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Third World trading vehicle – The state trading giants

(This is the SECOND in a series of articles that will attempt to analyse our present system of EXPORT TRADE and recommend suitable alterations).

OVERVIEW – II
Three major export corporations function under the Ministry of Commerce, two of them completely devoted to exports, Rice Export Corporation of Pakistan (RECP) and Cotton Export of Pakistan (CECP). The third entity functions in theory as a Commercial Export House but depending upon the policy of the Government at that time, the dictates of the Ministry of Commerce (MoC) and the personality/effectiveness of the person in charge (the Chairman), it may function as an Import House, an Export House or a combination of both in varying degrees. At the moment, the philosophy of export activity is frowned upon (by the present Chairman) and TCP is depending upon imports alone to keep it economically viable.

Another major non-commercial entity in the MoC devoted to support of commercial export pursuits is the Export Promotion Bureau (EPB). The EPB’s function is to collect, collate, disseminate and distribute information necessary for our exporters as well as register all export contracts. At the same time the EPB arranges displays and participates in trade fairs in Pakistan and abroad, controls (and monitors) textile quotas and does other miscellaneous functions concerned with export promotion activities like receiving and conducting foreign delegations, arranging seminars, etc. All our Commercial Attaches attached to Embassies/ Consulates abroad function as a direct representatives of the MoC through the EPB.

In the public sector there are other export entities, like the constituent units of State Engineering Corporation (SEC), Pakistan Steel, the State Petroleum Refining and Petro-Chemical Corporation (PERAC) and the National Fertiliser Corporation (NFC) which are all under the Ministry of Production and the Karachi Shipyard and Engineering Works Ltd (KSEW) which is under the Ministry of Communications. Pakistan being mostly self-sufficient in wheat and sometimes sugar, has the potential for intermittent exports of these commodities. Pakistan Agricultural Storage and Supply Corporation (PASSCO) is in a position to support the export of wheat when required. Similarly sugar has been exported from Pakistan at times but without any conviction or an entity to really support the process.

The perception forms of an abstract mosaic, of a lack of coherence in the export system, almost as if somebody has made a house and then added more rooms and balconies later as an after thought. Worst of all, no one wants to touch the system, treating it instead like a sacred cow with a bell, allowing it to roam unhurried, untroubled, through a very troubled international marketplace, one that gives very short shrift to incompetence or indolence. Change is the need of the hour and it must be a well-thought out change.

In many ways we may be somewhat like Japan after the end of the Second World War except that we have not had, adversely, the devastation of a war or conversely, the need for USA in the early 50s to re-generate the Japanese economy to support the economic effort for the Korean War. At the end of the Second World War, General MacArthur’s occupation government, Supreme Commander Allied Powers (SCAP), completely de-mobilised the Japanese Defence Forces. They then set about dismantling the bureaucracy and the large industrial combines, the “Zaibatsu”, whose dominant influence had shepherded Japan into the war in the first place.

Very early, the Japanese survivors in the bureaucracy saw the contradictions inherent in the Ministry of Commerce and Industry (MCI). There was a faction devoted to heavy engineering buildup which would allow re-construction through production. The other faction wanted the control of inflation and a commitment to light industries which would take advantage of their available cheap and extensive labour force. This basic contradiction was resolved in the simplest manner. The greater value of the finished products coupled with the need not to ignore currency reform, because runaway inflation would destroy any industry they intended to build, inspired the Japanese to adopt a combination of both the courses by having a Ministry whose broad powers would allow it to be a decisive factor in international trade. Thus was the Ministry of International Trade and Industry (MITI) created. With the taking on of commercial banks, functioning basically as Development Finance Institutions (DFIs), the industrial combines were revived, but under the control of MITI, indirectly by way of major financial equity through the DFIs. These combines were encouraged to function as trading houses to support the export activity of not only their own industries but also a wide range of products of other entrepreneurs, small, medium or even large.

