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Putting our mangoes to use

(This is the SIXTH 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).

The National Countertrade Authority (NCA) must be given clear trade policy objectives in the form of a directive by the Economic Coordination Committee (ECC) of the Cabinet. A cohesive co-relation has to be found between diplomatic necessities and our requirements.

In this respect, our first priority should be towards Special Trading Agreement (STA) or barters with those of our established friends who can have STAs or barters followed by regional imperatives. With the Peoples Republic of China we must have a barter agreement on a “Most Favoured Nation” (MFN) basis.

Our established friends other than the Peoples Republic of China and USA, are Iran, Turkey, Saudi Arabia, Kuwait, UAE, Sri Lanka, Bangladesh, Malaysia, Jordan, Qatar, Bahrain, Indonesia, Oman, Egypt and Nepal. Except for the US of A, we could have STAs with each of them. In fact we already have STAs with Iran and Bangladesh which could be used as role models.

It is against established national policy of the US of A to have government barters/STAs but since we happen to be a large trading partner, it is in our interest that we sit down with the concerned officials of the US Government and devise some formula, for reciprocity in trade. However, the fact that we are not relying on any form of bureaucratic parameters can be best used by us.

Every major corporation of the US has established, or is in the process of establishing, Countertrade Departments, and since most of Pakistan’s purchases are finally negotiated with the firms directly, it is upto us to make a mix of the FMS credits with Countertrade or go in for Countertrade totally as a means of transacting business.

Regional imperatives dictate that we have to have some sort of a trade with India. Whereas Pakistan may be an excellent market for Indian goods based on our liberal import policies, India may not accept some of our goods in order to protect their domestic market. While it is in our interest to trade with India, we must remember that it is much more in the Indian interest to have trade with us. The present arrangement provides for a suitable mechanism for maintaining acceptable trade flows. However, this can be replaced by an STA between our NCA and their State Trading Corporation (STC) or Minerals and Metal Trading Corporation (MMTC) etc. Let the initial volumes be confined to the public sector needs, where the freight element in large volumes has a great advantage for us. We cannot permit our markets to be flooded by Indian goods which threaten our domestic industry. At the same time, we have to find some outlets in the vast economic potential of India to absorb some of our produce.

With the Islamic countries we must have STAs to cater for what we import from them. The Islamic countries can be classified into the very rich, the struggling and the very poor. In all three categories, our produce can be force-fed by the means of CT, with the very poor able to absorb our engineering goods in a mix of CT with Islamic Development Bank (IDB) funds. The very rich Islamic countries must be made aware that instead of outright grants, loans, etc, it would be of significant help to us if they can absorb, along with billions of US dollars worth of imports from other countries, some of our commodities and produce.

We must continue with our policy of having barter agreements with the COMECON countries and North Korea. In this we could perhaps include Vietnam, Cuba and Burma. The barter agreements must be related to reality, must be much smaller and strictly reciprocal. Our penchant for paying out huge MARK-UPs for Palm Oil, DAP, sugar, etc should be avoided as these are not produced in the COMECON countries, which on the other hand do produce a lot of industrial goods and chemicals which we need and can be on an agreed barter list. We must not allow our barter agreements with COMECON countries to turn into a free-for-all CTA, with devastating consequences for Pakistan. When we talk about accountability, we hope someone will look into the files and make those bureaucrats accountable who have encouraged and abetted the loot of Pakistan’s economy on this unacceptable premise of interchangeability of items at the will of the COMECON trade representatives in Pakistan.

It is in our greatest interest to have STAs with S. Korea, Japan, Taiwan and Singapore. We cannot allow our markets to be flooded with products we are quite capable of making ourselves. On the contrary we can make use of the fact that their products, especially in engineering goods and electronics are very competitive in relation to their western counterparts. South Korea has an excellent heavy engineering base and pivoting on a mix of CT with credits or CT alone, we could accept items like gas and/or water turbines for WAPDA and KESC, rolling stock for railways, etc based on a strict transfer of technology and part manufacture in Pakistan. Similarly, Taiwan and Singapore produces computers and electronics, etc under licence and also domestic indigenous manufacture, which are favourably priced and is of interest to us.

