“An Emerging Crossroad for Trade & Investment.”

ICC Regional Foreign Direct Investment Conference, Karachi

February 17-18, 2002


THE KARACHI BUSINESS DECLARATION


February 20, 2002


World Business, as represented by the International Chamber of Commerce (ICC) and its National Committees, believes strongly that a liberalized economy open to the world is a powerful force for raising living standards in Pakistan. Indeed the market economy has already brought unprecedented advances in material welfare to millions of people on every continent. Business accepts that, with government, it has an indispensable role to play in explaining the benefits and opportunities that flow from a rules-based multilateral trading system, the market economy, and readiness to adapt to change. Fears and misconceptions must be dispelled. Local and international business will work with the Government of Pakistan, supporting its efforts to establish the good governance necessary to achieve these ends.

ICC and ICC Pakistan promote free enterprise and the highest standards of business conduct in a deregulated business environment. Legitimate private enterprise is an incalculably valuable asset for all nations through its contribution towards development, living standards and government revenues. It is essential that companies are able to operate on a level playing field.

 

An orderly, stable society, able to prosper from private entrepreneurship, requires a framework of essential rules administered impartially by strong, efficient and transparent government – the essence of “good governance”. Governments and business must work closely together to design the multilateral rules for the rapidly emerging global market place.

 

ICC has consultative status at the highest level with the UN and its specialized agencies. ICC’s national committee in Pakistan provides a channel of consultation to the Government of Pakistan. Both ICC and ICC Pakistan are convinced that the maintenance of peaceful conditions between and within sovereign states is crucial to enable the region to realize the benefits of an outward-looking market economy. The absence of political conflict is a precondition for local entrepreneurship to flourish and for foreign business to invest.

 

It is of fundamental importance that governments ensure consistency and continuity of the reform process. Policy towards business must be free from excessive regulation and market distortions that harm open and fair competition. Laws designed to promote trade and local and foreign investment must be faithfully implemented. Most important of all, governments must suppress corruption at every level.

 

Rhetoric is not enough. There must be action to achieve these aims so that economic progress can provide the key to poverty alleviation, improved education and health services, and social welfare.

 

ICC Pakistan in particular emphasizes the following:

 

1.     Privatization, Deregulation and Liberalization

Government not only has to get out of business but must stop telling business how, when and where to do business. Government must concentrate on developing rules for business, which are correct in their approach, governance and conducive to growth. The Government has no business being in business. This means not only industry, banking, commerce and agriculture but also agencies, authorities and trusts, which affects the smooth flow of commerce and investment by land, sea, air and even, if necessary, by space.

A balance between freedom and rules needs to be achieved for the smooth functioning of the market economy. Increased reliance on free enterprise, open markets and competition implies less detailed governmental regulation. The pace of privatization and its consequent benefits can only increase in relation to the pace of deregulation and liberalization.

Bilateral and multilateral incentives to initiate investment by foreign and local companies must be rapidly implemented and success ensured in order to jump start a natural, spontaneous and continuous flow of foreign and local direct investment. This can be for new initiatives and joint or independent initiatives in the privatization of all government-owned business institutions.

The reduction of corporate income tax to 16% and the absolute minimization, if not the elimination, of the presumptive tax regime.

2.   Energy

Multilateral and bilateral laws and agreements must be examined and implemented to facilitate the establishment of eastward-bound pipelines through Pakistan. The Iran to Pakistan pipeline should be given the utmost priority because the possibility of onward supply to India will earn transit fees and help develop regional cooperation between three countries. Similarly, the Gulf South Asia (GUSA) project must be given the same priority, as it will change the future of not only the entire region but a continent. Pakistan is obviously an energy crossroad for north, south, east and west for demand and supply, which are the fundamentals of a market economy.

Coal as a major source of energy has to be developed. In so far as ratio of oil, gas and coal is concerned as a source of energy, this should be a purely market decision of the investors. The government should refrain from protecting any one sector or state-owned enterprise, the latter being in the process of being privatized regardless. Once the government is out of this sector and develops conducive regulation creating the right environment, availability of capital will never and can never be an issue.

Consistency in energy policy is the bedrock for all successful energy projects because of its capital-intensive nature and lengthy payback periods. Any deviation, any indecision, any short-term views have no room. Energy is not in the interest of any one nation; it is in the interest of the world. An investor in this sector must be spared any uncertainty in terms of consistency of policy to reduce the risk and encourage foreign and local investment. Sanctity of agreements must be maintained at all times.

3.   IT, E-commerce and Telecommunication

Pakistan must comply with all international laws pertaining to IT, e-commerce and telecommunications in order to have any position in the world IT market. The protection of intellectual property rights is fundamental in the development of the IT, e-commerce sector and a legal system for IPR must be put in place. Although Pakistan has all the fundamentals necessary for this sector to develop exponentially and get its due share in the global arena, the delays in compliance with international regulations and laws are preventing the entry of Pakistan in the global IT, e-commerce markets in any meaningful way.

