ARTICLE (August 24 2008): The trade policy, 2008-09 was announced by the government on July 18, 2008. A number of measures have been proposed in the trade policy to improve competitiveness and quality of products, and to develop small and medium sized sector to increase its share in total exports. Today Pakistan is faced with the most difficult economic situation, both on external as well as internal fronts.
EXTERNAL FRONT On the external front the most difficult issues include; The doubling of international oil prices from around $68 per barrel to $145 per barrel during the year. The increase in international prices of food items that Pakistan needed to import during the year, especially wheat and edible oil. The slowdown in the US economy and turmoil in the international financial markets thereby reducing external demand for our exports.
INTERNAL FRONT Challenges on the internal front that made it difficult for exporters to fulfil their export orders on time and at a competitive price during the year included:
-- Power shortages and resultant loadshedding of electricity and natural gas.
-- Impact of monetary and exchange rate policies, plus supply side constraints.
-- Rising costs of salary bills and raw material, particularly raw cotton.
-- Increasing competition in export markets,
-- Travel advisories of foreign governments discouraged importers to continue sourcing from Pakistan.
-- Long term structural issues such as labour skills deficiency and poor infrastructure.
POOR STATE OF THE ECONOMY As a result of multiple negative factors the economic growth rate dropped to 5.8% as compared to 6.8% last year. This slow down was particularly evident in the commodity producing sectors such as agriculture and manufacturing with serious implications for exports.
In fact agriculture overall grew by only 1.5% as against 3.7% last year and in the two major crops ie cotton and wheat there was a negative growth of 9.3% and 6.6% respectively. The manufacturing sector also saw the weakest growth in a decade, since overall it grew by 5.4% as compared to 8.1% last year. Large scale manufacturing was even more dismal since it registered a growth of only 4.8% as compared to 8.6% last year.
PAKISTAN HAS NO TRADE IN 81% OF WORLD PRODUCTION Pakistan does not figure in 81% of products traded in the world as its top 200 export products account for 91% of its total exports, but these products have only 19% share in the international market, says a commerce ministry report.
In terms of market diversification in 1998-99, the seven markets - US, Germany, Japan, UK, Hong Kong, Dubai and Saudi Arabia - accounted for 53.4% of our exports, whereas in 2007-08 this share was reduced to around 44.4%.
The three regional groupings that are significant from Pakistan's growth point of view are: Latin American countries, such as Brazil. Chile, Colombia, Mexico and Nicaragua, African countries, including South Africa, Kenya, Madagascar and Mozambique, non-traditional European markets, including those belonging to the former Soviet bloc, such as Scandinavian countries, Poland and Greece.
It is, however, noteworthy that the share of textile and clothing exports in global trade is 4.5% and Pakistan's share in global export of this sector is a mere 2.15%. On the other hand, new opportunities are emerging since some of our competitors, like China, are losing their competitive edge due to higher input costs. Therefore, our textile producers need to exploit this opportunity by entering into joint ventures with Chinese companies and setting up of production facilities in the China Specific Industrial Zones being established in Pakistan.
Imports on the other hand increased by around $5 billion in 2004-05, by $8 billion in 2005-06 and then dipped to register an increase of only $2 billion in 2006-07. Bedwear, a major item, declined in the US market due to stiff competition from India and China, as well as preferential tariffs available to our other competitors under arrangements, such as NAFTA, CAFTA and AGOA etc.
In the European Union, bed-linen exports suffered due to an average anti dumping duty of 5.7%. Moreover, our competitors, such as Bangladesh, Cambodia and Sri Lanka, have duty-free access whereas our textiles attract on average a duty of 17-23%.
Towel exports have decreased due to higher cotton and yarn prices, the marketing of our textiles is hampered by visa restrictions for our businessmen and travel advisories preventing buyers coming to Pakistan. Less emphasis on quality and compliance issues is also hurting our textile exports, says the report.
STRUCTURAL CHALLENGES The proposed export strategy needs to cope with the current challenges as well as work on minimising the longer term structural handicaps that Pakistan is faced with. Some of these structural challenges relating to both the demand and supply side are:-
a) Our low ranking on the competitiveness scale due to our internal inefficiencies thus making the cost of doing business in Pakistan relatively higher.
b) Poor governance coupled with excessive red tape results in extra costs for producers and exporters.
c) Power supplies are inadequate and a costly input for producers.
d) Infrastructure, especially relating to transportation, is substandard resulting in extra costs for exporters.
e) High cost of capital.
f) Low reliability of the legal dispute resolution system inhibiting investment and increase in commercial activity.
g) Low productivity of our human resource due to lack of education and skill deficiency.
h) Lack of emphasis on quality in production and service provision.
i) Lack of diversification of our export portfolio and over reliance on textiles.
