KARACHI, Dec 3: Why is it that every US dignitary visiting Pakistan makes it a point to show up at the Lahore University of Management Sciences (LUMS) where quite a few of them come out with their prescription for Pakistan’s ailing economy.
Lady Hilary Clinton graced LUMS in not too distant past and she was followed by President World Bank James Wolfensohn. Paul O’Neill, the US Treasure Secretary visited Pakistan last month. He too, showed up at LUMS where he declared “subsidies and trade barriers are bad for a nation.”
Paul’s life saving prescription for Pakistan’s not so very developed economy is perhaps a lethal injection for the biggest economy of the world, his own country. President Bush recently imposed a 30 per cent tariff on steel import to protect his country’s more than 100-year old steel industry.
Only a few years ago a leading Japanese automobile company, having manufacturing facility in the US, was fined heavily for importing a small motor part from the neighbouring Canada (member of NAFTA USA, Canada and Mexico) where the same company has a factory. This was to teach Japanese investors a lesson in deletion. Not so in Pakistan where multinational pharmaceuticals do packaging, automobile and electronic companies do assembling of imported kits.
But Pakistan’s infant steel industry, gasping under the heavy burden of retired and serving civil and military officers, for last more than 20 years, has been exposed to an uneven competition with predators of international market.
“When the US was announcing 30 per cent tariff on steel imports, we, under the pressure of WTO and perhaps also the steel importers in the country, were compelled to bring down our import tariffs on steel products,” complained Chairman of Pakistan Steel retired Lt Colonel Mohammad Afzal Khan in Lahore.
Import duties on a variety of steel products have been brought down to a ridiculously low level in last nine years. The hot and cold roll sheets now carry an import duty of only 10 per cent as against 70 per cent in 1994-95. The hot and cold roll coils can now be imported on 25 per cent duty against 70 per cent in 1994-95. Billets are importable on payment of 20 per cent duty as against 65 per cent nine years ago. Tariff on pig iron is now down to 5 per cent from 65 per cent and on coke to 5 per cent from 45 per cent.
In neighbouring India, where steel industry is over 70 years old, the import tariff on steel products is said to be about 50 per cent, utilities are subsidised and financial cost is lower than Pakistan with a much bigger market.
Steel plant remained a dream till decade of seventies as a very strong lobby of Lahore based importers were dead set against it. Efforts were made to set up steel mills in Pakistan in 1955. The steel importers, with business interest in the US, put up a tough resistance and saw to it that steel mill project did not se light of the day.
The World Bank, in a report put steel with five other category of industries in Pakistan that should be phased out gradually and instead trade should be the focus of economic development. The advice was given to ex-Commerce and Industries Minister Abdul Razak Dawood closely linked with LUMS.
“I want to see Pakistan a nation of traders,” he said in a meeting of Pakistan Management Association stating that he wants to see “imported potatoes being unloaded on a berth at the Karachi port and exportable potatoes being loaded on ship in the neighbouring berth.”
With this vision, Abdul Razak Dawood advised a gathering in National Bank of Pakistan in September to shun away “Made in Pakistan” obsession. He wanted every household in Pakistan to have televisions sets, washing machines, air conditioners, all sort of appliances and automobiles all imported.
One of his last advices was for Pakistan Steel. He asked steel mill managers to prepare for open competition after 2005 when all barriers would be dismantled. He considers all labour laws and international conventions on labour practices as “stupid”.
Following in the foot steps of Nawaz government, Abdul Razak Dawood threw away the plan to expand production capacity. “The present capacity of 1.1 million tons of Pakistan Steel is not feasible,” Chairman of Pakistan Steel has repeatedly said on many occasions. A steel mill of three million tons is said to be viable.
Pakistan government was involved in negotiations with China since 1995. These negotiations continued till 1998 and Chinese are reported to have made many proposals. Neither Nawaz government responded nor the military government showed any interest.
In a recent briefing the Chairman of Pakistan Steel made it clear that capacity expansion programme has been given up and instead a product diversification programme is being taken.
By design or default Pakistan’s industry is being slow poisoned to death since 1993. Babar Ali, finance minister of caretaker Prime Minister Moeen Qureshi brought down import tariffs from 165 per cent to 60 per cent and Razak Dawood gave the final blow by reducing it further to 25 per cent.
One wonders if all these developments and policy decisions are any way related to generous USA assistance of 10 million dollars and World Bank’s help to LUMS.
