Trade Policy 2002

Columnist Syma Nasir makes an analysis of the government's stated policy.

Mr. Abdul Razak Dawood, Minister for Commerce, Industries and production announced Trade Policy for the year 2002 on 22nd July. This is the third trade policy announced by the present government. It was declared by the commerce Minister, that present government after coming into power, have had intense discursions with the stakeholders in order to draw some principles of policy formulation and as a result few principles were finalized. These points are that consistency of policies will be ensured as a majority of the stakeholders are of the view that they can live with bad but consistent policies but not with ones in which rapid changes are made, market driven policies with only a minimal government intervention, liberalization and de-regulations, stable macro- economic framework especially in terms of inflation, interest rates and exchange rates, and a vision, road map for trade and industrial growth. It was announced that previous two and the present trade policy has been prepared taking the above stated principles as guidelines.

Commerce Minister announcing the trade policy of 2002 declared that the policy is aimed at structural changes to ensure sustained growth of exports of Pakistan. This year, it is declared that last year's policy has put us on track and though sufficient progress has not been made in this regard but the result is that we are on the track and present trade policy has been designed in a way to ensure the continuity of previous policy and to make sufficient progress.

Before evaluating the trade policy 2002, it is better to have a bird's eye view of the major features of trade policy 2002. Export target has been fixed at US $ 10.34 billion. In percentage terms it means 13.4 % increase over the preceeding year. Total imports during the year are expected to reach US $ 11.1 billion. This means that in percentage terms imports are expected to grow by 7.4%. The trade balance, it is expected will be reduced to US $ 700 million. Last year our exports stood at US $ 9.1 billion and this year as mentioned above target has been fixed at US $10.43 billion. This target has been defended on the grounds that government is hoping to declare the said target as specific export enhancement measures have been and will be adopted. Specific measures for the promotion of exports announced in the policy are following. Duty and Tax Remission for Export Rules 2001 will be revived to make it more userfriendly and effort will be made to make it one that will oblivate the problem of delayed sales tax refunds. In continuation of efforts for achieving product and geographical diversification, 25% freight subsidy has been announced for new products. Definition of new products in that products whose annual export has not been more than US $ 5 million in any one of the last three years will be considered as new products.. Similarly, 25% freight subsidies will be provided for new markets. Designated new markets are Latin America, Africa, East Europe and Oceania or any country where Pakistan's exports have been less than US $ 10 million in the last three years. In the same line of action the lowest rate of presumptive income tax (0.75%) will be levied in respect of these new products and markets. For encouraging exports of agricultural products, the agricultural produce cess that was levied at the rate of 0.5 percent ad valorum volume on export of a number of agricultural products has been done away with in present trade policy. Policy has also allowed trading activity in Karachi Export Processing Zone with exception of negative list which will be notified separately to enable exporters to have duty free inputs goods available to them 'just in time' basis as it will help in increasing our exports. Formulation of a Steering Committee has also been announced for Karachi Export Processing Zone with an aim to increase the level of facilities at par with other Export Processing Zones in the region. Gwadar has been declared as Free Trade Zone in this year's Trade Policy. In continuation of liberalization and deregulation of Trade regime, compulsory requirement for exporter or importer to register with EPB has been done away with. Similarly steps have been announced for strict implementation of Intellectual Property laws and for protection of intellectual property rights. Monetary limit for the export of samples has been increased from the present US $ 5000 to US $10,000/-. Petroleum products have been made freely exportable as earlier only public sector agencies were allowed to export these products. Current restriction of minimum export price of rice has been removed, however, pre-shipment quality check will be in place. Licensing requirement from Ministry of Commerce for the Import of Gold, Silver in Bulk has also been done away with. Mobile phones and some other products have been made freely importable. Several measures have been announced for the production of contamination free cotton and better regulation of production and ginning. Other measures announced in the trade policy are relating to efficient duty drawback regime, to encourage trade through road in the region, establishment of electronic information system between US Customs authorities and EPB to avoid discrepancy in Textile Quota, encouragement of concept of virtual exhibitions apart from physical participation in International Trade Fairs etc.

