TRADE POLICY 07-08 WITH AMBITIOUS TARGETS

SHAHZEB KHANZADA
July 23 - 29, 2007

After not meeting import and export targets for consecutively last two years, commerce minister announced trade policy 2007-08 with some more ambitious targets yet again. The speech which was unnecessarily long was full of claims that were either made in last year's speech by Humayun Akhter or throughout the year by other economic managers of the country.

For the first time trade policy has been announced without any import target. Uncontrollable import numbers in past year may have discouraged commerce ministry from setting an import target as it gives critics an opportunity to make an open criticism on the Government. It also confirms that government wants to pursue with its liberalized policies and import burden will again have an adverse hit on country's current accounts.

Commerce Minister once again emphasized on the need and importance of free trade agreements for future growth in exports. According to him FTA with Sri Lanka has yielded good results. However, when we look at the trade numbers no significant improvement has taken place in exports to Sri Lanka after FTA. South Asia free trade agreement (SAFTA) is still not a success story though it is operational since July 2006. He also commented that FTA with Malaysia is completed and negotiations are in progress with Singapore. These developments are encouraging and can be rewarding for the private sector only if they have the capacity to export. This is the biggest problem for Pakistan that government has liberalized economy very rapidly without creating any exportable surplus and hence the result is huge trade deficit that has heavily burdened the external accounts of the country.

Reconstruction zones (ROZs) are being portrayed as something with great economic importance. If one believes at the positive picture that Government has shown about these ROZs then it appears as these zones will resolve most of our economic problems by contributing a great number in our exports. However reality becomes evident when the structure of these ROZs is analyzed in depth. The Government plans to establish them in entire NWFP, tribal areas, and border districts of Afghanistan. The biggest advantage would be the duty free exports of these products to the United States if finalized. The problem is the who will come up with investment that can create this exportable surplus in those deprived areas and can contribute to the well being of the people there. People in those areas are not capable of making huge investments and government is also faced with huge deficits and shortage of funds. This means that Government will have to rely on existing entrepreneurs from Karachi, Lahore and other big cities for these investments. The leading members of Federation of Pakistan chamber of commerce and industry, Lahore chamber of commerce and industry and Sialkot chamber of commerce and industry did not show a positive attitude about investing in those areas. According to them, security is the major issue and it will be very hard to establish industry in those areas even if Government guarantees the life and investment security.

Commerce minister emphasized on the need of export diversification through non traditional items like surgical goods, Leather, gems and jewellary. According to Haroon Chand, president jewelers association, Government expectations are not practically possible with existing taxes that has made import of Gold very expansive if it is imported through official means and hence smuggling has increased. Value addition and then export of gems and jewellary has therefore become uneconomical. Government should first resolve problems of the industry before expecting export revenues from it. The craftsmanship in Pakistan is admired across the world and it has potential to generate as much as Indian gems and jewellary industry generates yearly which is $15bn now.

Surgical industry has been complaining for their problems since a long time. Though, they have been given concessions in form of zero rated imports of raw materials and machinery but still industry representatives have shown their resentment for not listening to their problems and they have criticized government for not consulting before announcing trade policy. Aamir Riaz Bhinder, chairman surgical instrument manufacturers association of Pakistan said that "this is surprising that commerce minister has announced trade policy with so much focus on surgical goods and without paying any attention to our proposals" he further added that "despite so many invitations, commerce minister has never visited Sialkot in his era in the office"

Government policies in past have badly hit leather industry and its exports have declined from $1bn in past to less than $100mn now. Industry representatives have protested that if Government really wants to fully tap the potential of the industry and is interested in earning revenues through export proceedings then it should stop exports of raw leather which is being exported in abundance to china and making local industry uncompetitive. According to them it is useless to make big claims without listening and resolving the problems of the industry.

Textile industry specially, spinning sector has been fully ignored in the policy. According to Yaseen Siddiqi, Vice Chairman APTMA "we had sent many proposals to the commerce ministry and also presented industry problems in various meetings with the Government officials but it is very disappointing that country's biggest export industry has been ignored in the trade policy".

Policy has discussed export potential of the industry in Pakistan and has highlighted it in an optimistic way. It also accepts the limitations faced by the industry in form of high cost of doing business and power outages. This creates confusion about the potential of exportable surplus in future it is also evident from the problems faced by different industries as discussed above. According to Zakaria Usman, senior member FPCCI and a renowned industrialist "it took him two years to get the permission for 2 mega watt power to set up a plant". If government is so optimistic about exports and if it is willing to facilitate exporters then it should be in a position to ensure electricity and gas to anyone who is willing to set an export oriented plant in the country. Furthermore, the export target of $19.2bn is not very aggressive but it looks difficult keeping in view the shortfall in exports of last two years

In past, Government has emphasized on the need of proper marketing of Pakistani products in the international markets. However, there were other problems in the system that were not being addressed. Entire supply chain is facing problems and without remedial measures it is not possible to go for marketing Pakistani products. One very good thing about next year's trade policy is that it promises to address all the problems in the supply chain and aims to remove bottlenecks through Government private partnership. These loopholes include wastages, unskilled labor and outdated machinery. Though, these issues can not be resolved overnight but it is a right move in the right direction.

All the measures announced in the trade policy to boost exports are very long term in nature this shows that there is no need to announce trade policy every year. Government should design a three year policy framework and it should not only stick to it but should also take necessary measures to make it practical. This will remove uncertainties that start prevailing in the industrial community and will also give a relief to the government in a way that it will not be asked by certain industrial communities for incentives and subsidies every year. The import and export targets should however be made public every year.