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Trade policy analysis

(This is the FIRST in a series of TWO articles with analysis and suggestions for a NATIONAL TRADE POLICY).

Last June, a three year TRADE POLICY was annunciated by Dr Mahbubal Haq, the AIM being to emulate the remarkable performance of Turkey, which has, from a standing start with us six years ago, crossed the US$ 10 billion mark in exports. Dr Turgut Ozal’s parallel ascent to the post of PM in recognition of his creating of the Turkish miracle must have acted as a great incentive for Dr Haq, however the end result was a policy long on rhetoric and short on substance. In fairness to Dr Haq, he did in fact propose some positive innovations but failed to put into place those wide ranging organisational changes in the infrastructure of our trade mechanism without which the end result was far less than the desired targets. The major reform required is to shake off the all-encompassing embrace of bureaucratic control without which commerce is doomed to progress only at a routine pace in sharp contrast to the role model Turkish standards. Dr Haq is often criticised by us for his chameleon policies but given the circumstances availing in June 1988, particularly after the flak he was taking, more for the demeanour than the content of his Budget speech, the fact does remain that he thereupon was thrust into a no-win situation allowing him little running room to carry out his proposals and thus absolving him partly. He did initiate a remarkable policy for tea, which has since been scuttled by the PPP Government under pressure.

Dr Haq is basically a bureaucrat (though he does not wear the CSP-School tie) and the tenor of his TRADE POLICY carefully circumvented those areas which would have upset the bureaucracy, particularly tinkering with the bureaucrats “pension plan”, the Barter Agreements. He tried to follow that route which would be more palatable to the business community. While in politics one has to compromise, but it must never be forgotten that market forces seldom react to anything but strong, definitive measures, net result was that in actual fact very little change took place.

The most significant change that was proposed was in re-organising the infrastructure of exports, the monolithic Export Promotion Bureau (EPB) giving way to an Export Promotion and Development Corporation (EPDC) with a government subsidy of Rs 250 million as initial capital, that plan never saw the light of day. THE NATION had strongly recommended major reforms in the government export machinery as far back as December 4, 1986, repeating it on April 20 and 27, 1988 and maybe the good doctor did listen, when you copy from one person it is called plagiarism, when from many it is called research. Without making major structural changes in the Ministry of Commerce’s export orientation, we can never make any headway in international commerce, it will remain a pipe-dream, lip-service being dispensed by successive Federal Commerce Ministers. The fact that the changes proposed never took place is an example of bureaucratic foot-dragging, anathema to commerce and industry. We must revamp the EPB completely and put the Ministry of Commerce’s various corporations, Trading Corporation of Pakistan (TCP), Rice Export Corporation of Pakistan (RECP) and Cotton Export Corporation of Pakistan (CECP) under one corporate entity, the proposed EPDC or some such directly under the full-time Chairman-ship of a businessman Minister of State for Commerce or even the Advisor to the PM on Commerce. These Corporations should be staffed with a mixture of executives belonging to the Trade Service and business executives drawn in directly or on contract from the private sector to give the corporate structure the necessary expertise and fillip that they need to cope with international market practices.

In keeping with the constant demands of the private sector, the government had changed the policy regarding cotton trade, immediately misused by some exporters in the private sector who booked raw cotton of a lower grade at the Minimum Export Price (MEP), while actually shipping/readying for shipment a higher grade. This scam, was uncovered late last year, that also because of the infringement of the CEC’s jealous preserve of monopoly of the exports of raw cotton. Whereas the exports of commodities in the public sector is far from a happy modus operandi, the fact that Pakistan’s major cash earners are rice and cotton, vital to its economic survival and well being, dictates that the state monopoly has to be persisted with, with proviso that the public sector must be stimulated and made more efficient by the induction of key personnel from the private sector, with suitable checks and balances to counter predictable malfeasance, contrived or due to sheer inefficiency.

Dr Mahbubal Haq tried to emulate the South Korean and Turkish pattern in the encouraging of registration of Export Houses, which would be allowed 5% of earning in foreign exchange for sales promotion. Substantial benefits and allowance were promised, including VIP status for businessmen with marked up-surge in exports, but we have no real indication about the efficacy of these proposals, given the fact that the good doctor lasted only a few months thereafter, the period after Aug 17 becoming a battle of personal and political survival.

