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Found and lost – Countertrade

Before money was invented (or innovated – as you may prefer it), barter was the primary trade mechanism that instituted commerce in the world. In going the full circle, a recreation of the simple transactions of earlier times, the concept of Barter has come back into vogue in a world beset with credit crunches and growing protectionism. Progressing from transactions consummated by the swap of exchangeable items and as commerce has multiplied manifold, a common means to enhance multiple transactions was found by the means of money, initially in the form of gold and silver in daily use, giving way to special paper supported in standard, till recently, by a country’s precious metal reserves held in lieu. Very early on, money-lenders started the early version of credit, usury becoming a bad word since time immemorial.

Barter as a means of transaction is a great trade equalizer, a mechanism that ensures that (1) you pay for what you need with what you have thereby ensuring a market for your produce while (2) you only take what you really need since you have to ensure that you can pay for your needs with what you have. Whatever economists may say (and IMF may frown upon), barter stands for a reasonably fair equation between respective entities and in essence the swap ensures that a corresponding equality is maintained, in effect a total trade balancing mechanism. In a world where credit is getting to be in short supply, it becomes a crucial factor for LDCs. The GATT inspired MTN may take note of possibilities arising from barter transactions.

In Pakistan, the sanctity of barter transactions is being systematically violated to burglarize the country’s economy. It is such a perfect scam that Henry Wilson, the man who sold the Eiffel Tower twice, would have doffed his hat to it, a brazen loot of the country’s goods and commodities. One has to agree that this daylight dacoity has not only been scientifically and beautifully executed but continues to flourish year after year.

As commerce has progressively become more complex, barter has itself developed many variations. To start with we have to clarify what the term Barter (with a big B) stands for in the present age as opposed to its other variations, e.g Counter-purchase, Countertrade, Buy-back etc. Barter in the present meaning of the term signifies a simple exchange of goods and commodities between two sovereign countries. Unless specifically authorised, it invariably means those goods and commodities that are produced in the respective countries involved in the Barter transaction, a direct swap. To that end, when one remembers the two cardinal equalizing principles mentioned earlier, Barter becomes an excellent trade instrument for Pakistan if it can be used sparingly and according to the agreed script; it can be very effective in the face of (1) shortage of foreign currency (2) shrinking market for our traditional goods and commodities, extremely limited for our non-traditional ones and (3) growing protectionism among the nations of the NORTH (and of the SOUTH too). Unfortunately our track record in the face of such given parameters is abominable, to say the least. On the contrary, greased with slush funds, we are constantly sliding down a slippery slope into an economic abyss. The reason is also simple, some of our concerned officialdom has been selling us down the river.

The idea behind having Barter Agreements with the COMECON countries, China, Sweden and Finland was innovative in its inception (and one daresays can still be used to good effect for Pakistan). Short of cash, Pakistan badly needed machinery items particularly integrated machinery at competitive prices while payment would not be made by our hard earned foreign exchange (which in any case we had in short supply) but by a basket of traditional and non-traditional items weighted for the latter. This obviates the necessity for obtaining credits. A close look at the Barter Agreements would clearly specify that the trade was sovereign i.e the goods and commodities from Pakistan would go only to the Barter partner country and vice versa, with no third country operations. In order to give some incentive to our Barter partners, particularly to give a much needed boost to our non-traditional items, a small MARK-UP (a discount so to say) was indicated amounting to approximately 10-12% of the FOB value of the items. To give practical shape to operating the Barter trade, the Government of Pakistan created the Trading Corporation of Pakistan (TCP) as a statutory Corporation because the Ministry of Commerce could not be expected to handle day-to-day trade. The portents were satisfactory so far but started to go awry soon afterwards.

The Socialist countries, Sweden and Finland, (in fact all the Barter partners except for China), have adopted a surreptitious capitalist attitude towards Pakistan, using various loopholes in the agreement (and outside it) to conduct statutory rape of Pakistan’s economy over the past two decades. This economic malfeasance has reaped great benefits for the COMECON countries (and their partners in Pakistan), one measure being that those trade personnel from these respective countries that were dealing with Pakistan in the 70’s have now been promoted to heads of foreign trade in their respective countries at the expense of their unfortunate colleagues who were stationed in other countries, such has been their success story in looting the Pakistani till. This could never have been possible without whole-hearted collaboration from some motivated elements in the Ministries of Commerce and Finance in Pakistan. The seemingly innocent clause allowing third country operations as a special case has become a routine and frequent happening, has been grossly exploited, while protection by way of sovereignty of reciprocal trade between the two participating countries was being afforded. The COMECON (and Sukab and Kemira Oy) Barters have simply run amok with official sanction. For example, Bulgaria (through Inter-Commerce) and Sweden (through Sukab) are the greatest exporters of Pakistan cotton, Naphtha and other traditional goods but not to Bulgaria or Sweden where they should go in each case, but rather to our traditional markets where they compete against such of our cash items which in turn become handicapped in the face of competition from the healthy discount given to Barter goods ostensibly bound for Bulgaria or Sweden, etc, the whole exercise therefore becomes self-defeating. At the same time we are expected to believe that Bulgaria and Sweden produce the Palm Oil (which actually comes from Malaysia) and DAP Fertiliser (from USA) which are sold to us under these Barter Agreements as coming from Bulgaria, Sweden, etc. Millions and millions of dollars are being lost to Pakistan annually this way, the prime modus operandi being a bland exchange of letters issued by low level Ministerial employees under the guise of “State policy”. In total contempt for the many problems forced on us because of the Russian led COMECON hostility over our Afghan policy and while precious lives of our own countrymen are being lost in our border areas, these minions of the Socialist camps, burrowed deep within our own Ministries of Finance and Commerce, have ordained the Most Favoured Nation trade policy for their masters. Those concerned with security in our country should not fail to take note of the amazing progress of papers and documents pertaining to the socialist camps, which travel at the speed of light along the bureaucratic corridors of Islamabad, while others not so fortunate in having socialist credentials, wait many years for decision, if at all any is forthcoming. There is a trade policy in force in Pakistan that is neither in consonant with our avowed foreign policy or our feelings.

