August 5, 2002	Monday	Jamadi-ul-Awwal 25,1423

VIEWED against the perspective of globalization and liberalization, the trade policy (02-03) appears to be stereo-type and conventional, in so far as it does not envisage innovative and far-reaching measures to galvanize the export-drive.

It has focused on maintaining the sustainability of the export potential of cotton, cotton-based products, rice, wheat and similar other traditional items. It aims at eliminating the irritants/road-blocks in the export-promotion. And it has opted to strengthen the institutional frame-work by setting up a series of boards and committees. It has not attempted to break new paths.

An analysis of foreign trade performance during the outgoing year reveals that export was estimated at $9.12 billion as against the target of $10.1 billion, Imports during the year stood at $10.335 billion as against the target of $11.2 billion. The new policy has fixed an export target of $ 10.4 billion while the imports have been projected at $11.1 billion for the current fiscal year. The trade deficit is, therefore, intended to be slashed to $700 million.

The short-fall in the export target is attributed to the aftermath of 11th September event, resulting in the cancellation of export orders, imposition of war risk surcharge, etc. At the same time, the tragic episode proved a blessing in disguise also, leading to the lifting of sanctions, tariff-free access to the European Union (KU) market and upward revision of quota by 15 per cent. The USA also allowed modest relief in quota to the extent of $142 million. In the event of non-availability of these concessions, perhaps the quantum of exports would have been lesser.

It is interesting to note that there has not been any set-back to the export of textile-based products, which fetched around $ 5.80 billion or about 69 per cent.This shows that textile manufacturing sector continues to be the mainstay of our exports, without depicting signs of stagnation. However, too much reliance basically on one composite item amounts to taking risk of putting all eggs into one basket. The export-base needs to be broadened and enlarged through market and product diversification. Although there has been some minor headway in capturing the new markets and introducing new products, in the ultimate analysis, the situation remains static, depending largely on the conventional items and traditional markets. The export of cotton-based products would face cut-throat competition, following the withdrawal of quota regime in 2004 and the Chinese entry into the WTO.

The engineering sector, which has tremendous value- added potential, continues to be the victim of neglect over a long time. Pakistan’s share in annual global engineering trade of over $2 6 trillion, is merely $200 million, whereas its imports are within the vicinity of $2 billion. The automobile industry has made a notable progress in recent years, but due to high prices of locally manufactured cars and consequent exorbitant prices and delay in delivery to the consumers, has led to the demand for allowing import of re-conditioned cars. The policy does envisage for “undertaking preparation of a road-map for the engineering and chemical sectors.” This exercise should have been initiated long ago just after the taking-over by the present government.

It is noteworthy that in a world of today, while the demand of textile products is rising at a sluggish pace of 2-3 percent, the demand of software is rising at an accelerated rate of more than 30 per cent, although recently due to the global recession and the US-led war against Afghanistan, the information technology (IT) industry has suffered some reverses. The industry in Pakistan has recently indeed witnessed a boom-like scenario, but how far the softwares export board (SEB) has linkages with the ministry of commerce and the export promotion bureau (EPB) is not clear, as there is no mention about the export of softwares in the trade policy, of course through the efforts of Softwares Export Board.

Similarly, we have the defence export promotion organization (DEPO) also, but the figures with regard to the export of defence products are also conspicuous by their absence. There must be a wall-knit coordination and linkages among all the export-promotion organizations and particularly the Export Promotion Bureau, Softwares Export Board and Defence Export Promotion Organization (DEPO), and an integrated picture of their efforts and performance must be discernible in the country’s trade policy.

Apparatus: The trade promotion apparatus, therefore, must not only address the issues of traditional and conventional items, but also pay added and undivided attention to those nontraditional items, which have immense export potential and do not figure prominently in our export list. It is not through the export of potato-chips, but computer-chips that we can achieve a major break-through in export sector and can surpass the target of $10 billion, which is certainly not ambitious in the context of our country’s export-potential. The South Korean’s recent upsurge in export of over $100 billion is attributable to the export of engineering and automobile goods, specially cars and vehicles. Likewise, export of software of around $ 8 billion by India holds the key of its singular performance in this field.

The policy and its framers have largely relied on conventional tools of trade promotion. A proposal for setting-up EXIM bank has been planned. The idea is certainly not new or novel. It was floated sometime back and the State Bank at that time, did not find it feasible. The existing banking net-work has been rendering yeoman service in the promotion of trade. The government is already committed to privatize all the banks. It is not yet clear whether the government wants to set up the proposed bank in public or private sector. The EXIM bank, however, can be set up, if at all necessary, to cater to the needs of small exporters alone.

The improvement in the performance of existing export processing zone (EPZ) and similar new zones, has been contemplated. The Karachi EPZ, due to a variety of factors, could not accomplish the objectives, for which it was set up. The confusion about its format and policy, continues to persist. Now, following the liberalization of trade in a world-wide perspective, having no role for tariff or non-tariff barriers, the concept of export processing zone has relegated to the background.

In fact, such zones drive strength from duty-free import of raw-material for exporting the same after its processing/manufacturing, but like other countries, in Pakistan also the rate of duty on raw-material, chemicals, machinery is almost zero-rated or negligible. Meanwhile, the budget for the current year has already withdrawn the fiscal incentive of income-tax exemption from the zone- based industrial units. In the present trade policy, the export-oriented industries with an average export of 60 per cent of their production, would enjoy the parity in concession available to the industries located in the EPZ.

