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Third Meeting on

HARMONIZATION OF SCALES OF CHARGES

Ministry of Commerce
June 11, 2010
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Background Recap of Events


Secretary Ports & Shipping requested Secretary Commerce vide letter dated 16th December, 2009 to look into the issues of overcharging and other malpractices by various service providers. Subsequently Secretary Commerce chaired 2 meetings on Harmonization of Scale of Charges (HSC). In the 1st meeting held on January 18, 2010, in which all stakeholders from public and private sector were invited. Following decisions were taken:1) The issue of in-action of SRAB was discussed and M/o Ports & Shipping were requested to find out the reasons. 2) MoC will issue a directive that Ship Agents must refund security deposit within 7 days 3) PIFFA should hold a meeting of Freight Forwarders and traders to redress the grievances of the traders. 4) FPCCI to deliberate and analyze the issue of overcharging by various service providers and give recommendations 2

2nd meeting on the subject was held on February 26, 2010, in which following decisions were taken:1) Since there was no evidence regarding existence of a Stay Order, M/o Ports & Shipping will be requested to re-activate SRAB. 2) Amendments in the licensing provisions may be made by FBR to enable Collector Customs (Preventive) to take punitive action against those Ship Agents who are involved in excessive charging and other malpractices. 3) PSAA will fold a meeting with the representatives of the trade to resolve the issues relating to shipping charges amicably. Beside the above two meetings, 2 meetings in FPCCI, one meeting in PSAA and one meeting in SBP were held. Mr. Babar Badat, Vice Chairman FIATA held a meeting with Secretary Commerce in Islamabad on 17th May.
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Latest progress after the above-mentioned meetings Issue No. 1: Re-activation of SRAB Since it was abundantly clear that there was no evidence regarding existence of Stay Order, Ministry of Ports & Shipping was requested through a d.o. letter from Secretary Commerce on 3rd March 2919 to re-activate SRAB. However, Ministry of Ports & Shipping vide letter dated 30th April replied that SRAB cannot be re-activated at this stage as issue is subjudice in the Sindh High Court. After examining the issue thoroughly the Rules of Business of Ministry of Ports & Shipping and the functions of DG, Ports & Shipping, the Ministry of Commerce is of the view that it is the responsibility of the Ministry of Ports & Shipping to re-activate SRAB and it may be done as soon as possible.
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However the following point may also be considered by Ministry of Ports & Shipping:79A is placed in Part III dealing with Coastal Shipping, whereas Shipping Agents deal with International Shipping. Therefore a new chapter dealing with Regulation of International Shipping Practices may be introduced in Merchant Shipping Ordinance through Merchant Shipping (Second Amendment) Ordinance, 2010 introducing Licensing , Financial Responsibility, Suspension or Revocation provisions in the same manner as has been done in US Shipping Act of 1984.

Issue No.2: Amendments in licensing provision to enable Collector of Customs (Preventive) to take punitive action against those Ship Agents who are involved in excessive charging Secretary Commerce sent a d.o. letter to Chairman FBR on 4th April 2010 requesting to direct the concerned Officer to expedite amendments on the relevant sections of the Customs Act 1969 on the above lines. FBR responded on 8th April that proposed legal changes in the Customs Rules will be considered during the finalization of budgetary and fiscal changes in the year 2010-11. It may be mentioned here that the Federal Tax Ombudsman on a complaint No.462-K/2009, dated 6th July 2009 by M/s. Malik Paper Mart, Karachi vs Secretary Revenue Board has already recommended on 12-01-2010 that FBR may actively consider proposing effective remedial measures in the Finance Bill 2010-11. FBR may apprise the meeting of the latest position regarding proposed amendments in the Customs Rules 1969.
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Issue No.3: Recommendations proposed by PSAA in the meeting held on 3rd March 2010 On the directive of Secretary Commerce, PSAA held a meeting with the representatives of trade to resolve the issue of shipping charges amicably. Minutes received in Ministry of Commerce indicate that there was no consensus on any issue. The statements from various stakeholders have been recorded without any conclusion. Moreover Pakistan Knitwear & Sweater Association, one of the participants of the meeting, has rejected the minutes and asked PSAA that these should not be circulated MoC obtained comments from PSAA who claimed that the minutes were correctly recorded. Legal Position There is no binding on representatives of trade to implement the decision of PSAA, especially when there was no consensus of views and no agreement on the decisions of the meeting. 7

