Pakistan has assured the Japanese government to resolve all tax related issues raised by Japanese investors, including tax exemption to companies, foolproof security for staff/contractors of Japanese companies, joint ventures (JVs) with renowned Japanese brands in auto parts manufacturing and continuation of tax incentives offered to automotive sector.
Sources said that the decisions were taken by the Pakistan and Japanese government officials during the last 5th Pakistan-Japan High Level Economic Policy Dialogue (PJHLEPD) held in Islamabad.
Secretary Economic Affairs Division Syed Ghazanfar Abbas Jillani led Pakistan's side. Yamazaki Kazuyuki, the Senior Deputy Minister for Foreign Affairs led the Japanese side.
The Secretary EAD in his opening remarks welcomed the distinguished Japanese delegation in Pakistan and thanked the government of Japan for the revival of the High Level Economic Policy Dialogue after a lapse of more than 7 years for further enhancement of economic cooperation between the two countries. Appreciating the economic assistance extended by the government of Japan in various sectors, he emphasized that there is a need to give a new impetus to bilateral economic and commercial ties. Apprising of Pakistan's economic performance, policies and fiscal discipline, he highlighted that investment climate in Pakistan is very conducive and assured that the Government of Pakistan remains committed to further improving the enabling environment for growth in trade and investment.
Yamazaki Kazuyuki, the Senior Deputy Minister for Foreign Affairs expressed gratitude for the reception and the warm welcome extended to Japanese delegation. He further staled that there had been a prolonged gap since the last dialogue was held but the relationship between the two countries is now catching up. Dilating upon the visit of Japanese Foreign Minister in January 2018, he mentioned that it was expressed to Pakistan's leadership that bilateral economic relationship should be strengthened between the two countries. Underscoring the importance of Pakistan, he said that the country has high potential due to the size of its population and economic growth and both countries should take advantage of the same.
Representative from the Ministry of Finance made a detailed presentation on the current status of Pakistan's economy. Highlighting the improvement in macroeconomic indicators, he stated that Pakistan has seen a visible economic turnaround over the last five years due to successful implementation of a comprehensive programme of economic revival aimed at higher economic growth and macro-economic stability. It was informed that the growth momentum remained above 5 percent for the last two years in a row and reached 13 years high at 3.79% in FY 2018 on account of strong performance in agriculture, industry and services sectors which grew by 3.81%, 5.8 % and 6.43% respectively in FY 2018.
Profiling the trade relations between the two countries, Pakistan's side informed that presently the current bilateral trade is US $2.3 billion (2016-17), with Japanese exports at $2.03 billion and Pakistan's exports at $249 million. It was further outlined that Japan's share in Pakistan's import market declined from 6.6% in 2003 to 4.2% in 2016. Exports to Japan constitute only around 1% of Pakistan's global exports as Pakistan faced on average 8.9% tariff rate on garments and 5.4% on textiles, whereas Japan extended zero duty on textile and garments to Pakistan's competitors. Besides in leather sector, Pakistan faces on average 10.2% tariff rate, while the competitors enjoy duty in the range of 0.5%-3%.
Pakistan's side proposed that both the countries need to explore preferential mark access arrangement and recommended to conclude PTA at the earliest. To realize the immediate gains and set the platform for FTA, Japanese side was requested for the completion of the feasibility study, revision of tile travel advisory, facilitation to businessmen and enhanced business-to-business contacts.
Cooperation in the of Sanitary & Phytosanitary Measures to Promote Bilateral Trade in Agricultural Commodities:
While elaborating the issues of exports regarding fresh fruits, the secretary M/o National Food Security& Research stated that total export of mangoes and citrus is 85,000 tons out of 1.8 million tons production and 360,000 tons out of 2.2 million tons production respectively. Out of which, Japan's share in mangoes export is only 250 tons whereas citrus has no market access in Japan. Currently, only two varieties of mangoes are allowed in Japan due to particular process for treatment requirement from NPPO, Japan other than the hot water treatment. It was proposed to the Japanese side to accept the hot water treatment, as rejection of Pakistani mangoes by EU and other countries is quite negligible as compared to its competitors. Japanese officials may also visit and examine the processing facilities. Regarding the issues related to citrus, it was emphasized by Pakistan's side that Pakistan is already exporting citrus to various countries, after fulfillment of international standards by applying cold treatment. He proposed that experts of NPPO Japan may visit the cold treatment facilities and observe the process in order to satisfy themselves and allow export of kinnow from Pakistan to Japan.
