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A case for Countertrade

Countertrade is alive and well and living off the fat of the land in Pakistan — except that here it is conveniently disguised in the name of Barter, a bilateral trade involving commercial traffic between two participating sovereign nations. Barter was adopted in the later 60s in Pakistan as a convenient trade balancing mechanism with the socialist countries. In theory it is an excellent instrument when strictly applied to govern the flow of goods and commodities from Pakistan to the Barter partner country and vice-versa. In actual practice in Pakistan, except for our Barter Agreement with China, it is as bilateral as the sun appearing from the west. On the other hand, the basic premise for Countertrade is that it is non-sovereign and as such practiced mostly by Multi-national Corporations (MNCs) inasfar as goods and commodities from all over the world flow through an agreed arrangement (a Countertrade Agreement (CTA) or a Special Trading Agreement (STA) to Pakistan, financed by a basket of exports from Pakistan which can go anywhere in the world, with the possible exclusion of textiles to quota countries. That is the essential difference between Barter and Countertrade.

As a workable trade mechanism, the concept of Barter was excellent. The socialist countries possessed technology that we could not pay for with hard cash and which would have been much more expensive purchasing from the western world. At the same time by their willingness to sell their goods at a price to be paid for in the form of Pakistani goods and commodities they were affording a captive market to us, albeit at a cost, bearable and acceptable. Since an infrastructure to control the daily commercial activity was constitutionally beyond the charter of the Ministry of Commerce, the Trading Corporation of Pakistan (TCP) was created with the best of intentions, that of handling the Barter trade with the COMECON countries. Very early on, the High Priests of Corruption within the Ministries of Finance and Commerce woke up to the real world of liquid finance steeping out of their fingers and in consequence the Barter operation was taken over by them lock, stock and barrel, leaving the TCP holding an empty bag, having only the name SUKAB (Swedish Barter) and KEMIRA OY (Finnish Barter) stencilled on it as a mere formality. The substance of the trade remains in the hands of the bureaucracy in Islamabad, which under the cover of nationalisation in 1972 sanctified their dominance of the Barter trade with the COMECON countries by severing all remaining connections with the TCP. The raison d’etre gone, TCP was given a price stabilisation/import monopoly trade role. With their needs satisfied, TCP’s officials turned a blind eye without protest to the loss of the Barter trade. Such are the machinations of an errant bureaucracy determined to create financial loopholes in the system to suit their own interests.

One of the greatest frauds ever perpetuated on a single country in the history of commerce is Pakistan’s Barter trade with the COMECON countries. The money being skimmed off runs into tens of millions of US dollar every year after year, for more than two decades. This SCAM is a universal truth in the Ministries of Finance and Commerce with the Ministries of Food/Agriculture and Production being inadvertent accessories to the crime. Dr. Mahbubul Haq pontificates regularly about the billions of rupees that the State is being defrauded off annually but sits seemingly in glorious and blissful ignorance of the SCAM of the CENTURY in his own backyard. By reviving the Barter trade agreements, he became an accessory in perpetuating it, given the benefit of the doubt, albeit unknowingly. If one is determined to pull the plug, i.e. if the flesh is willing, then the leakage of billions of US dollars into unofficial coffers can perhaps be avoided. The fraud has become so blatant that the trade representatives of the COMECON countries perform their functions with open contempt for official interference in Pakistan. This is a sorry state of affairs and for some honest officials within the Ministries of Finance and Commerce, who find it unacceptable, it is a continuing albatross across the neck of Pakistan’s foreign trade, adversely affecting the economy.

The Barter agreements are excellent documents but these are used as camouflage for misdeamenour. A typical agreement with a COMECON country may state that Pakistan will import machinery items in various forms from a particular country and export a basket of traditional/non-traditional items to that country only. This trade may be in the region of US$50-100 million each way in respect of each Barter agreement. In order to meet the cost of exports there is a tacit agreement that Pakistan will pay a premium on the imports. Suppose Pakistan agrees to buy US$ 40 million worth of turbines from Czechoslovakia, Czechoslovakia will purchase raw cotton, textiles, rice, naphtha, molasses (all traditional items) and garments, machinery, fruits, etc (non-traditional items) from Pakistan but will get a premium of between 12-17% from Pakistan depending upon the import items to Pakistan i.e the goods and commodity sold by Pakistan would be about US$ 45-46% million worth. That particular difference of US$ 5-6 million is accepted as the “export cost” for marketing purposes. Effectively it devalues the value of the product. Uptil this point it is straight up and down stuff but then it gets murky inasfar as (1) the lists of imports and exports are never adhered to (2) the imports into Pakistan seldom, if ever, originate from the Barter partner and the exports almost never end up there (3) COMECON countries (plus SUKAB of Sweden and KEMIRA OY of Finland) end up making Pakistan pay through its nose for their commercial shenanigans.