Issue No. 4: Freight Forwarder Charges Meeting held in SBP, Karachi A meeting was held in the Exchange Policy Department, State Bank of Pakistan on 8th March, 2010 to resolve the issues relating to freight forwarding charges. No consensus could be reached, therefore all stakeholders were requested to send comments in writing. After obtaining written comments from all stakeholders, SBP has issued FE Circular No.02 on April 14, replacing FE Circular No. 6 of 2006. However the issuance of new circular has not resolved the issue. Rather it has become more complicated. SBP in a letter to MoC on April 26 has informed that PHMA, PAF etc have rejected the FE Circular No: 2 of 2010 and are agitating against SBP, through electronic & print media. SBP has proposed MoC to review the matter in Consultation with concerned stakeholders. Besides, some
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stakeholders have filed a writ petition in Sindh High Court against FE Circular 2 of 2010, making MoC, SBP & FIA as Respondent. First hearing was held on 12th May 2010, Mr. Jawaid Mansoor, Executive Secretary NTTFC who attended the proceedings has informed that he has been asked to submit comments on para 14 (concerning MoC letter to FIA dated 13th Feb 2010 ). The comments have been submitted to Sindh High Court. Legal Position On the request of Freight Forwarders, SBP had issued FE Circular No. 06 of 2006. Traders agitated against this Circular, which was replaced by Circular 02 of 2010. The new Circular is not acceptable to PHMA and PAF. SBP should resolve the issue as per rules & procedure governing the issuance of FE Circulars.

Way Forward The purpose of holding meeting in SBP has not been served. The issue regarding freight forwarding charges was not considered. The issue concerning overcharging and other malpractices by Freight Forwarders cannot be resolved in the absence of a Regulatory Mechanism for Freight Forwarders. Therefore the issue regarding Regulatory Mechanism of Freight Forwarders needs to be resolved. Regulatory Mechanism for Freight Forwarders Functions of Freight Forwarders The freight forwarder is the entity which moves goods from point of origin to overseas point of destination and ensures that internationally traded merchandise arrives in good time, safe condition and at the most economical cost. Specifically, freight forwarding firms arrange transportation from shippers factories or
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wharehouse to ports, packing or consolidation of cargo if necessary according to the customers needs, documentation, customs clearance, shipping (land, sea and air or combination thereof), unpacking or deconsolidation if required and delivery at customer designated location(s). Licensing Authority Freight Forwarders were licensed by Collector of Customs. However, through Finance Bill, 2007-8, following amendments were made in Section 207 of the Customs Act 1969. Presently all the Freight Forwarders are licensed by the Customs which is unnecessary in certain cases. The scope of licensing in case of Freight Forwarders is, therefore, proposed to be restricted to the Freight Forwarders who actually transact customs related business.
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Even the above amendments do not take Freight Forwarders out of the purview of Customs, because Freight Forwarders still perform their duties inter-alia as Customs Clearance Agents. The decision taken in the meeting at FBR on 17th May 2007 that MoC is the most appropriate Ministry to regulate the business of Freight Forwarding Industry does not have any rationale because of following reasons:a) It was a unilateral decision taken by FBR in a meeting in which MoC was not invited. b) The Rules of Business of MoC do not have any provision for regulating Freight Forwarders. Committee constituted to regulate Freight Forwarders performance Director General of Trade Organization, notified the Committee under the chairmanship of Additional Secretary Commerce II on 23rd October, 2008 to regulate freight forwarders performance in
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pursuance of the approved Certification Rules and Code of Conduct for Certified Members of Pakistan International Freight Forwarders Association (PIFFA). Only one meeting of the Committee was held on 29th November, 2008 at Karachi. In this meeting PIFFAs Legal Counsel raised the issue that the Committee does not have any legal validity to regulate the Freight Forwarders. Therefore the meeting remained inconclusive and no minutes of the meeting were issued. It is recommended that either Customs or M/o Ports & Shipping may regulate the Freight Forwarders. Issue No.5: Recommendations of the meetings held in FPCCI: Report dated 22nd March sent to MoC by FPCCI, contained following recommendations:13

