TRADE POLICY 2004-05
Looking into future
By AMANULLAH BASHAR
Aug 02 - 08, 2004
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, 2005.
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 markets.
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 export market.
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 in Pakistan.
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 regime.
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 Asian Republic.
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 exports.
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 sectors.
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.