What determines Pakistan’s access to central Asian markets?
Pakistan and Uzbekistan signed a transit trade agreement as part of the ‘Silk Route Reconnect Policy’ aimed at enhancing economic and trade integration with the Central Asian Republics (CARs). This and other measures considered during Prime Minister Imran Khan’s recent visit to Tashkent are expected to provide a market having export potential nearing $90 billion.
It will now be important to put in place measures that do not let this potential gain go to waste too soon. We have seen how slow progress on the Afghanistan Pakistan transit arrangement has led to a stifling of vast business opportunities on both sides. Such agreements are complex in nature but this complexity should not result in regulatory burdens for businesses on either side.
Both regulatory and trade-related infrastructure developments will have to come about simultaneously and fast. For example, these will include Uzbekistan and Pakistan ensuring suitable infrastructure and availability of personnel at border crossings, and will provide separate spaces for off dock terminals and warehousing; both countries will issue Road Transport Permits after due diligence; Uzbek trucks could carry goods via Pakistan to seaports without the need to reload in Afghanistan or Pakistan; both governments would recognize driver’s and vehicle registration documents; the Uzbekistan-Pakistan Transit Trade Coordination Committee (UPTTCC) will be responsible for monitoring and facilitating the implementation of the agreement, and there will be an efficient grievances redressal mechanism and dispute settlement and arbitration arrangements. These are all important measures and seamless implementation is desired to give confidence to businesses in trade, transport and warehousing in both countries.
The dividends of CPEC will only materialize if they are shared with neighbors including Afghanistan, Iran and CARs.
Dr. Vaqar Ahmed
The efficiency of Pakistani ports will also be tested. Currently, Uzbekistan is highly dependent on Iranian seaports accessed via Turkmenistan. If Pakistan wants to attract this business, each of the ports inside the country will haveThe efficiency of Pakistani ports will also be tested. Currently, Uzbekistan is highly dependent on Iranian seaports accessed via Turkmenistan. If Pakistan wants to attract this business, each of the ports inside the country will have to step up in operational performance, safety, and security spheres. Incidences of informal trade, leakages during transit and smuggling will also need a stringent check. Demonstrating this success will be important as there are other countries in the region who may like Pakistan to extend transit facility. For example, Uzbekistan is seen as the gateway to Kazakhstan, Kyrgyz Republic, Turkmenistan, and the Russian federation.
Transit deals almost every time also benefit bilateral trade between the partner economies. It is therefore important that Pakistan should continue to pursue possibilities of Free Trade Agreements (FTAs) with Uzbekistan and all other countries mentioned above. This could reverse the minuscule trade that Pakistan has with Uzbekistan which currently stands at a meagre $40 million. Currently CARs have exhibited a low appetite for such FTAs, but increased business-to-business engagement and business expos led by the Trade Development Authority of Pakistan in various CARs could boost demand for Pakistani goods and shape political will in favor of FTAs. An additional benefit of this could be enhanced trade-in-services between Pakistan and CARs.
Peace in Afghanistan will also be an important determinant of the success of this transit deal. As the US withdraws from Afghanistan and the region, new players are emerging who will gain controls of borders and trade. It is important that Pakistan should maintain a good relation with all and not have the past policy of taking sides in Afghanistan. This will at least ensure that trade and investment cooperation in the region remains insulated from politics. Increased economic interdependencies can then strengthen ties that can sustain political differences.
Likewise, internal security dimensions will also be important. Gwadar port’s potential to service transit trade for CARs can only be harnessed if peace in Balochistan prevails and plans under the second phase of China Pakistan Economic Corridor (CPEC) are expedited. The dividends of CPEC will only materialize if they are shared with neighbors including Afghanistan, Iran and CARs. For example, the potential of ML-1 railway line under CPEC could be a major factor in bringing down transportation and logistics costs in the region.
All of this is priority as there is competition in the region for tapping into regional connectivity potential. India, for example, has presented CARs with alternative routes which will bypass Pakistan. Despite agonizingly slow progress, India still sees prospects in providing CARs expanded transit arrangements through Iran’s Chabahar port. Pakistan on the other hand has two routes available for CARs, via Afghanistan or China. However both require Pakistan to expedite operational performance, improve security for goods in transit, and reduce in country logistics costs. If relations between India and Pakistan improve over time, it could usher a possibility where Delhi and Islamabad could once again offer to connect SAARC member countries with CARs.
- Dr. Vaqar Ahmed is an economist and former civil servant. He tweets @vaqarahmed