1. Since the Bill of Lading (B/L) is an evidence of the title of the goods and the holder of the same is the owner of the consignment, the Ship Agents/Shipping Lines should not have the right to stop the delivery of the consignments. 2. All charges being charged by the Ship Agents, Freight Forwarders and Terminal Operators should be part of the freight. 3. For one service of handling containers, the trade is paying the cost thrice i.e. in the name of Terminal Handling Charges (THC) to the Ship Agents, Terminal Service Charges (TSC) to the Terminal Operators and Wharfage to the Port Authorities. The THC which is being paid to Ship Agents should be part of the freight, TSC being paid to Terminal Operators be paid by the Shippers/Consignees being full and final payment to handle the cargo by the Terminal Operators and the cost of Wharfage should be withdrawn by the Port Authorities.
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4. The various charges being collected by the Ship Agents, should be part of the freight as Ship Agent represent the Ship Owner who pay the Agency Fee which covers the remuneration of the Ship Agents. 5. The charges being collected by the Freight Forwarders should also be part of the freight as Freight Forwarders represent the Shipping Lines who pays the Fees which covers the remuneration of the Freight Forwarders. 6. Various Charges collected by Terminal Operators should be included in the TSC already being paid by the Shippers/Consignee. 7. Shipping Rates Advisory Board (SRAB) be reactivated. 8. Office of Director General (Ports & Shipping) be strengthened and given the mandate to ensure transparency. 9. Powers should be given to Customs to regulate the Ship Agents where they are registered.
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10. Freight Forwarders should be registered with State Bank of Pakistan to regulate all the remittances like in Sri Lanka. MoC circulated the report to all stakeholders for comments, on 3rd April, 2010. The comments received from various stake holders are summarized below: Item No. 1 Since the Bill of Lading (BL) is an evidence of the title of the goods and the holder of the same is the owner of the consignment, the Ship Agents/Shipping Lines should not have the right to stop the delivery of the consignments. Comments: i) Pakistan Knitwear and Sweater Exporters Association (PAKSEA): Shipping lines should issue the Bill of Lading as per land law of Pakistan (Rule 11, Chapter XII of the State Bank of Pakistan F.E.
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Manual 2002) and should have no right to stop delivery of the consignment. ii) Pakistan Apparel Forum (PAF) Same as above iii) NTTFC In case the freight has been prepaid, the Ship Agents/Shipping Lines should issue the delivery order for the consignment on production of the Bill of Lading. iv) PIFFA If Bill of Lading is claused, freight and destination charges prepaid then freight forwarder would not charge delivery order charges to consignee. v) Pakistan National Shipping Corporation (PNSC) The recommendations do not take best practices and ground realities into consideration and are not acceptable.
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vi) Pakistan Stevedores Conference: Delivery orders are issued against surrender of Original Bill of Lading only. Delivery order is not withheld if all dues and charges have been paid and formalities completed. vii) Gwadar Port Authority: Agree with the recommendations.

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Item No.2 All charges being charged by Ship Agents, Freight Forwarders and Terminal Operators should be part of freight. i) PAKSEA Freight should include all charges. No other charges may be claimed from exporter or importer. ii) Pakistan Apparel Forum: Same as by PAKSEA. iii) Gwadar Port Authority: Amount charged by various agencies should be merged in the main charges and there should not be duplication or double charging. iv) NTTFC According to the present international shipping practices, payments for the services provided locally have to be made to Ship Agents, Freight Forwarders and Terminal Operators and these are not part of the freight.
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v) KPT Wharfage charge may not be withdrawn. vi) Karachi Customs Agents Association (KCAA): All charges being recovered by various service providers should be part of the freight. vii) Pakistan Cotton Fashion Apparel Manufacturers Association: All charges may be included in the freight and must be rationalized. viii) KICT Do not agree with the recommendation. ix) PNSC Suggestion is not acceptable. x) PIFFA As per international shipping and freight forwarding practices origin and destination local charges are billed separately.
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xi) Port Qasim Authority: The practice is prevalent the world over and merits careful deliberations taking all stakeholders on board. xii) KPT Wharfage charges may not be withdrawn. xiii) Pakistan Stevedores Conference: If all charges are paid by the shippers at the Port of loading e.g. Destination THC Pre-paid or CY/CFS shown on B/L then no charges would be applicable at destination.

