MESS OF A TRADE

Ten months after Prime Minister Singh promised to make trans-LoC trade ‘more viable and hassle-free’, President Zardari termed it a ‘pioneering CBM’ on Kashmir. But the traders are battling numerous odds to keep it going. A Kashmir Life report.

It started with a protest. In wake of the phenomenal economic blockade that Jammu enforced on rest of the state – Kashmir, Ladakh, Chenab Valley and Poonch-Rajouri, tens of thousands of people started their march towards the Line of Control (LoC) on August 8, 2008. Led by separatist leaders Sheikh Abdul Aziz and Shabir Shah, they were seeking opening of the traditional road, which ideas, traders and invaders have historically taken. The march ended in a massacre.

The attention generated by the march and the massacre, accelerated the process of resumption of trade (through the traditional road). Consequently, on October 21, 2008, the first truck crossed the Kaman Post, aka Aman Setu. Merchandise also started flowing through Chakan-da-Bagh in Poonch.

Two trade facilitation centres were set up, one at Salambad in Uri and the other at Ranghar in Poonch.
The beginning of the trade was appreciated throughout the world. It was termed path-breaking. A host of people were euphoric. They thought that linking economics with diplomacy might offer a solution to the ills of Kashmir. Two anniversaries later this euphoria has died down. This major CBM is source to other kinds of protests.

In December 2010, scores of truckloads from Chakoti in Pakistan Administered Kashmir (PaK) brought a lot of merchandise to this side. As a result every possible storage space in Salamabad Trade Facilitation Centre (TFC) was stuffed. Items worth over Rs 5 Crore found no storage space and were left under open skies. Most of the items were damaged due to rains.

“There was no alternative but to come on the roads and protest,” said Hilal Ahmad Turki, a member of the Salamabad-Chakoti Traders Association (SCTA). Initially they protested, cried and wept in Salamabad.
Then they suspended the trade in protest against the failure of authorities to create adequate storage facilities. The boycott ended only on January 10, 2011 after the authorities assured to look into their problems within a month. Months passed but status quo ante prevails in Salamabad.

Trade resumed only to get interrupted by the repairs of the bridge connecting the two parts that once formed Kashmir. Trade remained suspended for almost half of February and resumed only on March 1.

But now traders faced a different problem. Traders started being summoned frequently to the police stations. A trader who wishes to remain anonymous said more than 30 of his colleagues were summoned, and questioned. They would get a call and had no option but to drive to Srinagar.
 
Ideally, said trader Asif Lone, a police cell should have been there at Salamabad to take care of the issue for which traders are summoned to Srinagar more than 130 kms away. “But the larger problem is the trader is treated like a criminal,” he said.

The summons to police stations increased after state police chief Kuldeep Khuda claimed that militants were receiving funds through different channels including trans-LoC trade and electronic transfers, say traders.

As the traders raised hue and cry, Kashmir’s police chief S M Sahai intervened and asked them to approach him directly in case of a problem. City police Chief Ashiq H Bukhari also came out in response positively.

The latest problem that was reported from Salamabad in March was that the army was asking the trade facilitation authorities to limit the number of trucks to a manageable limit.

Trade is carried out for six hours on two days of a week, Tuesday and Wednesday only. Thus, there is a rush from both the sides which becomes unmanageable for the troops. The army suggested the trucks be limited to 100 a day.
 
The suggestion of limiting the number of the trucks had earlier also come from the Pakistani army. On February 10, officials associated with the trade said that they were told by their counterparts from across the LoC that the number of importing trucks from J&K be limited to 50 a day only.

The rush of trucks from the two sides led to an ugly situation last year. In May last, the rival armies prevented return of respective convoys. Pakistan army closed the gates saying they will not permit 52 trucks to return unless their convoy of trucks was permitted to return.

The crisis erupted when 27 PaK trucks entered Salamabad but were not unloaded at the TFC. Officials said that they lacked the requisite documents. As the PaK trucks were stuck in Salamabad, the Pakistani side closed the gate and did not permit the J&K trucks to return home. Truckers from two sides were on the other side almost in a hostile situation. The trucks were cleared the next day.

A major development happened in the first week of April at Chakan-da-Bagh in Poonch. The trade here is comparatively better organized than Uri and traders have been meeting with their counterparts every three months on the zero line. Apart from discussing issues of mutual interest, they would decide the exchange rates which would remain in effect for three months.

But this particular meeting in April proved problematic because it had a different agenda: dispute resolution. It was a large delegation led by respective officers from the two sides – 60 traders from Poonch and 90 from Rawalakote. As many as 29 traders from J&K were termed defaulters by their counterparts. In reaction, 18 from PaK were accused of cheating by their J&K counterparts. It was a varied set of issues that dominated the meeting; some traders had charged higher selling prices and some bartered high value products with low cost items and even a few compromised on the quality of the product.

