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A long-term trade policy

Dr Mahbubul Haq was by far the most intelligent and articulate Economic Czar that Pakistan ever had, giving plenty of lip-service to the concept of a long-term trade strategy but except for minor cosmetic changes he did not initiate any of the structural reforms designed to expand our exports or provide for a linkage mechanism to our ever-burgeoning imports. Our imports have been criminally liberalised having detrimental effect on our Balance of Payments position, essentially we have been made a prisoner of a free market concept without enjoying the benefits of a market-oriented trade policy. On the other hand, there is growing protectionism in the developed world. In sum total Dr Haq was a disappointment for those taken in by his preaching and potential, like everyone else before him he succumbed to various vested interests from inside and/or outside the country. Essentially the problem for our bureaucracy is how to escape the greed and lust for money. There are many who have individually and/or collectively benefited at the expense of the economic future of the nation, some only to enjoy the comforts of being employed in the international bureaucracy of financial institutions.

From time to time the media has given excellent suggestions to the various governments in power, playing a critical but objective role in analysing the trade policies and giving reasonable recommendations. Unfortunately the bureaucracy is averse to accepting any new ideas unless they emanate from the IMF or similar international institutions, apropos the Additional Secretary in the Ministry of Commerce who sometime ago airily told an Economic writer that they did read his articles but paid no attention, when asked whether he could be quoted he changed his stance quite smartly.

Out of Pakistan’s 79.61 million hectares, total cropped area is 20.90 million hectares, 37% of its cultivable area given that 23.61 million hectares are not available for cultivation. Ours is an agriculture based economy, dependant upon foodgrains (11.37 million hectares) and cotton (2.62 million hectares) for sustenance, among the lucky few Third World countries having autarky in food production. Rice is planted in approximately 2 million hectares giving us a produce of 3.2 million tons (or 1.6 tons per hectare or 0.65 tons per acre), having exportable surplus of 0.85 million tons. Production of cotton is 1.43 million tons or 8.39 million bales approximately, of this 0.84 million tons (or 4.93 million bales) was exported in 1988-89. In unit values this comes to Rs 23.97 billion (cotton Rs 18.03 billion rice Rs 5.94 billion). Along with cotton waste (Rs 239.76 million or Rs 0.24 billion) and cotton yarn Rs 11.65 billion, cotton thread (Rs 58.03 million), cotton cloth (Rs 8,960 million) and ready-made garments (Rs 9.69 billion), the cumulative total is Rs 54.57 billion or US$ 2.5 billion 54% of the total exports of US$ 4.6 billion.

Our traditional exports can therefore be classified into three sections, LIST A comprising raw cotton (1) and rice (2), LIST B consisting of cotton yarn (3), cotton cloth (4) ready-made garments (5), and carpets and rugs (6), LIST C composed of leather (7), hides and skins (8) petroleum products (9) and synthetic textiles (10), everything else under non-traditional exports. Priority must be given to increasing the quantum of our traditional exports to the developed world because most of our imports are from the developed world and there has to be a direct linkage. On the other hand we can increase our machinery exports to the Less Developed Countries (LDCs) provided we improve our marketing techniques, provide Suppliers Credit and reciprocal tied trade in the form of Special Trading Agreements (STA).

Our major imports are machinery (Rs 26.60 billion), petroleum products (Rs 18.51 billion), chemicals (Rs 13.05 billion), transport equipment (Rs 8.40 billion), edible oils (Rs 8.58 billion), grams and pulses (Rs 8.60 billion) and iron, steel and manufactures thereof (Rs 7.13 billion), electrical goods (Rs 4.96 billion), chemical fertilizer (Rs 3.53 billion), drugs and medicines (Rs 3.32 billion), tea (Rs 2.98 billion), paper, board and stationery (Rs 2.73 billion), art silk yarn (Rs 2.53 billion) and non-ferrous metals (Rs 2.02 billion), a grand total of Rs 112.94 billion or 83% of our total imports of Rs 135.84 billion in 1988-89. In imports we could have three major lists other than the miscellaneous items. LIST X would include petroleum products (1) edible oils (2) wheat, grams and pulses (3) and chemical fertilizer (4), LIST Y would consist of machinery (5) transport equipment (6) chemicals (7), and iron steel and manufactures thereof (8) and LIST Z would include electrical goods (9) non-ferrous metals (10), paper, board and stationery (11), art silk yarn (12) and tea (13), drugs and medicines (14) and sugar (15).

