Trade policy seeks to effect 'strategic change' in export sector, sets $18.86 billion target for fiscal year 2010
MUSHTAQ GHUMMAN
ISLAMABAD (July 28 2009): The government on Monday announced a number of incentives for the struggling local industry, exporters and importers under the medium-term roadmap 'Strategic Trade Policy Framework' (STPF) envisaging 29 percent growth in exports-6 percent in 2009-10, 10 percent in 2010-11, and 13 percent in 2011-12.
This means that export target for 2009-10 has been fixed at $18.86 billion, followed by $20.68 billion in 2010-11, and $23.5 billion in 2011-12. Establishment of hedge fund to suck up any revision in interest rate, Export Investment Support Fund, insurance of foreign buyers/importers, credit availability for industry and contracts with a power companies for supply of power at mutually agreed times are the main measures which have been made part of the STPF.
The insurance scheme will be funded from Export Investment Support Fund and managed by National Insurance Corporation Limited (NICL). A special fund of Rs 2.5 billion to support light engineering sector has been established for product development and marketing.
Industrial importers have been allowed to import new, refurbished and upgraded machinery on the basis of trade-in with their old, obsolete machinery. Likewise, export of their old and obsolete machinery for trade-in with new, refurbished or upgraded machinery would also be allowed.
The State Bank of Pakistan had discontinued the facility to remit $10,000 per invoice, as advance payment, for import of spare parts, consumables and raw materials. The discontinuation of the facility had increased the cost and time to effect urgent imports. It has been decided that the facility to remit $10,000 per invoice, as advance payment, for import of spare parts, consumables and raw materials would be restored by the State Bank of Pakistan.
Unveiling STPF on television and radio network, Commerce Minister Amin Fahim expressed hope that with the introduction of a few intermediate indicators by 2012 the competitiveness ranking of Pakistan would improve from 101 to 75; the share of engineering exports would increased from 1.5 percent to 5 percent; value-addition of cotton woulf increase from $1000 to $1500 per bale; and regional trade would expand from 17 percent to 25 percent.
"Creation of fund to hedge mark-up rate hikes so that finances can be provided to the businessmen at fixed interest rates for a short to medium term, Commerce Ministry will work with the Finance Ministry and State Bank of Pakistan (SBP) for this purpose," said Faihm in his speech.
He said that to ensure predictability of electricity supply it has been decided that the Ministry of Water and Power would work with the discos to enter into agreements with the clusters of industries whereby electricity is supplied at mutually agreed times. The agreements would have punitive and compensation clauses and the compensation could be in the form of electricity charges credit.
The government has also decided to make the exports completely zero-rated. As determining and providing additional duty drawbacks to specified sectors may take some more time, it has been decided to give interim relief to the sectors of tents & canvas, electric machinery, carpets, rugs and mats, sports goods, footwear, surgical/medical/veterinary/beauty care instruments, cutlery, onyx products, electric fans, furniture, auto parts, handicrafts, jewellery and pharmaceuticals. All incentives will be linked to the outcomes, efficiency standards and, wherever possible, productivity targets,"
Oil and gas and petroleum sector companies are allowed import of second-hand plant and machinery equipment required for their project in Pakistan subject to pre-shipment certification to the effect that such plant, machinery and equipment are in good working condition and are not older than 10 years. Since drilling rigs usually have a useful life of around 20 years, it has been decided that the age limit for them may be enhanced to 20 years subject to pre-shipment inspection certification.
For diversification of exports mix, customs duty will be zero rated on import of manmade fibres, other than polyester staple fibre, whereas customs duty on import of sizing chemicals will be withdrawn.
According to the STPF, there are various restrictions on import of specialised machinery and transport equipment eg Concrete Transit Lorries, Concrete Pumps, Crane Lorries, Concrete Placing Trucks, Dump Trucks, Waste Disposal Trucks, cement bulkers and Prime Movers. These conditions include age restrictions and actual use. It has been decided to allow import of specialised machinery and transport equipment by actual users in used condition, provided they fulfil emission standards and have sufficient productive life, irrespective of the age.
