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State trading vehicles

A lot of controversy has been generated by the decision to scale down the working of the State’s trading vehicles, eliminating the Trading Corporation of Pakistan (TCP) altogether. This is in keeping with the stated objectives of successive Administrations to reverse the tide of nationalisation to one of deregulation and disinvestment in the search to establish a liberal economy. While the need of the hour may be a free enterprise system, certain safeguards are necessary for Third World countries in an increasingly protectionist world of developed countries. Very much like we use quotas to protect the right of citizens of extremely backward areas, selected public sector enterprises that act for the common good of the nation are in vogue even in the most advanced of economies.

Margaret Thatcher may have been the one person most visible internationally for dismantling guided economies and State enterprises, but the man most responsible for the trend was Deng Tsao Peng. The gradual dismantling of the socialist system in China was initiated by him in the mid-70s and his measured approach is much more conducive for application in Third World economies. The most devastating example has been the collapse of the Soviet socialist empire which generally followed a pell-mell line in trying to speed up the Thatcher oriented model, much more suited for developed countries having sound financial infra-structure. The China experiment also succeeded because Deng Tsao Peng kept economic reforms way ahead of the loosening of the political controls, the abysmal failure in the former Soviet Union has been because Gorbachev put Glasnost (openness) ahead of Perestroika (economic reforms), thus raising the expectations of the people before the system could deliver. The result is the disintegration of the Soviet empire and untold economic misery for the people. To protect the whole structure from dissolving into anarchy which is a short step from returning to the fold of communism, Russian President Boris Yeltsin is rapidly trying to reverse (and/or curtail) the liberties that the Russian people had become used to over the past couple of years. The one lesson that you learn from all the successes and failures of the last decade is that no one should try and thrust a particular system down any country’s throat. Every country has to evolve its own system in keeping with the genius of its people and its own socio-economic peculiarities. Instead of imposing theoretical university-crafted models the system evolved has to be pragmatic and flexible in order to ensure interaction of local conditions with the requirements of the modern world.

Pakistan’s two main cash crops are raw cotton and rice. While we have developed our downstream industries for cotton quite considerably, rice remains very much a raw agriculture commodity with even developed countries like Japan, South Korea and Taiwan resorting to blatant protectionism to keep our rice from their markets. Pakistan remains a major player in both cotton and rice in the international market. As the two major foreign exchange earners, these agricultural produce should be treated very much like the OPEC countries treat oil, as the lifeblood of the economy, i.e. a measure of State control is necessary. The late Zulfikar Ali Bhutto may have erred on many counts with respect to nationalisation, his decision to create the Cotton Export Corporation (CEC) and the Rice Export Corporation of Pakistan (RECP) was essentially correct as it protected our agri-based economy. Both the commodities were being exported regularly previous to their nationalisation but on a quantum basis we were exporting only about 70% of what we could and are getting on an average 85% of the prices that we could have got. The cumulative effect on our foreign exchange was a shortfall of about 40.5% in the amount which could be earned from these two cash crops. At today’s prices this would amount to between US$750-900 million. The reason for less exports was the quality of the product and the maintenance thereof whereas the price differential was because of the cutthroat competition between exporters who did not take into account the country’s greater interest as opposed to their personal gain. The debacle that Bangladesh is facing with respect to its main cash crop earners, jute and jute goods are cases in point. Take the case of Bangladesh Jute Mills Corporation (BJMC), where during the late 70s and the early 80s, the State corporate structure controlling all the jute goods was almost a monopoly for the entire world and thus obtained good prices for jute goods for over a decade, the dismantling thereof at IMF insistence has reduced Bangladesh to striving to sell its main foreign exchange earner jute goods at any price. Industrialists who got back their nationalised mills mostly sold the machinery for a song while that which remains in public or private hands are steadily making losses and is overburdened with debts being unable to compete against the cutthroat reduction of prices. While the country may have lost in terms of foreign exchange and industrial jobs in the jute manufacturing sector, the ultimate pressure has come on the poor farmers who have been almost wiped out. Since ours is an agri-based economy, a similar catastrophic situation could develop here. Both RECP and CEC should remain very much in public hands but upto 70% privatisation of their shares providing for a public-private sector mix is an excellent idea.