Our Special Trading Agreements (STAs) varying between US$ 50-200 million should be with China, Iran, Bangladesh, Turkey, Sri Lanka, Indonesia, India, Kuwait, Saudi Arabia, Egypt, Jordan, Malaysia, Burma, Poland, USSR and possibly Kenya. Countertrade arrangements could replace our present Barters with Romania, Bulgaria, Czechoslovakia, Sweden and Finland. At the same time to bring in competition in international tenders there should be CTs with at least 10 Multi-nationals (MNCs) of at least US$ 50 million each.

For STAs the volume and items would depend upon the reciprocal nations. As regards CTs there should be one standard format on the formula that 50% of our exports will be traditional items and 50% non-traditional items. Of the traditional items 15% each should be from LIST A and B and 20% from LIST C. On the import side 20% each should be from LIST X, Y and 30% from LIST Z, balance 30% from the miscellaneous list. A flat 10% premium should be allowed on import items. For the CTs with former Barter countries, machinery items originating from that country should make up at least 50% of the IMPORT LIST. The import list can be suitably amended for CTs involving the Defence Ministry which can have their own special requirements, the export formula will not change but OFFSET arrangements must become compulsory as a rule. The wording of the Agreements for all CTs should be a standard one to obviate favouritism. Most contracts of the Government over US$ 1 million involving imports should be awarded only with CT clause as is the practice even in affluent countries like Indonesia and Malaysia.

Export Promotion Bureau (EPB) must become a Corporate entity called State Trading Authority of Pakistan (STAP) or whatever with a Minister of State of Commerce as full-time Chairman and a professional Managing Director, all three Export Corporations of the Ministry of Commerce must come under this new entity, ie. the Trading Corporation of Pakistan, Rice Export Corporation of Pakistan and Cotton Export Corporation of Pakistan, each with its own Managing Director, at the moment they do not work in Coordination with each other. STAP must allocate 1% of its export earnings for cotton (US$ 840 million) and rice (US$ 273 million) ie., approximately US$ 11 million for maintaining commercial offices abroad, in North and South America, USA (New York, Chicago and San Francisco or Los Angeles), Canada (Montreal), Panama (Panama City), Rio de Janeiro (Brazil) and Argentina (Buenos Aires), in Europe, UK (London), France (Paris), Holland (Rotterdam), Austria (Vienna), Italy (Rome), Spain (Madrid), Switzerland (Geneva Zurich or Lausanne), Germany (Berlin) and with each of our CT partners among the former Barter countries. We must have offices with all CT countries ie. China (Beijing, Canton and Shanghai), Iran (Tehran), Bangladesh (Dhaka), Turkey (Ankara or Istanbul), Sri Lanka (Colombo), Indonesia (Jakarta), India (New Delhi), Kuwait, Saudi Arabia (Jeddah), Egypt (Cairo), Jordan (Amman), Malaysia (Kuala Lumpur), Burma (Rangoon), Poland (Warsaw) and USSR (Moscow, Leningrad and Tashkent). In Africa, we must cover Kenya (Nairobi), Morocco (Rabat), Nigeria (Lagos), Zaire (Kinshasa), Tanzania (Dar es Salam) and the capital of anyone of the former French West Africa Countries, perhaps Abidjan. In addition offices will be required in Dubai, Singapore, Sydney or Melbourne (Australia), Manila (Philippines), Hong Kong, Tokyo (Japan) and Seoul (South Korea), approximately 45 to 50 full-fledged commercial entities which will NOT be administratively or operationally under the tutelage of the various Pakistani Embassies but directly controlled by STAP under the Federal Commerce Ministry. Besides offices in the Federal Capital and all the Provincial Capitals at least 12-15 other offices must be opened within Pakistan.

Export incentives, inspection of quality, adherence to schedules, etc are self-explanatory points but the judicious exploitation of the manpower potential is extremely necessary in the circumstances to boost the country’s exports. We must reinvigorate the Pakistan Trading Services bringing in lateral entrants, this can be done only by inculcating terms and conditions of service at par with prevalent conditions among the Multi-nationals (MNCs) of the world. STAP must have excellent standards, experienced and effective staff can only be attracted by incentives and bonuses for performance, a direct linkage which is result-oriented. Our need for effective Managements within the Corporations of the Ministry of Commerce is given lip-service attention at best, the units are subjected to chief executives from the bureaucracy who seldom have even a fundamental knowledge of trading, interested only in their own perquisites a la Habib Hussain, former Chairman TCP and his penchant near retirement for the status symbol red BMW, among other aberrations.

This country can boost its exports by about 50% without any real effort while curbing increase in exports to less than 10%. Even going by these figures our trade deficit of Rs 45 billion (or US$ 2 billion) should come down initially to about Rs 14 billion (or US$ 630 million) making a tremendous difference to our present adverse Balance of Payment position. With increasing sophistication, the trade balance can even become positive within 3-5 years.

Let us not only think positive, let us implement it!

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