VZCZCXRO9882
PP RUEHDBU RUEHIK RUEHPOD RUEHPW RUEHSL RUEHYG
DE RUEHBUL #1802/01 1901737
ZNR UUUUU ZZH
P 091737Z JUL 09
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC PRIORITY 0062
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC 0840
RUCNAFG/AFGHANISTAN COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RUEABND/DEA HQS WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 04 KABUL 001802 
 
DEPT FOR SRAP, SCA/FO, SCA/RA, AND SCA/A 
DEPT PASS FOR AID/ANE 
DEPT PASS USTR FOR DELANEY AND DEANGELIS 
DEPT PASS OPIC 
DEPT PASS FOR TDA FOR STEIN AND GREENIP 
USOECD FOR ENERGY ATTACHE 
CENTCOM FOR CSTC-A 
NSC FOR JWOOD 
TREASURY FOR JCASAL, ABAUKOL, AWELLER, AND MNUGENT 
COMMERCE FOR HAMROCK-MANN, DEES, AND FONOVICH 
 
SENSITIVE 
 
SIPDIS 
 
E.O.  12958 N/A 
TAGS: ETRD ECON AF
SUBJECT: AF-PAK TRANSIT TRADE TALKS, MEETING WITH MOCI AND PAK 
REACTION 
 
KABUL 00001802  001.3 OF 004 
 
 
This cable was coordinated with Embassy Islamabad. 
 
SUMMARY 
 
¶1. (SBU) The Afghanistan-Pakistan Transit Trade agreement 
negotiation is seriously engaged following the June 23-24 meeting in 
Kabul.  The two sides say they have agreed on much of the structure 
and language of their agreement and identified the difficult 
negotiating issues, including controlling smuggling, access to 
India, and developing a dispute resolution mechanism that will 
ensure effective implementation.  They conducted a detailed review 
of existing obstacles to the transit of goods to and from 
Afghanistan and indicated their intention to deal with some of the 
practical obstacles, even as the talks progress.  The next 
negotiating session is scheduled for August 4-5 in Islamabad.  While 
Pakistan's insistence that this is a bilateral process resulted in 
the U.S. (and other international) observers' exclusion from the 
meetings, the U.S. needs to remain engaged in helping the sides 
reach an agreement that actually meets the parties' stated desire of 
smoothing movement of goods.  The U.S. can help with support for an 
agreed study of the smuggling involved with transit trade and also 
should continue to study ways to support these talks by:  a) 
pressing both sides on key disputed issues and b) accelerating 
implementation of the signed MOU with the U.S. Trade and Development 
Agency on cross-border initiatives.  Afghan Commerce Minister 
Shahrani subsequently told Ambassador Wayne on two separate 
instances that he thought the Pakistanis were showing flexibility 
and trying to make a gesture via Afghan agriculture exports to 
India.  He said the really tough nut, however, would be Indian 
exports to Afghanistan, where the Pakistanis fear losing the market. 
 He expressed profound thanks for U.S. support.  End summary. 
 
THE VIEW FROM KABUL -- TRANSIT TRADE TALKS ATMOSPHERICS GOOD 
 
¶2. (SBU) U.S. observers (SCA reps and Emboff) to the June 23-24 
Transit Trade talks in Kabul reviewed progress in the negotiations 
with the lead negotiators several times over the course of the 
meetings.  In a concluding review June 25, the lead negotiators for 
the two sides, Afghan Deputy Minister of Commerce and Industries 
Adib Farhadi and Pakistani Ministry of Commerce Senior Joint 
Secretary Shahid Bashir indicated their satisfaction with the 
progress they made and the positive relationship being developed 
between the negotiating teams. Both agreed the mere fact talks are 
talking place has created a positive atmosphere to continue 
discussing this and other trade-related issues between the two 
countries.  Farhadi characterized the working group sessions as 
"very busy," sometimes contentious, but always frank and open.  The 
delegations had before them three versions of a draft agreement: the 
original Afghan draft text, a marked up version with Pakistani 
edits, and a set of Afghan comments on those edits.  (Bashir noted 
how impressed he was by the Afghans' preparations for the talks.) 
The two sides have not yet established the coordination committee 
(APTTCC) to deal with issues that arise in the real world of transit 
and transport between the countries, as had been agreed in their MOU 
signed May 7, but said they expect to do so soon.  The next round of 
talks will be held in Islamabad August 4-5. 
 
TOUGH ISSUES REMAIN 
 
¶3. (SBU) The delegations first covered items of agreement, which 
were extensive, in the draft text and protocols and then identified, 
discussed, and bracketed the following controversial issues: 
 
-- Smuggling:  the delegations are labeling smuggling as 
"unauthorized trade."  Farhadi said this issue was important to 
address for the Pakistanis, given Pakistani manufacturers' concern. 
At Farhadi's suggestion, the countries decided to create a "joint 
study" to develop a better understanding of the scope and mode of 
this unauthorized trade and to identify appropriate responses beyond 
the Pakistani preferred tariff "harmonization" (i.e. selective 
Afghan tariff increases).  The funding and scope of this study will 
be determined in subsequent contacts to prepare the next round of 
talks. 
 
