Can Pakistan compete globally while trade barriers and other constraints exist? This is a challenge to meet not only if it has to export more, but also if it wishes to retain its domestic market that it is loosing to massive smuggling, unofficial trade, and a flood of low priced products from abroad— ranging from China to India, Thailand, and even Bangladesh.
“Survey on Barriers to Trade in Pakistan,” (S0BTIP), just completed by Islamabad-based Pakistan Institute of Development Economics (PIDE) with the assistance of the United Nations Industrial Development Organization (UNIDO), and Federation of Pakistan Chambers of Commerce & Industry (FPCC&I) goes deeply into the problems facing the business and the economy.
As the WTO regime speedily unfolds itself and impacts largely unprepared economies like Pakistan, the contradictions and constraints are coming out clearly. The situation also exposes the genuineness, or otherwise, of reforms and good governance, the government claims to have introduced. The problem areas, SOBTIP focuses on are several. But, eight of these stand out, glaringly.
“The eight most important areas of intervention came out to be: world market price, profit margin, level of quality, freight, shipping and transport infrastructure, corruption in customs, on-time deliveries, ability to produce according to export market product specification, and quality of input and product raw materials,” the study stresses.
Some of these problems fall purely in the government domain to grapple with. Expectations of getting “incentives” from the government at the cost of taxpayers, should be largely discounted. The burden of indirect taxes and the cost of living they raise for consumers has been too high, for more to be doled out to them.
The consumers have, for long, paid dearly in terms of high prices, shoddy products, and shortages. Now the industry has to stand up on its own feet, because the global competition and inflow of low-priced foreign products is so intense that no amount of incentives paid out of the national exchequer can save it. Herein lies the significance of what SOBTIP says.
But all is still not gone. In fact, there is considerable hope that Pakistan can stand up to the international competition, and get a slice of the cake, that WTO-led business expansion offers.
As the Survey says, “ over the last 10 years, Pakistan has liberalized its trade regime and anti-export bias has been reduced considerably. However, due to various factors, its exports stagnated at $8-9 billion a year over 1996-2002 period. In the last three years, exports have registered a healthy growth rate of around 17 per cent. However, sustaining the growth rate of exports is threatened by different barriers, including technical quality, and compliance to various standards.”
SOBTIP focuses on four key exports: textiles-apparel, leather, agro-food processing and fisheries. The sub-sectors of these four also have been looked into. Textiles include: yarn, fabrics, knitwear, garments and bed sheets and towels.
Leather includes: tanning, footwear and leather products. Agro-food processing covers: horticulture products and rice. Fisheries: fish processing units and fish exporters.
The sample survey covered 670 enterprises in textiles sector, 363 in leather, 308 in agro-based processing and 18 in fisheries. SOBTIP confirms that capacity and supply capability are the major bottlenecks, as of now, and are worsening. If the country hardly has a significant exportable surplus, except for half a dozen products, what exports are we talking about?
There are major challenges in the area of supply capacity, the growing maze of international standards and compliance, and trade facilitation. A majority of exporters in all sectors identified world market price and profit margin as “ major factors affecting their supply capacity.”
Pakistani exports cannot influence world prices, because their share in global trade is small to insignificant. “Any decline in world market prices tends to reduce the supply of exports as the marginal firms are unable to sell abroad. Reduction in costs of operations, both as a result of higher levels of productivity and a reduction in transactions costs will help in improving the supplies for exports.”
Although some manufacturers and exporters are themselves to blame for supplying shoddy products, there is a willingness to do better, in future to gain and retain markets and foreign buyers.
A majority of exporters found either no or minor problems with the level of quality and maintaining a given quality, ability to produce according to export market product specifications, packing materials, production equipment and process technologies, on-time deliveries, minimum required export quality, product design, labour force skills and labour productivity.
But what is the scope for upgrading standards down the production and supply chain? The Survey stresses: “while maintaining the existing levels of quality may not be a problem, there is a significant room for quality improvement in all sectors.” This is also true of “enterprise management, production and process technologies, product design, skill and labour productivity.”
A key area requiring sustained hard work is to ensure compliance with the growing maze of global standards and “new importer conditionalities.” “A major challenge faced by developing countries is the lack of national capability to produce according to required standards and technical regulations, applied in the international markets.” These are many.
“In addition to product-related standards and technical regulations, system standards are rapidly gaining currency. More and more international buyers ask for the proof that internationally recognized—-certified-—operational systems and procedures are in place for the control of food contamination. Food Safety Management System (HACCP), quality management (ISO-9000), Environmental Management Standard (ISO-14000), Product Traceability, Social Accountability (SA-8000), Occupational Health and Safety and others.”