OBJECTIVES
THESE OBJECTIVES ARE:Trade Policy should be people centric ie help in poverty alleviation. This is achieved by facilitating increased exports leading to increased production of exportable surpluses, thereby creating more employment. Focus should be on increased export earnings by encouraging and supporting exports of higher unit value products. This implies stress on better quality, value addition and compliance with international standards.
Emphasis should be on improving competitiveness via reduction in cost of doing business, and supporting appropriate capacity building and vertical integration. Assistance in marketing through trade promotion activities and increasing market access. Diversification of export products and markets.
EXPORT STRATEGY
THE EXPORT STRATEGY FOR 2008-09 HAS BEEN DESIGNED KEEPING IN VIEW THE AFOREMENTIONED OBJECTIVES AND ITS SALIENT FEATURES ARE:Intensification of market intelligence gathering by Ministry of Commerce and TDAP regarding market opportunities, consumer preferences, quality and other standards, best practices by other countries; and disseminate this information to our stakeholders.
Trade promotion by TDAP through activities such as organising exhibitions, participation in trade fairs and trade delegations. Also supplemental efforts by Ministry of Commerce through trade diplomacy for additional market access opportunities, and to minimise any non tariff barriers facing our exporters in other countries.
We will also leverage the advantages currently available from the Free Trade Agreements signed with China, Malaysia and Sri Lanka etc. Enhancing competitiveness of our exports by helping reduce costs of doing business. Hence various measures are being proposed to simplify procedural requirements including relief through comprehensive zero rating of various export sectors.
Co-ordinating with other government departments to support and facilitate the private sector to achieve increased production of exportable surpluses. For this a high powered co-ordinating mechanism be reactivated since a number of problems facing exporters have to be remedied by other departments. Improvement of physical infrastructure through co-ordination with concerned government agencies since poor condition of the infrastructure imposes extra costs on our exporters.
Instead of providing cash incentives or subsidies to exporters, especially in view ofcurrent financial constraints, emphasis should be to support capacity building efforts of the exporters like productivity enhancement programmes, such as training facilities to upgrade human resource skills.
Diversification will be encouraged by proposals geared specifically to promote more trade in agricultural products. In the manufacturing sector this diversification policy will also facilitate SMEs. The advantage of this approach is that SMEs create more employment with less investment and they can pioneer the production of higher value added, innovative and knowledge based products.
Exporters would be encouraged to improve quality, cater to latest consumer preferences, comply with international standards and obtain the relevant certification in this regard. Past trade policy measures will continue as proving valuable for increasing exports.
SIGNIFICANT FEATURES OF TRADE POLICY
I) 15% GROWTH IN EXPORTS A 15% growth in export proceeds for 2008-09, has been projected. It will be mostly generated from traditional and conventional products in a bid to diversify the exports base.
ii) CUSTOMS STATION AT PAKISTAN-AFGHAN BORDER To facilitate exports to Afghan provinces Paktia (Gardez) and Khost, it has been decided that a customs station at Pakistan-Afghan border would be set up at an appropriate location which would reduce transportation cost and delivery time to this area from Pakistan.
iii) HALAL CERTIFICATION BOARD A Halal Certification Board would be established, under the Ministry of Science and Technology, to devise and enforce Halal Standards and certification mechanisms for export of Halal food products.
iv) EXPORT DEVELOPMENT FUND (EDF) TO PICK UP THE FIRST EIGHT PERCENT OR 50PC OF THE MARK-UP WHICHEVER IS LESS Currently, exporters setting up slaughter-houses are facilitated by the Export Development Fund (EDF) picking up the first six per cent of the mark-up on investment financing. It has now been decided to enhance this facility and the EDF will, therefore, pick up the first eight per cent or 50 pc of the mark-up whichever is less.
v) INCREASE IN THE LIMIT TO $50,000 FROM $25,000 WORTH OF SAMPLES TO FOREIGN BUYERS It has now been decided to increase the limit to $50,000 from $25,000 worth of samples to foreign buyers in the case of automobiles.
