TRADE POLICY- FAVOURS INDIA

SHAMIM AHMED RIZVI
July 28 - Aug 03, 2008

The much awaited trade policy for 2008-09, announced through state run-media by in charge Ministry of Commerce, Ahmed Mukhtar on Friday last, has evoked mixed reaction in the relevant circles. Some have welcomed it citing many reasons while majority has been critical of the policy as being unimaginative and a routine document without providing any effective measures to curtail alarming trade imbalance faced by the country. It was being expected that the new trade policy would contain special measures to drastically curtail the rising imports by putting curbs on import of all non-essential and luxury items. Policy makers have taken no notice of such concerns. As a whole the policy has been described as a routine Baboo made document tilted in favour of India without any spark of economic intelligence or imagination.

There is almost a consensus that it would not be able to deliver the desired result. Announcing the policy, Ahmed Mukhtar declared a target of export for the fiscal year 2008-09 at $22.1 billion showing an increase of about 15 percent over last year. For unknown reasons he preferred not to specify any estimate for the imports in his policy statement. The officials of the Commerce Ministry were talking about imports to be around $ 37 billion indicating thereby a trade deficit of around $ 15 billion in 2008-09.

In his speech, the minister said, "We are also facing stress in this current year due to the large trade gap of US$20.77 billion, and our strategy to enhance exports is the best method to address this problem". The Commerce Ministry also got help from its out-stationed commercial consolers and invited them from Australia to Middle East to finalize the trade policy draft. PPP government is carrying the same team of trade officials that were part and parcel of the previous ruling government. He narrated his government's ordeal, "We have inherited a very difficult economic situation where the public is facing more hardships than it has in recent history. This was due to external and internal factors of the past years".

On the external front, he highlighted, the most difficult issues were; the doubling of international oil prices from around $ 68 per barrel to $ 145 per barrel during the year; and the increase in international prices of food items that Pakistan needed to import during the year, especially wheat and edible oil. The Indian-specific policy measures included; Inputs in Duty and Tax Remission Export (DTRE) will also be allowed to be imported from India, even if these are not included in the importable items from India, or manufactured locally. Defending the incentives extended to India, Minister for Commerce said, "India is our neighbour and we are gradually liberalizing our bilateral trade. Composite Dialogue process, especially on economic and commercial cooperation has been instrumental in addressing the bilateral issues. We are announcing to enlarge the list of importable items from India, which is based on the requests of our stakeholders".

"Cheaper raw material sourced from India would make our exports more competitive in international market. Although the list is being issued separately, I may mention that we are allowing import of diesel and fuel oil from India, because it will be cheaper due to the difference in transportation cost. This will also help us to address our global trade deficit", he maintained. Customs duty on the import of CNG Buses was brought from 15% to zero in the Budget 2008-09. In case any Indian manufacturer of CNG buses makes a firm commitment to establish manufacturing of such buses in Pakistan, the Ministry of Commerce may provide special dispensation for import of 10 buses by road via Wahga from each possible investor as test consignments, the commerce minister said.

Stainless steel and cotton yarn is importable from India by train. In order to further reduce the cost of doing business, it has been decided to allow their import by trucks through Wahga as well. The prices of academic, scientific and reference books are quite competitive in India and technical and professional books are already importable from India. Now in order to give access to our people to cheaper books it has been decided that import of academic, scientific and reference books may be allowed from India, the Minister argued. Mining industry has serious problems of availability of good quality stones for further processing due to blasting which creates wastage of precious resources. To remedy this it has been decided that import of machinery / equipment for mining / quarrying and grinding of minerals (along with spares) would be allowed from India.

To facilitate exports to Afghanistan provinces of Paktia (Gardez) and Khost, it has been decided that a Customs station at Pak-Afghan border would be set up at an appropriate location. This will reduce transportation cost and delivery time to this area from Pakistan. According to the policy, some temporary imports for export purposes were also allowed. In order to reduce cost of manufacturing and to make our exports more competitive, it has been decided that plant, machinery and equipment imported to set up a unit in DTRE scheme will be exempt from duty and taxes.

The Government is committed to providing complete 'zero rating' to exports by refunding of indirect taxes on input cost incurred on manufacturing of merchandise, which are exported. In order to facilitate the exports, the Government has decided to introduce a new scheme whereby a notified percentage of inputs may be allowed to be imported at zero duties against fob value of exports with flexibility to import any product among the notified list in any quantity within the overall entitlement of the exporter.