Different quarters have presented different reactions to the new trade policy. One criticism about the new trade policy is that it contains nothing novel. There are no innovative measures announced in the policy. It is a stereotype document. Though there are incentives that are being introduced with an aim to boost the export of non-traditional items. Similarly various incentives have been introduced to encourage our exports to explore non-traditional export markets. But these measures have been criticized on the grounds that they are conventional ones and are not innovative or novel and in the present competitive world conventional measures, it is believed do not have any significant impact and the result will be that these conventional measures will fail to serve the cause upto satisfactory level for which they have been designed. So it is still to be seen that how these measures will direct Pakistan's foreign trade in a direction aimed by the policy-makers. Business community has expressed that export target of US $ 10 billion appears promising only. A point to be taken into account by the managers of economy of our country is that increase in exports, apart from the measures, announced in the trade policy also heavily depends on the level of economic activity in the country. Now if during the year, overall domestic activity will achieve a certain level required, only then enough exportable surpluses will be generated and export target will be realized. So it is very important that government should take all the necessary measures to ensure that maximum level of economic activity is attained during the year. Also seen from the point of view of high cost of utilities and inadequate and deteriorating state of physical infrastructure coupled with international recession that seems to be there at least for the next twelve months, export target seems to be unrealistic. Another criticism raised from different quarters is that policy has altogether ignored the most important sector of information technology. It is argued that exports of IT sector of neighbouring country are manifold as compared to ours. This sector requires to be given top priority but policy is silent on the issue. The main focus of the policy is market and product diversification and incentives to this end have been introduced but this is an effort, which is moving very slowly and is yet to gather speed to deliver the results that are being expected by the policy-makers.

Our commerce Minister is quite optimistic that the export target set for the current year will be achieved as trade policy contain many incentives and those will help in achieving the target. But in spite of the optimism of Mr. Razak Dawood and fact that trade policy contain incentives, the fact of the matter is that our performance of previous year in the area is not praiseworthy and this eradicates the optimism. For the last so many years, we were not able to achieve the export targets. The measures announced and adopted in the last two trade policies by the present government and incentives introduced in the present trade policy are really appreciable and were and are steps in the right direction but the question is whether this will deliver the foods or not, perhaps the answer is that they will not serve the purpose completely. But one thing that should be admitted here is that present government has taken into account the basic problem of export structure. It is true that without addressing this problem other efforts will not prove successful in achieving the task of increasing our exports. The problem of our export structure is that neither our exports are diversified nor majority of it is value added. Due to the same problem it has always been very difficult to improve our performance on foreign trade front. In reality, no sound footing is available to our foreign trade. Its performance is always been dependent on ifs and buts as we are heavily dependent on our traditional markets and traditional exports. To explain the fact, latest look at things by goading a little dipper. 60% of our exports are comprised of textiles items and wherever there is a shortfall in our cotton crops it results in decline of our exports. Similarly our export markets are not diversified and whenever there is a problem with our traditional exports markets, it reflects negatively on our exports performance. Second problem of our export structure i.e lack of value addition is also equally responsible for the situation as it is now. A major cause of decline of our exports earnings in various sectors in the previous years was decline in unit value of products. Now what is required is that we must provide a strong base to our international trade. For increasing our exports comprehensively, we will have to reduce dependence on our traditional export items and export markets as well, will have to encourage the export of value added products. What is required is a comprehensive programme of export promotion to ensure diversification of our export products and markets on the one hand and be capable of increasing exports of value-added products on the other.

Hence, need of the time is that non-traditional and value added exports must be encouraged. It is the only way available with us that provide the hope of achieving the export target and earning more foreign exchange that can cater to our requirements though not completely but upto some reasonable level. For enhancing our exports figures through adopting this strategy we have to look for products / sectors that are not only non-traditional but are also capable of fetching higher value. A very interesting point that required attention here that we do not have to search for such required sector / products as they are already present what needs to be done is development of those sectors / sectors on lines they can become exportable. To start with Pakistan has great potential of increasing our exports of fruits and vegetables. Our exporters of these products complain that they have export orders of large quantities but fail to meet those orders due to lack of stocking facilities, inadequate air cargo facilities during the season, long procedures that delay shipments etc. They say if such an arrangement is made that can solve the above said problems export of this sector can increase manifold. Another such sector is export of gems stones and jewellery. Pakistan is blessed with areas in NWFP, which contain large quantities of precious, and semi-precious gemstones and if modern cutting and polishing facilities are made available this sector can become big earner of foreign exchange. Similarly, there is a wide scope of increasing our exports of jewellery. This sector if developed wisely can become the major export sector of Pakistan. Apart from above-mentioned there are a lot others that can be developed.

As mentioned above, in the present trade policy, the basic problem has been addressed and if the measures announced in the policy are implemented efficiently and with a commitment they will play a definite role in achieving the objective of increased exports. But it must be remembered here that not only the government but also business sector will also have to play a constructive role. Business community especially those in the exports sector should make all efforts to take maximum advantage of the incentives announced in the policy. These incentives will only prove fruitful if our exporting firms will play a proactive role to take advantage of the facilities immediately as without their initiative the desired result will not be achieved.