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Transit, Regional Connectivity and

Integrated Border Management:

The Way Forward

Trade Project

Regional Conference on Strengthening

Transport Connectivity and Trade Facilitation

December 10, 2013

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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

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Pakistan’s Strategic Location:

Benefiting from Transit Trade

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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)

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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Thank You