Mangoes for barter
(This is the THIRD part of a series of weekly articles which will attempt to explore the advantages/disadvantages of barter/ Countertrade as opposed to the liberal trade policy in vogue in Pakistan).
Before taking on specific recommendations under barter and/or Countertrade Arrangements, it would be fitting to examine the existing agreements, both for Barter and Countertrade. In this submission, we shall examine at length the barter agreements and the advantages/disadvantages to Pakistan.
Technically speaking all Barter Agreements are advantageous to Pakistan. The reason is that even if the commodity, product or service purchased by Pakistan has a MARK-UP (say about 15%) attached to the sale by our Barter partner, it is still better than the many times over interest that we pay over a number of years when we obtain this on credit. Further, our manufacturing and agriculture base has an outlet for the products and commodities respectively. Modestly, we should be going into the region of Services also, eg. consulting services, NESPAK and engineering services, NCC etc, because we cannot ignore the potential of our skilled and unskilled manpower.
The Ministry of Commerce has done an excellent task in framing the Barter Agreements. Unfortunately it is the implementation of these Agreements that leaves much to be desired. Since Barter is frowned upon by the IMF to be practiced between member countries, Pakistan’s barter partners are non-IMF countries which include China, North Korea and most of the COMECON (USSR, Czechoslovakia, Hungary, Poland, Bulgaria and Romania). The Barter Agreements between Pakistan and these countries specifically requires import of products and commodities from these countries (or that specified in the agreement) and reciprocal exports to these countries (and to no third country). This is an excellent arrangement and it is a great pleasure to record that in the case of China it is scrupulously adhered to.
What can we import from these various countries?
From all these countries we can import electronic equipment (upto a certain quality), machinery items, cement, some types of fertiliser, milk food. China provides us some consumer goods that we need and should not buy from Japan, S. Korea, Taiwan or Singapore.
What can we export to these countries?
We can export a mix of traditional and non-traditional items which could be varied within these two lists to suit the particular needs of the different countries individually. A normally fair ratio is 70% non-traditional and 30% traditional.
We must clearly specify which items are traditional and non-traditional and not encroach upon the list except with small variations, plus/minus 3% to account for economical shiploads, etc. Once lists are agreed to, there should be no change at all within the list of traditional item, except for the quantum of variations mentioned already. As regards, non-traditional items we can be more flexible and allow interchange between the items sent to Pakistan eg. if someone wants more engineering goods, we can gladly grant the request interchanging with mangoes.
All this is excellent in theory but it sadly fails in the actual implementation of the Barter agreements, thereby throwing away all economic projections out of the window.
The paramount and let me state frankly, almost criminal variation, allowed is the sanctity of the origins of the goods, to Pakistan and from Pakistan. Barter is a bilateral trade and unless so specifically stated in the agreement no variation on this cardinal principle should be allowed because as it then loses sovereign reciprocity between two nations and becomes Countertrade. Better to have a smaller Barter Agreement than to have a disguised Countertrade Agreement between two countries. What is the effect of the elasticity in reciprocal origins on Pakistan?
Say, Pakistan sells approximately US$100 million worth of raw cotton on hard cash to UK buyers in Liverpool but almost US$30 million of their requirement may be available from various barter partners of Pakistan, naturally at a price lower than Cotton Export Corporation of Pakistan (CECP). So Pakistan is in competition with itself on the prices other than the volume that it loses if it sells on hard cash. The mark-up that it has paid on Palm Oil (12 – 18%) is working to lower their hard cash prices of raw cotton. This is a self-defeating exercise and is self-evident even to a child. The two major cash earners, CECP and Rice Export Corporation of Pakistan (RECP), have evolved a system of check on the prices on Barter Agreements but really cannot stop shipments to the destinations restricted by the agreements.
Similarly on the imports side, we should purchase goods from the origin of the barter partners only ie. something that individually they produce or manufacture. There is tremendous amount of machinery available in these countries and is of excellent quality. We should refrain from purchases from Japan, S. Korea, Taiwan and Hong Kong, except of course on a reciprocal basis.
But above all we should not become the dumping ground for goods and commodities from origins other than that of our individual barter partners. It makes no sense for Pakistan to buy palm oil made in Malaysia under the Bulgarian barter. Further to add salt, we also accept a mark-up ranging between 12-18%. This mark-up is used to discount our hard cash items so that we compete against ourselves e.g. raw cotton. It is like shooting oneself in one’s own foot. Palm oil, DAP Fertiliser, Sugar, etc whatever we have in short supply, and is needed to be imported under state control in the public interest should be under barter with Malaysia where Palm oil is made, with USA, where the DAP fertiliser is made or Cuba and Nicaragua where the sugar is manufactured — or could be under Countertrade agreements where multi-origins are acceptable — but we should not destroy the basis of barter’s bilateral sovereignty and Pakistan’s need for sophisticated machinery, engineering items, which they have to pay for in hard cash to countries with which we have almost no reciprocity in trade.
The other aspect which must be strictly enforced is the agreed list. The items are so interchangeable due to bureaucratic acquiescence that the list incorporated in the agreements are meant only for record purposes. In actual fact, due to interlist swap the whole agreement is disfigured beyond belief.
These Barter Agreements must remain sacred and interchangeability must only be allowed if it is favourable to Pakistan, and it must be clearly and publicly so specified.
Maybe, during the course of the next round of signing barter agreements, a definite philosophy will be followed and strict observance of the origins and agreed items specified, a true mix of traditional and non-traditional items. In order to further give an impetus to our agriculture economy, we could insist on the offtake of some of our fruits and vegetables, besides shrimps, fish, cotton textiles, etc.
Maybe we could even give a few mangoes compulsorily in every barter. You can rest assured the East Europeans will appreciate it more than the tea we drink from Kenya.
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