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GATT: The implications on local industry

  1. GATT: The implications on local industry
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  8. FACTS

Pakistani industry seems to express a mixed reaction about the ultimate zero-tariff

By Syed M. Aslam
Sep 20 - 27, 1999

With the implementation of General Agreement of Trade and Tariff (GATT) system of valuation for imports, less than three-and-a-half months away, the Pakistani industry seems to express a mixed reaction about the ultimate zero-tariff that the new system would ultimately usher.

PAGE talked to a number of chairmen of various industrial areas in Karachi asking them what implications would the implementation of GATT mean to Pakistan and what they feel would the implications of the ultimate zero tariff on the industry of Pakistan.

The Chairman of F.B Industrial Area, Farooq Bakaly, said that a highly smuggling prone economy and the drastic reduction in the overall productivity in the industrial sector plus the tremendous increase in the production costs due to substantial increase in the prices of petroleum, power and gas would not be able to compete with foreign goods if they were allowed to get imported duty free.

In addition to the substantial increase in other outputs pushing up the production costs, high rates of local duties which are coming thick and fast, would mean a death blow to the local industry particularly as the national psyche prefers everything foreign, he said. Who would like to purchase a locally made product when a similar foreign made product is available at slightly higher or even at the same price, he asked.

As is, Farooq lamented, some 3,720 industrial units have been closed alone in the Sindh province during the last three years of which 95 per cent were located in Karachi. As all of these units were located in the organized sector it would be safe to assume that many more were closed in the unorganized sector, he said.

He claimed that there has been an overall 40 per cent reduction in the productivity at various industrial areas in Karachi during the same period not only due to the closure of the units mentioned above but also due to the reduction in number of working shifts. Many units in the F.B. Industrial Area which were running three shifts have reduced their activity to just two shifts while many others which were running two shifts previously have now cut down their production to just one shift, he said.

He said in theory he welcomes the implementation of GATT system as a more universal and harmonized valuation for import purposes unlike the present ITP (Import Trade Price) system which differs for same goods for different sources. "However, in practice I prefer to oppose the implementation of the GATT system of valuation for the specific reasons mentioned above," he added.

Talking to PAGE the Chairman of SITE association of Industry, Majyd Aziz welcomed the implementation of the GATT system of valuation as it would check the much rampant abuse of the ITP system as there were many importers who were able to make it help translated by the Customs as they liked.

He said that the GATT system of valuation is not only more comprehensive but also much more transparent to make it much likely to get abused like the ITP system. He, however, said that he has to study the GATT system to know what it has to say about the dumping of foreign goods into Pakistan particularly as it would not allow any protection to the signatories including Pakistan which was previously available under the WTO.

However, he said, absence of a level playing field to an already troubled local industry due to rising cost in utilities, labour and overall overhead expenses plus a declining productivity and the failure to produce competitive quality products would leave it high incompetitive to imports if and when a zero import tariff is implemented.

Industries in India and Bangladesh, the main competitors of Pakistan, pay not only much less for such basic utilities as power, gas, water, but also the interest rates in these countries are also much lower than in Pakistan. In addition, the productivity ratio of labour in Pakistan is also much lower than these two major competitors, he added.

He, however, expressed optimism that while, in the time to come, only the fittest would survive the resultant do-or-die challenge would help the local industries to improve not only the productivity but also quantity provided measures are taken by the government on top priority basis to amend its priorities to address the problems of the manufacturing industry. In the long run, the GATT system of valuation would be in the overall interest of the country provided the local industry was allowed a level playing field and the bureaucracy is made to develop an export culture to abolish the bottlenecks at every stage of export, he added.

S.M. Naseer, the Chairman of Council of Karachi Industrial Areas (CKIA), said that without improving the productivity and improving the quality the Pakistani exports would not remain competitive in the international markets. It is imperative to increase the pace of the ISO 9000 and other related international quality codes to meet the new challenges as without them we would not be able to export anything in the time to come, he added.

Masood Hashmi, President of the Marketing Association of Pakistan, of top level marketing people, said that with a closure of one multinational company each day Pakistan looks like it is not ready to meet the GATT challenge.

He claimed that Pakistan lost $ 1 billion in exports last year alone due to rejection, late supply or bad quality. He also quoted a World Bank report which said that 97 per cent of the global trade by the year 2003 would be intra-regional which would leave a negligible 3 per cent of it between country-to-country. GATT or not, it seems we are going to be in big trouble if we fail to realize that how important is the intra-regional trade would be for Pakistan, he added.