Pakistan's side also stated that the country is amongst the top ten producers of fresh dates in the world. Besides, Pakistan produces roses, carnations and chrysanthemum, which are being imported by Japan with zero tariffs, whereas DO market access is available for export of fresh elates and flowers to Japan. Pakistan's side proposed that Japanese side may consider import of dates and flowers from Pakistan. It was also proposed that Japanese side may consider assistance for up-gradation of genetic resources, sciences laboratories and the establishment of 'Distinctness, Uniformity & Stability (DUS)' system in Pakistan.
Appreciating the government of Pakistan for initiating concrete economic and financial reforms, Japanese side mentioned that the same have resulted towards high GDP growth rate and situation of power supply has also been improved. Indicating economic challenges, Japanese side stated that Pakistan has to deal with trade deficit, foreign currency reserves and accumulation of debt. For overcoming these challenges, Japanese side highlighted that Pakistan will need broadening of its tax base. He also mentioned that for sustainable economic development and increase in foreign direct investment from Japan would improve the country's industrial base and also pave the way for transfer of technology.
Japanese side acknowledged the viewpoint of M/o Commerce regarding the trade imbalance with Pakistan. However, with regard to FTA proposal, Japanese side highlighted that at this stage, the government of Japan is not considering any FTA with the government of Pakistan. Japanese side further explained, "We have a framework through which Joint Government Business Dialogue (JGBD) forum has been established for facilitation and promotion of the trade between the two countries. Through this forum, businessmen and officials from both the sides interact with each other for enhancing trade and investment."
Japanese side expressed that the meeting of JGBD, which was last held in 2015, will be held within this year. The government of Japan desired to have a detailed discussion not only in the textile sector but other sectors may also be explored along with agriculture sector.
The Japanese Deputy Foreign Minister proposed three areas i.e. expansion of opportunities, strengthening the industrial competitiveness and diversification of export sector wherein the government of Japan may extend their support for trade promotion. He further stated that Japanese business missions and technical experts are visiting Pakistan. The government of Japan has already sent a trade advisor who is working on trade promotion in consultation with TDAP for expansion of trade opportunities. Similarly, JETRO is also engaged for organizing the seminars and exhibitions. He highlighted that in order to promote trade, there are two dimensions, one is quality and other is pricing of the product. Japanese companies have a superior technology to improve the quality of products. Direct investment is vital for transfer of technology through which the quality of the products can be improved significantly. In terms of price, Pakistan is already very competitive in manufacturing products. He highlighted that further improvement in distribution and logistics network will reduce the cost of the products. Thirdly, he stated that there is a need to diversify the export products. In addition to textile, the government of Japan desires to find other sectors including agriculture.
Responding to the suggestions regarding market access for the export of dates and flowers and all varieties of mangoes, representative from the Japanese delegation proposed to the Pakistani side to send written proposals for sharing the same with the concerned ministries. Regarding kinnows, he asked for more details regarding Pest Risk Analysis. As regards to the proposal for establishment of DUS System in Pakistan, Japanese side asked for more information and concise proposal for consideration of the request. On the proposal regarding Agri-Business and Agro-Industry Development proposal, the Japanese side informed that the request or UNIDO is already with the government of Japan.
Representative of BOI apprised that Pakistan has a strategic location and a comparative advantage for investment. He further highlighted that the investment policy of Pakistan is based on three principles of providing ease of doing business, creating industrial clusters through SEZs and leveraging local endowments.
The SEZ Act 2016 was promulgated to help create industrial clusters. Up till now seven SEZs are operational and many others are in the process of making. The priority sectors are solar panels, electronics, machinery, automobile, textiles garments, manmade fiber/filament, iron & steel, aluminum & copper articles, chemicals, plastics, tyres, paper, oil and gas. In order to establish Japan Specific Special Economic Zone, the government of Pakistan had allocated 2000 acres of land at Dhabaiji, Sindh subsequent to the 4thJapan-Pakistan High Level Dialogue 2011. However, response from the Japanese side is still awaited.
