A Mahbubative Trade Policy
Mr Mahbubul Haq showed some of the effects of loneliness on the long distance runner in annunciating the second year of his scheduled three year trade policy. He talked Turkey, literally, mentioning the phenomenal growth in that country’s exports upto US$ 10 billion from a standing start with us 3-4 years ago, South Korea with its US$ 40 billion export figure being more of an unachievable miracle in comparison. The good doctor was honest and gracious enough to admit that his export target of US$ 4.2 billion for 1987-88, reflecting a targeted 15% increase over the previous year, actually went up 20% to US$ 4.4 billion, mainly because of international price rise in our cash cotton crop and other traditional exports, rather than any volumetric increase. Innovative to an extent he certainly was, but the jet lag of his Federal Budget presentation finally got to him and he failed to make the wide-ranging structural changes we were led to believe that he was contemplating. The changes by themselves are intelligent, will have a salutary effect on exports and will rationalise imports but he has failed, despite lip-service to the contrary, to shake the all-encompassing and suffocating bureaucratic vise, the absence of which has been the hallmark of the South Korean economic miracle.
One should not look at gift horses in the mouth and we should be happy that it is Dr Mahbubul Haq and not a political version of an economic horror story annunciating Pakistan’s trade policies. There is definite sincerity of purpose in the trade proposals and the business community is by and large comfortable with his efforts, lacking as these efforts are in any exercise in self-promotion, latent greed or any vindictiveness towards any individual or group. Chastened by poor Mr. Wattoo’s 1987 budget experience, Dr Mahbubul Haq has opted nothing so much out of the ordinary that could upset the apple-cart, opting for deliberate caution with emphasis on evolution rather than revolution as the cardinal principles of his trade policy. For those of us preaching fire and brimstone, it has been a disappointment in objective comparison because we expected the use of a surgical scalpel with greater abandon in the present autocratic circumstances when he had the chance of a lifetime.
One example of structural improvement without structural change is in recognizing that Export Promotion Bureau (EPB) was not pragmatically constituted to accomplish its mission and is being re-cast as the Export Promotion and Development Corporation (EPDC) with a government subsidy of Rs: 250 million for its initial Capital. This is a long-awaited change requested by us (THE NATION December 4, 1986, April 20, 1987 and April 27, 1987) but only in the spelling out of its charter of duties and the staffing of its personnel will any real and positive effects be apparent. It is impossible for Dr Mahbubul Haq to police all his minions, given the vast empire that he oversees, and it is necessary to give him at least three CARETAKER senior aides of his own choice, one in each Ministry, to implement the Government’s policies faithfully.
Cotton trade has been freed completely with the public sector (CEC) competing with the private sector for the raw cotton from the ginners as well as in international trade-circles. This is excellent news provided the Minimum Export Price (MEP) is not used as a strait-jacket by CEC and should give the private sector a clear run while keeping the public sector option alive. The private sector exported about a million bales in the last fiscal year and should be geared up by now to provide a necessary fillip to Pakistan’s raw cotton exports. The same analogy could have been used for rice but instead gradual phased approach has been made, allowing export of Basmati in packing upto 20 kg in the private sector while reducing the minimum export price (MEP) from US$ 925 per metric ton to US$ 825. The export duty has been brought down a further Rs. 1000 from the present level of Rs. 5000 per metric ton.
Export Houses in the private sector on the South Korean and Turkish patterns have been encouraged, with substantial benefits offered, including VIP status for performance. A brand name approach to identify Pakistani products more positively on the world market is another exhortation. In a major concession, registered Export Houses will be allowed to keep 5% of their export earnings in a foreign exchange account for purposes of sales promotion. Recognition of the crucial role of the private sector by Dr Mahbubul Haq has articulated a correct, reasoned policy and will give a much needed psychological and material boost to our erstwhile exporters. Having reached a stage where 70% of our import bill is met through foreign exchange earnings from exports while gradually opting for a more liberal import policy, we must go for the remaining 30% on a priority basis to achieve a trade balance. A fine line differentiates between liberalising the economy at the cost of our industry or giving a fillip to it and it is now in the sincere implementation of that policy that we will achieve a greater trade balance. This year the great (almost) silence on the emphasis on engineering goods speaks for itself, a recognition that it is in other areas that we can attempt a major breakthrough and there is no “Open Sesame” shortcut to real-politik in quality competition in industrial items. On the other hand there is a vast market available to us in this region and in Africa which can be imaginatively exploited by our industrial enterprises producing engineering and electrical goods.
