Trade Balance between Pakistan and China

We always heard about the geostrategic importance of Pakistan. But never unearthed this so-called opportunity other than only for defense purposes in US wars against USSR and War on terror, but our relations as an ally with the US is still in a limbo due to distrust between Washington and Islamabad!  My topic is not analyzing the PAK-US relations but to highlight our approach to engage with new allies and take distance from old allies. We are just shifting our concentration from the US to China is in a most inappropriate manner i.e. disassociation with US and engagement with China in hurry/hustle with no assessment of risk and opportunity costs involved and there is no consensus from all stakeholders and policy experts and it looks like a One Man/institution show.

We are neighbor to three out of five emerging economies of BRICS i.e.  Brazil, Russia, India China, and South Africa. Other than defense lens, we never acknowledge our own importance in business perspective, nor do we try to approach almost half population of the globe living in these BRICS economies. The success reason of these economies is mainly due to their own population and serve it through indigenous products, and upon doing that they have experienced and able to compete with other MNC global giants.

Pakistan has very low trade engagement with neighbors as compared to others in the region like IRAN and INDIA. Yes Pakistan has larger trade with China but it is mainly one sided by overloaded imports as compared to exports i.e. almost 90% vs 10%. The country faces a trade imbalance of $30.5bn while the current account deficit reached a record-high of $12bn in 2016-17. Pakistani traders’ especially SME’s facing a lot of problems from Chinese authorities upon exporting goods via Sost-Kashghar Route. Pakistani agri-products normally disposed-off/perished while reaching Urumqi China and so many traders have been disappointed by these non-tariff barriers by Chinese authorities as well as lack of support and cooperation from Pakistani trade departments. In addition to this local markets have been flooded with smuggled Chinese products, which are sold openly with no fear from taxation and customs authorities, these practices resulted in low collection of tariffs and taxes. Imported and smuggled Chinese goods have complete domination in the local market and local manufacturers have discouraged by this import overlay and with prevailing electricity issues and have diverted the investment to other countries or switched their efforts and importing/smuggling goods from China. No official estimates are available as far as the market size of smuggled Chinese products is concerned. But people in local markets believe the value of smuggled goods can be higher than that of official imports.

Before engaging fully in upcoming China Pakistan Economic Corridor (CPEC) and One Belt One Road (OBOR), based on above empirical evidence we need to build strategic policies with quick actions to prevent the above economic losses and try to achieve the optimal benefit from existing and future trade especially with CHINA. Pakistani authorities need to table the issues of local traders with Chinese counterparts in order to balance out/narrow this Import-export gap. In addition to this there is a need of spreading the advocacy campaign with local consumers to give priority to local manufacturers. Yes this is not possible immediately but we need to build the capacity of Local companies through application of modern business philosophies. Pakistan is now home of more than 70% of energetic youth; we can concur to these challenges if we made policies for long-term vision with no short-termism behavior.

Prevailing tax issue and Constitutional Status of Gilgit-Baltistan

Gilgit-Baltistan (GB) previously known as Northern areas and locals call it Balawaristan, in British rule it was administratively controlled by State of Jammu and Kashmir. In 1947, after Pakistan and India gained independence from British rule, Jammu and Kashmir had the option to join either India or Pakistan or to remain independent. Jammu and Kashmir initially remained an independent state, Later on October 1947, tribal militias crossed the border into Jammu and Kashmir, as result Lord Mountbatten(first Governor-General of India), and Indian politicians pressurised/offered Maharaja to accede Muslim Majority State to India, after some resistance Maharaja signed an Instrument of Accession to the Dominion of India. People of GB in the supervision of Scout commander Col. Hassan Khan (from Nagar) mutinied on 1 November 1947, overthrowing Governor Ghansara Singh and formed the provisional government but it lasted 16 days. After that Government of Azad Kashmir made an agreement with Govt. of Pakistan. This agreement had many flaws:

  1. Govt. of Azad Kashmir has no relationships with GB because both are separate setups which were previously controlled under Jammu-Kashmir so authority might rest with Jammu-Kashmir, not Azad Kashmir.
  2. Govt. of Azad handed administration of the area to the federal government via the Karachi Agreement, without even consulted the people of GB (Modern name).
  3. According to Political Scientists, this was no an agreement because it deprived significant powers and responsibilities of Gbians/Kashmiris in return for nothing.
  4. The agreement was apparently kept as a secret document up to 1990s (Public upon orders by the court of Azad Kashmir).
  5. The Interim Constitution of Azad was silent about GB from 1949 till 1974. In 1972 Legislative assembly passed a resolution to reclaiming Gilgit-Baltistan.

After dissolving the status of the Interim state, people of Gilgit-Baltistan living under constitutional limbo, they are being subject presidential orders from Federal and as a result no permanency in rules of the business.

Due to provisional setup GB facing problems in divisional indigenous financial planning with no clear means of revenue and expenditure. Bureaucracies also don’t have clear solution regarding GB due to overloaded bureaucrats especially from federal with no preference to locals. Gilgit-Baltistan fiscal issues currently managed via GB Council, which is comprised of mostly non-local members chairing by PM of Pakistan. Federal govt. passed the GB tax adaptation act in 2012 but implemented in Nov 2017 which fuelled the protest and shutter down strikes. Locals chanting the slogan of #NoTaxationWithoutRepresentation and saying that ‘’we are being taxed by a Parliament to which we have no representatives. We (GBians) are Aliens as per Constitution of #PAKISTAN”.  They are demanding the rights as a citizen of Pakistan to pay taxes. Recently Govt. decided to withdraw from imposing the direct taxes upon fierce reaction but indirect taxes already paid by residents of GB with no Tax rebate and share to the region.

Govt. of Pakistan is collecting far greater amount as revenue compared to Expenditure, in terms of customs duties from Pak-China trade via SOST Dry in Gilgit-Baltistan, Licencing of trophy hunting, leasing of Mineral reserves & amount earned from tourism, and this amount is directly collected by federal govt. with no share NFC awards. The royalty of rivers coming from GB has not been given till to date. As per the Shimla Agreement between Pakistan and India in 1972, disputed territories including Jammu, Azad Kashmir and GB have been provided subsidy on almost 70 items, but this is also gradually cut by Federal.

Before the start of new economic Era of CPEC(China Pakistan Economic Corridor), Gilgit-Baltistan (the gateway of the route) needs to be given clear and sustainable governance structure with the consent of locals, so that they will be able to legislate based on local scenarios in many aspects including fiscal policy at the forefront. Otherwise big corporates will establish tax havens and will evade the taxes. In addition to this, there is also need of drastic changes in order to solve the long-lasting issues as well as counter the arguments and propaganda of INDIA on international forums.