In view of the good export prospects of pharmaceutical exports it has been decided to support the setting up of new Pharmaceutical Plants by providing them with the incentive of having an accelerated depreciation allowance facility of 90% in the first year on investment in Plant Machinery and Equipment. It has also been decided that Ministry of Health will draw up a proposal for establishing bio-availability and bio-equivalence laboratories in the National Institute of Health.

Area under rice cultivation is under pressure from other crops and the yield is decreasing as no high yielding basmati variety after "Super Basmati" has been introduced. The cumulative effect of these two factors could erode the exportable surplus. It is therefore proposed that Ministry of Food and Agriculture may focus on evolving new varieties and increasing area under cultivation. Initially for demonstration purposes four dryers and harvesters will be provided from the Export Development Fund to Ministry of Food & Agriculture. Furthermore rice farm machinery namely paddy harvesters and dryers will be importable from India through Wahga by road.

Exporters are allowed to send US$ 25,000 worth of samples to foreign buyers. Since automobiles have higher unit value, therefore it has now been decided to increase the limit to $ 50,000 in the case of automobiles. An effective trade dispute settlement mechanism increases confidence of foreign buyers to purchase from Pakistan and the present system is ineffective. Therefore it has been decided that a Trade Dispute Settlement Organization, under the administrative control of Ministry of Commerce, will be set up to deal with trade disputes arising from exports.

It has been decided to revisit the working and structure of TDAP so as to make it more responsive to the exporters' needs. In the near future necessary changes including warranted amendments in the TDAP Act will be undertaken for this purpose. Free Trade Agreement with China, especially the Investment Chapter of the Agreement was renegotiated. The objectives of these negotiations were to provide facilitation and relief in taxes for setting up of industrial units in China Specific Zones in Pakistan with at least 40% FDI from China. About import of buses, presently buses not older than 3 years are permissible for import under the 1R scheme. It has now been decided to allow import of buses, which are not more than 10 years old under the same scheme. This facility will help expatriate returning Pakistanis with limited mean to create an economic opportunity for them as well as ease the shortage of such buses on inter city routes.

In order to facilitate physically handicapped persons, it has been decided that used motor cycles or tri wheeler vehicles especially designed / made or altered for the handicapped would be allowed to be imported subject to disability certification from the Ministry of Health. If Pakistani nationals importing a vehicle are unable to release their vehicle due to high tariff or other reasons, re-export of such vehicle would be allowed by FBR if there was no contravention of the Import Policy Order during import stage. It has also been decided to .do away with the requirement of a driving license for the TR scheme.

In order to prevent unscrupulous elements from selling unrefined palm oil in the market and endangering public health, it has been decided that only recognized manufacturers would be allowed to import crude palm oil for further processing and refining. Furthermore manufacturers who import palm oil in crude form will not be allowed to sell it to non-manufacturers.

Later at a post policy press briefing Ahmed Mukhtar, replying to critical questions from a number of newsmen that the trade policy had virtually conferred the status of most favored nation to India without any reciprocal offer from the other side, said that measures announced in the policy were more in the interest of Pakistan then India. He stressed the need for coming out of India phobia to reap maximum gains of bilateral trade between the two countries. "India is becoming an important economic partner and trade with this country will be in the interests of Pakistan", adding that trade with neighboring countries including India would be very much cost effective as compared with trade with other countries. Mukhtar said Pakistan has not changed its policies.

Declaring China most potential market for Pakistan's exports, the minister called upon Pakistani exporters to explore the vast Chinese market to boost the country's exports. He added that after the signing of the Free Trade Agreement (FTA) with China, Pakistani exports have increased four times. He said the only way to stopping smuggling is to bring commodities prices at the level of "neighboring countries, indicating that the government would be increasing prices of diesel to check its smuggling. Answering a question, he said Pakistani rice exports have increased to a considerable level as the exports of the commodity were recorded at $1.9 billion during the last financial year. He said it was not easy to prepare the trade policy in these hard times, adding that the financial situation was not favorable. However "we must not loose our heart and continue to make effort to over come this challenge", he said.