-- Wagha border crossing:  The Pakistanis said this was a bilateral 
 
KABUL 00001802  002.3 OF 004 
 
 
issue between them and India.  The Afghans insisted transit across 
Pakistan to/from India is a key opportunity for them.  Bashir 
pointed out three key Afghan demands, which Farhadi did not dispute, 
as:  a) import of Indian goods through Wagha; b) the transit of 
Afghan goods through Pakistan to Wagha, regardless of who carries 
it; and c) access of Afghan trucks to Wagha to transport goods.  (In 
a briefing to U.S. officers the night before, Farhadi characterized 
all three as a "deal breaker" for Afghanistan, and all three can be 
summed up as Afghan trucks having access to Wagha for both import 
and export of goods to and from India.)  Bashir added that progress 
on any one of these issues relating to Wagha would be a 
"breakthrough."  (Note: the Wagha issues are all still on the table 
between the two sides and will be addressed in subsequent rounds of 
talks, but the Afghans are pushing hard for some accommodation now 
because of the unusually abundant harvest this year that could mean 
greatly increased export revenues if its shippers get easy access to 
the lucrative Indian market.  Subsequently the Pakistanis asked for 
specific Afghan exports and harvest schedules, which the Afghans 
took as a positive sign.) 
 
-- Arbitration:  The delegations have bracketed the entire draft 
text on this.  The GOP sees a transit trade agreement as bilateral, 
thus no need for third party arbitration or a dispute resolution 
mechanism.  During talks, Farhadi reported the Afghans suggested the 
U.S., the WTO, or the UN as potential arbitrators, but received no 
comment or commitment from the Pakistani delegation.  Bashir 
addressed this with U.S. officials, saying while he recognized 
Pakistani commitment to multilateral dispute resolution mechanisms, 
such as the WTO, he said bilateral consultations seemed to be more 
appropriate for this agreement.  The U.S. observers pressed Bashir 
on the need to develop a dispute resolution mechanism that would 
ensure an effective implementation of the new agreement and noted 
that there were many examples of bilateral agreements that include 
independent and third party arbitration, including some to which 
Pakistan is a signatory, such as the Indus waters agreement. 
 
¶4. (SBU) Bashir and Farhadi agreed many issues were simplified by 
using international standards from multilateral agreements already 
committed to -- e.g., ECO, SAFTA, SAARC, and WTO.  They said they 
resolved issues that limit Afghan truckers, such as the ability to 
travel beyond Peshawar.   The delegations discussed specific 
obstacles in detail and agreed to continue discussing them before 
the next round of talks, the joint study having been agreed upon as 
a vehicle for better informing the talks ahead.  Bashir and Farhadi 
said they would make quick, practical improvements even as the talks 
continue, such as finding a way to expedite transport of  a bumper 
Afghan fruit  crop to Pakistan and beyond in the coming month. 
Bashir asked for a formal request to Pakistan to make arrangements 
for special treatment for clearance and movement of these perishable 
items and said he expected Pakistan would take appropriate effective 
action.  Afghan Commerce Minister Shahrani June 24 wrote Pakistani 
Commerce Minister Fahim accordingly.  Farhadi stressed success on 
expediting fruit exports would signal greater GIRoA competence to 
Afghan farmers and traders in violent areas with narcotics problems, 
increasing the government's standing and credibility with major 
stakeholders. 
 
¶5. (SBU) Both delegations agreed to consult China and Iran, as they 
have included in the agreement's text the border crossing of Sost 
(China) and Islam Qala (Iran). Farhadi stressed the importance of 
the Sost crossing for developing the Chinese-invested Aynak Copper 
Mine. 
 
¶6. (SBU) U.S. observers met June 27 with Minister of Commerce and 
Industries Shahrani to discuss Transit Trade talks.  He 
characterized the talks' environment as being "positive" and 
"encouraging."  Shahrani said the Pakistanis had agreed, in 
principle, to allow Afghan goods into India, but not to allow Afghan 
trucks to transit Indian goods through Pakistani into Afghanistan. 
He said Pakistan appears to be using the security situation with 
India as a pretext to block further liberalization.  Shahrani shared 
his June 24 letter to Fahim requesting assistance expediting 
Afghanistan's fresh fruit harvest into Pakistan this summer. 
Shahrani thanked the U.S. for its engagement on transit trade to 
date and encouraged USG officials to continue to press the 
 
KABUL 00001802  003.3 OF 004 
 
 
Pakistanis, including at the highest levels.  U.S. observers 
stressed the importance of concluding the talks by September 30 and 
producing a good agreement. 
 
