Redirecting trade
During the last 100 days or so, the fledgling Nawaz Sharif Government has defied the odds and gone on an economic offensive to come to grips with the deteriorating economic situation. Far-reaching structural reforms have been enforced in the financial sector, the fundamental premise being to remove restrictions that makes government a yoke in the way of economic progress. Bureaucracy is being gradually taken out of the lives of commercial and industrial circles on a day-to-day basis. The economy has been allowed to run free. The dangers associated with immediate loosening of controls, coupled with the dragging of bureaucratic feet, could still have an adverse effect on the economy unless the gains are consolidated on a broad front of reforms in other sectors, keeping commensurate pace with the financial reforms. Sartaj Aziz’s integrity and maturity is well equipped to cope with the situation, he has been carrying the ball for the Nawaz Sharif regime for some time, some of his other colleagues must get into the act to support his efforts.
Change must also be made in our trade pattern, caution being exercised in whole-hog adoption of free market philosophy so that an unscrupulous coterie of robber barons do not take advantage of the Government’s liberal attitude and pillage the system. Our strong points in exports and our necessities in imports must have linkage, recognizing that this may not be entirely successful in the face of growing latent and blatant protectionism from the developed world.
Being primarily an agriculture country, our two prime foreign exchange earners are raw cotton and rice, these must be substituted by value added items. It is a matter of shame that this great textile manufacturing nation, instead of keeping pace in garment manufacturing with the Four Tigers, S. Korea, Taiwan, Hong Kong and Singapore has even fallen back behind countries that have entered garment manufacturing during the last decade e.g. Bangladesh, Sri Lanka, Mauritius, etc. Significant progress has been made in heavy and medium engineering sectors in contrast to these later-day entrants who import in our textiles and get a value added fillip far in excess of the profits gleaned by either our farmers or our textile manufacturers. Garment manufacturing provides extensive employment and we may be able to take advantage of the First World’s growing antipathy to wearing synthetic material next to the skin. Liberalising government regulations may not be enough, we have to give enormous incentives to make the foundations of the garment industry strong.
Agriculture produce is subject to the vagaries of international trade, one way of safeguarding would be by having bilateral accords with Third World countries that have need of our raw cotton and rice, in return for those goods and commodities which we can off-take from them. This may be contrary to the liberal philosophy of free market trade but pragmatism dictates that we are not hide-bound and straitjacketed into a routine that is detrimental to our economic interests. The advantages of an agri-based economy (20.90 million cropped area) lies in our being essentially self-sufficient in our food requirements. We are regular exporters of fruits and vegetables, except intermittently when we are hit by low production of chillies and onions.
Imports critical to the efficient running of our commerce and industry must be identified, paramount among them being crude oil, petroleum and by-products thereof. At the start of the Gulf Crisis our absolute reliance on Kuwait (imports of Rs 10.5 billion in return for negligible exports) almost caused our economic undoing. Linkage may not be possible with Saudi Arabia, Kuwait, etc but it can be done with Iran, Yemen, Indonesia — and now Iraq. Similarly our other great commodity import (other than tea) is palm oil from Malaysia which we could exchange with raw cotton and rice. Linkage is possible with those countries that we have the friendliest relations.
We must have a role model trade within our region, having excellent bilateral mutually balancing trade with Iran, Sri Lanka, Bangladesh, India and Burma. The saving on freight alone would be a tremendous incentive for trade with India, open-ended trade may be in the interests of the peoples of both countries in particular and South Asia in general but must await a lasting solution of our natural problems, prime among them being the Kashmir dispute. We have a major and burgeoning bilateral movement of goods and commodities with Iran and this can expand but keeping in mind that we have had an equitable trade relationship with Bangladesh in the form of the Trading Corporation of Pakistan (TCP) — Trading Corporation of Bangladesh (TCB) Special Trading Agreement (STA), we can use this as a better example.