Pakistan really has no export policy towards Africa, parts of which may be the only markets for our light engineering goods, besides our traditional exports. Middle Africa’s biggest problem is feeding and clothing itself. Pakistan, with its vast agriculture basis cannot only provide tons and tons of their accepted quality of rice but the means thereof, for these countries of producing themselves, most of their requirements.

We can provide a whole range of services and equipment to support their agricultural economy and guide it towards domestic self-sufficiency in clothing etc. In payment we can take, besides hard cash, some of their produce for which we can have an arrangement with the MNCs that we have CT with, to offtake from us, ie. pick up our CT obligations.

The Ministry of Commerce through the TCP have made excellent CT agreements with 4 chosen multi-nationals (MNCs) and these can function as role models for other STAs and CTAs. The experience of the first year will educate the Ministry of Commerce in taking the “bugs” out of the system for the future, provided the present CTA is allowed to work by the “barter” lobby. These CTAs go against the heart and soul of the “barter” agreements which hiding behind the “sovereignty factor”, are actually CTAs themselves and cannot afford that other CTA’s function. The Ministry of Commerce and Finance have to get their act together and clearly annunciate policy as regards allocations for public sector needs. Delay is an important ingredient in bureaucratic tactics to induce failure and all measures meant to further the CT process have undergone/are undergoing inordinate delays in the movement of files from one desk to another. If the present CT process is killed because of the vested “barter lobby” interest, it will be a setback for the future of CT in Pakistan but by reverse logic provide an opportunity for a public enquiry and accountability thereafter, in order to specify responsibility.

To give the CT process a full benefit of microscopic analysis, it is necessary to have some state control over the first CTAs. One easy method would be to apportion allocations in the public sector but this would be counter-productive unless kept to the very maximum. It would be more appropriate to confine the first CTAs against public sector requirement for equipment in the first instance. In this connection, WAPDA, KESC, Pakistan Railways, PIA, State Engineering Corporation, etc come to mind.

Above all we must also include equipment required for the defence sector in the CT process. Purchases of defence equipment must encourage transfer of technology as well as CT including offset purchases. In this manner, we will not only pay for our purchases by exporting our commodities and manufactured items, but will also “offset” part payment by exporting the items manufactured as a result of transfer of technology. Since our traditional sources of defence equipment are primarily USA, followed by France, UK and W. Germany, countries which may not prefer STAs/CTAs at the state level, the manufacture of equipment in all these countries have their own CT/offset departments making it possible to use the present CT agreements with the MNCs or have direct CTAs with the manufacturer concerned.

Mr. E A S Bokhari, writing from Lalamusa in the Readers Column of “THE NATION” on Nov 22, 1986 has shed interesting light on “Offsets and arms trade.” Taken in context, it is a summarized evaluation of how CT can be used in defence purchases, “offset” directly or indirectly, and I quote him,

Quote
“An offset may be direct or indirect. Direct offset involves compensation in defence related goods. Such arrangement may permit the buyer to produce in country certain components/assemblies of a military system being acquired. For example Israel’s first F-16 purchase provided for an Israeli firm to fabricate the plane’s composite rudder. Indirect offset implies compensations in goods not related to defence items being acquired as food, raw material etc. The seller may agree to purchase buyer’s products/services over a period of time. In practice many arms and other sales have both types of these offsets. Due to lack of comprehensive and solid world-wide data on offset — the only real consensus we have is that the phenomenon is growing fast.”
Unquote

Mr. Bokhari’s learned comments make interesting reading not only because they are true and precise but they accurately represent the present trend in most countries. Keeping in mind the fact that we make large outlays for purchases of defence purchases to a mix of FMS credits (when of US origin) and CT (with part offset).

We have reached a stage where something must be done, the time of shelving decisions having long gone past. Countertrade is a fact of life in the rest of the world and Pakistan must play “catch up” without further delay.

Let us put our mangoes to better use!

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