Under Cover of TIR Carnets {TIR Convention), a multilateral treaty that facilitates the international transport of goods by harmonising the administrative formalities of international road transport. Pakistan acceded to the TIR Convention on 21 July 2015, and several TIR operations have been successfully completed since then. Additionally, Pakistan also showed interest in making the TIR procedures fully computerized via eTiR with the help of the United Nations Economic Commission for Europe (UNECE).

The government is also in the process of setting up a Pakistan Land Port Authority (PLPA) to modernise the state of affairs at border crossings+’. The establishment of the said authority is expected to boost transit trade with Afghanistan and Central Asian Republics by alleviating traffic congestions and bottlenecks with a view to expedite the efficient movement of goods, people and vehicles across its border crossings. Pakistan Customs is making concrete efforts by investing in new projects like Pakistan Single Window (PSW) and Authorised Economic Operator (AEO) and the multimodal Transports Internationaux Routiers (TIR) regime to boost trade volume and make the supply chain networks more streamlined and efficient, These initiatives are expected to substantially reduce the costs associated with cross-border movement or transport of goods in terms of trade barriers, cumbersome customs clearance procedures, other regulatory bottlenecks, and transport costs. The above discussion reflects that Pakistan, by enhancing its trade volume with other regional countries via various bilateral and multilateral trade agreements, is en route to become an important transit hub in the region.

Challenges Faced by Pakistan in Realizing its Potential as a Transit Trade Hub

Pakistan faces challenges on multiple fronts in realizing its potential as a transit trade hub. Firstly, security concerns do not allow it to thrive economically by taking advantage of the existing economic opportunities. Internal security is quite crucial to a state’s diplomatic relations, socioeconomic strength and political stability. Fragility of internal security makes a state susceptible to political, economic, social and moral disintegration. Not only internal security matrix but external challenges of regional or international nature also have a significant impact on the overall national security spectrum. The intermeddling of other states in Pakistan’s domestic affairs is causing national security concerns of varying nature. The country needs an effective political strategy backed up by economic initiatives, regional and international cooperation and integration.

Further, there are also some logistical issues which prevent Pakistan from realizing its full potential in becoming a transit trade hub as the role of logistics in boosting economic growth of a country cannot be emphasized enough. The nexus between an efficient transport infrastructure and economic growth in undeniable. An efficient transport system results in economic growth by lowering the production cost. However, Pakistan’s existing transportation system is not able to meet the demands of modern-day international or regional transit trade. Roads and Railways are the two main sources of Pakistan’s inland transport system. However, in Pakistan, most of the freight transport takes place through road transport networks. But unfortunately, the quality of the country’s road transport system is not up to par to meet the needs of modern era. The country does not have a good road safety record. Further, its freight transport industry is highly fragmented and unregulated and consists of obsolete slower and underpowered trucks thus significantly impacting the time of transport. Moreover, these trucks are quite heavy on the fuel consumption thus adding to their inefficiency further. Given the absence of an integrated regulatory framework governing the truck industry, there are some truck owners who remain undocumented and are prone to overloading thus leading to road accidents and roads damage thus causing economic losses. Since the very outset, Pakistan has been more focused on the road networks and the railway has constantly remained neglected mode of transport and its freight haulage has been on the decline despite the fact that railways are considered the most efficient and cost-effective mode of transportation for goods. Yet, due to the lack of quality container and non-container freight trains in Pakistan, railway’s part in freight transport is nominal.

Recommendations

Improving the trade and logistics competence should be the key concern for Pakistan as the efficiency of freight transport, both in terms of time and cost, is becoming increasingly important to realize its potential as a regional transit hub.