In our own country we have an excellent example of enterprise equitable to any modern organisation, the Pakistan International Airlines (PIA). Overstaffed though it may be, it serves as an outstanding example for organisation providing services within Pakistan, notably when compared to the Pakistan Railways (PR), Pakistan National Shipping Corporation (PNSC), Pakistan Telegraph and Telephone Department (PT&T), Pakistan Post Offices and the Water And Power Development Authority (WAPDA). But above all, it acts as a model for our primary export organisations and how we can structure them.

Under the Ministry of Defence, PIA has a Governing Board of Directors with the Federal Secretary, Ministry of Defence as Chairman. This tier sets policy and makes all major decisions having financial effect. At the lower tier it has a Board of Directors which manages day-to-day affairs headed by a Managing Director, who is also a Member of the Governing Board. Very clearly defined grades, job facilities and effective management combine to make an excellent working environment. This has created a very healthy image for potential employees and job openings in PIA, already scarce, are fiercely contested for in all categories.

As stated earlier, the MoC has the RECP, CECP, TCP and the EPB under its direct control. Each Corporation has a director from among the Additional/Joint Secretaries in the MoC who forms the working liaison with all policy decisions. In theory this is excellent because it takes out one tier level but in actual practice it is a disaster as can be seen from the recent scandals in EPB, CECP and TCP. The Federal Secretary of Commerce cannot be expected to oversee day-to-day functions of the Corporation and he cannot effectively coordinate the export functions among the various Corporations in his own Ministry, what to talk of the Corporation of other Ministries.

Take the TCP for example. Till 1983 it had a number of exclusive import items, eg. Palm oil, MS billets, etc. Because of these import items, the primary function for which it was originally created, the control and supervision of the Barter Agreements, mainly with the COMECON countries, was lost by the wayside. For some unknown reason all barter commercial transactions, which is not the function of the MoC, was taken over by it and so remains till today. This commercial arrangement cannot be expected to be dealt by the MoC and the inherent shortcomings stem from this situation. With the loss of its import items, TCP became almost a redundant organisation in 1983. In order to forestall its untimely demise MoC took a decision to turn it into a National Export House. To foster and boost the immediate aim, the then Vice Chairman EPB was posted in as Chairman. Despite an absolute reversal of roles and functions, the rank and file of TCP worked extremely hard to adjust to the changed circumstances. To their undying credit it must be stated that TCP rose like a “Phoenix from the ashes” because of this dedicated team effort.

It is difficult however to change the work habits of all  individuals, some with ingrained corruption bred into them in the years of import exclusivity, some with the years of training of bureaucratic procedures of “file pushing”, indolence, arrogance, etc. To change them overnight into paragons of business with its positive commercial outlooks, is simply not possible especially where there are no direct commercial incentives. If that is not enough and you impose commercial audit on them, based on normal governmental bureaucratic standards, you take away any initiative and innovation that they may have trickled into their psyche over the years. Commercial transactions, even when handled by commercial people, can result in substantial losses — there always is a profit/loss situation. Instead of hobbling the potential of our bureaucrats with awe inspiring audit they should be fairly interspersed with recruitment from the private sector and check should only be imposed because of corruption or corrupt practices, fraud and deceit. Commercial courts should be established to render swift, significant justice. They must also be taught that any delay in decision making can be counted in money lost and would be liable to commensurate punishment.

In order to fully analyse the situation we must do a concise case history of at least one Corporation. Because of the value of the exercise, TCP is the obvious candidate for examination as it is involved in general trading. Because of the aim of this analysis, we have to consider the role of EPB also as either one or the other is superfluous in the present context.

Above all, it must be kept in mind that Countertrade (CT) is becoming a very important facet of international trade. It affords some protection to Third World countries from rabid exploitation by the advanced industrial nations as well as a means to force-feed some of their non-traditional produce as exports. Pakistan, having a mixed economy with greater emphasis on imports (and exports) in the public sector, has definitely got to use CT as a trading weapon of some consequence. It, therefore, becomes imperative that any concept envisaged must take CT into account and discuss the progress made to utilise it as a major trading tool.

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