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Trade with Russia

  Published June 17, 2022

PAKISTAN’S dependency on imported fuel represents a grave vulnerability [نقصان اٹھانے کا امکان] to its energy security. This reliance on largely Western-adjacent sources of fuel raise concerns regarding the degree of influence this dependency accords foreign states over Pakistani policy, while compounding Pakistan’s exposure to market volatility[عدم استحکام].

In this context, recent discussions have revolved around Pakistan importing fuel from Russia in order to ensure that domestic demand is met and to manage inflation; this proposition has, however, raised concerns regarding the international sanctions regime applied on Russia and the risks to Pakistan should it decide to address its fuel needs through Russian supplies.

Read: The truth about Pakistan’s Russian oil deal prospects

While Article 41 of Chapter VII of the UN Charter empowers the UN Security Council to impose restrictions on economic relations in response to threats to international peace and security, these are unlikely given that Russia, being one of the five permanent members of the Security Council, enjoys the power to veto any binding UNSC resolution presented against it or a trading partner. In the absence of effective UN sanctions, therefore, the anti-Russian coalition has pivoted [محور بنانا] towards imposing more specific sanctions regimes.

The most burdensome of such sanctions have been levied by the EU on Russian oil imports by sea. These represent a non-trivial [غیر معمولی] proportion of the bloc’s trade with Russia; however, the EU continues to import Russian petroleum through pipelines, and has been reluctant to be more aggressive in its sanctions regime — largely because it depends on Russia for 40 per cent of its regional gas requirements — though it has committed to ‘phasing in’ these sanctions, but in a way that minimises their impact on EU economies. 

Concurrently, the US has banned all Russian petroleum imports, while the UK intends to phase out Russian oil imports towards the end of 2022.

None of Pakistan’s international law obligations preclude [خارج کرنا یا روکنا] the country from purchasing essentials from Russia.

Financial restrictions have also been enacted on the international exercise of Russian wealth. Russia’s central bank assets have been frozen, preventing it from accessing its international reserves estimated at around $630 billion. 

A complete transactions ban has also been imposed on four key Russian banks, with the country’s access to the Society for Worldwide Interbank Financial Telecommunications — a global communication system linking financial institutions — also cut off. Russia will also likely be subjected to MFN suspension by the US, a step that will probably be adopted by the EU as well, enabling Western economies to levy punitive [سزا دینے والے] import tariffs or quotas on Russian exports. 

The US Treasury department’s Office of Foreign Assets Control is responsible for carrying out certain US sanctions against Russia imposed through a series of executive orders issued by the president and through federal legislation.

The US and the EU are also debating measures to prevent other countries from trading with Russia. The two principal measures under discussion are an attempt to develop consensus among Asian countries to put price caps on goods imported from Russia, with the aim of reducing Russian revenue, and the use of secondary sanctions meant to target countries and companies involved in trading with Russia. 

These secondary sanctions, however, have yet to be imposed, as, firstly, the sanctioning countries do not wish to risk straining their ties with large, non-Western economies such as India and China. Secondly, imposing such second-order sanctions would contribute towards a global rise in the prices of essential commodities, which would impact the citizens of the very countries seeking to impose sanctions themselves.

It is in this context, therefore, that domestic discussions regarding trading in essentials — such as fuel or wheat — with Russia need to be embedded. This discussion necessarily cannot take place in a diplomatic vacuum, and Pakistan must consider the political capital to be gained — or lost — in dealing with Russia in this way.

From the international legal perspective, none of Pakistan’s international law obligations preclude the country from purchasing essentials from Russia — particularly to offset the domestic cost-of-living crisis. While Pakistan and the EU have signed bilateral agreements, such as a 2004 agreement to cooperate on partnership and development, and the 2019 Strategic Engagement Plan, and where all of Pakistan’s policy actions under these — and other — EU programmes should comply with EU restrictive measures (ie the sanctions), these measures are non-punitive and are intended as interventions مداخلت to prevent conflict or to respond to incipient [جلد شروع ہونیوالا] or current crises. 

Regardless of how hawkish the EU may be feeling, purchasing essential commodities to stave off [کسی خطرے وغیرہ کو دور رکھنا] an emerging cost-of-living crisis domestically does not fall within the scope of the measures.

Editorial: Russian oil

The EU is one of Pakistan’s top export markets, and has granted Pakistan special trade status — ie the Generalised Scheme of Preferences — to lower entry tariffs to Pakistani exports. This GSP-Plus status for Pakistan, which is already being reviewed for 2024-2034 as the current grant ends in 2023, is, however, predicated [کسی بیان یا پالیسی وغیرہ کو کسی شرط پر محمول کرنا] entirely upon Pakistan’s status as a developing state and its compliance with international legal obligations relating to local issues of human rights, labour rights, environmental protections, narcotics control, and anti-corruption programmes. It is thus unlikely that Pakistan’s purchase of Russian essentials would be germane to the continued grant of GSP-Plus status to Pakistan.

