July 29, 2002	Monday	Jamadi-ul-Awwal 18,1423

TRADE POLICY for current fiscal year announced somewhat belatedly by the commerce minister has got a mixed response. The policy at best reflects lacklustre effort that sprinkles a few marginal incentives, makes a few adjustments and admitted inability to deliver results on promises made in last years trade policy.

It promises to execute measures that would benefit exporters in long term. Bottom-line of an aggressive, innovative and bold trade policy focused on giving quantum jump to exports is missing.

The commerce minister while announcing trade policy stated that during last three years ‘considerable improvement’ has been made in exports because exports worth $ 7.78 bn in 1999 have risen to $ 9.1 b illion in 2002 and have been projected to rise further to $ 10.4 billion during fiscal year 2002-2003. Average increase during past three years is $ 0.43 billion which is certainly not a ‘considerable improvement’ for the country caught in debt trap and increasing poverty. Nevertheless if the government succeeded to achieve the projected target of $ 10.4 bn, it (increase of $ 1.3 b illion) would be a quantum improvement over the average increase of $ 0.43 billion during past three years. The most crucial question is: What incentives have been given and what initiatives have been taken to boost exports to achieve a target that envisages nearly 200 per cent increase over the average increase of last three years?

Trade policy is based on a few principles of policy formulation shared by the authors of the policy and stakeholders. The principles relate to maintaining continuity of policies pursued thus far, executing market driven policies with minimum state intervention, liberalisation, de-regulation, reduction of cost and a stable macro-economic framework of exchange and interest rates and inflation. It also includes a five-year road map for four major product groups of textile, leather, horticulture and rice. National Export Strategy (NES) for the current fiscal year centres around sound macro-economic framework which the government asserts has been achieved, low tariff that has been executed in the budget, enhanced market access that has been targeted like previous year, improved social and physical infrastructure that is a Herculian task and needs concerted efforts to be made and reduced anti-export bias.

In order to provide incentives to exporters the trade policy envisages a number of measures that focus de-regulation, reduction in freight charges and access to new markets. Export of petroleum presently a monopoly of public sector has been de-regulated, registration of exporters with the EPB has been done away with to provide relief to exporters from administrative bottlenecks, pre-shipment inspection of rice and restriction on its minimum price have also been done away with to facilitate exports without wasting time. Also, 0.5 percent agricultural produce cess has been abolished. The long-term measures that will facilitate exports are establishment of a inter-ministerial committee to examine tax regime for the Karachi EPZ that is now to operate with duty free inputs on a ‘just-in-time’ basis. Gawadar is also to become a free trade zone.

Other features of trade policy include applying lowest slab of presumptive income tax of 0.75 per cent on new products, enhancing monetary limit from $5000 to $10000 on new samples, increasing limit of import of spares parts from $ 15000 to $30000 per annum when airlifted, facilitating trade through land route and doing away with licensing to import gold and silver provided importers manage their own foreign exchange as has been the case till now. There is hardly any doubt that these measures will have not only salutary but tangible effect to facilitate exports imports but they are unlikely to give quantum jump to exports which is the need of time as well as of economy.

More important than these measures was the need to address some of the long-standing and thorny administrative issues which have ended up either with a committee or a promise. Those issues include early return of duty drawbacks and upward revision of their rates, prompt refund of sales tax, establishment of EXIM bank and maintaining rupee-dollar parity through intervention by the SBP. High price of utilities, inadequate infrastructure and non-competitive interest rate, some of the spill-over of fiscal policy that affect exports adversely also needed to be addressed. Each one of these problems needed special attention but has been left in a lurch.

Exporters have expressed their concern that high interests rates, high cost of utilities and inadequate infrastructure ‘all these factors add to the cost of exports which makes them less competitive and reduces their profit. They are equally sour for neither making their exports earnings zero rated as in the case in India with whom they are to complete nor duty drawback rates have been revised upward to benefit them. These concerns are genuine and were expected to be addressed but trade policy has offered half-baked solutions.

Duty and tax remission for exports (DTRE) Rules, 2001 are to be revised in consultation with CBR to allow refund of duty drawbacks and sales tax on domestically procured tax paid inputs. This will make DTRE Rules user-friendly and resolve partially the problem of delayed duty drawbacks and sales tax refund. One should go along with the statement made by the commerce minister that DTRE rules will become user friendly and resolve partially the problem of delayed duty drawbacks and sales tax refund. But he has not given any time-frame within which the Rules will stand revised. It is equally important to emphasise that in respect of certain issues related to fiscal policy such as high interest rate which are export-specific also, should be taken up by the commerce ministry with finance ministry or the SBP at the ministerial level to find out of viable solution that ultimately should help in boosting exports.

The need to establish EXIM bank cannot be over emphasised. Its establishment is long over-due and a country like Pakistan should have got well established EXIM bank by now to boost exports. Even at this belated stage, the commerce ministry has not come up with prompt action plan to establish the bank. The trade policy states that a feasibility report is to be submitted by a committee to be headed by the governor SBP by end-March which if submitted on time would take a few more months to bring the bank on ground. If is thus obvious that fiscal year 2003 will be lost in spade work to establish the bank.

Dollar-rupee parity is to play a crucial role to achieve the export target. There are two options; one is intervention by the SBP and the other is let the market forces determine the parity. Exporters favour former option whereas the government is not favourably inclined to let exporters export goods at cheaper rupee rate in case rupee in to appreciate against a depreciating dollar incoming months. There is enough justification and weight in government’s conservative policy being followed by the SBP to keep parity between two currency within manageable limits that satisfies both the stakeholders ‘ the market and exporters. Analysts are of the view that real dollar-rupee parity is around 1:55. Over-valuation of dollar vis-a-viz rupee might help exporters but their urge to seek refuge behind a cheaper rupee simply means that they are avoiding market forces and competition with India, China and Bangladesh particularly in textile sector which is mainstay of our exports. It is time for exporters to come out of ‘protection syndrome’ and to get ready to face the market.

Nevertheless exporters have certain visible disadvantage of high cost of production of exportable products vis-a-viz their competitors. Neither fiscal policy nor trade policy have done enough to mitigate their genuine grievances on this crucial point. In fact, there is an obvious dichotomy in the two policies. Utility charges are being increased to generate additional revenue to meet IMF demands on one hand and exporters are being exhorted to be competitive on other hand. How is it possible without resolving the contradiction? Trade policy is silent on such an important issue.

Some of the measures such as disallowing import of reconditioned cars and boilers are protectionist measures in essence and selectively favour car making and boiler industry. It conflicts with government’s overall policy of market competition. It will not prepare the economy for globalisation which is expanding fast. Notwithstanding such grey areas of trade policy let the government execute NES with full rigour and commitment to break the $ 10 billion barrier. It will be a good beginning.