Later on, the secretary BOI while underscoring the importance of investment opportunities highlighted that Pakistan is the third largest country in dairy products, fourth largest in cotton and the fifth largest in mineral sector in the world. The country offers most liberal and protective regime in the region along with huge opportunities of profits in textile, minerals especially marble, automobile, steel, food processing and preservation sectors. In SEZs, subsidies of markup, trade and loans are available to every investor from any country.
Responding to the investment proposals the Deputy Foreign Minister stated that some Japanese companies are already investing in Pakistan like Morinaga and MID Pakistan Coil Center Ltd. He said that the government of Japan is keen to enhance economic investment activities for which very open, transparent and secure environment is required. He further elaborated that the government of Japan provides the economic assistance through JICA, JBIC and Japan Overseas Infrastructure Investment Corporation (JOIN) through which Japan can enhance FDI in Pakistan.
The representative of M/o Industries proposed to establish joint ventures (JVs) with the renowned Japanese brands in auto parts manufacturing. Japan Automobile Standards Internationalization Center (JASIC), relevant ministries and laboratories of Japan may consider extending support for adoption of standard regulations. He further expressed that Japanese side may consider support to establish Pakistan Automotive Institute (PAI) through involvement of local stakeholders and for introduction of electric cars in Pakistan, Besides Japanese side may also consider manufacturing of entire range of Japanese electronic items in Pakistan, He further requested to enhance export of surgical goods, cutlery and kitchenware to Japan.
The representative of SMEDA proposed that SME Support Japan may handhold SMEs from Pakistan to enter into joint ventures, develop B2B contacts and capacity building of SMEDA in policy development. He also proposed that SME Support Japan can become a partner to execute a project, which is expected to start after completion of the JICA sponsored ongoing study to assess SMEs' financing in Pakistan. He further proposed that said project may target greater financial inclusion. He also stressed upon the signing of an MOU with SME Support Japan to institutionalize bilateral SME development and economic cooperation.
Keeping in view the emerging ICT sector of Pakistan with 31% broadband subscribers in fiscal year 2016-17 and exponential growth in IT sector's exports in the last 5 years. Pakistan's side proposed establishment of Joint Working Group (JWG) to assess the potential for cooperation between Japan and Pakistan in the field of ICT, outsourcing of the software development to Pakistan, establishment of Joint Transfer of Technology (ToT) Forum. The M/o IT&T proposed that due diligence team may prepare and present the feasibility report containing the recommendations for finalization of potential cooperation in this regard. The M/o IT&T requested the Japanese side to share requisite details for conducting Information Technology Engineers Examination (ITEE) in Pakistan 'e' preferential immigration to Japan.
Regarding the SMEs proposal, the Japanese side apprised that a seminar was organized by the Embassy of Pakistan, JICA and JETRO for SME promotion. In this regard, the feasibility study has recently bee» conducted by JICA. He proposed to use the study to promote the potential of SMEs. For automotive sector, he responded that the Government of Japan has already sent an advisor to build the capacity of Engineering Development Board (EDB). The government of Japan will continue this support for Pakistan. Regarding the ICT proposals, Japanese side requested that a detailed written proposal may be sent to them.
Pakistan's side tabled a few flagship projects i.e. construction of additional tunnel at Kohat, construction of Lower Topa-Kohala Road, rehabilitation / improvement of railway track from Quetta-Taftan section and electrification of Chitral area for consideration or financial assistance by the government of Japan. Pakistan's side stressed upon that implementation of these projects would not only pave the way towards socio-economic development of the masses at the grassroots level but would be another great symbol of friendship from the people and the government of Japan.
Sources said that the representative from the Pakistan International Airlines (PIA) pointed out that as per existing Air Services Agreement (ASA) between Pakistan and Japan, PIA is entitled to carry 1,300 passengers and 43 tons of cargo per month between Tokyo and Beijing in both directions. The PIA is operating twice a week f1ights for Beijing and Tokyo with Boeing 777 and the existing quota is quite insufficient and results in linder load operation between Tokyo and Beijing in both the directions and PIA is suffering losses on the route. Any increase in quota for PIA will hardly have any impact on other airlines loads. In the said scenario, Pakistan's side proposed to enhance the limit up to 5000 passengers and 200 tons of cargo to be carried between Beijing and Tokyo per month.