The import of Palm Oil and DAP fertiliser can be taken as example of convenience. Palm Oil comes mainly from Malaysia and DAP fertiliser from USA but Czechoslovakia, Romania, Bulgaria, Poland, Sweden and Finland are the main suppliers to Pakistan on their Barter and get paid 12-17% extra on C&F value for their efforts. In exchange they are supposed to take out Pakistani products to their respective countries and that also at least 70% non-traditional items, but on the contrary most of the exports are hard cash items and they seldom, if ever, go, out to the COMECON countries viz (1) raw cotton, mainly to Manchester (2) Naphtha mainly to Singapore on its way to Japan (3) molasses mainly to W. Germany. On these items, the COMECON countries pay a premium (kickback) to the Pakistani exporter ranging from 2-6%, depending upon the product and average out of a profit of between 6-12% for themselves. The Agreements have, very conveniently, two innocent clauses which “on permission from Ministry of Commerce and mutual agreement” allows switching of (1) origins and destination (2) product items on the QUIET. About destinations no one bothers to ask permission, for example Intercommerce Bulgaria always consigns its Naphtha to Aden on its way to Bulgaria and somehow the ship always manages to reach Singapore on its way to Japan, and so on and so forth. The Intercommerce representative in Karachi carries out a “local” tender between the cash participants and accepts the highest-bid which he then discounts by 2-5% on FOB value after winning the actual tender himself from the National Refinery. Thus is sovereignty lost. As regards other products for export, soon after the agreements are signed, an innocent looking amendment will appear originating from the Ministry of Commerce, replacing item (1) by item (6) on enhancing the value etc, etc. Thus is highway robbery conducted in the name of Barter. The Ministry of Commerce should kindly publish statistics for the last 3 years for each Barter Agreement (2) list of imports agreed upon and their value, list of imports actually done and then origins and give reasons for the change. At least Dr. Mahbubul Haq is honest about it all inasfar as he has inserted the requirement of Palm Oil as an item in the Czech and Bulgarian barter lists agreed in 1986. The question arises why all this subterfuge and why should we, a poor Third World country, be financing the COMECON countries for their trade?

On the contrary if we want to continue with the Barters we should drop this as a word from these agreements and call it Countertrade. In this manner we can accommodate the COMECON countries too and put them at par with MNCs interested in Countertrade operations in Pakistan. We should also drop the guise of seeking machinery and clearly spell out our requirements for such a trade. Our shortfalls may be in tea, edible oils, fertilisers (Urea and DAP) and sugar. These can be specified as the import items and a basket of traditional/non-traditional products weighed in the ratio 30:70 be specified for exports. There is no earthly reason to have Barter with anyone but China, which incidentally does not subscribe to any of the shenanigans mentioned aforegoing. Even if there is need for a particular Barter there is no earthly reason to give the Barter countries “favourite-LOOTER” status, what to talk of “most favoured nation” status.

All the Barter/Countertrade Agreements must be handled by the Trading Corporation of Pakistan (TCP). The essence of caution in international trade is that if you allow someone to defraud you they will and unfortunately the gnomes in the Ministry of Commerce and Finance have allowed Pakistan to be looted for a small pittance in recompense. Being a commercial organisation created essentially for this purpose the TCP is in a position to monitor the trade and not only check wrongdoing but correct it. We have been talking about an expanded role for TCP and now that the two year Rip-van-Winkle existence of TCP has come to an end, marked by a blizzard of position papers, reports and nothing much else except creation of ethnic divisions, cells of corruption and purchase of a symbolic status symbol in the form of a BMW, we can get on with it. In Pakistan where individual retirement sinecures for favourites are a more important than the development and well-being of the national economy, such aberrations are quite common. The high priority for the Minister for Commerce and Planning should be a uniform Barter/Countertrade policy, simple, effective and immune to tampering by vested interests. The last attempt at Countertrade was a total washout and the 4 MNCs between them exported less than US$20 million of the US$200 million expected and imported NOTHING as the Ministries of Commerce and Finance could not agree on an IMPORT list for 24 months. All this time Palm Oil and fertiliser was diverted to Barter without a murmur.

One of the greatest blunders has been the major security lapse inherent in the COMECON Barter. Ignored has been the silent and prolonged infiltration of our vital Ministries of Finance and Commerce, Food and Production by the trade agents/representatives of COMECON. The easy manner in which they had access to the confidential files and have had numerous changes affected in the export/import list should have rung alarm bells in our counter-intelligence circles. The penetration has been deep and damaging and needs to be exorcised completely. An in-depth investigation by our intelligence agencies is necessary to determine the extent of how much the security in these vital ministries has been compromised and how it can be contained. Anyone with any knowledge of security knows that most of the present spate of mayhem in urban terrorism is the handiwork of Bulgarians operating under the guise of official trade from Sofia eg. the launching of Mehmet Agca, the failed assassin of the Pope, etc. It is a universal truth that all files come to a deadstop in the corridor of bureaucracy and then proceed at snail’s pace. How come the COMECON Barter were able to get changes of (1) destinations/origins and (2) items, not only without protest but at a breakneck speed? Unfortunately for us this radical change of character in the bureaucracy was not taken notice of. When planning Countertrade in items meant for defence, security and telecommunication projects, we must specially ensure that not only the COMECON Barters (or SUKAB or KEMIRA OY) have nothing to do with it but the agreements with MNCs also are used only as a trade flow mechanism with minimum of information available to them.

Our Special Trading Agreements with Third World countries like ourselves are very equitable eg. the TCP-TCB STA with Bangladesh. We must negotiate for more STAs with other such countries as a means to force-feed our export items to them. At the same time innovative use of our own Countertrade Agreements (CTAs) with MNCs would allow us to offload surplus products and commodities to third countries. These STAs can be with China, Turkey, Bangladesh, Sri Lanka, Iran, Egypt, Indonesia, etc. We already may be having trade agreements with them but the STAs will provide a concrete mechanism for due process of bilateral trade; a viable entity instead of an abstract formula.

If the Ministry of Commerce had been led by a run-of-the-mill person one could simply write it off for the time being, but at this time right from Dr. Mahbubul Haq down the line to the Joint Secretaries it is, for a welcome change, a do-something bunch open to ideas and innovation. One expects some positive action from them, a clearly defined role derived from deep analysis and perception. The world is heading towards protectionism, even countries like the US favour some kind of cover legislation to guard against unfair trade practices and other economy dominating encroachments. One of the prime mechanisms of protectionism being Countertrade, the people of Pakistan expect that Dr.Mahbubul Haq’s brilliance be utilised to safeguard our legitimate trade rights and free us from total exploitation by our erstwhile “capitalist” COMECON trade partners.

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