“APTTA and the Curse of Smuggling” RSIL’s “Pakistan Journal of International Law” Vol.1 No.2 - (2011)

APTTA and the Curse of Smuggling

Cross border smuggling between Pakistan and Afghanistan is not contemporary, the “Barra” markets in Peshawar, stand evidence to this fact. However, currently the question facing the Government of Pakistan is what impact would the new Afghan Pakistan Transit Trade Agreement (APTTA) 2010 have on the issue of cross border smuggling which according to Mr. Munir Qureshi, Member Customs Federal Board of Revenue (FBR), results in revenue losses of nearly $2.5 billion, annually, to national funds .

Currently, Pakistan provides transit facilities to goods predestined for Afghanistan under the Afghan Transit Trade Agreement 1965 (ATTA), a bilateral accord between the two countries; which was drafted in order for Afghanistan to benefit from international trade through the seas, considering the geographical disadvantage it faces by being a land locked state. However, provisions of ATTA 1965 have been abused over the past several decades, by smuggler(illicit traders) who import goods well over the real consumption levels of Afghanistan, then smuggle the remaining goods back into Pakistan; which remain after Afghani consumption. Owing to such activities local manufacturers and importers are damaged which in return deprives the government of investment, taxes and duties.

There have been numerous cases in the Supreme Court of Pakistan on matters of cross border smuggling, based on the ATTA 1965. In Jamaluddin and Others vs. Government of Pakistan [1993] SMRC 727, the court observed that the transit of goods covered by the ATTA 1965 could not possibly be prohibited unilaterally by the Government of Pakistan by passing an order and, secondly, the issue of cross border smuggling cannot be held as a precursor to restriction on transit facilities granted to Afghanistan.

This landmark case predominantly makes one thing clear that Pakistan alone cannot alter the terms of the Agreement and the issue of cross border smuggling cannot be a precursor to the restriction of transit facilities granted to Afghanistan, unilaterally by Pakistan.

The APTTA 2010 negotiations were set off; earlier this July by the official signing of minutes, representing the inauguration of negotiations between Pakistan and Afghanistan on APTTA 2010. Since then a surge of confusion and uncertainty has arisen over this agreement from every sector of trade and commerce in Pakistan.

Both Karachi and Lahore Chambers Of Commerce have shown resentment toward this agreement and identified calculated losses that Pakistan would endure because they fear that smuggling would increase by many folds, if this agreement is signed.

In the meanwhile, prior to the official signing of the new agreement, the Government of Pakistan, on 22 July 2010, released the new proposed Customs Protocol under APTTA 2010, which was jointly drafted by the Customs Authorities of both Pakistan and Afghanistan for the regulation of transit traffic under this new agreement.

Upon review of the proposed APTTA 2010 Customs Protocols, it reveals that Article 23 introduces a system of financial securities to check smuggling, under which the Afghan importers would have to submit the bank guarantee equivalent to import duty. These financial securities would only be released when Afghan imports would reach their destination in Afghanistan. Thus, if the Afghan importer fails to supply documentary proof that the consignment has crossed in to Afghanistan, these bank guarantees would be encashed by Pakistani Authorities. However, it is speculative that this proposed procedure would not be so accommodating in preventing Afghan imports coming back into Pakistan after reaching Afghanistan, as that would need strong anti-smuggling mechanism in place.

Additional control measures have also been introduced under Article 16 which allows the Custom Authorities to affix a time limit from the time of entry of the transit good until their exit at the specified customs office in their territory.

Moreover, Article 20 provides for swift communication of information between the customs authorities of Pakistan and Afghanistan on matters of inquiry of the Goods Declaration (GD) or information enabling verification of the authenticity of the seals affixed in the territory, and also provides for the utilization of electronic communication and hotlines.

Additionally, Article 21 provides for spontaneous notification to each other’s Customs offices of inaccuracies in the GD or any other irregularity discovered in connection with the transit operations carried out.  This procedure proposes to ensure security and supervision of goods in transit destined for Afghanistan, thus in the process verifying their inflow back into Pakistan.

The new Protocol also incorporates provisions under Article 31 regarding situations of Force-Majeure which the old ATTA 1965 did not provide for. Force-Majeure clauses are contractual provisions, usually added into contracts or agreements, incorporated in anticipation of an Act of God which renders the subject matter of the agreement, useless.

Thus, this provision would ensure that even if the goods on transit are destroyed by accident or any other matter, they would not enter into unauthorized circulation, by placing a duty on the carrier to report the incident to the nearest Customs Authority or other competent authorities, who would then take into account the nature of the accident and other circumstances which interrupted the journey.

Article 10 of APTTA 2010 seems to require a comprehensive review as it allows physical customs inspection of cargo only in exceptional circumstances, i.e., only in view of any suspected irregularities which may include; explicit tampering of seals, explicit tampering of the locks on the transport unit or some reliable specific intelligence.

However, in light of suspicion, Customs Authorities will be allowed to sever the seals to execute physical inspections of the cargo en route. Once the inspection is complete the Customs Authorities shall affix new seals and record this action in the Transit and Inland Customs Clearance Documents. It must also be noted that this article complies with the Revised Kyoto Convention 2005 to which Pakistan is a signatory.

It seems pertinent to mention here, that according to the World Bank's report “Logistics Cost Study” 2006, each day delay in the transshipment cycle costs Pakistan over 5 million US Dollars. Physically examining goods at both ends is not a very viable option and secondly this option would not have any effect on the efforts to curb smuggling, as once the goods reach Afghanistan, they would easily return back into Pakistan; owing unscrupulous characters of the Customs Officials and the naturally porous border we share with Afghanistan.

Although this new agreement seem to provide new mechanisms which may be beneficial in regulating and facilitating transit traffic between the two countries but, at the same time, it also falls short in addressing concerns of cross border smuggling which could very well be over come by adopting strict border policy alongside with vigilant border security between the two states.