Newsletter No. 881
News-Analysis
January 24, 2008

 

THE NEW PAKISTAN TAX TREATY IS SIGNED

We have talked about the Japan-Pakistan negotiations over a new bilateral tax treaty since the first stories emerged December 2006. Updates were provided in Shingetsu Newsletter Nos. 462, 482, 523, 536, and 647. It looks like we can now write the final chapter on this story since the new bilateral tax treaty was actually signed in Islamabad yesterday.

The signing ceremony was held at the Federal Board of Revenue headquarters. The treaty was signed by Secretary General of the Revenue Division M. Abdullah Yusuf on behalf of the government of Pakistan, and by Japanese Ambassador Seiji Kojima signed on behalf of the government of Japan.

The new agreement provides that the royalty at source country will be taxed at a rate of 10% and this provision will enable Pakistan to deduct 10% on royalties paid to Japanese car manufacturers. The main point is to avoid double taxation, and thus to facilitate bilateral trade and investment. Another key feature includes tax exemptions for government-owned banks and financial institutions.

On the occasion of signing of the convention, M. Abdullah Yusuf remarked that it will “not only provide safeguards against double taxation on the income of the residents of both the countries, but also promote economic cooperation, bilateral trade, investment; and would further strengthen the existing bilateral economic relations between the two states. It will provide adequate certainty in respect of taxation rules applicable to cross-border business transactions, dividends, interests, royalties and fees for technical services.”

For his part, Ambassador Kojima stated that “the existing cordial relations between Japan and Pakistan would be reflected in all fields -- particularly in the economic, trade and investment sectors… the manufacturing sector of Pakistan is of paramount importance and I hope that more Japanese investment will come into this sector.”

As mentioned in earlier Newsletters, the first Japan-Pakistan taxation treaty was signed in 1959, but by the mid-1980s it was already found to be inadequate. For more than twenty years these issues have been sporadically raised in bilateral forums. Now, the issue has finally been resolved.

FALLOUT FROM THE ASSASSINATION OF BENAZIR BHUTTO

How has the sharp decline in the domestic popularity of President Pervez Musharraf, plummeting Pakistani public support for Washington’s “war on terrorism,” the largely illegitimate legal and constitutional moves of the military regime, and the assassination under contested circumstances of the influential and world-renowned civilian politician Benazir Bhutto affected Tokyo’s policies toward the current regime in Islamabad?

Answer: Remarkably little.

Soon after the Bhutto assassination, Foreign Minister Masahiko Komura stated: “We can't say that an assassination by terrorists would directly lead to a change in the provision of aid, but we must consider all sorts of factors while closely watching the developments from now on… It would be troubling if Pakistan does not continue with the path of democratization.”

At the same time, Chief Cabinet Secretary Nobutaka Machimura said: “While there are certain limitations to the influence Japan holds, we must seriously contemplate to what extent Japan can do with its diplomacy.”

No one doubts that Machimura is correct when he says that Japan has limited influence in Pakistani political affairs, but we may fairly ask the question he himself suggested: What has Japan done with its diplomacy?

We cannot rule out the possibility that Tokyo has indeed done something useful behind the scenes, but we must note that there are simply no public indications that much has been done at all. MOFA has not released any statements that really clarify how they view the highly questionable actions of Musharraf regime, nor is there any public indication that they are responding to the struggle of many Pakistanis to restore a civilian and genuinely constitutional order to the country.

On the local scene in Pakistan, the rhetoric of the Japanese embassy continues to revolve around the “war on terrorism.” On the 11th, Ambassador Seiji Kojima met with Pakistani Information and Broadcasting Minister Nisar A. Memon. The Japanese diplomat’s message was that “the Japanese government and people stood by the Pakistan government and its people in their fight against terrorism… Japan is a strong partner in the war on terrorism. The new [Japanese] law is in line with the UN Resolution Nos. 1368 and 1776. This would help supply fuel to helicopters and vessels being used in the fight against terror by the allied countries.”

Minister Memon welcomed Kojima’s message of support, of course, but we may still question the overall wisdom of Tokyo’s bilateral policy. Even after the Bhutto assassination, the Japanese government still seems to have difficulty seeing Pakistan through any political prism other than “Responsible Regime vs. Wretched Terrorists.”

It might be worth pointing out to the Japanese officials that public opinion polls in Pakistan during the course of 2007 found that 59% of the Pakistani public actually opposes the US-led “war of terrorism” and only 13% say that they support it. Most Pakistanis are against Al-Qaida-style terrorism, and most Pakistanis support having a democratic regime in their country, but they also are deeply suspicious of the real motives behind US policy, and they oppose US interference in their nation.

In such a case, it would make a lot of sense for Tokyo’s diplomats to start looking for a new policy that was not so obviously tied to Washington’s apron strings. While the American and Japanese policymakers claim to be defending democracy and stability in Pakistan, the substance of their policy is simply to find new ways of propping up an unpopular military dictatorship in the country. It should be perfectly obvious at this point that General Pervez Musharraf -- who once did indeed enjoy significant popular support in his country -- has now overstayed his welcome. Tokyo’s continuing rhetoric about the need for the Bush Administration’s “war on terrorism” in Pakistan is not a forward-looking policy. It’s past due time for a more nuanced understanding of the local situation. Even many people in Washington now seem to be coming to this realization, so why are Japanese leaders still being more Catholic than the Pope?

Even though the policy response to the Bhutto assassination has been very disappointing thus far, we should acknowledge that there was genuine sympathy in Japan for the killing of such a prominent, female leader from the Islamic world.

The editors of the Asahi Shinbun wrote: “We are outraged by this barbaric act that aims to trample upon democracy… what Bhutto would have wanted must not be forgotten. She risked her life to bring democracy and prosperity to her country.”

Photo: A Japanese mourner for Benazir Bhutto
Source: Kazuaki Nagata

A portrait of Benazir Bhutto was shown at the Shibuya residence of Pakistani Ambassador Kamran Niaz, and “scores” of Japanese people -- some officials and some ordinary citizens -- came to sign a book of condolence for her. Shun Imaizumi, chairman of the Japan-Pakistan Association, stated: “The act of killing other people because they don't share the same ideas… we really must be against that.”

Regrettably, such laudable and widespread humanitarian sentiments in Japan seem to be expressed only in a distorted form once they reach the level of national policy. The Japanese people are genuine in their hopes for peace and understanding, but the substance of the current official policy toward Pakistan is still to support an unpopular military dictatorship (in solidarity with the Bush Administration). They honor the better part of Bhutto’s legacy as a courageous woman and as a civilian political leader, but they betray her hopes for a genuinely democratic Pakistan. That may not be their intention, but it is the practical reality of the official Japanese policy.

NEW AID PROGRAMS

New aid programs for Pakistan continue to be announced. Here are the two latest:

-- In response to a request from the UN World Food Programme (WFP), MOFA announced a new package of US$300,000 dollars to the mother-and-child health and nutrition programme. The WFP will utilize this contribution to distribute food at mother-and-child health clinics in Balochistan and the Federally Administered Tribal Areas (FATA), where some people suffer from extreme poverty. Noted the MOFA statement: “Japan recognizes that poverty reduction in the areas is vital for removing a hotbed for terrorists.” I guess that we can thus call this the “Feed the Potential Terrorists Program.”

-- At the beginning of January, it was also announced in more vague terms that Tokyo would be “expanding its cooperation” with Pakistan’s Al-Shifa Trust Eye Hospital in Rawalpindi. No numbers were provided, but apparently Japanese diplomats have promised help the hospital out of its current financial difficulties.