Of Mangoes and Tea
(This is the SEVENTH 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).
Despite the fact that there exists a role model for Special Trading Agreements (STAs) duly approved by the Ministry of Commerce (MoC) and applied by the Trading Corporation of Pakistan (TCP) in the case of the 4 Multi Nationals (MNCs), which presently have agreements with the Government of Pakistan, a serious anomaly exists which may bring these nascent STAs to a premature demise.
A very comprehensive, well-tabulated EXPORT list has been incorporated, but no IMPORT list exists. This has resulted in fundamental questions being raised about the whole Countertrade (CT) process and the dedication of the MoC or the TCP towards it.
The misunderstanding seems to have arisen mainly because of the present Barter agreements and the present modus operandi. Since the barter agreements, bilateral between sovereign nations, have been functioning mainly as STAs and not actually as barters and a MARK-UP of between 12-17% was being given on the IMPORTS, the MNCs naturally assumed that since they were the real STAs and not the Barter parties, they would, at the very least, get the same benefits being given to the barter agreements. This was further compounded by the non-existence of an IMPORT list for the MNCs STAs.
Fundamentally there seems to be misconceptions prevailing on all sides.
A bilateral Barter agreement between two sovereign nations cannot have MARK-UP on either side. The fact that Pakistan has been allowing MARK-UPs in Barter agreements is not only very strange but has been detrimental to our economy. But because these Barter agreements have been confined to PUBLIC SECTOR imports, a public outcry has been singularly lacking, for obvious reasons of vested interest acting without public scrutiny.
Insofar as imports of PALM OIL, DAP fertiliser, etc are concerned, necessary MARK-UP may have to be given to Pakistani Barter partners, but only if they are the producers and exporters themselves. However, it is doubtful that Palm oil can be manufactured in Poland or Czechoslovakia (or the other COMECON countries) in the next thousand years, when the climate and environment may change. If they can then grow palm trees, we should say goodbye to our monopoly on quality mangoes.
As regards the MNCs STAs with the TCP, the TCP are technically correct in asserting that allocation of public sector imports would be a “contractual concession” as there was no import list and the STAs would have to closely correspond to free market dealings. For the MNCs to be able to sell anything in the private sector, is an impossibility. Who will purchase anything at 15% extra (as a MARK-UP) and pay cumulative customs duties and taxes on it, when the import licences are available on the FREE LIST, across the counter, due to Pakistan’s liberal import policies? The MNCs cannot hope to sell anything into the private sector without having some element of government intercession, therefore the STAs IMPORT list inasfar as it relates to the private sector is a non-starter.
On the other hand, the MoC has to take into account the fact that there are some items on the FREE LIST which are indeed too liberal and a mechanism can be put into place, wherein reciprocity in some manner becomes an inherent part of the system. Coupled with the need for imports in the public sector, the MoC can take an initiative to make the MNCs STAs effective in order to boost Pakistan’s exports. Unless of course and as stated by the TCP, the MNCs STAs are actually being used more as guinea pigs in a laboratory experiment for future CTs. As behoves guinea pigs, an untimely demise is in the offing.
Dr. Mubashar Hasan, former Secretary General of PPP and Finance Minister in the PPP Cabinet, has recently claimed that US$ 27 billion has been spent on consumer items over the last nine years, or an average of US$ 3 billion spent per year. If we were to reduce this claim by about 60-75%, we would get a figure of around US$ 750 million – US$ 1 billion per year of imported consumer goods. This is a fairly high rate for consumer items for a country which has an external debt of more than US$ 12 billion and debt servicing of over US$ 1 billion annually. If indeed the figure of consumer imports is around US$ 1 billion (or more), we can easily build a Countertrade system around this figure. The major items in this category are tea and passenger cars. In 1982-83, tea imports was valued at Rs:1675.70 million, in 1983-84 Rs:2566.80 million, till in 1984-85 it touched Rs:3506.70 million. If we go by the figures of the first six months of 1985-86, imports of tea will cross Rs:4000 million or US$250 million approximately. Similarly passenger cars, though not dependant on the import bill, (except for the SUZUKI project), comes into Pakistan through hard earned foreign exchange earnings of our expatriates abroad. We should devise a sophisticated but simple mechanism whereby the import of cars can be channelled through a special CT account, where a MARK-UP may be added.
Some sacrifice is necessary and the first lambs on the “HIT LIST” have to be tea and cars. In any case, the price of tea is controlled by imposing a regulatory duty which goes down as the international prices goes up and rises as they go down. If tea is imported against a special CT account we could manage to instil some reciprocity in the import thereof.
In order to ensure that the cumulative effect of duty and taxes does not really affect the consumer, the MARK-UP amount should not be subjected to customs duty or taxes. The mechanism should also ensure that the importer would have a free choice of price, supplier, origin, etc, whether it be cars or tea. This would keep Jodia Bazaar reasonably happy.
A negative comment on this scheme would be to say that its only end-result would be to increase the cost of imports by 15% without giving any tangible boost to the exports, because the MNCs would be able to purchase their export commitments from the ongoing exports of the regular exporters at a price. This may very well be true, but a strong check on this trend by suitable and effective monitoring by the proposed National Countertrade Authority (NCA) would ensure that flagrant violations of the spirit of the contract would be restricted, if not altogether avoided. The nett effect would be to have overall additionality to the exports.
The initiative for all this has to come from the MoC and particularly from the Federal Secretary of Commerce. We are paying a terrible economic price for a good cup of tea, which being a common man’s source for nourishment, is not tea at all but a sacred cow, politically. The intention is not to sacrifice this sacred cow but the MARK-UP is so levied that it leads to commensurate higher prices for the more expensive brands, rather than those used by the common man, which may result in lowering of average tea consumption in the country. However, the correct reason is not really confined to increased tea consumption but the appearance in the tea blend of large percentage of extremely high priced Kenyan tea, which has added to the cost. Whereas the import of tea from Kenya needs to be definitely equated to the volume of exports of goods and commodities from Pakistan, there must be a check on the average price of imports and higher priced teas must be taxed at a greater rate. After all, the Sri Lankan, Bangladeshi and Chinese teas were good enough for us for many years and these countries show great reciprocity in lifting our products. We have to thank Brooke Bond and Liptons for this favour to Pakistan, at a great profit to them. Since this MONOPOLY owns many gardens in Kenya, it is a double advantage to have such a hostage consumer as the Pakistani palate, tied to one monopoly.
Brooke Bond/Lipton conglomerate is the only real monopoly in Pakistan (but please don’t tell this to the Monopoly Control Authority of Pakistan). Brooke Bond and Lipton are actually one company operating under different names and control 98% of the tea packet market in Pakistan. They should either be made to export reciprocal quantity of Pakistani products or should pay a steep MARK-UP/EXPORT TAX on the differential. Why should we purchase US$60-90 million worth of tea from Kenya when Kenya does not buy even a million dollars worth of anything from us?
It is tempting to say, let the Kenyans buy mangoes from us, except that Kenya exports mangoes in competition to Pakistan. But Kenya is a good place to start and has an economy which can absorb our exports, especially light engineering goods. If nothing else, let us work toward utilizing the tea that we consume in great quantities, towards some good purpose by the means of boosting exports through Barter or Countertrade.
Did you enjoy this post? Why not leave a comment below and continue the conversation, or subscribe to my feed and get articles like this delivered automatically to your feed reader.
Comments
No comments yet.
Leave a comment