The Trade Policy 2004-05 in fact is an extension of
the Federal Budget 2004-05, as the two documents have been authored in
a symmetrical order with a focus to enhance export surplus, develop
enabling environment so that the export players could strengthen their
muscles to cope with the challenges ahead in the quota free world
market after enforcement of WTO regime.
The policy seeks further liberalization of the
foreign trade supported by incentive bearing measures for the proposed
special economic zones to be developed in the country.
The trade policy has given an export target of
$13.7 billion to the private sector while the imports have been
projected at $16.7 billion, which shows an all time high deficit of $3
billion for 2004-05.
The incentives offered to the special zones
facilitate the export regime with a 25 percent export subsidy till
September 2005 and envisages inland freight subsidy on granite, marble
and furniture, and allows export of imported goods without the
condition of value addition.
The condition of exporting the imported goods
without fixing the condition of value-added is expected to open trade
at a massive scale specially with the neighboring countries especially
Central Asian States, Afghanistan and even with Iran.
The schemes announced in the last year's trade
policy will remain in place, while the clearance date of imported
machinery has been extended.
The policy also allows import of CKD kits of
motorcycles (but only by recognized dealers), as well as import of
non-prohibited fur, machinery and equipment. The ban on import of
certain equipment and mobile trolleys has also been removed.
It may be mentioned here that due to ever-rising
prices of POL products, a huge market for two wheelers has been
developed over the years in Pakistan. Although the automobile sector
has also registered an all time growth in sales and production of the
cars, yet the prices of the cars were out of reach of the common man,
the low income strata of the population generally prefers to go for
motor cycles, yet the cost of the locally manufactured motor cycles
was still much higher as compared to the landed cost of the two
wheelers arriving into the country from China and other destinations.
The decision to allow import of motorcycles in CKD form will help
establishing the prices of the motorcycles, which are the dominating
segment of the automobile sector in Pakistan.
The Trade Policy also assures government's
contribution up to 50 percent of the cost of rehabilitating the
infrastructure of existing industrial estates, which is against a
wonderful decision as the existing industrial areas which for that
matter have become a valuable economic assets for the country and were
badly needed an uplift especially related to the utility services like
distribution and transmission of electricity to ensure quality of the
supply, water which is a basic raw material for textile sector but was
gradually become a rare commodity mainly because of tanker mafia which
is extorting millions of rupees for this business. It is amazing that
scarcity of water is always pleaded as a lame excuse for sufficient
supply of water to cater to the industrial consumers while on the
other hand plenty of water was available through tankers, said leading
industrialists of SITE industrial area.
The policy also visualizes the significance of the
growing application of the Information Technology in all spheres of
the economy and has decided to establish a Communication City in
Islamabad to provide all infrastructure facilities to IT,
telecommunication and media companies.
A 50 per cent subsidy has been restored to
facilitate pharmaceutical companies for the registration of the
products in foreign countries. The decision is likely to go a long way
to create a market for locally produced pharmaceutical products and
thus may contribute to the exports regime of the country.
The trade policy also allows inland export subsidy
at the rate of 25 percent of freight on granite, marble, and furniture
provided the factories are located 250 kilometers off the exporting
seaports. Most of these items identified in the policy are produced in
the province of NWFP, Balochistan or the world renowned furniture in
the remote parts of Punjab especially in the famous city of Chinniot
which is obviously located far off the shore for shipments.
A suppliers credit fund amounting to $10 million
each is being set up to facilitate development of markets in Africa
and Central Asian Republics for Pakistan's exports. The freight
subsidy scheme has been extended for another year-up to September 30,
To facilitate re-export of imported goods, the
condition of value-addition has been waived. In the case of re-export
through land route, the requirement of payment of full duty has also
been waived. At present exporters can send samples of non-restricted
items valued at $10,000 FOB per annum. This limit has also been
increased to $25000. The gift parcels' value limit has been increased
to $5000 from $1000. These can be sent through pot/courier service.
Exporting units have been facilitated by extended
the last date of clearance of imported machinery from December 31,
2004, to March 31, 2005, on LCs opened up to June 12 under SRO 554.
