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Targets of enhancement of annual exports to $35bn set

Special incentives for import of new plant and machinery and technology up-gradation will be provided

The mid-term Strategic Trade Policy Framework was formulated recently through an extensive consultative process spanning over almost a year and keeping in view the current trends in global trading environment and the declining trend witnessed in Pakistan’s exports during 2015 due to external shocks combined with domestic factors and inelastic import demand.

A Trade Committee (TC) headed by Federal Minister for Commerce has also been established which would monitor the implementation of STPF 2015-18. It would remove bottlenecks, examine issues relating to trade promotion, strengthen international competitiveness and presenting Annual STPF Implementation Report to Cabinet Committee on Production & Exports as well as Federal Export Development & Promotion Board (FEDPB).

It had been ensured that procedural and budgetary bottlenecks were removed in the STPF 2015-18 to achieve the targets of enhancement of annual exports to US$35 billion.

There would be improvement in export competitiveness, transition from factor-driven economy to efficiency-driven and innovation-driven economy and increasing share in regional trade through key enablers of competitiveness compliance to standards policy environment and market access.

All business processes have simultaneously been formulated and budgetary allocation of Rs6 billion had been approved to implement the trade policy initiatives for year 2015-16 while continued budgetary support in financial year 2016-17 and 2017-18 has been proposed.

Under the STPF 2015-18, a short term export enhancement strategy has also been devised that included the identification of focus products focus markets and market linked focus products. The estimated cost of the short term export enhancement measures is Rs450 million for the year 2015-16 and Rs1,450 million for three years i.e. 2015-18. These amounts are included in the overall allocation for the STPF.

The STPF 2015-18 has identified four main pillars i.e. product sophistication and diversification (research and development value addition and branding); market access (enhancing share in existing markets exploring new markets trade diplomacy and regionalism); institutional development and; strengthening (restructuring capacity building and new institutions) and trade facilitation (reducing cost of doing business standardization and regulatory measures).

All the stakeholders in the public and private sector including Federation of Pakistan Chambers of Commerce and Industry, district chambers trade associations, private businesses academia, think tanks, trade missions, ministries, divisions and other government agencies had been actively engaged in formulation of the STPF.

The framework, the first announced by the current government, will be implemented with a total funding of Rs18 billion in a period of three years. Four major targets include — boosting exports, improving export competitiveness, transition from factor-driven economy to efficiency-driven and increasing share in regional trade.

For current fiscal year, the government has already approved an amount of Rs6 billion. This amount will be disbursed among exporters through the State Bank of Pakistan (SBP) to avoid chances of corruption.

To increase the sophistication level of identified sectors including fans, home appliances, rice, cutlery and sports goods, an incentive for technology up-gradation will be provided in the shape of investment support of 20 percent or mark-up support of 50 percent up to a maximum of Rs1 million a year per company will be available for import of new plant and machinery.

To boost exports of leather, pharmaceutical, fisheries and surgical instruments, grant of up to Rs5 million will be provided for specified plant and machinery or specified items to improve product design and encourage innovation in small and medium enterprises.

A Common Facility Centre for surgical sector will be established.

Matching grant will be provided to facilitate the branding and certification for faster growth of the SMEs and exports sectors through Intellectual Property Registration (including trade and service marks), Certification and Accreditation.

The manufacturing in surgical instruments, sports and cutlery is largely done under the brands of foreign companies, resulting in lower prices for manufacturers in these sectors.

For cutting the cost of doing business and increasing the competitiveness of the value-added non-textile selected sectors, draw-back for local taxes and levies will be given to exporters on free on board (FOB) values of their enhanced exports if increased by 10pc and beyond (over last year’s exports) at the rate of 4 percent on the increase.

To reduce the wastage of raw and semi-processed produce and increase income of the farmers and foreign exchange earnings, 50 percent support on the cost of imported new plant and machinery for specified under-developed regions or 100 percent mark-up support on the cost of imported new plant and machinery will be provided.

The Ministry of Commerce will continue working on its three-pronged strategy of trade diplomacy in the multilateral, regional and bilateral arenas for increasing market access.

Under the policy, four products including basmati rice, horticulture, meat and meat products, and jewellery were identified for focused markets — Iran, China, Afghanistan and the European Union.
Regarding the auto policy, the ministry would take up the issue of used car imports in the Economic Coordination Committee (ECC) meeting. The new policy encouraged exports of automobiles which was currently negligible.

The restructuring of Trade Development Authority of Pakistan has already being started. The regulatory measures announced in the policy are that the condition of submission of annual environment report is not applicable in case of units importing plastic scrap for the first time.

Pyrolysis plants, which are duly registered with respective EPAs and the Federal Board of Revenue (FBR), are also allowed to import shredded tyres scraps on the same terms and conditions as are applicable to industrial consumers.

Import of aerial vehicles and night vision goggles will be subject to no-objection certificate (NOC) from the Ministry of Defence. Import of 3D printers will be subject to prior permission from the Ministry of Interior.

Import of mobile hand-sets and tablets will be subject to type approval certification from the Pakistan Telecommunication Authority (PTA), Pakistan Security Printing Corporation was allowed import security papers without having NOC from Security Papers Limited.

