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The trade policy

In his speech unveiling the new Trade Policy 1992-93, the Federal Commerce Minister made one telling point, in the late 60s Pakistan’s manufactured exports exceeded the combined exports of Malaysia, Indonesia, Philippine, Thailand and Turkey. Today, each of these countries is far ahead of Pakistan.

The reasons for this stunted performance is rooted in the myopic centralised policies of successive governments from the 70s till the late 80s which envisaged absolute State control in almost every walk of commerce and industry. With centralized monitoring and over-regulation, Pakistan’s economy floundered. While we blame Zulfikar Ali Bhutto for nationalisation, we tend to forget that it was in the decade of the super-bureaucrat Ghulam Ishaq Khan, now President of Pakistan by the Will of God and the miscalculations of PPP, that being subjected mercilessly to the excesses of bureaucracy 1977-1985 inasfar as rampant corruption, inefficiency and indolence, the economy was almost destroyed. With the initiation of a form of democracy in 1985 (and accountability thereof), the slide was halted. Ms Benazir’s PPP further consolidated on the upward swing by eschewing the policies of her late father but it was the present Nawaz Sharif regime that has actually laid the base for dynamic expansion by a revolutionary liberalising of the economy. One of the prime consideration of a trade policy must be to cut down the deficit gap between imports and exports by curtailing imports and expanding exports. However this is not easily done as expansion of exports is partially dependent upon a rise in imports of raw materials and capital machinery, it is more necessary to keep the ratio of comparative increases in a positive balance.
The major problem facing Malik Naeem Khan in the consideration of a Trade Policy was that there exists a continuing recession in USA and a slowdown of growth in Eastern Europe, this has commensurately slowed down Pakistan’s growth rate while the lower prices of commodities have resulted in lower earnings. While going along with the basic principles of liberalisation, deregulation and denationalisation, the Commerce Ministry has to keep in mind also that the trend of liberalisation of imports must continue while giving protection to the indigenous industry through tariffs. The present situation is that import bill in the first 11 months of the year was US$ 8395 million or an increase of 20% over the previous year, this is expected to go up 15% to US$ 9200 in the succeeding year. But it must be noted that the major increase in import bill has been due to the 59% increase in capital machinery over the corresponding period of the previous year.

The declining trends of exports were noted in cotton yarn and the exports of tents and canvas, tanned leather, fruits and vegetables. Unit prices of raw cotton and rice fell though in volume there were increases of 51% and 25% respectively. Exports registered a growth rate of 14% to US$ 6140 million in the first 11 months of the year, an overall deficit of US$ 2255 million. The major areas of exports growth of 18% were in textile products like cotton cloth, hosiery, ready-made garments, bed-wear and towels. Leather products, synthetic textiles, sports goods and surgical instruments also showed positive growth.

Keeping the previous performance in view, the Commerce Ministry has opted for enacting pragmatic reforms to maintain the process of export increases. These include (1) the setting up of Special Industrial Zones for export-oriented industries. These Zones will be given basic facilities of water, gas, electricity and telecommunication besides concessions like exemption of customs duty and surcharge while reduced import licence fee on machinery will be available provided 60% of production is exported and 40% foreign investment is made, (2) the maximum tariff rate for promotion of exports has been reduced from 90% to 80%, (3) raw materials for processing from outside the Bond have been permitted on the basis of existing controls used for export and Bond period has been extended from one to ten years, (4) the zero-rate import policy for machinery spares and accessories for value-added textile industries has now been extended to sports, cutlery and surgical equipment industries. In addition imports of machinery, spares and accessories for cutlery industry has been allowed free of customs duty, iqra surcharge and import licence fee, (5) import of combing machines has been allowed at zero customs duty, 5% iqra surchage and 6% import licence fee, (6) duty on export of cotton yarn above 40 counts has been reduced by 50% and on 60 counts from 50% to 16%, (7) to boost export of farm products, duty drawback has been given on packing material for live plants, seeds of vegetables, fruits, flower, these are allowed free of duty, surcharge, sales tax and import licence fee. Freight subsidy upto 25% of the actual freight has been given provided these are sent by PIA or PNSC. Priority is being given to increase in non-traditional exports, at present 70% of foreign exchange earnings is from the traditional exports of cotton and rice. An innovative scheme has been resorted to regarding three-way trade through back to back LCs for crude oil, wheat, rubber, cotton, tea, sugar and fertiliser for re-export. Labour laws which are applicable to all export-processing zones are also being made applicable to export-oriented units. Another pragmatic idea has been to enhance the base capital of Export Credit Guarantee Scheme from Rs.30 million to Rs.500 million over a period of 5 years while imports on consignment basis has been allowed to take advantage on deferred payment arrangements.

Over the years, the successive governments have taken cognisance of existing realities and brought in like-minded policies towards gradual liberalisation despite deep ideological differences. Much has however been lost in the implementation thereof because of bureaucratic foot-dragging despite the recognition by the Commerce Ministry that the commercial and industrial world has changed because of de-regulation and de-nationalisation. As such controls do exist but the overburdening monitoring that was suffocating industrial and commerce has been gradually reduced. We still have a far way to go.

One congratulates the Federal Commerce Minister for having rid the economy of Pakistan from the Barter parasites. Because of the hold that the Barter countries have previously had over the Commerce and Finance Ministries, genuine Countertrades (CTs) and Special Trading Agreements (STAs) never could see the light of day in Pakistan. Seeing that over 100 countries of the world are severely indebted, CTs and STAs, bi-lateral and multi-lateral, are the only way to overcome the liquidity problems acting as an obstacle to purchases. Scrapping the Barter trade (or SCAM) with the former COMECON countries, Sweden and Finland is not enough, CTs and STAs with genuine parties such as with Bangladesh, Afghanistan, Sri Lanka, etc on the pattern of the old TCP-TCB STA must be instituted. The only way to invigorate trade is to make more opportunities available to our entrepreneurs.

As the Federal Commerce Minister has stated, the fact remains that rice and cotton are our main foreign exchange earners, therefore both RECP and CECP must be revitalized instead of being eliminated. In Third World countries certain areas must remain under the public sector to maintain State monopolies in the larger interest of the nation. At the same time TCP as Pakistan’s prime trading arm, has to be re-organised and essential personnel brought in a merger with EPB should also be arranged. These Corporations are ridden with corruption and are dependent on their senior executives from the civil service for the most part. This is not really required in the face of competent commercial professionals. Unless drastic manpower and organisational reforms are carried out, Pakistan’s trade will continue to remain in the doldrums. However one must recognize that the present Trade Policy continues a process of reform that will eventually lead to the emancipation of our economy.

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