VIEW FROM ISLAMABAD 
 
¶7. (SBU) In a June 28 meeting with visiting NSC Senior Director for 
International Economic Affairs David Lipton, SRAP Senior Economic 
Advisor Mary Beth Goodman, and Treasury DAS for Asia Robert Dohner, 
Secretary of Commerce Suleiman Ghani said that the GOP was very 
pleased with the outcome of the Kabul round of talks on transit 
trade, and confirmed that "80 percent" of the text is agreed.  He 
admitted that coming to agreement on the remaining 20 percent would 
present challenges, but was upbeat that even the contentious issues 
had at least been discussed. 
 
¶8. (SBU) Ghani said that the media focus on India notwithstanding, 
Pakistan's major concern is with smuggling.  He said the GOP has 
concerns with goods moving from India to Afghanistan, but not the 
other way.  Ghani referred to Pakistan's need to "rationalize trade 
with India;" once that happened, it would be more realistic to 
examine Indian trade transiting Pakistan to Afghanistan.  He said 
that in principle, the GOP has "no problem" with Afghan trucks 
traveling through Pakistan to the Indian border without having to 
offload at Torkham.  The trucks would, however, still have to switch 
their loads onto Indian trucks at Wagha.  Although Ghani thought 
that the GOP is "closer than ever" to Afghan trucks transiting 
Pakistan to both Wagha and the ports, it is not economical for the 
trucks to return empty. 
 
¶9. (SBU) Ghani welcomed technical assistance to address smuggling or 
infrastructure issues at the border, and promised to come up with a 
concrete proposal possibly to be funded via USTDA.  Any arrangement 
must be economical for business, he stressed.  He said the GOP is 
working hard to maintain the timeframe laid out in the May 7 MOU, 
but indicated that the September timeframe (to which both 
governments had agreed verbally) might slip to October/November, 
possibly because of the Afghan elections.  Ghani confirmed, however, 
the goal is still to conclude the new transit trade agreement well 
before the December 31 deadline. 
 
¶10. (SBU) Lead negotiator, Joint Secretary of Commerce Shahid Bashir 
confirmed that the GOP had received the GIRoA letter regarding 
expedited shipping for the upcoming Afghan fruit harvest.  Ghani 
directed Bashir to quickly mobilize relevant GOP players to respond 
to the request ASAP, as the harvest is due imminently.  In Kabul, 
Ambassador Wayne checked with Commerce Minister Shahrani July 5.  He 
said the data requested by the GOP would be provided shortly and 
characterized this as an important positive gesture. 
 
COMMENT 
 
¶11. (SBU) Bashir's arguments against third party arbitration were 
consistent with other Pakistani positions during the talks, 
including the exclusion of all outside observers, such as the U.S. 
officials and the World Bank.  Nonetheless, we pressed Bashir to 
consider the need for a third party arbitrator to ensure effective 
implementation and a credible, robust agreement.  The talks were a 
good, positive step forward.  If both sides implement practical, 
immediate measures, such as expediting export of Afghanistan's fruit 
harvest this season, it will create momentum in the 
Afghanistan-Pakistan partnership for these talks, and on the 
relationship more broadly.  Additionally, such steps would also 
greatly assist the success of U.S. Af-Pak strategy goals.  The U.S. 
should continue to study ways to support these talks:  a) pressing 
both sides on key disputed issues, b) accelerating implementation of 
the signed MOU with the U.S. Trade and Development Agency on 
cross-border initiatives, and c) considering ways to assist with the 
agreed-upon joint study.  Significantly, both Pakistani and Afghan 
delegation heads requested the U.S. to engage India as well on the 
Wagha border issue.  Based on what both delegations said on the 
three major outstanding issues, particularly Wagha, it appears both 
countries are laying the groundwork for significant compromise and 
progress.  The Afghan side's comments indicate they will be severely 
disappointed and would prefer to conclude no new agreement if some 
 
KABUL 00001802  004.3 OF 004 
 
 
compromise is not reached on Wagha.  Afghan Commerce Minister 
Shahrani on July 5 and 6 told Ambassador Wayne that he hoped the 
Pakistanis would allow Afghan agricultural exports to flow but he 
believed the Pakistanis feared losing the USD 1.5 billion annual 
sales to Afghanistan if they have to face Indian goods coming 
through Wagha.  Shahrani said he believed U.S. interest and pressure 
has been essential for progress to date and would be also for future 
progress.  Ambassador Wayne said we would definitely continue to 
engage.   End comment. 
 
¶12. (U) This cable was drafted and cleared in coordination with 
Washington observers to the Kabul talks and Embassy Islamabad. 
EIKENBERRY