The import of animal fur not prohibited by any
international agreement has also been allowed. This would help value
addition in our fashion apparel especially in the EU market. The ban
on import of cotton waste has been lifted. Import of betel nuts has
been linked with official certification to ensure and unhealthy stuff
was not allowed to sneak into the market.
Relocation of projects from abroad has now been
liberalized to cover all industrial sectors. The ban on import of
certain used equipment has been lifted. Import of used fire-fighting
vehicles or fire-tenders donated free of cost to municipal bodies has
been allowed. The import of second hand ambulances donated free of
cost to charitable institutions has also been allowed in the policy.
Elaborating the salient features of the Trade
Policy 2004-05, the Commerce Minister Humayun Akhtar has expressed his
confidence that it would be an effective tool to plug the trade
deficit, besides enabling exporters to penetrate deeper into the world
He said that Pakistan was following an aggressive
policy to meet post-2004 challenges upfront. He said that the
government wants level playing field for the exporters by reducing
cost of business and at the same time was taking concrete steps to
build up image of the Pakistan products as well as competitive in the
Now is the time when only the fittest would survive
in the WTO regime when quality and competitiveness would be the rule
for all players in the export scenario. The incentives offered to the
private sector in the policy are aimed at up-gradation of industry.
The industrial infrastructure had been ignored in the past resulting
in creating problems, however this issue has also been taken up on
priority and special focus was being given to deliver the goods in
near future. In respect to carry out the infrastructure development
plans the Ministry of Commerce would get 100 percent export
development surcharge. This fund would be in addition to Rs0.5 million
special funds allocated in the budget for the same purpose. He said
that all out facilities would be provided to the area of Information
Technology to reap its full benefits for the country. The government
would provide world standard facilities to attract foreign investment
The situation calls more active participation of
the provincial and local governments to achieve the desired objectives
set by the trade policy with the stipulated time frame. The government
was going to introduce major changes in Export Promotion Bureau (EPB)
so that it could play the role of a true representative institution of
exporters. From now onward, the EPB would be required more specific in
targeting and guiding exporters to optimize share in the world market
while the government would also play its part in providing all sort of
assistance to get more share in the world market.
In order to enhance volume of trade with the trade
partners in the world, the government was actively engaged in talks
for preferential and free trade agreements besides the SAARC member
countries, with Turkey, Sri Lanka, India, US and EU with a view that
such commitment would help promote exports from Pakistan. The process
for a free trade regime in Saarc countries would start in 2006 and
complete by 2015, the minister observed.
FEATURES OF THE POLICY
The Trade Policy for 2004-05 would be a driving
force to enhance export surplus and create an enabling environment. It
would provide guidelines for up-gradation of export related
infrastructure including rehabilitation of existing infrastructure of
industrial estates besides help them out in setting up effluent
treatment plants. It carries special package for garment sector for
post-quota regime besides offering incentives for priority export
sectors, which include fisheries (shrimp farming), horticulture
(flowers, fruits, vegetables), furniture, gem and jewellery, footwear,
medical equipment and leisure equipments. All out support has been
promised to the potential new exporters on one to one basis and to
encourage women entrepreneurship through special incentives. The
policy also lays down parameters for restructuring of the import
policy by using it as a tool for investment and export promotion.
The textile industry, which has assumed the role of
a blue-eyed boy of the export regime by its impressive contributions
close to 70 percent of the total exports, was given a special
treatment by the policy. Through initially the textile industry had
frowned over what it called undue protection to the local producers of
the Polyester stable fiber, however, this important segment of the
economy was also made happy by accepting its demands to bring the duty
drawback on the import of PSF at the desired level. Though the All
Pakistan Textile Mills Association, in the first reaction had
expressed dismay and to pressurize the government had sounded a note
of warning that the target of $13.7 billion not be achieved if the
issue of duty drawback was not resolved in accordance to the wishes of
the textile sector. The issue was, however, resolved promptly, as the
economic manager do not find themselves in a position to live.