Legal structures for financing of IT and e-commerce projects have to be adopted and implemented. Government must withdraw banking regulations that prevent the availability of funds to IT and e-commerce companies.

A special section within the law enforcement agencies be created on commercial cybercrimes for which ICC will be able to provide guidelines as well as information by virtue of its ongoing work with Interpol.

The development of electronic documentation in banking is a reality and training in this regard should be made compulsory for all banks.

4.   Transport, Shipping and Logistics

Immediate deregulation of rules governing private sector investment in the establishment of airports and ports and the simultaneous privatization by a combination of public subscription and private investors of all ports, airports and railway authorities.

Ratification and implementation of the TIR Convention and the Istanbul Convention on ATA Carnet.

All port and airport charges to be brought down to competitive levels.

Apply to the International Committee on the North-South corridor for the inclusion of Pakistan.

No restrictions on private sector freight and passenger trains operation in Pakistan under an open access regime with the determination of track gauge being entirely the prerogative of the investor.

No restrictions on the participation of private sector local and international consortiums in the ownership, construction and development of roads.

Immediate implementation of the Shipping Policy with full incentives and facilitation to encourage the ownership and operations of Pakistani merchant vessels.

The immediate allowance and the establishment of a value basis for conversion of leased property into freehold property already in the use of private sector businesses in non-bonded zones in all areas affecting land, air and sea transport.

5. IPR and Copyrights

The implementation of the Uruguay Round TRIPS Agreement on IPR and Copyrights must become a foregone conclusion. The blatant violation of IPR regulations in Pakistan has to be stopped with the implementation of effective enforcement of laws which protect copyrights. This is a fundamental requirement for encouraging foreign investment in many sectors and will facilitate overseas companies to outsource software development once they know that IPR regulations are not violated. Although all the laws exist, the implementation process has to be given utmost priority.

The implementation of IPR and copyright laws and related regulations for all products should be centralized in one department.

Appropriate training should be available to the judiciary and delays in court proceedings must be prevented in order to have effective enforcement. Trademark courts having judges who are experts in IPR laws should be established. Accordingly, law enforcement agencies have to be trained.

Higher and very substantial penalties or fines for violation must be instituted with immediate effect.

In order to safeguard development and standards in the pharmaceuticals sector and to encourage foreign and local investment, appropriate measures to deregulate the pricing structure imposed on legitimate pharmaceutical companies should be implemented. The current price control regime is not only leading to increase violation of patent and trademark laws but also dangerously lowering the standard of medicines available to the public.

6. Private Sector Participation in the Reconstruction of Afghanistan

Increased pace of dialogue and consultation amongst all private stakeholders, regional governments, local and international governmental and non-governmental agencies.

Institutionalized and appropriate facilitation by the Government of Pakistan for all philanthropic and social welfare organizations in Pakistan to be able to work in the rehabilitation of Afghanistan.

Institutionalized facilitation to private local and foreign construction firms should be provided by the Government of Pakistan to participate in the reconstruction of Afghanistan.

Interaction of the private sector with the political agents of the Federally Administered Tribal Areas should be formalized with immediate effect in order to initiate a closer understanding, obtaining an accurate assessment, closer access and appropriate facilitation for initiatives.

7.   Arbitration

In order for Pakistan to realize the goal of becoming a crossroad for trade and investment, it is necessary to ensure a legal and regulatory framework that is conducive to business interests by having in place a dispute resolution mechanism that must be inexpensive, speedy, transparent and accessible to all. Old laws have to be modernized to give confidence to foreign investors to invest in Pakistan. This is also important for the Pakistani business community who must have faith in the ability of the legal system to enforce contracts.

The New York Convention 1958, which allows for arbitral awards arising out of mutually agreed contracts to be enforced in Pakistan on a reciprocal country basis, without allowing them to be challenged in the local courts, must be implemented without further delay. This is necessary for foreign and local investors because, in the event of litigation, they would want to have a decision implemented within a foreseeable timeline. By not implementing the New York Convention 1958 Pakistan continues to send the wrong signals to the international business community. The New York Convention 1958, is not only critical for improving the investment climate by encouraging foreign investment but will also result in enhanced exports.

ICC Pakistan

V. M. House, West Wharf Road,

Karachi-74000, Pakistan

Tel: (+92) 21 32311453 / 32311142

Fax: (+92) 21 32311286

Email: iccpak@cyber.net.pk / pncicc@cyber.net.pk

Web:  www.iccpakistan.com.pk

ICC Headquarters

33-43 Avenue du President Wilson

75116 Paris, France

Tel: (+33) 1 4953 2828

Fax: (+33) 1 4953 2859

E-mail: icc@iccwbo.org

Web: www.iccwbo.org