The COMECON countries (plus Sweden and Finland) are actually openly practicing Countertrade, complete with third country operations, while having sovereign protection and one should not wonder why the Countertrade proposed for Multi-Nationals (MNCs) got such a short shrift in the higher echelons of the Ministries of Commerce and Finance. The Barter Lobby has put paid to the Countertrade idea such that even mention of it is seldom made in official circles. Whatever hope one may have had on the induction of Dr Mahbubul Haq into the Federal Cabinet as Minister for Planning and Commerce — and then his taking over of the portfolio of Ministry of Finance, soon faded away with his not only maintaining the status quo in favour of the Barter parties, but even legalizing some aspects of the scam, like allowing Palm Oil and DAP fertiliser officially from third countries. It has been a classic case of “if you can’t beat them, join them.” One of the really laughable rumours set afloat by motivated quarters is that during the consideration of the last Annual Budget and Trade policy by the Federal Cabinet, the good doctor’s staff inadvertently left out the prepared text of Countertrade proposals. As far as the “inadvertent” part goes, this fairy tale can only have emanated as an afterthought from the Ministries of Commerce and Finance and frankly Hans Christian Andersen’s tales are more believable.

The word “Accountability” has been bandied about so much recently it has lost its meaning in Pakistan but someday it would be interesting to find out why TCP, an organisation created solely to handle the Barter Trade was divorced from it by decree of the Ministry of Commerce, which then proceeded to handle the Barter transactions directly and still does so. The TCP-Sukab Barter (with Sweden) and the TCB-Kemira Oy Barter (with Finland) are just misusing the name of TCP since TCP knows nothing about it what to talk about having something to do with it, such are economic subterfuges implemented under the public eye but far from its penetrating gaze.

Countertrade is a necessary trade mechanism. It ran aground in Pakistan primarily because of a personality clash between two senior bureaucrats, Mr. Mukhtar Masood, the then Federal Secretary of Commerce and Mr Mohammad Yousuf, then Chairman TCP and now Federal Secretary, Information and Broadcasting. Mr. Mukhtar Masood, who initiated the Countertrade proposition in May 1985 in the first place, also had the honour of scuttling it, mainly to spite Mr. Yousuf’s penchant as Chairman TCP to select the MNCs and then conduct Countertrade through TCP, the organisation created for this purpose. In May 1986, in a bureaucratic sleight of hand, Mr. Mukhtar Masood, under pressure of the Prime Minister Mr. Junejo to make the agreements operational with the selected MNCs without delay, did so without providing for an IMPORT LIST, thereby making the whole idea unworkable. It was bureaucratic magic par excellence and it worked. It fulfilled the PM’s instructions while frustrating his intention. Almost 30 months later, COMECON countries (our supposedly implacable foes) are still doing Countertrade in the name of Barter in Pakistan while our supposed western allies (and the many MNC hopefuls) are out in the cold holding paper agreements not worth the paper they are written on, so much for patriotic intention being far apart from actual deed. One keeps hearing rumours about the revival of the Countertrade process but all those efforts have come to standstill. The MNCs representatives came all the way from USA, Europe and Japan to have tea with Dr Mahbubul Haq more than a year ago but the rhetoric expounded was never translated into practice, sympathy being the only nett result.

We must scrap all Barters immediately and replace them with Countertrade (or STA) agreements. Special Trading Agreements (STA) on the TCP-TCB pattern may include the COMECON countries (who should be treated at par with everyone else and not get the Absolutely Favoured Most Favoured Nation treatment that they are getting at the moment) and Countertrade may be done with selected MNCs. The COMECON countries are MNCs by another name, their socialist credentials only meant to keep their own hapless populations in perpetual thrall behind the rusted Iron Curtain. Countertrade Agreements and STAs are a must to support the sales of our non-traditional goods in an export basket suitably laced with traditional goods, particularly in a world hit by a paucity of credit funds. The flow of our non-traditional goods to various markets need to be cushioned and promoted on the one hand by the expertise of market leaders in commerce who will ensure the establishment of a market position for our goods and on the other hand by the LDC’s who need to sell their own non-traditional items to us. We must get into Buy-back schemes particularly for our defence industries which is a major foreign exchange user. A world of prosperity beckons to us if we can get rid of the COMECON OCTOPUS holding our Ministries of Finance and Commerce in its unholy vise and our economy to ransom.

Countertrade is now in a state of LIMBO and if someone comes across its ghost stalking the corridors of the Ministries of Finance and Commerce, please direct the poor soul to Dr Mahbubul Haq’s office.


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