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UNCLAS SECTION 01 OF 03 ISLAMABAD 000930 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ECON EAID EINV ETRD PK
SUBJECT:  ACTION ON PAK-AFGHAN TRANSIT TRADE NEGOTIATIONS 
 
¶1. (SBU) Summary: The Pakistani Cabinet approved the opening of 
formal negotiations on a new Afghanistan Transit Trade Agreement 
(ATT) April 8, a significant step toward replacing the outdated 1965 
agreement currently in place.  While this is a welcome step forward, 
challenges ranging from vested interests, inadequate infrastructure 
and tense relations with neighboring India mean that concluding a 
new agreement will not be easy, despite welcome leadership by the 
Ministry of Commerce.  Pakistan prefers to conclude an agreement 
with Afghanistan without addressing issues with India.  Engaging 
both the military and the civilian leadership in Pakistan will be 
essential to making a new transit trade agreement a reality.  End 
Summary. 
 
Background 
---------- 
 
¶2. (SBU) The flow of goods between Afghanistan and Pakistan (and by 
extension to/from regional and global markets) is hindered by an 
outdated 1965 transit trade agreement.  Limitations of the current 
agreement fuel corruption on both sides of the border, and the issue 
has been a significant source of irritation between the two 
governments. 
 
¶3. (SBU) Afghanistan is eager to adopt a new bilateral agreement and 
presented Pakistan with an updated text to re-open negotiations in 
November 2008.  While Pakistan has traditionally been unwilling to 
change the status quo, the new offer of reciprocal transit rights 
across Afghanistan to reach Central Asia spurred the Pakistani 
Cabinet on April 8 to approve the launch of formal negotiations with 
Afghanistan.  They plan to announce this at the upcoming Regional 
Economic Cooperation Conference on Afghanistan (RECCA) in Islamabad 
(May 13-14). 
 
¶4. (U) Both the Asian Development Bank and the World Bank have 
studied transit trade issues; the World Bank has been instrumental 
in assisting both parties in the current negotiating process. 
Canada has sponsored a dialogue (the Dubai Process) which includes 
an effort to coordinate and improve operations at the border.  That 
process has set a target for concluding the new Agreement by March 
¶2010.  After discussing this issue at Joint Economic Commission 
(JEC) meetings in November 2008, the GOP has been consulting 
internally on the Afghan draft, with the help of a World Bank 
facilitator.  The April 8 Cabinet decision has moved the ball a step 
further and we expect the GOP to hand over their comments on the 
Afghan draft soon.  Both sides report that they have identified 
their negotiating committees but bilateral follow-through on this 
issue has, as yet, no clear road map. 
 
The Current State of Play 
------------------------- 
 
¶5. (U) Goods face significant delays moving in both directions, 
increasing the cost of doing business.  However no study has been 
carried out to determine these costs. Afghanistan is one of few 
countries with which Pakistan has a positive trade balance. Exports 
were $ 1.143 billion and imports $ 0.091 billion in fiscal year 
¶2008.  For the first half of the current fiscal year (July -December 
2008), Pakistan's exports ($ 772 million) increased by 56 percent 
over the same period last year. Major exports include cereals, 
petroleum and petroleum products, edible oils, construction material 
and plastic products.  Currently, all Afghan-bound goods arrive at 
the Port of Karachi.  Per the 1965 treaty, the Afghans are unable to 
competitively bid for commercial transport and are required to use 
the National Logistics Cell (NLC) trucking company, an arm of the 
Pakistani military. 
 
¶6. (U) Due to the large flow of goods moving into Afghanistan 
post-2001, goods often sit for long periods in extreme temperatures 
at the port.  Once placed on a truck, the goods move slowly through 
a system of unofficial check points throughout Pakistan.  Goods move 
slowly because the roads and trucks are less than perfect.  There 
are further significant delays as a result of inadequate 
infrastructure (narrow roads, no pull-asides) at the Torkham border 
crossing for customs processing.  Most trucks do not cross the 
borders, so commercial goods are off-loaded by hand and placed on 
Afghan trucks for the onward journey to Kabul or beyond. 
 
¶7. (SBU) The roads between Peshawar-Torkham and Karachi-Chaman need 
 
ISLAMABAD 00000930  002 OF 003 
 
 
repairs to continue to handle heavy trucks. Repairs to the routes 
would speed the progress of traffic (now there are many chokepoints 
caused by road disrepair, leaving slow-moving traffic vulnerable to 
attack) and improving alternative routes (bypasses around Peshawar 
and Quetta) would take traffic out of the cities and provide an 
option if one route was blocked by an attack.  Specific improvements 
at the border crossings would also help: generators, lighting, 
temporary housing for border/customs officials, computer upgrades, 
and separate secure parking areas for trucks that need have 
paperwork or security screening.  Plans and funding exist to address 
these needs on the Afghan side of both crossings.  However, to have 
the needed impact, matching improvements on the Pakistani side of 
the border are also necessary.  There are currently no USG plans or 
funding for this purpose, and we do not believe any other donor has 
such plans.  Although Pakistani customs officials have indicated 
their willingness to keep the border open longer hours, seven days a 
week, they cite security and poor infrastructure as impediments. 
 