As such, due to both internal and external considerations, the export processing zones are no more treated as a dependable and viable mechanism for export-growth, transfer of technology and direct foreign investment. It is perhaps due to this reason that Sri Lanka has declared the entire country as export processing zone. Moreover, the trade policy has not indicated the contribution that the EPZ has been making in boosting the exports. Such an information is indeed a pre- requisite to determine the future role of the EPZ in our economy.

The policy expresses its determination to strengthen country’s participation in trade fairs. Last year, Pakistan participated in as many as 51 international trade fairs. Admittedly, as the Commerce Minister has rightly pointed out in his speech on Trade Policy, “It is an expensive promotional tool”. The EPB every year organizes its participation in international fairs/exhibitions and its performance is often criticised in the press. Despite this, there seems to be no improvement in the organization of fairs. One does not know the input-output ratio of organizing such fairs. After all, the people must know the impact of participating in these fairs on the country’s export.

Market access: We do not know as to what the Commerce Minister means when he says that “market access has been a totally new field of endeavour for Pakistan”. The fact, however, is that the country has been adopting all traditional and conventional means to have market access. How far, it succeeded in its endeavour, is a different issue. In a global perspective, trade is largely conducted through regional alliance/groups for free-movement of goods. Pakistan is also a member of two such regional arrangements i.e. the Saarc and the ECO, whose contribution in the promotion of intra-regional trade is almost nil. These groups have to be re-activated as promoters of regional trade like Asean, in collaboration with member-countries. It is reassuring that Pakistan now proposes to adopt a more “pro-active” role in regional trading arrangements.

Under the WTO charter’ the trade under barter is not permissible. In the context of chronic balance of payments problem, it would be most helpful, if steps are taken to encourage counter-trade and restore the barter arrangement at least with selected countries, in consultation and with the approval of WTO. Meanwhile, possibilities could also be examined to evolve a strategy in cooperation with trading partners to conduct regional trade in local currencies. The Prime Minister of Thailand, during his recent visit to Pakistan, has proposed such arrangement. In fact, Thailand is already following this course in its trade with regional countries. Such a strategy would lessen the pressure on foreign exchange reserves of the country, promote trade and arrest the any future trends of dollarization of economy.

Pakistan has been so far reluctant of entering into Free Trade Agreement (FTA), perhaps due to its inadmissibility under WTO agreement. However, such an initiative was taken by Sri Lanka long ago and entered into FTA with India which, however, subsequently did not materialize due to the protective approach of India. Pakistan must welcome similar initiative of Sri Lanka for entering into FTA with it. In all probability, such an agreement will now be signed with Sri Lanka. Similarly, as indicated in the trade policy speech, Free Trade Agreements with Bangladesh, Turkey etc. are also on the anvil and would be more conducive for trade promotion.

E-Commerce: E-commerce, which has been around for over a decade, has proved to be the driving force in the globalization of production by large corporations. The global trade through E-commerce, which was only in billion dollars a few years back, has now run into trillion dollars, but we have not yet evolved a regulatory framework to conduct trade through E-commerce. With the rise of e-commerce, such issues like the validity of electronic contracts and signatures, the locus of taxation, nature of electronic cash and the legal reach of the parties outside the physical boundaries of the states, have been unfolded and must be addressed. It also raises such social issues, such as protection of privacy, corruption, dissemination of offensive materials, promotion of national culture and protection of consumers. A comprehensive e-commerce policy is long overdue.

It does not, however, mean that the policy is totally barren of good points. It does have some good provisions/measures. To collect export development surcharge (EDS) through receiving banks upon remittances of export proceeds, instead of at the time of shipment, to enhance the monetary limit of export samples; to make the petroleum products freely exportable; to remove the restriction of minimum export-price for rice; to de-regulate the trade by lifting the condition of registration with EPB; to do away with the licensing requirement for import of gold and silver; to freely allow import of mobile phone; to adopt facilitation measures for fixation of duty drawback etc., are such measures, which would be well-received by the business community. These provisions would’ however, assume the role of a facilitator of trade, rather than of contributor to the major upturn in export.

The export-augmentation is very much linked with the production capacity. The globalization of economy means survival of the fittest. It means to integrate our economy and products with the standard in the world market. In a country, where the electricity rates are the highest in the world, (barring one or two states of America)and where the lending rates are the highest in the region and where the infrastructure continues to be deficient and rudimentary and the intensity of multiplicity of taxes and their higher rates have not fully diminished, our products in the face of such a sustained cost-escalating phenomenon and declining profitability, cannot compete in the world market.

Meanwhile, the element of protection to industry, in the wake of slashing of custom tariff, even on finished products at the behest of the WTO/Brettonwood institutions, combined with the inflow of smuggled goods, has been considerably weakened. Neither the trade policy nor the fiscal policy has been able to envisage a quick mechanism of refund of sales tax and duty-drawback. Resultantly, the exporters’ funds continue to be blocked, posing the serious problem of liquidity crunch. In fact, creation of export- surplus at effective cost-price level is a sine quo non, duly supported by an outward-looking commercial policy, which must have conformity with fiscal and monetary policies to achieve the set milestone in the export sector.