 

Exporters operating under various schemes like Duty and Tax Remission Scheme (DTRE), Temporary Importation, etc will be allowed to import all items borne on restricted list subject to fulfillment of conditions laid down in Import policy order.

Construction companies will be allowed to import specialized vehicles mounted machinery not older than five years subject to certification from pre-shipment in the exporting country and submission of original equipment manufacturers confirmation that such vehicles are built as specialized mounted machinery.

Import of pesticides will be allowed subject to prior pre-shipment certification issued by recognized pre-shipment and inspection agencies to be notified by the Department of Plant Protection.

Digital Enhanced Cordless Telecommunication 6.0 will not be allowed to ensure compliance with the provisions of the PTA Act, 1969, ban on import of poultry and poultry products from South Korea, Russia, Kazakhstan, Mongolia, Turkey, Greece, Croatia, Italy, Azerbaijan, Ukraine Iraq, Bulgaria, Slovenia, Slovakia, Austria, Bosnia and Herzegovina was lifted subject to certification from respective veteran authority of the exporting country that birds are only from such flocks where no incidence of bird flu has been reported for the last seven years.

Import of plug wrap paper will also be allowed in favour of manufacturers of cigarettes rods duly registered with the FBR. Import of two- or three-wheeler auto vehicles will be subject to compliance with the condition of Euro-II standard.

Import of mercury and mercury compounds will be allowed to industrial consumers having valid environmental approval from the concerned Federal/Provincial Environmental Protection Agency/Department.

Fireworks will now be placed on the restricted list and its import is allowed subject to the conditions of compulsory physical examination by explosives expert.

Furthermore, the Department of Explosives of Ministry of Industries will allow import only to the applicants and companies having valid licences under the Explosives Rules, 2010.

Critical Analysis

Not a single exporter has availed itself of any of the five cash support schemes launched at the start of the current financial year. The tiresome process of claiming the subsidy has made it unattractive.

Much of the three-year Strategic Trade policy framework (STPF 2015-18) has largely remained unimplemented and its export promotion efforts have yielded little.

A good cash support schemes were announced under the STPF 2015-18 to improve product design and encourage innovation, facilitate branding and certification, up-grade technology for new machinery or plant import, provide cash support for plant and machinery for agro processing and give duty drawback on local taxes and levies for non-textile products.

To avoid fund misuse, the government decided to disburse the subsidy amount to exporters through the State Bank of Pakistan (SBP) instead of the TDAP.

The SBP has not received a single re-imbursement request from exporters against these schemes.

No exporter could fulfill the conditions mentioned while stringent conditions had become imperative to avoid misuse of the facility.

Much of the three-year strategic trade policy framework has remained largely unimplemented while export promotion efforts have yielded little result.

Trade experts say exports can only be increased by well thought out state intervention at institutional, policy, and entrepreneurial levels. On all these three areas performance has been dismal.

The STPF 2015-18, envisaged three export promotion councils for pharmaceuticals, cosmetics and rice; but nothing has happened.

The export policy also proposed the establishment of a committee to restructure subordinate offices of the commerce ministry.

The departments identified for revamping/restructuring were: Trade Development Authority of Pakistan (TDAP), Pakistan Horticulture Development and Export Company, the Ministry Of Commerce secretariat, Trade Dispute Resolution Organization (TDRO), Services Trade Development Council, Pakistan Institute of Trade and Development, National Tariff Commission (NTC) and the Domestic Commerce Wing.

Nothing tangible has been done at the institutional level except for cosmetic measures.

Recently, the government appointed members of the NTC and did window dressing within the TDAP.

The only area where interest was shown was the appointment of trade officers abroad.

Cash support schemes were announced under the STPF 2015-18 to improve product design and encourage innovation.

On the policy level, the ministry has yet to finalize the much-awaited law for protecting the ownership rights of goods and a law for TDRO for resolving trade disputes. Only NTC-related laws were finalized.

The most frequent government intervention is at the enterprise/industry level which has not yielded the required results to boost exports.

The scope of the STPF 2015-18 was limited only to 40 percent of exportable goods which fell under the category of non-textiles.

Textile and clothing exports, which constitute nearly 60 percent of total exports, are covered by a separate policy. Around Rs2.5 billion export subsidy was given to textile and clothing exports in 2015-16.

Trade experts say there are structural issues in the ‘ritualistic’ trade policy making. The ministry of commerce seeks proposals from trade bodies around two points: cash subsidy on exports, and ban on imports.

At the same time, commercial importers want to reduce tariff on products that are locally manufactured to increase profits. The policy also promotes interests of some groups at the cost of others.

The implementation of trade initiatives is a major issue. There is no effective forum to oversee and monitor implementation and 70 to 80 percent of the initiatives are never implemented.

There is a serious human resource problem in the ministry of commerce and its subordinate TDAP, which is the implementing arm for trade initiatives.

Different agencies/departments are involved in the implementation of the trade policy causing delays.

Much of the export subsidies go to some established sectors like textile, clothing, leather.

Faulty policies have resulted in exports falling from $24.5 billion in 2012-13 to $20.9 billion in 2015-16.

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