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CPEC: the governance challenges ahead — I

In order to ward off security threats to CPEC, there ought to be a legal framework in place, which serves as a point of reference for conflict and dispute resolutions

Dr Ejaz Hussain

In 2013, China and Pakistan signed a Memorandum of Understanding that served as the cornerstone of the China-Pakistan Economic Corridor (CPEC). Two years later, Chinese President Xi Jinping visited Pakistan and formalised CPEC allocations at $46 billion. By the end of 2017, the total loans and investment under CPEC crossed $80 billion. To consolidate CPEC and bilateral economic cooperation, the Chinese and Pakistani governments concluded, at the sixth Joint Cooperation Council held in 2016 that they would set up Special Economic Zones. Initially, the total number of the zones varied from forty-six to over a hundred. However, later on, the Pakistani authorities, in particular the Ministry of Planning, Development & Reform and the Board of Investment, reduced the number to nine. Gwadar, the most crucial and sensitive component of CPEC, is seen as the tenth industrial zone by some Chinese policy circles.

CPEC has passed the early phase of conception and selective implementation of projects related to roads, port and energy. Indeed, the Gwadar port is now operational for commodity exchange, financial transactions and goods mobility, though at a measured scale. Nevertheless, during the initial phase of CPEC’s introduction, projection, rationalisation and acceptability, the Federal Government of Pakistan had its work cut out for itself. Since the proposed CPEC was supposed to pass through Gilgat-Baltistan (GB), Khyber Pakhtunkhwa (KP), Punjab and Balochistan, the local and provincial stakeholders that included politicians, rights activists and businesses voiced their concerns accordingly.

The so called ‘route controversy’ was reflective of different bargaining positions taken by different political parties. For instance, the ANP, based mostly in KP, demanded a route alignment that covered Pakistan’s Pakhtun areas

For instance, certain pro-climate change groups in GB highlighted the detrimental effects of pollution from the increased traffic on the environment of Gilgat-Baltistan, which is globally renowned for its snow-capped peaks, glaciers, clean water and air. Similarly, certain political parties and interest groups from KP invoked ethnic biases and bracketed the Corridor with Punjab that is the largest province of Pakistan in terms of population, skills and resource base. In the same vein, certain nationalist forces from Balochistan too dubbed CPEC as Punjab’s project designed to encroach upon Balochistan’s resources. Even some political parties from within Punjab were sceptical. The regional and global anti-CPEC assertions were additional concern for the government and state of Pakistan. The latter, through a series of negotiations and deliberations with a variety of stakeholders from the mentioned locations, went ahead with the project.

Initially, the challenges were mostly of a political nature, where a political party based in a province demanded due share for its constituency. The so called ‘route controversy’ was reflective of different bargaining positions taken by different political parties. For instance, the Awami National Party (ANP), based mostly in KP, demanded ‘route alignment’ that covered Pakistan’s Pakhtun areas. Likewise, the National Party (NP) from Balochistan pushed for a share in, for instance, revenue generation from the Gwadar port. The Federal and Punjab Governments led by Pakistan Muslim League (PML-N) engaged such stakeholders in a manner where, at least, the ‘route controversy’ seemed to have been resolved for the proposed ‘western route’ was meant to assuage the provincial and regional grievances.

In addition, the Federal Government has proposed that one Special Economic Zone (SEZ) be allotted to each province, including Gilgit Baltistan, FATA and Azad Kashmir. This is a means to align provincial and regional interests with CPEC. However, despite the completion of ‘early harvest’ projects, as claimed by the government, and achieving consensus on establishing industrial zones, certain concerns related to CPEC governance and security on the behalf of especially smaller provinces and  neglected regions still persist. This article, based on my paper presented at a Belt & Road Conference organised by the Fudan University, seeks to highlight and provide a policy framework for CPEC governance challenges.

Governance is a contested subject politically, legally and academically. However, I use this concept in terms of legal framework that envisions and ensures orderly rule within and around CPEC domains, meaning the Gwadar port and Industrial Zones. Here, the physical security of the Corridor infrastructure, work force and technology is assumed as the applied version of governance. In other words, in order to ward off security threats to CPEC, there ought to be a legal framework in place, which serves as a point of reference for conflict and dispute resolution. Since its inception, the Federal Government of Pakistan has carried CPEC forward provincially and extra-regionally.

For instance, the Ministry of Planning, Development and Reform negotiated various aspects of the Corridor with provincial governments. In the absence of an agreed upon governance framework, the provinces, especially KP and Balochistan have registered concerns over who controls and oversights CPEC projects in their jurisdiction. This is because after the passage of the Eighteenth Constitutional Amendment, the provinces are empowered administratively and legislatively. Thus, owing to legalities, Centre-Province relations in contemporary Pakistan are contested and, with respect to governance, problematic.

One main governance challenge relates to the finalization and demarcation of geographic space for CPEC roads, railways, fibre lines and SEZs. The latter, for instance, has been subjected to heated debate by regional and provincial stakeholders. During the initial deliberations, they couldn’t even generate consensus on the number of industrial zones. Moreover, each of the provincial governments, the regional and provincial political parties and other stakeholders differed over and exaggerated the site of the SEZ.

In the case of Gilgat-Baltistan, the region was projected itself as a perfect natural location to host an industrial zone, which may not be the case. Moreover, access to finance could be bracketed as an important impediment for CPEC’s overall growth. One wonders to what extent federal and provincial governments could be interested in establishing legal administrative regimes to levy and collect taxes, and importantly, investing share of revenue in CPEC projects. Equally ambiguous is the notion of retributive justice with respect to allocation of CPEC profits with the regional and provincial governments.

In addition, another aspect of CPEC governance relates to trade and fiscal disputes, for instance, is it to be among Chinese enterprises or between Chinese and Pakistani businesses. There is a dearth of dispute resolution mechanisms that can provide relief to the parties concerned at both the regional, provincial and federal level. Furthermore, with respect to enhancing trade under CPEC, both China and Pakistan are still struggling, for instance, to agree on a transactional mechanism. Lately, the Government of Pakistan did not take the Chinese proposal of full currency substitution into consideration for the former already has partial currency substitution in place along with a low rate of inflation.

To be continued

The writer is Head, Department of Social Sciences, Iqra University, Islamabad. He is a DAAD, FDDI and Fulbright Fellow. He tweets @ejazbhatty

Published in Daily Times, June 4th2018.


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