vi) PAKISTAN'S PARTICIPATION IN RE-NEGOTIATIONS In order to enlarge the ambit of our trade policy, it has been decided that Pakistan would participate in re-negotiations on the list of SAFTA and the Regional Agreement on Trade in Services among the SAARC countries.
vii) TRADE DEVELOPMENT AUTHORITY ACT WOULD BE AMENDED The TDAP Act would be amended to revisit the working and structure of the organisation to make it more responsive to exporter's needs. It has also been decided that the Trade Development Authority (TDAP) would open an office in the Northern Areas.
viii) REFUND OF INDIRECT TAXES A study will be conducted jointly by the FBR and the ministry of commerce to quantify the extent of refund of indirect taxes on input cost incurred on manufacturing of merchandise, which will become due on this account.
ix) 50% COST OF REGISTRATION OF HERBAL MEDICINAL PRODUCTS SHALL BE PICKED UP BY THE GOVERNMENT To promote export of herbal medicines, 50% cost of registration of herbal medicinal products abroad shall be picked up by the government, as done in case of export of pharmaceutical products.
x) BIO-AVAILABILITY AND BIO-EQUIVALENCE LABORATORIES It was announced that the health ministry would draw up a proposal for establishing bio-availability and bio-equivalence laboratories at the National Institute of Health.
xi) EXPORT OF FREE SAMPLES UP TO 10% OF QUANTITY Export of free samples up to 5% of quantity is allowed against exports in the preceding year to pharmaceutical exporters. It has also now been decided to allow exporting companies to send free samples to the extent of 10% of the commercial quantity exported in the preceding year.
This sector would also be allowed to retain 15 pc of their export proceeds.
xii) PROPOSAL FOR GRANTING PIONEER INDUSTRY STATUS TO BIOTECH DRUGS A committee, comprising ministries of commerce, health, finance and FBR, would work out a detailed proposal for granting pioneer industry status to biotech drugs, which is a high-tech value-added sub-sector of pharmaceuticals.
xiii) CONSULTANCY SERVICES THROUGH FAO/INFOFISH FOR AQUACULTURE; PEELING SHED AT KARACHI FISH HARBOUR It has been decided that consultancy services would be arranged through FAO INFOFISH for aquaculture; peeling shed at Karachi Fish Harbour would be set up in co-ordination with the TDAP and the Sindh government.
xiv) TRAINING PROGRAMME FOR FISHERMEN Funding will be arranged through the Public Sector Development Programme, training programme for fishermen in catching of fish would be arranged by the Sindh government.
XV) PROGRAMME OF TRAINING FOR TRAINERS An initial programme of training for trainers would be arranged in collaboration with the TDAP. These measures would help improve seafood exports.
XVI) HIRING OF CONSULTANTS FOR BENCHMARKING STUDIES OF LEATHER GARMENTS EXPORTING UNITS The initiative of hiring of consultants for benchmarking studies of leather garments exporting units would also be continued on a cost-sharing basis, ministry of industries would set up a wood seasoning plant and NAVTEC would set up a couple of vocational training centres on modern lines to meet deficiencies of wood seasoning plant and skilled labour.
xvii) FLORICULTURAL EXPORTS To promote floricultural exports, it has been decided that a Flora Common Facility Centre would be set up in collaboration with the Punjab Government near Lahore; depending on its success, the project would be replicated in other provinces. An irradiation facility based on the latest E-beam technology would also be set up in Karachi in collaboration with the Sindh government to facilitate export of horticultural products.
xviii) EXISTING FACILITY OF PICKING UP THE FIRST SIX PER CENT MARKUP REVISED TO 8% OR 50% OF THE PREVAILING MARK-UP RATE WHICHEVER IS LOWER It has also been decided that the existing facility of picking up the first six per cent markup rate on loans obtained for cool chain and cold storages for horticulture would be revised to 8% or 50% of the prevailing mark-up rate whichever is lower. The umbrella National Trade Corridor Programme is also making provision for development of a cool chain infrastructure.
XIX) SUPER BASMATI RICE CULTIVATION Area under rice cultivation is under pressure from other crops and the yield is decreasing as no high yielding basmati variety after "Super Basmati" has been introduced.