The major mistake made by Dr Haq was to base ambitious export targets for engineering goods without creating an infra-structure capable of marketing such products. Most of the heavy engineering manufacturing base is in the public sector and government’s choice of its senior marketing executives has been atrocious, in one such instance an umbrella public sector corporation selling integrated machinery is still headed by a person whose major claim to fame was the sales of urea fertiliser in an era when there was such shortfall of the commodity that customers paid a premium to lift it. People with experience in selling manure cannot sell machinery. This dubious gentlemen has survived the PPP Government’s ascent to power and will probably survive many further ascents to power. Such is the choice of manpower one selects to lead our struggle out of economic bondage! Not only suitable trade mechanisms have to be put into place but trained personnel with practical experience in commerce and industry have to be in the forefront of any major export attempt. Dr Haq had been the major proponent of Countertrade (CT) in May 1985, but chameleon-like he repudiated once he became the Federal Minister for Commerce in 1987, it took his elevation to the concurrent post of the Federal Minister of Finance to convince us finally that Dr Haq was not a man of his words. Instead of scrapping the Barter Agreements with COMECON countries and with SUKAB (Sweden) and KEMIRA OY (Finland), Dr Haq went completely overboard in enhancing these agreements which are not agreements at all but international SCAMS of which Pakistan is perhaps one of the few remaining victims. According to the principles of Barter, which guided Pakistan to enter into agreements with socialist countries in the first place, Pakistan was to get machinery made in these countries in exchange for a basket of commodities and goods which would go to these countries. In order to market Pakistani non-traditional items a flexible MARK-UP was agreed to on the INCOMING Commodities and goods, ranging from 12 to 15% of the FOB cost. In actual fact almost none of the commodities and goods came from these socialist countries and almost none of our products went to them. We received Palm Oil and DAP fertiliser which these Barter countries obtained from other origins while our raw cotton, rice etc ended up competing against CEC and RECP in their own traditional markets with these Barter countries well-armed with a healthy discount. Bulgaria became a major Naphtha exporter based on Pakistani origin, Czechoslovakia a major cotton exporter and so on, everybody made money except Pakistan. The sovereignty of Barter Trade was turned in actual practice into Countertrade (CT) but when actual CT agreements with Multi-Nationals (MNCs) came into being, the Federal Ministries of Finance and Commerce ensured that they were still-born. With the “war chest” that the Barter Countries have at their disposal, financed by Pakistan itself, how can they lose? It is an insult to our intelligence to think that an intelligent person like Dr Haq did not understand this chicanery. We can only encourage the PPP Government to fully expose this loot of the public till by publishing full statistics of imports and exports in each Barter agreement over the past decade, of course how can we ever find out how our Naphtha, cotton, molasses, etc ended up in countries other than they were destined for?

Down the line this was further complicated by having inexperienced and/or corrupt personnel in management positions on the forefront of the CT experience, particularly in TCP. As soon as Mr M. Yousuf left the post of Chairman TCP to become the Federal Secretary of Religious Affairs, TCP’s exports and its CT proposals took a simultaneous nose-dive to its lowest ebb within one short year in a decade. While the next Chairman TCP not only had no experience in the commercial field, he was also on the verge of retirement, sent in primarily as a hit-man to sort out his predecessor and simultaneously to ease his own way into retirement. He took both objectives to his heart, TCP’s priorities changed accordingly and dramatically when a new Director Finance was inducted who was installed also as the Director Countertrade. A new height of bungling was reached, both contrived and inadvertent, each un-recognizable from the other given the frequency of malfeasance. While enough has been said of the then Chairman TCP, including his status-symbol red BMW, the smoke-screen of his shortcomings camouflaged the machinations of the so-called expert on Countertrade, fresh with a marketing degree from a well known foreign university. Whereas the Chairman TCP was crude and therefore easily found out, this suave bureaucrat managed to fool all and sundry till in the end he fooled himself, the TCP and the country, then pushed off to greener pastures. In the beginning he sought advice in the form of a paper on Countertrade from businessmen and professionals within TCP, which he promptly forwarded to the Ministry of Commerce under his own signatures as his own ideas! Newly thus installed as the Resident Expert on CT, he borrowed further ideas from all around. His “research “ led him into three major US$ 20 million CT agreements, two with Indonesian companies and one with Kenya a grand total of US$ 60 million. By keeping various newspapers happy with a plentiful dole of Advertisements at TCP expense, he encouraged them to publicise his “achievements” with great fanfare, the target being the powers-that-be in Islamabad. Almost a cool one million US dollars was spent on this exercise, not counting the daily entertainment he arranged at TCP expense for anyone but actual businessman, foreign or local. This “commercial” genius managed not a SINGLE PAISA business in this great US$ 60 million transaction! This must qualify as an ALL-TIME record of bungling.