Generally speaking, the business community has
welcomed the Trade Policy with open arms and has described the policy
as growth-oriented having special features to meet the challenges in
the post-quota regime starting from January 2005. Iqbal Umer, Chairman
Karachi Cotton Association (KCA) says that the policy was fully
designed to meet the challenges in the post WTO regime. It caries
sufficient incentives to attract foreign investment as also provides
relief to the value-added sector. It also provides various measures
for increasing the volume and base of the export surplus. The KCA
chairman also lauded the decision to remove the ban on import of
cotton waste that would help provide incentives to the value-added
sector. The sales tax on import of cotton was however brings concerns
to the trade community which should also be removed.
Karachi Chamber of Commerce and Industry (KCCI) has
also lauded the policy measures for export promotion which include
enlargement of the scope for import which would go a long way in
accelerating the aggregate growth rate in Pakistan.
The leather industry has, however, expressed its
concerns over what they called, that this highly labor and
exported-oriented sector which has the potential to hit the mark of
one billion dollar exports has been ignored in the policy. It may be
noted that the leather and leather products had fetched over $700
million, which plates it as a major contributor to the export earnings
of the country. Hopefully, the grievances of the leather industry
would also be addressed amicably as the Ministry of Commerce has
promptly resolved the issues of duty drawback raised by the All
Pakistan Textile Mills Association (APTMA). S.M. Naseem, Chairman
Pakistan Tanners Association (PTA) has pointed out that the government
had committed to provide a fund of Rs334 million from Export
Development Fund (EDF) for completion of combined effluent treatment
plant at Korangi Tannery area. This combined effluent has been ignored
in the policy. An amount of Rs. 106.7 million was sanctioned but it is
still awaited. The effluent treatment has become imperative under WTO
Muhammad Nisar Shekhani, Chairman, SITE Association
of Industry foresees that the Trade Policy would pave the course for a
strong export regime. The export target for the year has exceeded by
10% and the target of US $ 13.7 billion is not seems well within reach
but may exceed if the measures announced in the policy are strictly
adhered to and faithfully implemented.
Textiles with 68% share is in the fore front in
exports but it is heartening to note that measures are also outlined
for diversification of products and markets with US$ 10 million
suppliers credit each available for exports to Africa and Central
This policy also enumerates adequate preparations
to meet the challenges and opportunities of the WTO system being
introduced from 1st January 2005. In this context, important steps
have been taken to create a level playing field for our exporters: (1)
special package announced for promotion of garment sector, to improve
productivity, product ranges, high fashion. EPB's support has been
extended to meet technical, commercial and marketing of the products, (2)
rehabilitation of industrial estates to improve infrastructure of the
existing industrial estates through the collaboration of federal,
provincial, City District Governments and stakeholders, (3)
establishment of combined effluent treatment plants with contribution
of 75% by federal government and 25% by provincial, City District
Governments and stakeholders.
Finally, the realization of export for quality
assurance and lab accreditation is a welcome step. 100% cost of
consultancy services for development and accreditation of testing
facilities of international standards is a revolutionary concept
solely for the benefit of the exporters. Enhancement in the limit of
export of samples and gifts parcels is another welcome step.
The share of fabrics made from polyester and other
man-made fabrics in textile exports has been seriously jeopardized by
the cut in Deemed Duty Drawback announced by the CBR. Revision in duty
drawback is in order and the announcement made by the Commerce
Minister is welcomed.
The textile sector, in order to meet the challenges
of WTO, has already invested US$ 4 billion in plants and machinery
under BMR scheme. The import policy continues on the same pattern for
efficiently and effectively promoting growth in investment and
The import target has been set as US$ 16.7 billion
and it is expected that the highest growth in imports will continue to
be in industrial raw material and of capital goods. Increase in import
of manufacturing machinery and industrial raw material will not only
improve domestic production and provide employment but also generate
more exportable surpluses.
Age relaxation in import of secondhand boilers is
welcomed, so is used machinery for construction, mining and petroleum
He said that out of the proposals submitted by the
SITE Association on Trade Policy 2004-05 to the government 60%
proposals have been accepted in the newly announced trade policy.
However, he regretted that nothing has been said regarding import of
items falling under appendix 'B' from India and export from Pakistan
via land route, expansion of importable items from India including
textile and allied machinery and industrial raw material, import of
viscose rayon filament yarn from India because this commodity is
probably the cheapest from this source than any other country.