The use (or rather misuse) of Barter, Countertrade (CT) and Special Trading Agreements (STA) is a moot point on which the Commerce Minister was strangely silent, given the fact that increasingly it has become a prime trade mechanism in international circles. Judicious use of it with realistic balances between traditional and non-traditional items in an export basket could result in great benefit for the country. At the moment the country is being systematically looted by the COMECON, Sukab and Kemira Oy Barters and it did not behove Dr. Mahbubul Haq to be quiet on this issue. To give an example of the audacity of the highway robbery being perpetuated, the Sukab and Kemira Oy Barters are known officially as the TCP-SUKAB Barter and the TCP-KEMIRA OY Barter and TCP knows nothing about it at all, these being under the total control, along with the COMECON Barters, of the Ministry of Commerce directly and if chicanery is not a part of this exercise we shall all collectively eat our hats. Whenever STAs have been properly constituted and utilised e.g tea from Bangladesh, Indonesia and Sri Lanka, we have had commensurate positive effects, the only failure being the Kenyan STA. A better analysis of the last TCP CT experience being given a Coup-de-grace by the Ministry of Finance, after being initially put paid by interested parties in the Ministry of Commerce, could result in a sound all-encompassing Countertrade portion of the Trade Policy. Dr. Mahbubul Haq has mentioned STAs with SAARC countries but perhaps he could expand his horizon to include other potential buyers of Pakistani finished products in the region and in Africa. For the last 18 months we have been encouraging the tying up imports of products like Tea, Palm oil, Fertilisers and Crude oil to a realistic basket of traditional and non-traditional items. The man who projected Countertrade in Pakistan in the first place, Mr. Mukhtar Masood, then Secretary of Commerce initially hurried two agreements through of US$ 200 million each with SUKAB and MARCOTRADE and one of US$ 100 million with MITSUBISHI. This became a non-starter when the then Chairman TCP proposed a fairer evaluation and with the then Federal Minister of Commerce’s blessings, invited world-wide applications from Multi-Nationals (MNCs), more than 50 MNCs applied, of which 10 were shortlisted eventually, 4 MNCs being given US$ 50 million each way CT agreements neither SUKAB nor MARCOTRADE making it to the shortlisted. The then Secretary of Commerce seeing his favourites falter turned a volte face and had the last laugh. By refusing to issue a list of imports he made the CT agreements (Total US$ 200 Million each way) stillborn and all 4 MNCs more or less reached their individual swing — limits of US$ 5 million each in exports before coming to a deadstop. The Barter STAs in the meantime progressed and prospered in an atmosphere of open season on Pakistan’s economy and we imported Palm Oil made in Malaysia from Bulgaria and sent out Naphtha meant for Bulgaria on its way to Japan via Singapore and so on with DAP Fertilisers and so forth. Keeping a figure of US$ 1 billion each way meant for CT and/or Barter and/or STA, we can earmark US$ 400 million for CTs, US$ 300 million for Barters and US$ 300 million for STAs. Going by the volume of the US$ 50 million CT experience we could lessen this figure by half i.e. US$ 25 million each way thus inducting about 16 MNCs i.e. a total of US$ 400 million, into the CT list. The competition would become more intense (and with a variety of MNCs operating) have a greater chance of success. All the CTs/Barter/STAs must come under the TCP or even the newly created EPDC.