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Item No. 3 For one service of handling containers, the trade is paying the cost thrice i.e. in the name of Terminal Handling Charges (THC) to the Ship Agents, Terminal Service Charges (TSC) to the Terminal Operators and Wharfage to the Port Authorities. The THC which is being paid to Ship Agents should be part of the freight. TSC being paid to Terminal Operators be paid by the Shippers/Consignees being full and final payment to handle the cargo by the Terminal Operators and the cost of Wharfage should be withdrawn by the Port Authorities. Comments: i) PAKSEA Terminal handling charges (THC) paid to the shipping line should be a part of the Freight and it should be charged once. ii) Pakistan Apparel Forum : Same as above
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iii) NTTFC Payment of THC on import can be avoided if it is stated on the Bill of Lading that THC has been pre-paid. The Terminal Service Charge (TSC) is levied by the Terminal Operators for services provided in their premises of storage, Customs examination and handling of containers. It is therefore not possible to eliminate these charges or include them in sea freight. Wharfage is a charge paid to Port Authorities. As Port Authorities provide no service in a container terminal, this charge should be eliminated. iv) Gwadar Port Authority: Agree with the recommendations. v) Port Qasim Authority: Wharfage is a charge levied by ports for construction and maintenance of berths and allied services for placing of cargo and does not relate with freight rates or THC. Additionally wharfage is fractional charge as compared to freight charges and THC.
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Item No.4 Various charges being collected by Ship Agents should be part of the freight as Ship Agent represent the ship owner who pay the Agency free which over the remuneration of Shi Agents. Comments: i) PAKSEA: Ship Agents/Freight Forwarders/Consolidators collect various other charges, which should be withdrawn for the reason that the shipping agents /Freight Forwarders/Consolidators receive the Agency Commission from the respective Shipping Lines. ii) Pakistan Apparel Forum: Same as above iii) NTTFC Ship Agents claim that the agency commission paid to them by the shipping companies does not cover the cost of all local services provided by them and they have to recover their expenses locally. Making it part of the freight will result on the same amount being remitted abroad in foreign exchange by the foreign Shipping Lines
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and they paying it back to the Ship Agents in local currency. Reasonableness of the charges is the issue that needs to be examined. iv) All Pakistan Paper Merchants Association (APPMA) Ship Agents charges on the basis of scales recommended and approved by PSAA. Ship Agents violate the rules and make manipulation.

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Item No. 5 The charges being collected by the Freight Forwarders should also be part of the freight as Freight Forwarders represent the Shipping Lines who pays the Fees which covers the remuneration of the Freight Forwarders. Comments: i) NTTFC Freight Forwarders are not the agents of Shipping Lines. The services provided by them are additional to the sea transport, freight for which is paid to Shipping Lines. Therefore, the freight forwarding charges cannot be made part of sea freight. Reasonableness of charges is the issue to be considered. ii) PIFFA Freight Forwarder does not represent shipping lines and they perform totally different set of functions and services against which they charge fees for their remuneration.
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Item No.6 Various charges collected by Terminal Operators should be included in the TSC already being paid by the Shippers/consignee. Comments: i) PAKSEA Terminal Operators collect various charges which should be included in TSC. ii) Pakistan Apparel Forum Same as above iii) NTTFC As different services are provided by Terminal Operators for different consignments, it is not possible to make one charge applicable to all. iv) Port Qasim Authority Separation of ocean freight rates from terminal charges has increased the overall shipping charges. The practice is prevalent the world over and merits careful deliberations 27