The major concern is the suggested closing down of the Trading Corporation of Pakistan (TCP). The TCP was formed to handle the Barter Trade with COMECON countries, Sweden, Finland, China and other socialist countries. It was an excellent idea that had export orientation to go along with its import control capabilities. In order to discourage monopoly, hoarding or profiteering, TCP could take a position on commodities and items to ensure that the common man may not be deprived of supply because of lack of availability or high prices. Moreover it was meant as a vehicle to boost traditional exports and find a market for non-traditional ones. However, TCP was never allowed to actually execute the Barter Trade. In absolute violation of the TCP charter and its raison d’etre for existence, Barter in the name of TCP e.g. TCP-Sukab (Sweden) Barter, TCP-Kemira (Finland) Oy Barter, etc were all totally controlled directly by Ministry of Commerce (and still is) to the total exclusion of TCP. The heavy premiums (upto 17% on FOB value) given to our Barter partners became the main vehicle for corruption. Even today, almost a quarter century after TCP’s inception, nobody allows residual portion of the Barters to be controlled by TCP. Why should they, Barter is the goose that lays golden eggs.

It is no use going into the sorry history of how TCP was never allowed to perform its real role. The only glimmer of hope came when Mr. Mohammad Yousuf (later retired as Secretary Religious Affairs) took over as Chairman TCP in 1983 and launched a grand plan for Countertrade (CT). As opposed to Barter which is a sovereign trade between two countries, Countertrade is a more refined form of Barter performed with Multi-Nationals (MNCs) where goods and commodities come from multi-origins and go to multi-destinations. While the IMF may frown upon this, every Bank of the western world and Japan has bustling CT departments. Since all Barters in Pakistan were in actuality CTs where our Barter parties were fleecing us to high heaven in collaboration with the gnomes within Ministry of Commerce, the TCP’s foray into Countertrade in 1984-85 met with total resistance from vested interests within the Ministries of Commerce and Finance. While the CT was signed with 5 MNCs, it was a non-starter from the outset, in fact an unmitigated disaster with respect to Pakistan’s trading credibility in international circles. The then Secretary Commerce effectively scuttled it by the easy bureaucratic subterfuge of refusing an import list as was the fashion for Barters. While Pakistan was fighting a proxy war with the Soviet Union and its allies in Afghanistan, our patriotic bureaucrats in the Ministries of Finance and Commerce were giving the then anti-Pakistani consortium of countries the “Most Favoured Nation” treatment and much more. Since when did palm oil and PAP fertiliser come from the COMECON countries, Sweden, Finland, etc? And were these countries really the recipient of naphtha, cotton, rice, molasses, etc that we shipped to them in return or were the Bills of Lading switched to go to our more traditional destinations like Singapore, Japan, UK, Germany and Middle East respectively in total violation of the sovereign agreement and in jeopardy of our base prices? This big SCAM has been perpetrated on this country for nearly two decades, a matter for sorry history that only goes to show how TCP was never really allowed to perform according to its charter. When this was pointed out earlier this year to a former Secretary Commerce in the presence of the present Secretary of Commerce, both indignantly denied a fact that is well-known to every clerk in these Ministries for over two decades.

Today, when the Central Asian Republics, Afghanistan and other Third World countries find themselves cash strapped, they are increasingly turning to commodity exchange, even paying for their major projects with their produce. Almost all countries as well as MNCs are offering to lift their commodities under Barter and CT arrangements. Why are we, sitting plumb astride their economic lifeline to the warm waters of the Indian Ocean, heading the other direction? By dismantling the TCP we are eliminating the one State vehicle which in today’s reality is most necessary to act as a Principal and as a conduit. Closing down TCP is sheer madness besides being commercial nonsense. Today we need TCP more than at anytime in our history and we must not make the mistake of destroying the inherent trading potential of this entity by shutting it down. And what about its personnel who have been trained over the years? That is an inborn human capability that cannot be substituted overnight. In our headlong rush for liberalisation we have closed our minds to commercial facts. Not only must the decision to liquidate TCP be reversed, it must be reformed in a public-private sector mix to assume its dynamic trading potential for the nation. People like Mr. Yousuf must be brought out of retirement and given the specific job of rejuvenating Pakistan’s trade by using TCP as the flagship of exports. That was the original role of the State’s Trading Vehicles and in the prevailing geo-economic circumstances we must not close our mind down to the existing realities.

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