The two sides fought with each other as officials and the security forces were watching, and probably enjoying too. Maqbool Ahmed of Muzaffarabad came to blows with Haji Latief of Poonch forcing authorities to intervene. In order to stop the crisis from escalating, the officials called off the meeting with the decision that the trade facilitation officers will exchange the list of defaulters from either side of the divide and then disputes will be settled over telephone. It has been six weeks and the trade at Poonch is still shut down.

Trans-LoC trade has been going on since its sputtering start in 2008 but it never took off. In fact, the apple loaded trucks that crossed the Kaman Bridge towards Chakoti were never paid. Everybody on either side of the divide is aware of the problems that the CBM is entangled with. That was perhaps why Prime Minister Dr Manmohan Singh said in June 2010 that he will make it “more viable and hassle-free” by removing bureaucratic hurdles.

It was followed up by Pakistan President Asif Ali Zardari’s statement in April that the trade is a “pioneering CBM”. But even the best initiative can fail if it lacks adequate and consistent follow up.

Statements from leaders and decision makers notwithstanding, the trade continues to be a canister of problems. It lacks all the basics that could make it a trade. The zero duty trade is neither an ‘internal’ trade nor ‘external’. If it is ‘intra-Kashmir trade’ as many believe, then it needs to get its identity officially.

Taxman in Srinagar says there is no law that prevents him from charging VAT on the imports and seeking certain taxes on a few select items that go to the other side of Kashmir through the twin windows. Right now volumes are low and it does not make an economic sense to tax it but what happens when the policy makers in New Delhi and Islamabad permit the volumes to grow?

New Delhi permitted a huge trade delegation from PaK to drive to Srinagar and later fly to Jammu. This chance was never given to the traders in Srinagar and Jammu. The trade they are carrying out is a blind one in which the two sides have bare minimum knowledge about the parties they are trading with. The first consignment from Kashmir Chamber of Commerce was sent to their counterpart chamber in Muzaffarabad and vice versa and then it stopped.

It was after a lot of hue and cry that the government decided to have three fixed telephone lines for traders to interact with each other. “It was announced many times that one such line will be installed in the chamber office but it is yet to come,” says Nazir Ahmad Punjabi, the senior Vice President of Kashmir Chamber of Commerce and Industry (KCCI). Instead of telephone it is now e-mail that is considered reliable but most of the traders on this side of the divide are yet to use it.

There is no dispute resolution system and the trade is yet to get a currency to trade in. While the PaK side would be happy to use dollars, an influential section in J&K is against the idea. They say jumping to dollar would mean getting the trade an international identity. So it has to be the barter.

Not much has gone into the creation of adequate infrastructure that the trade requires. And the larger failure lies in its failure to attract people. Unlike PaK where there are thousands in the queue, it hardly matters in J&K. After the respective Chambers lost interest, it was sustained initially by officials and later by the people who have cousins on the other side. Now a small group of locals are associated with it limiting its potential for it is entangled with a gamut of problems.

Most of the importers and exporters lack a direct connection with the local market. They work for larger business houses operating in the plains using these two windows as an alternative to save a bit of duty and in certain cases make savings on transportation costs. This has divided the trade at Wagah. A huge section is against this trade and is keen to see it closed down. They have their genuine concerns which they are unfortunately packaging as a security rather than a trade issue making the situation altogether problematic in the long run.

The system has been exhibiting conflicting indications. Sometimes it seems there are problems at the policymaking level with ‘for-trade’ lobby not being as influential as the one ‘against’. The initiative was laden with serious discrepancies from day one. Apart from zero duty, the two governments agreed on categories for trade rather than items, which is a fundamental norm in trade that transcends geographic barriers. This gets authorities a lever to use, as and when required. So far they have used it many times for items that were making most of trade volume. Though the understanding was clear that the trade will be about items originating in the region but it was not explicitly talked about till non-local items took over.

It was in May 2009 when authorities woke up to the reality that after six months, the trans-LoC trade in J&K had emerged as a huge garlic-onion story. Then it was garlic imports and onion exports ruling the roost. In just two days traders from Poonch and Jammu imported 395 tons of garlic. Obviously such a huge quantity was not consumed in J&K.

Evaluations suggested that eighty percent of business was garlic and onion. The news was broken by the Salamabad-Chakothi Trade Union saying the major business houses in Delhi and Punjab have appointed local agents who send and receive these consignments and simply divert these to markets outside.

Eventually, the central government took the ‘plant protect’ route by sending a notice from Union Agriculture Ministry’s Directorate of Plant Protection saying the imports were carrying a pathogen that could impact the local produce. Within days ginger was also banned.

In stage-II, the government banned import of Ajwain and export of coconut and later cardamom. Pakistan banned export of gram green (Moong Dal) to J&K.