Whatever may be the IMF conditionalities, Pakistan must have Special Trading Agreements (STAs) with a number of (1) countries and (2) Multi-Nationals (MNCs). The STA between the Trading Corporation of Pakistan (TCP) and Bangladesh (TCP), the US $50 million TCP – TCP STA is a successful case in point. While from Bangladesh we get jute goods and cheap teas, we sell in return raw cotton, rice, textiles, machinery, etc. Similarly we have a trade-off arrangement with Iran. Our policy must persevere with STA-like opportunities with Sri Lanka, Turkey, Malaysia, Indonesia, Singapore, Kenya, etc. There is no justification for purchasing expensive Kenya teas at almost double the market average (almost US$ 150 million worth) and selling absolutely nothing in return. Kenya must purchase our goods and commodities, provided that the powers-that-be in Islamabad take note of this horrible situation when ONE multi-national, Lever Brothers, virtually monopolises the tea market in Pakistan through its two subsidiaries Liptons (Pakistan) and Brooke Bond (Pakistan) Limited, who proceed to bring in tea from Kenya, most from tea gardens that they own, causing our tea traders in the Jodia Market to either compete or go under. A tea policy was put into effect in April 1988, it lasted for 9 months till the PPP Government came into power and was immediately subjected to pressure from the Special Tea Interest Group (STIG for short) and tea disappeared from the market. In one day after the tea policy was revoked tea magically re-appeared all over the country. How much tea can Bangladesh and Sri Lanka sell to us, US$ 60 million, US$ 75 million? We purchase almost US$ 150-200 million worth of tea, surely we can use that as a leverage to export some of our goods and commodities in return. Similarly we can have an arrangement with Malaysia for palm oil as we are having with Iran for crude. If Malaysia cannot absorb our products maybe some MNCs can be inducted into Countertrade (CT) Agreements, who can use the power of their marketing expertise to sell our products. Why should we have Barter Agreements with COMECON countries if they do not give us the integrated machinery that we need? On the contrary they act like MNCs. The revoking of the tea policy and continuation of the Barters has exposed the weak will of our new rulers to get to grips with the problems based on logic and understanding, it would be tragic if we were to get a perception that they have also joined the system, become part of the open chicanery.

The necessary ingredient for success in exports is not only the quality and availability of commodities and goods, but the management expertise, experience and efficiency of our manpower. We have excellent manpower in the bureaucracy, some of them in CEC, TCP, RECP and EPB are honest, sincere, hardworking professionals one can be proud of but they cannot be made into commercial experts overnight. If we want to succeed in the international marketplace, we must review our manpower in the light of sorry experience and induct trained expertise from the private sector. One may even take examples of various foreign countries’ personnel living in Pakistan. Dr Wolfgang Penzias, the Austrian Trade Commissioner, is an excellent example, following in the footsteps of an amiable predecessor, Dr Peter Jehly. Dr Penzias in the space of a few months has transformed the image of Austrian products in Pakistan, striving to make Austria a greater Pakistani trade partner, it is an example of honesty and dedication coupled with above par professional expertise. This is the sort of expertise that must be emulated if Pakistani exports can match the Turkish miracle.

The TRADE POLICY annunciated by Dr Haq was thus lacking in the key area of experienced commercial personnel, all trade policies are similarly doomed to failure if we attempt to put square pegs in round holes, if they are also corrupt and/or inefficient, complications will force-multiply. Correct manpower must be the prime ingredient in any future annunciation of policy and the Federal Minister for Commerce must choose his key players in the Corporations with the care that is expected of him for the most important cornerstone of the national economy, a successful TRADE POLICY.

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