Countries including the US, China, India, Sri Lanka and the EU bloc continue to engage in trade with Russia despite the sanctions imposed, and Pakistan should be able to do the same — at least in the foreseeable future. 

Earlier this year, the White House itself clarified that India’s purchasing crude oil from Russia would not violate the sanctions regime; as recently as late May the EU has continued to engage with Russia over grain exports in an effort to reduce global food shortages. 

While historically, Pakistan has geostrategically aligned itself with the West, this recent cost-of-living crisis will require Pakistani decision-makers to consider carefully the diplomatic costs of purchasing oil or wheat from Russia against the very real spectre [عفریت] of an economic meltdown.

Sikander Ahmed Shah is former legal adviser to Pakistan’s foreign ministry, and faculty, Lums Law School. Abid Rizvi is an expert on international law.

Published in Dawn, June 17th, 2022

Money mania

  Published June 17, 2022

WE live in a bizarre country. That is the most appropriate term I find to describe Pakistan. It has some laws and official practices that are not only irrational, but actually absurd when seen in the context of their implementation. They cannot be explained and no sane-minded person would justify them. The elites are the beneficiaries and so they are pro-status quo.

The root of the evil lies in our failure to show ownership of our country, mainly because we are not unanimous in our opinion regarding the raison d’être of Pakistan’s genesis. Was it to be a homeland for the Muslims of the subcontinent? Was it to be a theocratic state patterned on Riyasat-i-Madina? Was it to be a security state designed to guard the ummah? The fact is that our own people now feel betrayed by our own rulers.

Mostly uneducated, our masses are confused. They fill the mosques chock-a-block and pray for a miracle. That alone can brace them for the sacrifices they are asked to make in the name of austerity.

A look at the situation on the ground brings out the bizarre contradictions. The authors of the federal budget announced last week had obviously not read the Pakistan National Human Development Report (2020) prepared by renowned economist Dr Hafeez Pasha. It very succinctly brings out the stark inequality that divides the country into “two Pakistans”. He writes, “The overall share for the poorest income quintile is 14.2 per cent compared to 37.2pc for the richest quintile.”

The perks for government officials have been bizarre.

What is not recorded in this budget or in earlier ones is the fact that “the total privileges enjoyed by Pakistan’s most powerful groups amounted to Rs2,660 billion in 2017-2018. Equivalent to 7pc of the country’s GDP, these privileges can be broken down into favourable pricing, lower taxation and preferential access”. On the other hand, according to Pasha, the social welfare programme which is mainly used by the poor amounted to a measly Rs624bn in 2019.

And how do our rulers spend the revenues and foreign exchange reserves they earn? Economist Kaiser Bengali, while presenting a ‘shadow budget’ a day before the federal budget was introduced in the National Assembly, gave us this bit of information. For every Rs100 raised as revenue the government spends Rs200 on current expenditure. As for the balance-of-payments gap, for every $100 worth of goods exported we import goods worth $220. This deficit is met by loans that have been ballooning, and now foreign debt servicing stands at Rs3.9 trillion.

The president of Pakistan was recently reported to have approved a 10pc hike in the salaries of superior judiciary judges. The salaries of senior bureaucrats and the perks they receive are phenomenal as I was informed by our unrelenting social activist Naeem Sadiq who gathers information from the horse’s mouth. From him I learnt that the federal and four provincial governments in the country collectively own 150,000 vehicles that are mostly allocated to officials of various grades while a few are kept in a car pool to be requisitioned for specific purposes. Naeem Sadiq also told me that the British government owns 83 vehicles and all of them are kept in a car pool and that no individual is allotted a car.

The perks have been bizarre in Pakistan, with bureaucrats entitled to hundreds of litres of petrol. Senior officials and their families are entitled to healthcare from elite private hospitals and the government reimburses their bills. Overcrowded ill-equipped public-sector hospitals are not good enough for them.

It remains to be seen whether the austerity measures, which include slashing petrol quotas, announced for government officials, will be followed.

The privileges have extended to education. The private schools and cadet colleges are for the rich, including government servants, and low-fee schools are for the poor. So inadequate is the education system in the country that Unesco says that 23 million children in the age group from five to 16 years don’t go to school. The biggest paradox is the rapidly growing population of those who live below the poverty line. The leaders are too prudish to even make a call for family planning, and the babies keep coming — six million a year, according to the National Committee for Maternal and Neonatal Health.

The bulk of the population has been reduced to this condition as a result of poor governance and resource constraints. A major factor is the expenditure on safeguarding the security state. The defence budget for FY2023 stands at Rs1.52tr which is an 11.16pc increase over the previous year’s defence spending.

The greatest irony is that the real danger comes from the possibility of an implosion, spawned by internal unrest among the poverty-stricken starving masses who have reached the brink. Can our other sophisticated arsenal be used to protect the security state from its own people?


Published in Dawn, June 17th, 2022

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