Banning of all these items had two things in common. Firstly, these items constituted most of the trans-LoC trade. Secondly, they were hitting the public kitty of their respective governments. Islamabad banned export of green gram to J&K after it drained huge quantities of the produce raising its prices in Pakistan. The green gram ban triggered a sixty percent fall in the overall trade.

In case of cardamom, which once was the main item of export to PaK, even Lahore based Karyana Chemicals and Foodgrain Association petitioned Pakistan Prime Minister Yousuf Raza Gilani seeking strict action against the traders importing commodities without paying duty and taxes to the government. “For every kilogram I pay Pakistani Rs 70 as duty and tax to import big cardamom from Attari-Wagah trade post,” Mohammed Atif Butt, Managing Director of Lahore based Pak-Afghan Impex was quoted saying. “With no check at the other two LoC posts we see a huge loss to us. We have put all orders on hold for now till the situation is solved,” he said.

Though authorities are consistently insisting that items not originating from the region on either side of the LoC cannot be permitted, it still continues to be the same story.

Dr Mubin Shah, who headed the KCCI when the trade started, had suggested that to elbow out the surrogates and agents, the government should permit the items but ensure they are sold in local vegetable markets which will give flip to the economic activity. This, in the long run, would pave way for starting transit trade that would help people save on transportation.

Despite all this, the volumes continued to grow. So did the turnover. If the details envisaged in state’s Economic Survey – tabled in the house in March, 2011 – is an indication then the trade has taken off.

Till December 2010, the traders at Poonch exported items worth (Indian) Rs 134.27 crore and imported items worth (Pakistani) Rs 227.70 crore. It involved going of 2816 trucks and coming of 2907 truckloads.

On Uri front, the government says exports were worth (Indian) Rs 177.60 crore and imports (Pakistani) Rs 271.42 crore. It was massive vehicular movement – 4755 trucks coming and 4572 trucks going to the other side of the divide.
If the two countries want the trade to survive, they will have to start taking it very seriously. Banking and currency are the two major issues that need top priority.

Initially J&K Bank had suggested that it be permitted to revive its two branches in Pak that closed after the LoC forced a division of the erstwhile state of Jammu and Kashmir. A proposal to this effect is still with the central government. The plan was informally discussed with a top financial expert of Pakistan who had earlier held vital positions in Islamabad. At a later stage, it was informally conveyed from Srinagar that J&K Bank would be willing to even take over the entire network of the Bank of Azad Jammu & Kashmir (net profit of seven crore Pakistani rupees in 2009) that is operational since 2005. There was no forward movement on any of the proposals.

Economist and policy maker Dr Hasseb Drabu, the then chairman and CEO of J&K Bank, was asked to submit a formal proposal. The proposal envisaged an agreement between Reserve Bank of India and State Bank of Pakistan to fix the rates for the two currencies which would not change in a specific period and prevent an exchange risk to the traders. Once it is over, an Indian bank will hold vostro account of a Pakistani bank in Pakistani currency and a Pakistan bank an Indian bank’s nostro account in Indian currency. This will end the crisis of the trans-LoC trade as far as banking and exchange rates are concerned.

Trans-LoC trade being neither domestic nor international is unique in structure. As the parties intend to skip use of dollar, it adds another dimension. Since banking and currency issues are closely linked and India and Pakistan lack any credible banking relations, it becomes all the more tricky.

The plan was studied at the home ministry level and then it was submitted to the Cabinet Committee on Security in March 2010. After being okayed there, it was sent to the MEA for being officially conveyed to Islamabad. It was in February 2011 that India and Pakistan indicated they will monetise barter trade to stop earnings for terror funding or hawala operations.

Unless there is no formalization of systems in trade, it would not attract entrepreneurs. There are around 400 traders listed but barely 40 to 70 participate every week. Trade Facilitation Officer Nazir A Baba said they have limited the trucks to 50 a day, two days a week, and are issuing a roaster about the traders who will send their merchandise. “Accordingly, we receive requisitions from other side as well,” Baba said, adding “It has helped making the processes fast and better.”

Unlike J&K, there are more than 7000 traders listed in PaK and all want to send their bit to J&K. Every week, there is a mad rush to get permits to send their merchandize to J&K. It works on lottery pattern. And the government there is earning.

PaK has set up Trade Development Authority that taxes every truck for availing various services and the traders are paying. On this side everything is free but in such a disorder that it ends up in confusion.

Immediate Requirement

Banking facilities

Road widening between Salamabad and Kaman Post- To aid movement of transport

Immediate review of tradable items – To prevent non-endemic merchandise from being traded.

Communication link for traders

Warehouse – To increase storage for traded merchandise

Residential quarters- For traders and employees.

Big truck scanner- To save time and effort. Presently manual scanning of the merchandise takes place which is too time consuming and problematic.  

Weighing bridge- An essential thing which is still amiss.

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