There are no or minor problems as to access to information on what product standards are relevant, information on packaging and labelling, product testing in internationally recognized overseas laboratories, mandatory local testing required by local authorities for exports and compliance with quality management system ISO-9000. A large majority of exporters mentioned non-applicability of Good Agricultural Practices Protocol (EUREPGAP), Occupational Health Standard (OHSAS) and Traceability.
“Non-applicability” of ISO-14000 was indicated by most of the textile and leather exporters, because, except for bleaching and dying, there is not much environmental concern. Most of the leather tanning companies are already ISO-14000 certified. A sizeable number of exporters also indicated non-applicability of SA-8000, perhaps due to lack of awareness. More than half of exporters of fisheries indicated “no problem” with HACCP, but a third said it is not applicable.
SOBTIP says, “three major problems identified by a majority of leather exporters are: corruption in customs, customs formalities in home country and freight, shipping and transport infrastructure.” It calls for stricter action by Mr Abdullah Yusuf, CBR to end corruption in Customs, because he is trying a lot to reform his organization.
Better procedures and facilitation apart, the gut issue for industry, business and exporters is capacity expansion and that calls for sizeable investment. While FDI stays slow to arrive, and fluctuates, domestic investment has to be stepped up in a big way—-and fast.
Investment is specifically needed in new equipment and technology, product design, and worker training. During the past three years, private entrepreneurs and exporters of textiles, leather and agro-food products did invest in new equipment and technology, additional staff for production and quality systems, product design and worker training.
But, investment was “ quite low in fisheries. “Exporters in all sectors plan future investments in capacity building—-the highest planned investments being in the textiles, followed by leather, agro-food processing and fisheries. A majority of exporters prefer support from the government.
Some specific steps will are required to expand capacity. In textiles, the level of quality was the major factor, leading to larger exports, followed by maintaining a given quality, production equipment, and process and enterprise management. Reduced market price and profit margin were the key elements for decline in exports, followed by a shift in foreign market demand, quality of input and product raw material, on-time delivery and tariffs.
Quality pushed leather exports, too, followed by production equipment and process technologies. Reduced market price and profit margin, followed by quality of input and product raw materials, and working capital caused a decline in exports. Enterprise management was the key success factor for fisheries, followed by quality, market price, working capital, profit margin, food safety management system and minimum required export quantity.
Production equipment and process technologies and packing materials were the causes for a decline in exports. The most significant factors for larger exports were degree of quality and market price, followed by on-time delivery, enterprise management, quality management system, profit margin and access to market intelligence.
Nearly 75 per cent of textiles exporters, 60 per cent leather exporters, and 40 per cent of agro-food exporters did not perceive compliance with quality management system—ISO 9000 was a problem.
However, large investments are required in new equipment and technology product design and workers training in order to expand supply capabilities and to attain world market standards.
Most of the textiles and leather entrepreneurs have invested in these areas. A majority of exporters are unaware of the Agreements on Agriculture, SPs (Agreement on Sanitary & Phyto-Sanitary) and Intellectual Property Rights, technical barriers to trade, trade-related intervention, subsidies and countervailing measures, and safeguard actions.
Some 60 per cent of textile exporters are aware of the Agreement on Textiles and Clothing, but a majority of exporters indicated no dialogue between business and government on various WTO agreements.
What should be done to enhance business potential, capacity, production, exports, meeting the domestic demand, reduce the cost of doing business and the cost of production? Steps have been taken in some of these areas, but considerable action is still needed.
The government and the stake holders will have to move in several directions, quickly, effectively. CBR’s restructuring is “crucial” and real test is frequency and duration of contact between taxmen and businessmen.
Improvement of customs procedures, reduction in regulatory uncertainty and transparency in regulations on labour, health, and environment, consolidation of labour levies and linkage between productivity and benefits are required. The industry needs cheaper power and other utilities, faster connections and assured regular supplies.
Improvement in telecom and transport, and law and order is needed.
Increasing value addition by making brand names acceptable, improving labour skills and productivity, strengthening industrial clusters through networking enterprises to cooperate and compete, setting up common facility centres for new technology and production of better quality goods.
Aren’t these lot many things to do? But, then there is no easy road to do global business in the present century.
Can Pakistan compete globally while trade barriers and other constraints exist? This is a challenge to meet not only if it has to export more, but also if it wishes to retain its domestic market that it is loosing to massive smuggling, unofficial trade, and a flood of low priced products from abroad— ranging from China to India, Thailand, and even Bangladesh.
