Global War on Terror: Positive Effects of Pakistan’s Policy Transformation
By Sajjad Shaukat
Owing to its fragile economy, after the 9/11 tragedy, Pakistan joined the US-led Global War on Terror (GWoT) and was granted the status of non-NATO ally by America due the early successes, achieved by Pakistan’s Army and country’s Inter-Services Intelligence (ISI) against the Al-Qaeda militants.
But, when the US-led NATO forces felt that they are failing in coping with the stiff resistance of the Taliban in Afghanistan, they started a blame game against Pak Army and ISI of supporting the Afghan Taliban. Their main purpose was to pacify their peoples. They constantly emphasized upon Islamabad to do more against the militants and continued the CIA-operated drone attacks on Pakistan’s tribal areas by ignoring the internal backlash in the country.
However, Pakistan faced various kinds of terror attacks on the civil and military installations, including civilian and military personnel because of GWoT. Besides collateral damage, the country faced serious implications such as political instability and economic crisis.
Pakistan’s Armed Forces and particularly Army have successfully broken the backbone of the foreign-backed terrorists by the military operations Zarb-e-Azb and Radd-ul-Fasaad, while ISI has broken the network of these terrorist groups by capturing several militants and thwarting a number of terror attempts. So, peace was restored in various regions of the country, especially in Balaochistan and Khyber Pakhtunkhwa (KP) provinces.
Undoubtedly, Pakistan’s security forces have eliminated terrorism. But in the recent past, terror assaults in some areas of the country, particularly in Balochistan which is central point of the China-Pakistan Economic Corridor (CPEC) indicate that the CIA-led Indian RAW, Afghanistan’s intelligence agency National Directorate of Security and Israeli Mossad are weakening Pakistan and want to damage the CPEC project which is part of China’s One Belt, One Road (OBOR) initiative or BRI. The US and India, including some Western countries have already opposed this project. These external agencies are supporting separatist of Balochistan and Afghanistan-based Tehreek-e-Taliban Pakistan (TTP) and its affiliated terror outfits which have claimed responsibility for various subversive acts.
Besides, Pakistan is the only nuclear country in the Islamic World. Hence, it has become special target of these secret agencies who want to destabilize it.
Despite, it now, terrorism-related attacks have been reduced to the minimum owing to the vigilance and quick response of the security forces. To sustain the hard-earned peace, Pakistan Army is rapidly completing the fencing of the Pakistan-Afghanistan border.
As regards the participation in the US-led Global War on Terror, Pakistan suffered 75,000 casualties and over $123 billion was lost to the economy, while US aid was a $20 billion. Tribal areas were devastated and millions of people uprooted from their homes, while the country also officially hosted 1.4 million registered Afghan refugees.
Especially, foreign investment stopped, which further gave a setback to the economy of the country. As a result, Islamabad’s dependence on the financial institutes like IMF and World Bank increased, as it was compelled to take more debt from them.
It is mentionable that America has not taken any practical action like sanctions against India in relation to the continued lockdown in the Indian Occupied Kashmir.
And, still the US which prefers India over Pakistan, is not clearly favouring Islamabad in connection with the Financial Action Task Force (FATF) which has still kept Pakistan on the grey list, while China is strongly supporting Pakistan in this respect in wake of Indian attempts to blacklist the latter.
Taking cognizance of these negative developments, Pakistan decided to revise its relations with the US and also left the GWoT.
In this respect, when after the Iranian missiles attack on the US military bases in Iraq on January 8, 2020 in response to the US drone strike at Baghdad’s airport on January 3, 2020, tensions between Washington and Tehran dramatically sharpened, Prime Minister Imran Khan declared on January 10, this year that Pakistan would not become part of anyone else’s war.
Earlier, the then DG of the ISPR Maj-Gen Asif Ghafoor also stated that Pakistan would not allow its soil to be used against anyone and would continue to play its role in establishing durable peace in the region.
