Transit, Regional Connectivity and Integrated Border Management: The Way Forward 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 Grant Most Favored Nation (MFN) Status to India Implement TIR Convention New Trade Routes Trade Facilitation Building Supply Chains Conclusion

Pakistan’s Strategic Location: Benefiting from Transit Trade

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)

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

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

Way Forward: Improving Regional Connectivity Grant MFN Status to India Implement TIR Convention Open New Trade Routes Provide links with inland dry ports Trade Facilitation Accelerate implementation of the World Trade Organization (WTO) Agreement on Trade Facilitation/Revised Kyoto Convention (RKC) Negotiate/fully implement bilateral transit agreements Integrated Border Management Systems Build Supply Chains

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: National guarantee associations and customs authorities control access Goods accompanied by TIR Carnet, which serves as the control document in the countries of departure, transit, and destination Duties and taxes covered by an internationally valid guarantee Goods travel in approved secure vehicles and containers Customs control measures taken in country of departure are accepted by the countries of transit and destination

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 Karachi-Mumbai

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 Facilitation vs. Tariff Reduction Increase in Global Trade and GDP (USD $ trillion) 2.6 Trade GDP (USD $ trillion) 1.6 1.5 4.7% 1.1 1.0 14.5% 2.6% 10.1% 9.4% 0.4 0.7% Ambitious scenario Modest scenario Tariffs Countries improve trade facilitation halfway to global best practice Countries improve trade facilitation halfway to regional best practice All tariffs removed globally 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)

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

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

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 Pakistan’s Surgical Goods Cost Margins Pakistan’s Top 10 Countries for Surgical Goods Exports (USD $ million) Top ten destinations Source: Surgical Instruments Manufacturers Association of Pakistan (2012)

Supply Chains: Plastics and Chemicals 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 India currently imports these products from more expensive sources Huge demand in Pakistan for dyes, colouring materials and organic chemicals Polyethylene Granules Plastic goods (e.g. water coolers) PET (Resin) Dyes and coloring materials Textiles

Conclusion Pakistan needs to redesign its transit trade policies Five big steps needed: Grant MFN Status to India Accession to TIR Convention Open New Trade Routes Trade Facilitation: Implement recent RKC/WTO Agreement on Trade Facilitation Integrated Border Management Systems Reduce Taxes on International Trade Improving regional connectivity may not require major resources