Two decades to this day, the two halves of Pakistan had complementary economies, what was produced in then East Pakistan (now Bangladesh) was of utility value in then West Pakistan (now Pakistan) and vice-versa, the mutual trade being over US$ 300 million either way in 1971 terms. Now because of vested interest, the trade has fallen below US$ 50 million in 1991 real value terms. Our mutual requirements have increased over the past two decades, in the meantime the two nations have resorted to sourcing from third countries and it may be difficult to reverse this process.
Bangladesh sends to Pakistan mainly raw jute, jute goods, tea, newsprint, paper and to some extent hardboard, telephone cables, etc. Local jute goods manufactured out of the US$ 30-35 million worth of raw jute (no customs duties or sales taxes) cost double in Pakistan than that manufactured in Bangladesh where over 90% of the machines are over 20 years old, (at least 70% being of more than 40 years), this despite Pakistan’s jute industry being 25-30% more efficient. Government of Pakistan (GoP) has imposed protective duties and taxes that increases the price of imported jute goods by 2.25 times i.e if a normal jute bag that carries 90 kg of wheat or rice (a standard B Twill) costs Rs 10 in Pakistan on a C & F basis, the landed price becomes Rs 22.50 per bag. The local jute goods tongue-in-cheek tender a price of Rs 21.50 per bag proclaiming high and wide that they are lower than the artificially created Bangladeshi price. Their cost of production being only Rs 10 per bag, their windfall profit is also more than Rs 12 per bag. When you multiply this into the 150 million bags required by the Provincial Ministries of Food, the exchequer doles out Rs 1,800 million annually as SUBSIDY while losing an equivalent amount in Customs duties and taxes if these had been imported. If we were to confine imports to RECP only, RECP’s requirement for export of rice does not amount to more than US$ 20 million annually. Before 1971 all our tea came in from then East Pakistan. We are now happily drinking down US$ 150-200 million worth of tea annually in hard earned foreign exchange, mostly from Kenya which imports nothing in return. We could easily earmark at least US$ 30-35 million in teas from Bangladesh. Newsprint is another item of great interest supplied totally pre-1971 from Khulna, we could get at least 20,000 MT of our total requirements of 60,000 MT annually from Bangladesh, at today’s prices about US$ 12-15 million. The cumulative imports total from Bangladesh comes to around US$ 100 million.
Pakistan can easily export over US$ 200-300 million worth of raw cotton, rice, textiles and a whole series of finished products including (and especially) engineering items. Bangladesh is full of smuggled Indian goods, this could be countered by Pakistani products. Our engineering and other semi-finished goods would need to be encouraged by providing the trade linkage envisaged. To create a role model, let us have a TCP-TCB STA and remove all tariffs between the two countries, a sort of common market. It is true that removal of trade tariffs may be of concern to our jute industry, it will make them more efficient and terminate their leech-like siphoning off the government treasury while artificially created high prices would come down. Tea and newsprint prices will come down without tariffs, the precedence is already present, there being no duties or taxes on imports of raw jute. A wide range of our non-traditional exports will be able to find their way into the Bangladeshi market like pre-1971, benefiting millions of Pakistan workers as well as Bangladesh by taking great pressure off its tea and newsprint exports, easing the pressure on jute goods and the lowering of prices.
The role model TCP-TCB STA should not be like the Barters we have with COMECON countries, Sweden and Finland wherein we once had to give a 17% premium on imports, now reduced substantially because of THE NATION’s campaign since 1987 to less than 10% (even as low as 7.5%), thus saving over US$ 100 million annually for GOP (a largesse from us to Romania, Czechoslovakia, Bulgaria, etc). No premiums on imports or exports should be allowed except on the volume which becomes surplus i.e if Bangladesh imports more then Pakistan gets a premium to offset its imports from Bangladesh which we could absorb but could sell off to third countries. Sovereign trade should be completely bilateral without the sweeteners of the gift premiums that we have been doling out to our economic detriment. We can create similar STAs with Iran, Sri Lanka, Burma, Malaysia, Turkey, etc. Unless we redirect our trade pattern we will be going up against a blank wall, stuck in an uneconomical groove that will not increase the volume of our export trade.
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