Nevertheless, it indicates the policy transformation of Islamabad not only with America, but also regarding the GWoT. Indeed, Islamabad’s resolve not to take side in any regional or global conflict and not to allow Pakistan soil to be used against any nation would further enhance the credibility and genuineness of country’s new narrative.
These decisions have resulted into positive effects in the country, pointing out the benefits of a new narrative for Pakistan. It will also uplift Pakistan’s image abroad.
It is notable that Pakistan’s gradual transition from a country struggling to fight terrorism and religious militancy to a peaceful and tolerant society with more potential for economic progress in a digital age has been appreciated by the international community.
In this context, in the recent past, the visits of British Royalty and other globally-acclaimed celebrities to Pakistan and the inflow of Foreign Direct Investment (FDI) in the country are signs of a changing Pakistan.
In fact, foreign investment is essential for the less developed countries. In this regard, a report which was prepared within the framework of the activities of the Committee on International Investment and Multinational Enterprises (CIME), said: “Developing countries, emerging economies and countries in transition have come increasingly to see FDI as a source of economic development and modernization…Countries have liberalised their FDI regimes and pursued their policies to attract foreign investment”.
While, on internal security situation, the new narrative of GWoT would help transcending a demoralized nation into a strengthened, integrated and resilient Pakistani nation, capable enough to welcome modern challenges.
Nonetheless, despite policy change, Islamabad will continue cordial relationship with Washington and the latter must also show a positive response, taking note of Pakistan’s key role in the US-Taliban agreement and efforts for regional peace.
Sajjad Shaukat writes on international affairs and is author of the book: US vs Islamic Militants, Invisible Balance of Power: Dangerous Shift in International Relations
Email: [email protected]
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Whistler Blowers, Insiders
Solution to Manufacturing in Pakistan – Part 1
Some people lament the “lack of manufacturing capacities” in Pakistan.Had the Pakistan state pushed for manufacturing capacities a few decades ago – it would have had the “NPA disaster of the Hindoo Nation”.The Aggregate of the NPA in the Banking,NBFC,CHit fund,Co-operatives and Unorganised sector,in Hindoosthan,would be around USD 300 billion USD (at the minimum) – which is enough to destroy Hindoosthan. An Oil shock or a 15 day full-scale conventional war,will destroy Hindoosthan – simply by the “geometric expansion of NPAs” and the “physical annihilation of manufacturing”,in North Western Hindooosthan.dindooohindoo
History
There was no point in manufacturing in SAARC, a few decades ago, as everything was being sold by PRC,at half the total cost of the importing nation,and there was no skilled labour and management expertise in nations like Pakistan,at that point of time.The costs in PRC have now matured and stabilised and the tastes of the Pakistani consumer have stabilised and matured.
Current Tenor
The situation is ripe for manufacturing in the current times – with the benefit of obviating FX outflows and smuggling and boosting indirect tax revenue.
Exanple of “As-Is” Import
Let us assume that a product is being imported at a cost of USD 1000/piece or per ton CIF,with the Tariff rate of say 35% – wherein the actual compliance with duty,is only 10%.In this case,the profit which accrues to the trader or maker o/s Pakistan is not taxable in Pakistan,and the same applies to the sea freight and the freight forwarder’s commission.Since, the CIF cargo is misdeclared at Port Qasim – it is obvious that the sale of the said item,in the wholesale and retail market,would be w/o tax.
Exanple of “Proposed” Manufacture – Case 1
If the said item is made in Pakistan, the Marginal cost would be say,650 USD and the Total cost (including non cash and amortised costs) would be around USD 900. However, the manufacturer would need to import the materials or the item/component in CKD/SKD condition.Since,this will be a bulk import,in industrial packaging,it would be at a lower cost,and the importer would pay the merit duty applicable – as there will be no duty evasion,no smuggling, no corruption, no hawala and the
USD outflow can be deferred.
The indigenous cost in Pakistan such as salaries,purchases and power – would be subject to indirect and direct tax (and TDS) which cannot be avoided.In addition,the power consumption will provide a proximate estimate of the actual production of the factory.