While garment industry has warmly welcomed the government decision to expand imports from India by permitting import of non-traditional items, the engineering sector has been critical of the pro-India tilt in the policy. The chairman of the Pakistan Ready-made garments association (PR GMA) while talking to newsmen said that Pakistan could capture the huge Indian markets of garments if Pakistan discusses the important issue of reducing the high import duty on Pakistan garments in India under the Free Trade Agreement (FTA). He said that if the import duty on Pakistan garments is reduced by India then Pakistan would be able to capture the huge Indian market of garments by exporting the best quality garments, such as Shalwar Qameez and ladies wears to India. He urged the Pakistan government to ensure the imports of only raw materials from India instead of importing the finished products from India. He said that if Pakistan imported the finished products from India then the manufacturing sector of Pakistan would be affected badly.

Regretting that engineering industry of Pakistan has been neglected by the policy makers, the spokesman of the industry said that. Though the global trade of engineering goods exceeds $6 trillion, the government has not given any weight to this sector in the trade policy. Neglecting facilitation for new technology, it has liberalized import of out dated machinery. They were concerned about the impact of this policy on the overall growth of the country in the long run. They questioned the wisdom of allowing import of 10 years old machines and CNG buses. They warned that Pakistan would become a "junkyard of used material". An engineering entrepreneur said that the policy makers are perhaps not aware of the fallout of this recently announced policy. He said that automobile manufacturer's world over produce spare parts of cars and buses up to seven years after their manufacture. In some cases they continue up to l0 years, he added. He said Pakistan has allowed import of l0 years old CNG buses. Since buses are used for public transport they tend to lose their efficiency and reliability after 5 years of round the clock service.

He noted that after the import, spare parts would be needed on a regular basis. After 10 years, the buses out live their utility, but can be operated if the spares are available. He stated that it would be extremely difficult to arrange parts from the original manufacturers because they may have shifted their production lines for new models. These buses, he predicted would become junk two to three years after their import. Despite being run on CNG, these buses would increase pollution due to wear and tear in their engines. He said global engineering goods trade is over $6 trillion, while Pakistan's share in this sector has not even reached one billion dollars. Pakistan, he added has the potential to grab a share of two percent in the global engineering trade within one decade, provided the entrepreneurs are facilitated in acquiring new technology. He said with proper and fair facilitation, Pakistan's auto mobile exports could cross $1 billion in five years as the local vendors have acquired technology to produce quality and efficiency matching global standards. He said fans could fetch $500 per annum. A similar amount he added could be obtained through surgical instruments that on1y need up-gradation of technology. He said light engineering products like television; microwave oven, air conditioners, and refrigerators could be exported in large quantities to new markets in Africa and South Asia and become a source of foreign exchange earning. He said that the economic planners of the country do not realize that engineering exports are a permanent source of earning for the country. He said the buyers prefer to replace worn out parts of the engineering products from the original suppliers. "The more engineering goods you export the more secure you become on the strength of regular and longtime supply of spare parts," he added.

The trade policy widens the scope of imports from India by allowing the import of 136 new items. With the inclusion of these items, the total list of tradable products with India has been increased to 1,938 tariff lines from earlier 1,837. This makes the grant of MFN status to India redundant. The rationale given is that cheaper raw material and machinery from India will makes local exports more competitive in the international market. The import of mining machinery and paddy harvesters for instance would supposedly bring down the cost of production. Similarly the import of cheaper diesel and fuel oil will help address', he growing trade deficit. The import of used buses not more than ten years old has been allowed for overseas Pakistanis. Custom duty on the import of CNG buses which could now be imported from India has been brought down to zero and Indian manufacturers have been offered incentives to produce them in Pakistan. While both Mr. Zardari and Mian Nawaz Sharif are committed to increased trade with India, many Pakistanis think this should remain restricted till the/resolution of the Kashmir issue.

To achieve the export target set at $22.1 billion the government will have to provide uninterrupted supply of power and gas at affordable price to the industrial sector. The recent shutdown by power loom owners in Faisalabad indicates the seriousness of the problem. The coalition government will have to improve the law and order situation and ensure that strikes and social unrest do not reduce the production activity in major industrial towns. Strikes by truck owners and calls for shutter downs by political parties have in the past led to the cancellation of orders by foreign buyers. What is required to keep the country peaceful is complete harmony between the coalition partners particularly the PPP and PML-N.