"We have to bear in mind that this trade policy comes in the backdrop of a number of challenges ie infrastructure deficit, particularly in energy, poor innovation and technological infrastructure, low labour productivity, low levels of manufacturing value-addition, little foreign direct investment in manufacturing and exportable sectors, anti-export bias in taxation, increasing costs of exports as compared to import and lack of product and geographical diversification in exports," he said.
Ministry of Commerce has proposed to set up an Enterprise and Entrepreneur Fund [EEF] for incentivising the improvements in firm management capabilities in ten sectors chosen to push Pakistan higher on the sophistication ladder.
Rationalisation of tariff policy, keeping in view the structure of value-addition in various industries, clear policy on chemical sectors are also part the STPF.
-Devise a medium term strategy to boost exports of gems and jewellery, a comprehensive long term strategy for significantly improving Pakistan's export of services, provide incentives to facilitate technology acquisition, adoption, replacement with the twin objectives of energy efficiency and environmental protection, to launch a comprehensive leather and leather products export plan in consultation with the major players of leather sector, export of services are also made part of the strategy.
-Engage with the larger trading partners like US and EU for greater market access and utilise the Reconstruction Opportunity Zones for providing zero duty facility for exports to US.
-Strengthen and utilise the trade officers better for the protection and promotion of Pakistan's commercial interest abroad. Enhancing export competitiveness of Pakistan would largely depend upon the quality of governance and management structures deployed to implement it. In order to address the objective of institutional reform for prudent implementation of Strategic Trade Policy Framework, the Ministry of Commerce would take the following measures:
The Ministry would employ modern logical frameworks to implement and evaluate different interventions and initiatives of the Strategic Trade Policy Framework and would establish three Implementation Management Units.
Commerce Ministry would ensure significant improvements in its own working as well as in the working of Transport and Trade Facilitation Project, Trade Development Authority of Pakistan, National Tariff Commission, Pakistan Institute of Trade and Development, Pakistan Horticulture and Export Development Board, Directorate General of Trade Organisations, Trade Offices abroad and other relevant organisations. Commerce Ministry would also establish efficient steering and coordination mechanisms that would make the functional linkages between the Structural Trade Policy Framework with the Planning process in Pakistan and relevant line and sectoral ministries.
As far as the monitoring and evaluation of the STPF is concerned, Commerce Minister announced that the Pakistan Institute of Trade and Development, Islamabad, an independent policy think-tank of the Ministry of Commerce, would undertake a systematic evaluation of the impact of Trade Policy 2009-12 on the trade performance of Pakistan with a view to enhance the effectiveness of different trade policy interventions, suggest course corrections and lay the scientific foundations for the preparatory work for the next Trade Policy.
Commerce Ministry will also introduce many sector-specific initiatives to promote product diversification, which are as follows: extra cost on inland transportation erodes export competitiveness of a range of developmental products. It has been decided that a scheme may be launched to compensate inland freight cost to exporters of cement, light engineering, leather garments, furniture, soda ash, hydrogen peroxide, sanitary wares including tiles, finished marble/granite/onyx products.
All final use products do require continuous research and development for enhancing competitiveness either by technology up gradation, skill development, or by improved management systems. A fund, dedicated to support these activities, named Technology, Skill and Management Up-gradation Fund of Rs 3 billion, is being established.
The manufacturing in surgical instruments, sports goods and cutlery sectors is largely done under the brands of foreign companies, and that results in lower prices for manufacturers in these sectors. It has been decided that surgical instruments, sports goods & cutlery sectors would be granted 25 percent support on brand development activities.
Shortage of well-trained skilled manpower is impeding growth of surgical instruments manufacturing industry. It has been decided to establish a centre of excellence for catering to the training, designing, research & development needs of surgical instruments sector in Sialkot.
The engineering sector in Pakistan is very dynamic, but it is fragmented. This sector has shown promising growth during 2008-09 with an export growth of 32 percent. In order to increase the sophistication level and realise true potential of this sector, a special Fund, of Rs 2.5 billion, is being created for product development & marketing for light engineering sector.