If the manufacturer has paid the import duty on material imports and has no captive DG set for power – then the sales of the products will have to be on record.Let us say that this factory is in State X , and he sells to a dealer in state X at the 1st point.Ideally the states should have a 1st point tax – and then all sales in the same state of the “said invoice” (of the 1st point of sale) will be exempt from indirect tax.If tax is at the last point – then that last point will never come and the Revenue deptt will keep on doing reconciliations.If there is a multi-point tax,there will be avoidance (as no one will pay tax on financial value addition),and the state will have to prove the sale at each
point.So full indirect tax revenue will be realised on the mode of “1st point tax”.In any case, the factory will have all the data w.r.t the last point retailer as part of its CRM and its Dealer/Retailer incentives and Dealer management plans
Exanple of “Proposed” Manufacture – Case 2
If the manufacturer decides not to import the materials and purchases the same from local sources (who are the illegal importers) and does not use Grid Power or does not use metered Grid Power – the he would sell the products “off the record/books”.However,in this case, there will at least be some manufacturing in the state and the FX outflow would be “far lesser than before”.
Fiscal Levy Model in Exanple of “Proposed” Manufacture – Case 1
In the 1st case, the state should levy the import duty on the material or component imports,in a manner,such that the total taxes accrued to the state,across the supply chain of the manufacture for the unit,and its extended supply chain and staff = 35% (which was the original import duty on the finished product)
In other words,the aggregate of the understated components, as under:
Import duty on material/component import
Tax of staff salaries of factory
Indirect tax on local purchases
Cess and Duties on SEB power purchases
Tax on sale of Products
Profit tax on producer and supplier of local purchases
Cross Subsidy benefits to state on SEB purchases
Should be around 35% of the finished goods price (NSR),which was the original import duty on the finished product
Fiscal Levy Model in Exanple of “Proposed” Manufacture – Case 2
In this case,for those products where there is no “on record manufacturing” in the nation, an import duty on materials equal to current deemed duty (hawala charges bribes and the actual duty paid) plus a small premium,can be imposed, to bring the downstream sales of the finished products into the indirect tax net (on the mode of the 1st point sales tax).Once the imported materials are “on record”,then the “downstream production” will also be on record.
However,if the production is viable only by power theft,avoiding pollution taxes,doing hazardous manufacturing and evading the indirect taxes on sale of finished products – then the said production can be shut down – by licensing the production to the original manufacturers on a sole license basis with direct tax holidays.
Alt Manufacturing Strategy
In the Alt, based on import data from Pakistani ports and the export data from load ports, if the overseas manufacturers or traders are offered “sole manufacturing and sales rights”, in Pakistan or parts of Pakistan (by law or by banning imports or charging high duties/TBT etc.), the overseas suppliers will be glad to set up or partner with,local partners to set up manufacturing capacities,for all types of consumer goods (at the minimum)
In addition, there will be several types of manufacturing which overseas suppliers/bankers/ entrepreneurs will be glad to outsource to Pakistan on account of pollution effluents, environmental issues,hazardous chemicals,requirements of water,obsolete or phased out technologies in USA/EU,labour intensive technology,2nd hand machinery on the books of cash strapped banks etc – who will be glad to relocate to Pakistan.
Export Interface
It would be reasonable to assume that the “VA norms” of various trade treaties applicable to Pakistan,would qualify the COO of these manufactured products,as Pakistani and thus,would qualify as “Nil Duty/Concessional Duty access” to export markets (even ignoring, the financial value addition)
The manufacturing hubs of the abovesaid products can be located near Ports and also near the SEZ/EOU and within the DTA of the EOU (to lower logistics costs) – so that the manufacturers can offload excess capacities to SEZ and EOU on CMT/Job work or where the suppliers manufacture semi-finished products which are sold to SEZ and then exported – and this is treated as a Deemed/Physical export for the DTA Manufacturer