THE CUMULATIVE EFFECT OF THESE TWO FACTORS COULD ERODE THE EXPORTABLE SURPLUS. IT IS, THEREFORE, PROPOSED THAT: The ministry of Food and Agriculture (Minfal) may focus on evolving new varieties and increasing area under rice cultivation. Paddy harvesters and paddy dryers may be provided on matching grant basis in rice growing areas; Minfal will explore the possibility of using Agribusiness Support Fund for this purpose.
Initially for demonstration purposes, four dryers and harvesters would be provided from the EDF to Minfal. Furthermore, rice farm machinery, namely paddy harvesters and dryers would be importable from India through Wagha by road. Unhindered import of rice seeds increase disease risks, therefore, all such imports shall undergo strict quarantine measures. For this purpose, the "Seed Act" and other related laws will be amended accordingly.
In order to develop handicraft sector and make it a viable industry, it has been decided that consultants of international repute would be engaged to suggest improvements in the development of handicrafts with a view to achieving a quantum jump in their exports.
XX) EXPOSURE OF MASTER CRAFTSMEN TO INTERNATIONAL DESIGNS AND TRENDS Arrangements would be made to expose master craftsmen to international designs and trends.
xxi) ESTABLISHMENT OF ELEVEN NEW INDUSTRIAL CLUSTERS Eleven new industrial clusters would be established in various cities: For surgical instruments at Sialkot; gloves and personal protective equipment at Sialkot; sports-wear at Sialkot; leather and leather products at Sialkot and Charsadda; sports goods at Sialkot; weaving and textile processing sector at Faisalabad; light engineering sector at Gujranwala; auto parts at Lahore; ceramics at Multan and Hala; ajrak and bangles in Hyderabad / Hala and embroidery in Balochistan.
xxii) SYSTEM OF VOLUNTARY PRE-SHIPMENT INSPECTION It has been decided that a system of voluntary pre-shipment inspection and sampling of agro-products for exports would be introduced. In this regard, lists of concerned products, corresponding standards and accredited labs shall be notified by the commerce ministry after consulting Minfal and the ministry of science.
xxiii) TRADE DISPUTE SETTLEMENT ORGANISATION It has been decided that a Trade Dispute Settlement Organisation, under the administrative control of ministry of commerce, would be set up to deal with trade disputes arising from exports.
xxiv) ROLE OF THE NATIONAL PRODUCTIVITY ORGANISATION (NPO) It has now been decided to expand the outreach of the National Productivity Organisation (NPO) by funding "training of trainers" for auditors from EDF in production, energy and labour productivity audits.
SHORTCOMINGS OF TRADE POLICY, 2008-09 Press reports suggests that trade policy, 2008-09 was not well received by the business fraternity. Business community has serious observations about its success as nothing concrete has been done to improve the trade. Some of the observations are noted below:
I) LACK OF EFFECTIVE MEASURES Trade and industry leaders have expressed resentment over the Trade Policy 2008-09, which they say totally lacked measures and a proper roadmap badly needed to promote the export trade.
ii) ABSENCE OF COST CONTROL MEASURES The much-expected support for textile industry and the general demand of manufacturing sector to cut their cost of production were not addressed in the trade policy.
iii) CRUEL JOKE WITH TRADE AND INDUSTRY Commenting on the trade policy business leaders said that another 'cruel joke' had been made with the trade and industry. "We kept waiting for business friendly measures in the budget but were disappointed, thereafter some hopes were given by the government that the trade policy would give some relief but again we are being now asked to wait for the prime minister's speech to the nation in which a textile package may be announced".
iv) EMPTY PROMISES WITHOUT DEEDS Pakistan Hosiery Manufacturers Association chairman Javed Bilwani said the commerce minister made promises in the trade policy but did not announce measures, which could give confidence to the manufacturing-cum-export sector. The minister promised to improve No duty, No drawback scheme for exporters but again did not spell out its features and "this also seems to be another promise, which would never be fulfilled", he maintained.
v) EXPANDING NEGATIVE LIST Undoubtedly, Mr Bilwani said that by expanding negative list for allowing imports from India the industry might get some cheaper raw material, including fine count yarn and steel products. On the other hand no meaningful incentives have been given to expand exports to India.
vi) TRADE POLICY AS A 'BOGUS' PIECE OF DOCUMENT Towel Manufacturers Association chairman Syed Usman Ali said that trade policy was a 'bogus' piece of document. He said the commerce minister had informed that some of the chapters of the trade policy had been withheld and the prime minister would disclose them in his address to the nation.