To support leather apparel industry, it has been decided to procure expert advisory services to leather apparel manufacturers-cum-exporters. Matching grant will be given to establish design studios or design centres in the factories, besides establishment of Research &Development Centres in Karachi and Sialkot by Pakistan Leather Garments Manufacturers and Exporters Associations for providing Research & Development support to Leather Garments & Leather Goods Exporters.
The government has also decided to share 25 percent financial cost of setting up labs in the individual tanneries and provide matching grant for setting up of effluent treatment plants in individual tanneries. The amount will be provided from the Export Investment Support Fund.
It is estimated that a minimum of 25 percent hides and skins are rendered useless from butcher cuts. There is an imminent need to introduce flaying machines in slaughterhouses, but local governments have limited resources to install and run flaying machines. It has been, therefore, decided that Export Investment Support Fund may be used for providing matching grants to district governments for installing flaying machines.
The Commerce Minister further said that the government recognises the importance of the textile and clothing sectors. To provide a foundation for sustainable growth, various initiatives are being planned through a separate and first ever Textiles Policy, to be announced shortly. The major thrust of the Textiles Policy will be to enhance domestic capabilities and capacities for efficient use of resources through skills development, technology up gradation and provision of infrastructural facilities. Measures are also envisaged for diversification of fibre use and mix. The Textile Policy will take a holistic approach and will contain short-term and long-term measures to support the textiles and clothing manufacturers overcome the current problems created by the global downturn and equip them with necessary ingredients to meet the growing competitiveness challenges of the future.
The STPF would leverage the Textile Policy through its diverse measures and policies directly and indirectly. The Ministry of Commerce would lend support to the Ministry of Textiles towards efficient implementation of Textile Policy. In this regards, the following Initiatives would be given high priority by Strategic Trade Policy Framework among many others initiatives which Ministry of Commerce hopes to develop and implement with the help of Ministry of Textiles and other stakeholders:
-Brand Development Program, to encourage the establishment of domestic and international brands, rationalisation of tariff on the principle of cascading to provide the exporting industry with an environment which supports manufacturing rather than trading initiatives for greater market access, developing and enlarging acceptability of Pakistani textiles and clothing in niche markets and diversification of exports to new destinations and initiatives to promote more effective holding of local and participation and foreign exhibitions are some of the key measures announced in the STPF.
The Commerce Minister also announced that it has been decided to grant 25 percent freight subsidy if live seafood products are exported by air. This will also compensate exporters to overcome losses incurred due to mortality.
It has also been decided to support processed food exports initially by reimbursing Research &Development (R&D) costs @ 6 percent of the exports. The quantum and mode of support for 2009-12 would be decided after a detailed study but not later than May 2010.
Services Export Development Fund is also being set up to provide assistance in the form of reimbursable grants, to Pakistan service exporters for Tendering or negotiating for international projects and for conducting pre-feasibility or feasibility studies for international projects.
Halal Certification Board is being set up for which the government would support the cost of certification by 50 percent. In the coming year, the Ministry will develop a comprehensive policy for the promotion of Halal products.
The government will bear 50 percent cost of Underwriters Laboratories (UL) aimed at safety standards certification by increase in the level of acceptability of manufactured products particularly domestic electrical appliances in international markets.
"Our government is aware that there is an urgent need to reduce the cost of doing business in Pakistan. We are addressing this in a systematic way under our Strategic Trade Policy Framework 2009-12. To demonstrate our resolve to reduce the cost of doing business in Pakistan significantly, we are introducing a few specific measures right away. These Measures are as follows:"
-Oil and gas and petroleum sector companies are allowed import of second-hand plant and machinery equipment required for their project in Pakistan, subject to pre-shipment certification to the effect that such plant, machinery and equipment are in good working condition and are not older than 10 years. Since drilling rigs usually have a useful life of around 20 years it has been decided that the age limit for them may be enhanced to 20 years subject to Pre Shipment Inspection certification.
