Barter Trade is not an end but means to further the trade between Pakistan & Afghanistan

Karachi, June 09, 2022: PAJCCI kicked off 9th Focus Group Discussion with focus on developing “Barter Trade Mechanism Development” at Islamabad which was attended by large number of business community members from Pakistan & Afghanistan, government dignitaries included Mohammad Sadiq; Special Adviser to Prime Minister, Iftikhar Hussain; Director Transit Trade, Maria Kazi; Ministry of Commerce, Mehtab Hussain; State Bank of Pakistan and several other members from FBR, TDAP, Finance, representatives of trade associations and media.

The core objective of this FGD was to remove disparities and agreeing on mutual terms of reference from both sides (PAK-AFG) and agree upon project timelines and monitoring matrix to gauge the project progress and to address barriers.

Zubair Motiwala; Chairman PAJCCI shared a concise & action-oriented summary of progress in development of Barter Trade mechanism as a result of several stakeholder meetings in both countries. He urged all participants to provide their input with focus on barter trade so an actionable plan can be finalized which will be then allocated to relevant stakeholders for execution and parallel monitoring by PAJCCI and AICC.

He emphasized that using internationally recognized banking-based trade transactions are most preferred methods however till the opening of banking channels in Afghanistan, both sides must find ways & means to ensure that trade continues for large to SME to individual border traders.

Khan Jan Alokozai; Co-Chairman PAJCCI referred to his meeting with US Treasury representative and Special US Envoy for Afghanistan where he shared his input with regards to Afghan frozen assets, non-operational banking channels due to this reason. Obstacles in trading with Pakistan especially due to third party payment non-processing by international corresponding banks though it faces no problems in case of other countries.

Motiwala summarized important points for deliberations in this session; PAJCCI will be monitoring entity, payments for barter trades will be locally processed by “Special Purpose vehicle” (SPV), regular B2B bilateral trade will continue as per current procedure, barter will only focus on specific items and no cross border monetary transaction will occur, dispute resolution will be incomplete without arbitration process and governments of both sides shall support in this area when required, increasing PKR trading categories will also ensure that parallel economy is discouraged especially if matters of Sales Tax refund & duty draw back in case of land trade, PKR trading and barter trade are addressed via necessary SRO.

The challenge is to address balance of trade which is currently in favor of Afghan side due to high imports of coal for meeting Pakistan energy needs.   Cross stuffing along with using local containers will immensely reduce cost of business and increase the efficiency while breaking monopoly of international shipping lines which are charging highest most tariff in case of trade with Afghanistan on false pretext. 

Both governments shall also provide endowment funding for escrow account so payments can be easily made without delays, the funding can be maintained by rolling payments mechanism on FIFO basis. E-form & EIF waiver shall be continued to extend till banking channels are operational in Afghanistan, matters of Sales Tax, duty draw backs and barter trade mechanism becomes stable and sustainable.

Mohammad Sadiq; addressed the forum and provided his input and expert advise on how to resolve various issues with regards to formulation of barter trade mechanism, role of ministries of both governments, role of AICC in advocating the regulatory frame works, coordination support with both governments, initiatives in form of infrastructure development, removing congestions at borders, opening new border crossings.

He remarked that historically there are 44 border crossings between both countries for trade however if we only open 12 of them trade will increase as new traders, products and revenue streams will become contributor. It will also help in reducing congestion at existing borders, reduce cost of doing business by using efficient routes, expanding trade map by both products and traders, creating employment for people of both sides and generating high revenue for both governments.

All existing trading options will remain functional while barter trade will be somewhat specific initially in terms of products and mechanism. He also shared that cross stuffing & TAD SRO are ready to be issued however some minor elements need to be addressed by Afghan government.

Risk management system for container clearance is now operational and clearance is given based on trader and product profiles. Random search may be undertaken however the whole system is technology based without manual intervention.

He remarked that international corresponding banks are over compliant and if one bank takes initiative then third-party payment issue can be resolved. This cannot happen till tested as GL20 by US treasury has given clear instructions with regards to commercial transaction processing for private trading entities. The challenge of addressing duty draw back claims, sales tax refund needs to be addressed and FBR will be involved via AICC with timelines to expedite the resolution before finalization of barter trade mechanism.

Maria Kazi informed the house that EPO and IPO have both been already amended to include barter trade with Afghanistan, special module in regulatory system is already in process. Another important area is to jointly develop trilateral transit trade mechanism to save cost and increase trade and efficiency between Pakistan, Afghanistan & Uzbekistan. At present all three countries require separate guarantees but joining hands will result in one guarantee that all 3 countries will uphold. She thanked PAJCCI for providing technical support in resolving trade obstacles and extending detailed trade community input in all aspects. MOC will also share top 20 items for initial trial start of barter trade activity.

SBP representative assured that where possible all support will be given to resolve ongoing present and future obstacles. Government of Pakistan’s express wish is “that trade should continue”. SBP will provided written process to manage third party payments and expert advice to form special purpose vehicle for barter trade management.

Director Transit Trade agreed to the recommendation of cross stuffing, use of local containers & regulation for international shipping lines.

PAJCCI will provide detailed project management and monitoring matrix to AICC and stakeholders for necessary actions in this week.

PAJCCI as lead joint chamber in Pakistan has once again accepted the challenge to turn undoable in to actionable and viable project.

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