Significant improvements have been made in import procedures e.g. (1) enhancement of LC opening time to 180 days (2) import licence within 24 hours (3) extension of validity period of import licence, etc. A greater pragmatism has been displayed by placing 214 more items on the free list and by total exemption from duty on imports of machinery for manufacture of value added items such as Textiles, Footwear, Sports Goods, Surgical Instruments, etc. Great emphasis is being placed on export of agricultural produce, particularly catering for the present freight deficiencies, both in space and price. Tax relief have been given realistically on some exports and should assuage the feelings of businessmen feeling cornered after reading the fine print of the Federal Budgets penal provisions for tax evasion.
Dr. Mahbubul Haq gave an extremely interesting lecture on “Human Development” in the UN earlier this year and though his emphasis at that time was more on institution of those skills rather than the honing of those skills targeted to gainful employment, the crux of the matter lies in utilising our manpower effectively, particularly our management expertise in export marketing. The present policy of selecting Chairmen and Directors for export-oriented public sector enterprises is atrocious to say the least. Some of these men are superb technocrats but the disciplines of export promotion and management is beyond them simply because of lack of knowledge and experience. It is not fair to these gentlemen to expect them to become business experts and export geniuses overnight and if it were so easy, beggars would be riders and businessmen would proliferate in abundance. We must have a definitive Trade Service of Pakistan merging all the staff of the Ministry of Commerce’s Corporations into this one service. Eventually TCP, CEC and RECP can come under the commercial tutelage of the EPDC. Except for the Finance Director and maybe the Chairman in exceptional cases, the personnel chosen for management posts should have excellent business experience credentials and the “square peg in round hole” policy practiced by our Establishment gnomes must stop. Technocrats (and bureaucrats) should perform in areas they specialise in so that the country can benefit from their special expertise. The export potential of TCP was totally destroyed in the last 2 years and only with a recent change in incumbency have hopes been revived. Someone with a laid back (or morbid as in the case of the previous Chairman TCP) sense of humour is responsible for specialized postings though one has to accept in all honesty that from time to time we have had excellent bureaucrats as head of Corporate entities. If Dr. Mahbubul Haq wants to reign over his vast empire, he should let matters prevail in the same state but if he wants to actually rule, he must get proper executives, preferably of his own choice, to staff commercial entities in his Ministry.
A friend of mine called both the Federal Budget and the Trade Policy Mahbubative (as distinct from “innovative”), the term standing for change that is innovative in concept but not revolutionary in practice, long on rhetoric, terribly short on meat, but this is not really true. Substantial adjustments have been made for the better and given the circumstances it has been a creditable performance, an effective show of brilliance under the gun, so to say. The disappointment lies in perception of not going the whole hog, the avoidance of the deliberate, calculated gamble manifest in the basic message of caution. The trouble is that we cannot break out of the present economic syndrome by cautious moves but have to jolt the system itself. The word “revolution” is bandied about too cheaply without substance in it and to that extent the Commerce Minister is guilty of lip-service. On the other hand he has made genuine sincere and far-reaching changes never before attempted. We may not be a nation of shopkeepers but our agriculturists, craftsmen, bankers, etc are second to none. Our industrialists and businessmen are renowned in their individual capacities the world over and we have a well proportioned technocracy among our bureaucrats. It is just that the correct potential has to be tapped and the right blend of management expertise installed. Dr. Mahbubul Haq may not have come up all trumps but he certainly has dealt a strong hand and has the EDGE that counts in his doubtless sincerity and honesty. What he needs is induction of effective management aides in the same mould supported by a weekly meeting of an ECONOMIC THINK TANK composed of people with business experience and with no known motivation for any vested interest. He must go on making changes in the system, no one in his right mind will grudge him that privilege as long as the nation benefits by it. To satisfy skeptics the changes in the system must be genuine and significant enough to achieve long-term goals.
If Economic Emancipation is the real Aim, then the start made with the present Trade Policy is satisfactory.
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