Pakistan and China have started working on Long-Term Plan (LTP) for the China-Pakistan Economic Corridor (CPEC). A Chinese diplomat has recently disclosed that there are expectations that both countries will early finalise the plan during an upcoming ‘Belt and Road Summit’ scheduled to be held on May 14 and 15 in China.

Currently, short-to-medium term projects are being executed under the CPEC, which are mainly related to energy, infrastructure and connectivity. However, once the LTP is agreed by both countries it will set the overall direction and goals of this multifaceted cooperation from present till 2030.

It has also been indicated that Pakistan has already shared the LTP draft with China’s National Development and Reform Commission (NDRC) for approval and consideration for signing during the Belt and Road Summit.

Pakistan is also hopeful that both countries will soon ink agreements for financing and construction of Gwadar International Airport and East-Bay Expressway as PC-1s for both projects have already been approved and deliberations are underway between Islamabad and Beijing.  Besides energy and regional connectivity, the CPEC will provide a framework for rapid industrialisation in Pakistan. The government has already identified location for setting up nine economic zones in different parts of the country. Currently feasibility studies for these economic zones are being undertaken and financial agreements are expected to be concluded by the next Joint Cooperation Committee meeting to be held later this year.

China has envisioned the idea for a corridor stretching from the Chinese border to Pakistan's deep water ports on the Arabian Sea date back to the 1950s. It took almost seven decades to materialise this idea in form of the CPEC that will not only benefit China and Pakistan but will also have a positive impact on Iran, Afghanistan, India, Central Asian Republic and other states in the region.

Economic and trade experts believe the CPEC will be game changer for Pakistan but some critics argue that China is and will be the main beneficiary of the project as there are hardly any global enterprise in the country. Available data shows small and medium enterprises (SMEs) constitute nearly 90 per cent of all the enterprises in Pakistan. These SMEs, contributing nearly 40 per cent of the annual GDP, have limited resources for investment and capacity enhancement.

Similar is the case with other neighbouring countries in the region, like India, Bangladesh and Sri Lanka. But they have empowered their SMEs to compete with global players and contribute in economic and export growth by offering them various facilities. One of these facilities called Customs Bonded Warehouses or Common Bonded Warehouse (CBWs).

In United States, these are called type C warehouses in which only the administrator of the Customs warehouse (warehouse keeper) can store goods. These goods do not have to be his property, for that matter: he can also store goods on behalf of others. In that case as well, the warehouse keeper will remain responsible to Customs for the goods kept in storage. The warehouse keeper is also the person that has to provide security to Customs.

Pakistan Customs rules also have a similar provision available since 1998 under the title of Common Bonded Warehouse (Conventional) Rules, 1998. These rules indicate that Collector of Customs can issue license to any eligible party for establishment of CBW in which warehouse keeper or licensee can store Customs Duty, Sales Tax, Central Excise Duty or Withholding Tax free import of goods primarily meant for manufacture of finished goods by the SMEs or indirect exporters, manufacturers or suppliers of goods or articles which are to be used as input for export.

Despite the fact that this facility can give leap boost to SME sector and country’s exports but the country cannot establish a single CBW in almost two decades. Even most Customs officials and entrepreneurs are unaware about the availability of this facility. Lahore Customs Collectorate has recently drafted rules and procedures for issuance of Pakistan’s first CBW on the application of a Lahore-based customs clearing agency which applied for license in 2015.

The red tape in Customs bureaucracy has made the procedure of issuance of license is so cumbersome that one Sri Lankan investors who was interested to store his raw material here in Pakistan for local distribution has backed out after struggling for almost two years.

A textile giant from Sri Lanka wants to warehouse raw materials for Pakistani export oriented SMEs with a view that its will reduce input delivery time for local export industries, which will ultimately reduce their capital requirement for maintaining huge inventories and boost countries exports. Lankan company has partnered with a local customs clearing house for obtaining the CBW license and has made investment in establishing warehouse in Lahore.

Currently, the application for issuance of licence is pending with customs department for one and a half year because Customs Department and Federal Board of Revenue (FBR) are of the view that there is no precedence of such warehouse in the country. They have asked Pakistan Revenue Automation Limited (PRAL) to develop an automation module to integrate this new type of warehouse with Customs WeBOC System, which is practically impossible before issuance of license.

An automation executive of the PRAL says it requires almost six months to interface new module with the existing system as the company is already busy in developing other automation tasks.

It will be a legitimate question that on the one hand the government is trying to do rapid industrialisation in the country and opening country’s borders for enhancement of regional trade through CPEC. But on the other hand red tape and lethargic attitude of the civil bureaucracy are creating hurdles in boosting exports and investment. Economic managers of the country, especially the FBR, should look into the matter and find out a workable solution before it’s too late and Chinese investors with their deep pocket permanently close local SMEs.