NEW TRADE POLICY
From SHAMIM AHMED RIZVI, Islamabad
July 29 - Aug 04, 2002
Commerce Minister Razzak Dawood on Monday announced the Trade Policy 2002-03, projecting the trade deficit at $750 million while putting exports at $10.347 billion, with measures providing competitive advantages to the country's exports and incentives for new products and exploring new markets.
Announcing the Trade Policy 2002-03 on Radio and TV, Mr. Dawood said imports had been projected to grow by 7.4 per cent to $11.1 billion. For the current fiscal year, the government has devised a National Export Strategy, the main elements of which are a sound macro-economic framework, the capacity development of exporting enterprises, enhanced market access, reduced anti-export biases, improved social and physical infrastructure, deregulation and decongestion, and lowered barries to encourage new exporters. In order to check the subsidy advantages available to competitors, the government will put in place a countervailing system. Also, the government's plans to establish a more workable duty and taxes remission for exports (DTRE) regime should automatically minimize the problems of delayed sales tax refunds.
To ensure the maximum deregulation of trade, the compulsory requirement for exporters or importers to register themselves with the Export Promotion Bureau (EPB) has been done away with. It has also been proposed to bring about reasonable parity in the concessions available to the Export Processing Zone and export-oriented units. It has been decided to give a freight subsidy of 25 per cent for new products i.e. those products whose annual export has not been more than $5 million in any one of the last three years. A freight subsidy will be provided for new markets and the lowest rate of presumptive income tax (i.e. 0.75 per cent) will be applied in respect of these new products and markets.
The Agricultural Produce Cess that was being levied at the rate of 0.5 per cent, under the Agriculture Produce Cess Act, 1940, on all agriculture products being exported has been removed. The government has also allowed trading activity in the Karachi Export Processing Zone (KEPZ), which will enable exporters to have duty-free input goods available to them on a just in time basis. An inter-ministerial committee has been set up to examine the tax regime available to the KEPZ, as well as restricting customs duties to imported inputs only.
Explaining the rationale of his policy, Commerce Minister said that almost three years ago when this Government assumed its responsibilities "we went about the onerous task of gauging your aspirations, the direction you wanted this Government to take and the kind of policies you wanted. In the area of trade and investment we sought out advice on policy preferences with the aim of enabling the business community of Pakistan to unleash all its energies to secure for Pakistan its rightful place in world trade. Through an intense interaction with as many stakeholders as was possible we could distill the following principles of policy formulation".
First, Consistency of policies. Indeed, many businessmen reminded me that they could perhaps live with bad policies but not with shifting policies."
Second, Market driven policies, with only a minimal governmental intervention to balance the imperatives of equity and social justice.
Third, Liberalization, deregulation and reducing the cost of doing business in Pakistan.
Fourth, Stable macro-economic framework, especially in terms of inflation, interest rates, and exchange rate.
Finally a vision, a road map, developed in concert with the stakeholders, for our trade and industrial growth.
"Your government has, in all earnestness, trade to follow this policy prescription. Of course, in the ultimate analysis it is only for your, for the people who bear the brunt of Government policies, to make the definitive pronouncement; but, fellow businessmen, in all humility do hope will share my belief that we have largely stayed on course, the Commerce Minister claimed.
The new trade policy envisages the elimination of subsidy as subsidies have a distortionary affect, and that competitiveness can and ought to be ensured through the exchange rate mechanism.
Dawood said, "We need to put in place a countervailing system to offset the subsidies available to competitors, and neutralise, to the extent possible, such cost penalties as inadequate physical infrastructure, high price of utilities, and in-competitive interest rates". He said the cabinet has also approved, in principle, to make Gawadar a free trade zone and necessary instruments in this regard are being prepared.
It has been decided to enhance to the monetary limit on export of samples to $10,000 form the existing $5,000. The export of petroleum products is currently limited to public sector agencies and it has been decided to remove this restriction and make petroleum products freely exportable. It has been decided to do away with the current restriction of minimum export price for rice as recommended by Rice Exporters Association. Pre-shipment quality check for Basmati rice will continue in order to safeguard its image in international markets. It has also been decided to do away with the licensing requirement and allow import of gold/silver in bulk so long as importer manages his own foreign exchange and normal duties and taxes will be applicable.
Currently bulk imports of gold/silver are controlled through licensing by Ministry of Commerce, even though in such cases importer arranges for his own foreign exchange. Six parties are currently licensed. The import of essential spares, when airlifted/couriered, by industrial users against foreign currency demand draft has limit of $15,000 per annum and this limit is being increased to $30,000. Exporters may import spares etc. beyond this limit subject to a cap of 5% of their last year's exports.
The Commerce Minister said duty and taxes remission for export (DTRE) rules 2001 are being revised to make them more users friendly to minimize the sales tax problem. The compulsory requirement for an exporter or importer to register himself with the EPB before he can undertake trading activities is being done away with. The repeal of Exporters and Importers Registration Order is being notified along with consequential amendments in the relevant rules and regulations, he added.
In the given circumstances the new trade policy seems reasonably good. The sudden shock of 9/11 sent the world's entire trading cycle into a tailspin but Pakistan exports came out of the crisis reasonably well. The exports target for the current fiscal is slightly above what was projected last year and which could not be achieved. The projected decrease in the import export gap is heartening as it represents a tangible improvement in the overall trade balance scenario.
One of the many salient features of this policy, which hopefully will yield results, is the incentivisation of attempts to access new markets. The need for diversification both in terms of products and of customers, has long been pointed out, and this time, the focus is on new markets, previous Policies having paid attention to new products. Another important feature of the policy is its attempting to prepare the Pakistani exporter for the WTO regime that will soon be coming into force. Not enough work has been done in this direction, but it is better late than never. This should be an important focus for the Commerce Ministry. As Mr. Dawood said, last year, the government finally began getting into the WTO frame of mind by focusing on market access issues in its trade relations. This will be a major area of concern in the years to come, and should be followed up vigorously.