China-Pakistan Economic Challenges

Categories: By IPO Pakistan.

THE China-Pakistan Economic Corridor has become a contentious political issue. Recently, the KP chief minister reproached the centre and Punjab. He said CPEC’s western route traversing KP had been restricted only to the roads whereas major investment and energy projects (eg fibre optic lines, railway tracks etc) linked to CPEC were being planned on the eastern route.

While CPEC’s domestic dimensions are hotly debated within Pakistan, few have focused on the international angle. Realising CPEC is contingent upon enforcing multiple agreements entered into between China and Pakistan. Under international law, Pakistan is categorised as a ‘dualist state’ ie for treaties signed by Pakistan to be locally binding, implementation legislation is required domestically through the federal legislature. From the perspective of national law, the process is considered the ratification of treaties signed earlier.

The Pakistani government has entered into several trade and investment treaties with China that predate CPEC but that still have immense relevance, including the China-Pakistan Bilateral Investment Treaty (1989), China-Pakistan Free Trade Agreement (2006), and the China-Pakistan Agreement on Trade and Services (2009). For CPEC, Pakistan has inked many more deals including over 50 MoUs.


There is not much focus on the international angle of CPEC.


Under the Vienna Convention on the Law of Treaties, any agreement governed by international law qualifies as an enforceable treaty when it is expressed in writing between the states that intend to commit themselves. The intent to bind need not be expressed and can be inferred from the circumstances.

It is in light of this rule that the Inter­national Court of Justice, in a case between Qatar and Bahrain, found consent implied in the general minutes of a meeting, in turn, creating a binding treaty. Even pacts between states that do not meet Vienna Convention requirements can qualify as binding international agreements under customary international law creating responsibilities, and — in the case of a breach — remedies.

Thus, from an international law perspective, virtually all agreements and MoUs signed by Pakistan are legally enforceable treaties, even if these accords are considered soft-law or nonbinding instruments by many domestic stakeholders.

While Pakistan continues to assume new international obligations, virtually none of these commitments has resulted in the passage of the corresponding domestic legislation. In fact, the process of ratification of international treaties is far from clear under the Pakistani domestic legal framework.

Many CPEC-linked treaties and accords, do not exclusively deal with one but several forms of investment and commercial activity which appear to fall under the Federal Legislative List: Part I and II, as well as under the residual jurisdiction of the provinces, often at the same time. Investments pertaining to ports, railways, minerals, oil, natural gas and electricity require policy formulation and regulation by the Council of Common Interests. If a province is dissatisfied with its decision, the matter is referred to parliament and put to a joint vote of both houses.

Further, if smaller federating units feel that CPEC is being appropriated by the larger provinces they might also be hesitant to pass provincial legislation to implement CPEC obligations in areas that fall under their residual jurisdiction. All this political activity, or inactivity, can delay the implementation of CPEC.

After the passage of the 18th Amendment, the provinces were empowered to manage their fiscal affairs more independently and to raise funds through various forms of taxation, surcharges and royalties. A year earlier, the seventh NFC Award was moderately appreciated by the smaller provinces for achieving a more equitable distribution of federal revenue.

Today, it is uncertain how the recently created special economic zones (with their corresponding tax regimes) for CPEC will affect the fiscal powers and revenue-generating capacity of the provinces granted under the amendment. Further, because of the territorial ambiguity of Fata and Gilgit-Baltistan, confusion exists over sharing of revenues or rents with these administrative units. In context, the role of the National Economic Council and CCI for harmonising federal-provincial ties vis-à-vis CPEC is not clear.

As a rule, Pakistan should only enter into treaties for which it has the requisite domestic political consensus and after it has created the necessary political and legal space for their execution. Once it enters into a treaty, it is bound to make it part of domestic law and to expeditiously implement its obligations. At present, the politics of federalism and the absence of domestic legal reordering and preparedness has created a strong possibility of CPEC projects being subjected to unscheduled delays, even possible cancellations, exposing Pakistan to liability for violating its international commitments.

 

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