In order to foster international and regional economic integration and boost sustainable economic growth, Pakistan needs to focus on increasing the efficiency of the transport system by developing new transport infrastructure. There is a need to make a shift from outdated and fragmented freight industry to more streamlined and regulated services comprising state-of-the-art efficient logistical system. The truck industry needs to be properly regulated by replacement of old trucks with the new ones which are more eco-friendly and reduce the transportation time and cost in accordance with international standards. Further, given the fact that railways are one of the most efficient and cost-effective means of goods transportation, it would be unwise to neglect this area and rely solely on road transport networks for goods carriage. There is a pressing need to improve both the number and quality of locomotives to meet the demands of inland freight services. According to a World Bank study, “a single freight train is equivalent to 100 trucks. Not only that, since logistics is an extremely price sensitive sector, it makes even more sense for public and private sector investment to be allocated for rail development. This is because a gallon of fuel can transport a ton of goods over a distance of 250 miles using rail compared to only 90 miles by road. Added value also comes from fuel efficiency and faster routes to market which the rail offers and that is why internationally, almost 50% of all cargo is hauled by railways. One crucial area that merits attention is, the provision of cold store containers in freight trains which is needed to reduce wastage of farm produce and other perishables that Pakistan is currently unable to export. Pakistan is making some positive developments in the area by making investments in railway infrastructure and other projects. However, to improve the performance of Pakistan Railways, there is a need of public-private partnership in advancement of existing and new infrastructure as, in the long-run, only multilateral participation can sustain all the ambitious projects that Pakistan has undertaken or is planning to undertake in future. Further, strenuous and concrete efforts need to be made to improve internal security situation through capacity- building of law enforcement agencies as favourable environment is a pre-requisite for the enhancement of regional connectivity and economic integration via transit trade. Pakistan also needs to set up a dedicated team of experts in International Trade Law, in Trade Development Authority of Pakistan or Ministry of Commerce with the aim to follow up on legal developments regarding existing international conventions and treaties on the subject. Moreover, National Assembly should set up parliamentary committees for oversight of bilateral treaties of Pakistan with neighbouring states and for ensuring strict implementation of the said treaties. Pakistan should also ratify the remaining international transport and trade facilitation conventions in order to take full benefit of the International Trade Law regime. All the relevant think tanks in Pakistan should develop and strengthen their connections with international organizations such as Economic Cooperation Organization (ECO), Central Asia Regional Economic Cooperation (CARE C) Program, United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), United Nations Commission on International Trade Law (UNCITRAL), United Nations Conference on Trade and Development (UNCTAD), Organization of Islamic Cooperation (OlC), Shanghai Cooperation Organization (SCO). Research Society of International Law (RSIL), a private sector research and policy institution on international law has been working on these issues since 1993. On RSIL’s invitation, UNCITRAL’s Secretary General attended the seminar on International Trade Law and Commerce with Federal Secretary for Law, Justice Ihsan ul Haq presiding over the session. On the recommendations of the seminar, a draft note for ratifying the TIR Convention was submitted to the Ministry of Law and Justice, Pakistan. Lastly, UNCITRAL should be formally requested to set up a, regional centre in Pakistan to work closely with the relevant offices in Pakistan.

Conclusion

The evolving nature of national security has encompassed the notion of economic security within its sphere. Transit trade being an aspect of economic security also falls under the ambit of national security regime. Pakistan offers the most economic strategic link and shortest trade route between the resource rich and the energy scarce region. Given the rapidly changing geo-strategic environment, many potential economic opportunities are emerging which Pakistan can take massive advantage of. With the improvement in our internal security situation and regional security matrix, the transit trade with the neighbouring countries is likely to increase substantially. However, Pakistan’s existing transportation system is not adequate to meet the demands of modern-era regional and international transit trade. The country’s road freight sector warrants immediate attention along with extending the facilities at its ports to other countries, especially the Central Asian States, so that it can serve as a regional hub for transit trade. Pakistan needs to upgrade this sector by modernizing its fleet thus meeting the requirements laid down in the TIR Conventions so that trade efficiency can be enhanced and economic costs in the form of road damages and higher fuel consumption can be effectively reduced.

To boost its trade volumes and economic strength, Pakistan is in need of a strong, cohesive, and efficient logistics sector, which in its existing form does not exhibit encouraging performance parameters. “From prolonged dwell times of containers at ports, excessive airfreight charges, absence of integrated cold stores at airports and railway stations to obsolete, overloaded trucks, Pakistan’s logistics industry is in need of a massive overhaul.” The improvement in this sector needs to be considered as a “cross-cutting policy concern, crossing the administrative boundaries of transportation, commerce, infrastructure:’ industry, finance and the environment. Further, Pakistan needs to ensure strict compliance and implementation of all the international, regional and bilateral trade related treaties and agreements and to consider ratifying other crucial international conventions on the subject to boost its trade and economic growth and attain deeper economic integration.