There are various restrictions on import of specialised machinery and transport equipment eg Concrete Transit Lorries, Concrete Pumps, Crane Lorries, Concrete Placing Trucks, Dump Trucks, Waste Disposal Trucks, cement bulkers and Prime Movers. These conditions include age restrictions and actual use. It has been decided to allow the import of specialised machinery and transport equipment by actual users in used condition, provided they fulfil emission standards and have sufficient productive life irrespective of the age.
There is a possibility for Industrial Users to trade-in new, refurbished or up-graded machinery with their obsolete machinery. Current import and export regimes do not provide for trade-ins whereas if allowed it could reduce the expenditure on Balancing Modernisation and Reform (BMR). It has been decided to allow Industrial importers to import new, refurbished and upgraded machinery on the basis of trade-in with their old, obsolete machinery. Likewise, export of their old and obsolete machinery for trade in with new, refurbished or upgraded machinery would also be allowed.
State Bank of Pakistan has discontinued the facility to remit $10,000 per invoice, as advance payment, for import of spare parts, consumables and raw materials. The discontinuation of the facility has increased the cost and time to effect urgent imports. It has been decided that the facility to remit $10,000 per invoice, as advance payment, for import of spare parts, consumables and raw materials would be restored by State Bank of Pakistan.
"Ladies and gentlemen, marketing of pharmaceutical products involves a number of complexities in the international market, including the need for extensive sampling at product launching stage. It has, therefore, been decided that limit for physicians' samples may be enhanced to 20 percent from the current limit 10 percent at the time of launch with first shipment.
"Currently, units that export 100 percent of their production enjoy the status of Export-Oriented Units and the benefits thereof. Since, engineering industry, particularly auto motive parts manufacturing industry, has vast export potential but cannot export all of its production in initial stages, it needs special treatment. It has been decided that engineering units would be allowed Export Oriented Units facility on export of 50 percent of their production for the first three years. After that, the engineering units would be allowed this facility on export of 80 percent of their production.
"The government will support for opening exporters offices and retail sales outlets abroad whereas warehousing scheme would be continued and its scope would be expanded to include traditional markets and traditional products.
"The government is supporting various quality, environmental and social certifications. The scope of this Scheme would be expanded by Trade Development Authority of Pakistan in consultation with the Industry."
According to the Commerce Minister, on the import side, several regulatory issues require immediate attention.
The government has announced the following new measures: at present old and used computers and parts thereof are freely importable but the import of used components is banned, depriving the low income groups of computer use. In order to encourage use of computers by low income groups, it has been decided to allow the import of old and used computer components.
Second-hand cathode ray tubes monitors are being imported and used as televisions, thereby posing a threat to local television industry; excessive import of first world's e-waste is also a threat to the environment. It has therefore been decided to disallow the import of Cathode Ray Tubes monitors unless imported along with used computers.
The local manufacturing of vaccines is of strategic importance and many local companies have started venturing into this high-tech segment. To encourage local manufacturing, import of vaccines would be restricted only from World Health Organisation-approved plants.
At present, only such used ambulances, that are donated by "reputable organisations", are allowed for import by charitable organisations. It has been decided that import of used ambulances that fulfil certifiable standards and have minimum 10 years of useful life would be allowed when donated by any organisation or individual to charitable or nonprofit organisation, trusts or hospitals.
Disabled persons are allowed waiver of import duty, which is in excess of 10 percent on Completely Knocked Down [CKD] kits that are imported for assembling of car for them. Restricting disabled persons to use locally assembled cars limits the choice to only a few makes. There have been persistent complaints of non-availability of customised vehicles in the local makes. Some time ago, the duty-free import of customised cars by disabled persons was allowed. To facilitate disabled persons to actively participate in economic activities, the facility to import duty-free customised cars, not above 1350 cc of engine capacity is being allowed. To facilitate disabled persons further, it has been decided to allow the import of one used duty-free motorised wheelchair to actual users.
In case a passenger who brings or imports vehicle under Transfer of Residence scheme dies before the issuance of Transfer of Residence, there is no provision in Import Policy Order for release of such a vehicle. It has been decided that the vehicle imported by an overseas Pakistani, under Transfer of Residence rules, may be released to legal heir in case of his or her death.
Copyright Business Recorder, 2009