taking all stakeholders on board. iv) Port Qasim Authority Separation of ocean freight rates from terminal charges has increased the overall shipping charges. The practice is prevalent the world over and merits careful deliberations taking all stakeholders on board. v) Pakistan Stevedores Conference: Terminal Services Charges are charges levied by the terminal on account of R&D fee and other services rendered by the terminal, therefore the above services cannot be part of freight. vi) KICT KICT is working on amalgamating and reducing the number of chargeable heads to provide reasonable clarity to prospective users of the terminals. vii) Security Packers Terminal Operators are charging tariff in US dollars. They should charge in Pak Rupees. Similarly Shipping Lines are 28

charging Container Rent at very high rate in US Dollar. They should charge in Pak Rupees.

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Item No.7 SRAB be re-activated Comments: i) Karachi Customs Agents Association (KCAA) SRAB may be re-activated. ii) NTTFC SRAB is required to be re-activated iii) M/o Ports & Shipping SRAB cannot be activated at present as the issue is subjudice in Sindh High Court. iv) Port Qasim Authority A Regulatory Board under office of DG (P&S) may be constituted to rationalize charges levied by shipping lines/ship agents/freight forwarders and terminal operators. v) KICT Do not support this proposal. vi) PNSC A tariff regulatory authority with no conflict of interest and duly
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backed by force of law will be only solution to weed out the unscrupulous operators from supply chain. vii) SBP As per section 79 of Chapter 5 Part-III of Merchants Shipping Ordinance 2001, Federal Govt. may fix the rates.

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Item No.8 Office of DG (Ports & Shipping) be strengthened and given mandate to ensure transparency. Comments: i) NTTFC Pakistan Merchant Shipping (Amendment) Ordinance 2002 provides necessary mandate to Director General (Ports & Shipping) to issue license to Non-vessel Operating Carriers and Cargo Consolidator, which are the Freight Forwarders, and cancel the registration, forefeit security or impose penalty of fines as may be prescribed. Only the will is required to implement the mandate. ii) KCAA Office of DG (Ports & Shipping) be strengthened and given mandate to ensure transparency.

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Item No.9 Powers should be given to Customs to regulate Ship Agents where they are registered. Comments i) FBR Shipping Agents are licensed by Customs. Proposed legal changes in Customs Rules will be considered during the finalization of budgetary and fiscal changes for the year 2010-11. ii) KCAA Customs may be given powers to regulate Ship Agents. iii) NTTFC Customs already have the powers to regulate Ship Agents as far as the Customs matters are concerned. Directorate General of Ports & Shipping may also register them under Pakistan Merchant Shipping (Amendment) Ordinance, 2002 to penalize them in case of any misdemeanor. iv) Port Qasim Authority Ship Agents are licensed by Customs. It may be examined
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whether FBR has any legal mandate to take action against Ship Agents, who are involved in excessive charging, delay in refund of security deposit or other malpractices.

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Item No. 10 Freight Forwarders should be registered with SBP to regulate all remittances like Sri Lanka. Comments: i) NTTFC The proper organization to register Freight Forwarders is the Directorate General Ports & Shipping. Rules may be prepared and notified for licensing the freight forwarders. Foreign exchange remittances are already regulated by State Bank of Pakistan. ii) Port Qasim Authority PQA endorses the proposal. iii) PIFFA The Chairman PIFFA himself and on behalf of Executive Committee have already recommended in favour of regulatory authority for freight forwarding industry.

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iv) Pakistan Cotton Fashion Apparel Manufacturers Association Performance of Freight Forwarders may be regulated and they may be asked to furnish security. v) DTO, Ministry of Commerce Any dispute of Freight Forwarders has to be settled by FBR or Customs (Preventive) Department and not by MoC. vi) SBP Freight Forwarders are not being regulated /monitored by any agency.

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Legal Position Since the interests of stakeholders are conflicting, it is very difficult to resolve the issues amicably through consultation process. The recommendations / proposals at slides No: 4, 6 and 13 may be implemented to resolve the issue of over charging and other malpractices by various service providers.

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Thank You

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