Both the sides also discussed the proposed memorandum of cooperation (MoC) on the Technical Intern Training Program for sending Pakistani interns to Japan for transfer of technical skills from Japan to Pakistan. Ministry of Federal Education and Professional Trainings apprised that they are in the process of finalizing the codal formalities to negotiate and sign the MoC with the Japanese side.
Sources said that the Pakistan's side apprised that considerable demand for high skilled workforce is expected to open up in view of the mega projects initiated in Pakistan. However, the available labs/workshops and equipment in the Government College of Technology Karachi and Apprenticeship Training Center Gujranwala are outdated. NAVTTC Pakistan sought collaboration or the government of Japan for up-gradation of the said institutes.
Regarding the proposals of infrastructure and energy, Japanese side stated that they re in line with Japanese Official Development Assistance priorities. It was suggested that the proposals may be shared with the Japanese side for review by the relevant ministries response in this regard will be communicated accordingly.
The Japanese Deputy Foreign Minister expressed his concern on the security of the East West N-70 Road Improvement Project, where local staff/ contractor have faced threats from the local people. As for the Japanese side, the security of non-Japanese staff of the company is equally important. Moreover, he also highlighted the tax exemptions issue in connection with ODA grant and loan projects as the process takes long time on many occasions and becomes a disincentive for the participating organizations. He also shared concern of the Japanese companies especially in automotive sector that incentives are offered initially for a few years but afterwards discontinued while the newcomers are encouraged which becomes a disincentive for those who have already invested.
Highlighting the Japanese ODA policy, Japanese side mentioned that energy, transport, infrastructure, education, human resource development and health are priority areas in Pakistan. Mentioning the new opportunities, Deputy Foreign Minister informed that with a view to develop human resource under Innovative Asia Scheme, young talented people are invited to Japan to work in Japanese corporations as intern. Moreover, Human Resource Development Grant Project is offered from this year to young government officers from Pakistan.
On aviation issue, Japanese side informed that as per practice. Japanese and Chinese airlines decide the issue of quota. However, the same has been noted to be shared with the relevant Ministry of Japan, On Internship program it was communicated that the process is being finalized.
In the end, the secretary EAD assured that the concerned ministries will be approached for ensuring foolproof security for all the staff/contractors of Japanese companies and for solution of the tax exemption issues. He proposed a more structured and institutionalized dialogue to be held alternatively in Japan and Pakistan for further strengthening of the bilateral economic relationship on sustainable basis.
The sources said that the meeting of Joint Government Business Dialogue (JGBD) will be held soon this year to have detailed discussions on the matter regarding completion of the feasibility study, revision of the travel advisory, and facilitation to businessmen to enhance trade not only in the textile sector but other sectors may also be explored including agriculture sector.
Experts of NPPO Japan may visit the cold treatment facilities to allow export of kinnow from Pakistan to Japan.
For concluding the MOC for Internship Program, the process is to be finalized by both the sides at the earliest.
Japanese side will share the aviation issue regarding the quota with the relevant Ministry of Japan and respond on the matter latest by June 30, 2018.
Pakistan's side will approach concerned ministries for ensuring foolproof security for all the staff/contractors of Japanese companies and for the solution of the tax exemption issues at the earliest.
Besides Japanese side will share the following proposals (details of these proposals have already been shared with the Embassy of Japan with the relevant ministries of Japan and respond latest by July/August, 2018: The proposals included establishment of DUS System in Pakistan, establishment of joint ventures with the renowned Japanese brands in auto parts manufacturing and establishment of Pakistan Automotive Institute (PAI) through involvement of local, stakeholders and for introduction of electric cars in Pakistan.
The proposals also included manufacturing of entire range of Japanese electronic items in Pakistan and for enhancing export of surgical goods, cutlery and kitchenware to Japan, signing of an MOU with SME Support Japan to institutionalize bilateral SME development and economic cooperation and establishment of Joint Working Group (JWG) to assess the potential for cooperation between Japan and Pakistan in the field of ICT, outsourcing of the Software Development to Pakistan, establishment of Joint Transfer of Technology (ToT) Forum.
Other proposals included up-gradation of the Government College of Technology Karachi and Apprenticeship Training Center Gujranwala, financial assistance for flagship projects including construction of additional tunnel at Kohat, construction of Lower Topa-Kohala Road, rehabilitation/ improvement of railway track from Quetta-Taftan section and electrification of Chitral area.
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