Impact on U.S. Military and ISAF 
-------------------------------- 
 
¶8. (SBU) Generally speaking, U.S. military and ISAF bound cargo is 
able to cross the Pak-Afghan border smoothly.  At present 90 percent 
of all re-supply goods arrive at the Port of Karachi and are then 
trucked across the Torkham and Chaman border crossings.  Goods are 
pre-cleared prior to arrival in Karachi; the computerized 
pre-clearance system between Karachi and the two main border 
crossings generally works quite well.  Problems arise when other 
commercial traffic gets hung-up; the two-lane roads leading up to 
the border crossings, and the choke points at the crossings 
themselves mean that if even one or two commercial trucks don't have 
their papers in order, any traffic behind them (cleared or not) also 
gets delayed.  A transit trade agreement that put in place processes 
to move all traffic more smoothly would help. 
 
¶9. (SBU) The U.S. military has developed a system in which they 
commercially contract trucks that can cross the Pak-Afghan border to 
ease the flow.  All of these factors combined have forced the U.S. 
military to budget months for travel that should take days.  Rail 
transport northward in Pakistan is equally problematic, with 
antiquated or nonexistent rail lines being the primary culprit. 
 
Challenges to a New Agreement 
----------------------------- 
 
¶10. (SBU) Securing adoption of agreement, once negotiated, will be 
difficult because of a number of deeply embedded Pakistani 
concerns-smuggling is the issue on which the GOP is most vocal. 
With Afghan tariffs among the lowest in the region at five percent, 
Pakistan faces an influx of goods bound for Afghanistan that are 
then smuggled back across the border into Pakistan.  Electronics, 
food, cigarettes, tires, and construction supplies are among the 
items which then cause distortion in Pakistan's markets, disrupting 
both trade and production cycles.  A major Pakistani complaint is 
that Afghanistan imports items for which there is little or no local 
demand, and in excessive quantities (the National Logistics 
Committee claims 10 to 20 times in excess of domestic demand; the 
current agreement allows for imports totaling only twice domestic 
demand).  The GOP asserts that "most" of these goods find their way 
back into Pakistan, since customs checks are not always conducted 
immediately at the border. 
 
¶11. (SBU) Furthermore, Pakistan has little appetite for allowing 
India to transit goods to Afghanistan via its territory, 
particularly as India does not allow reciprocity for Pakistan goods 
to transit its territory.  Ministry of Commerce officials have 
expressed concern that a lack of bypass roads around the border at 
Lahore will cause traffic bottlenecks.  A lack of reciprocity from 
India to open to trade routes for Pakistani trade to Bangladesh and 
other markets is another area of concern.  Pakistani officials have 
indicated that it would be easier to secure a new transit trade 
agreement with Afghanistan separately from improved trade with 
India. 
 
¶12. (SBU) Finally, Pakistani military, NLC and ISI interests control 
the trucking industry for Afghan-bound and Afghan-origin goods, and 
benefit financially from their current monopoly.  These groups also 
remain suspicious of any improvements to existing bilateral trade 
arrangements; particularly as they do not see the benefit to 
 
ISLAMABAD 00000930  003 OF 003 
 
 
Pakistan. 
 
Process 
------- 
 
¶13. (U) Once the negotiating teams reach agreement, the draft text 
has two possible routes for approval:  via legislation or via 
Presidential Ordinance.  To become law, the text must be vetted by 
the Law Ministry before moving to the Cabinet for approval.  Once 
the Cabinet has approved, the draft agreement must go to the 
Standing Committee of the National Assembly for its clearance.  The 
agreement will then go to Parliament, the National Assembly, and 
then to Senate to become a law. 
 
¶14. (U) An ordinance is the action of the executive.  Ordinances are 
valid for four months, but in practice are routinely renewed once 
put on the books.  Although it is faster and more certain, adopting 
laws by ordinance rather than the legislative process is coming 
under increasing criticism. 
 
¶15. (SBU) Comment: We need to convince Pakistan that the current 
situation is not in its national interest; in this sense the April 8 
cabinet decision to re-open negotiations is a long overdue and 
welcome step.  The Pakistan Ministry of Commerce has played a 
positive role in bringing Pakistani stakeholders on board, but it is 
clear that we must also raise this through military channels.  In 
the meantime, the status quo hinders economic growth in both 
countries and Pakistan is losing needed income as countries like 
India turn to Iran for its Afghan transshipment needs.  In addition, 
future economic growth depends on improved trade flows which must be 
regularized to avoid compounding the rapidly deteriorating security 
and economic situation along the Afghanistan-Pakistan border.  By 
maximizing trade efficiencies between the two sides, a new agreement 
will also assist ISAF efforts as we increase our presence in 
Afghanistan. 
 
¶16. (SBU) Comment Cont'd: For its part, the GOP will seek 
acknowledgement that Pakistan is bearing significant costs by 
facilitating trade to Afghanistan.  While there is a case to be 
made, we must be cautious if they try and conflate enforcement of 
the agreement's provisions with the agreement itself.  End Comment. 
 
PATTERSON