April 14, 2007	Saturday	Rabi-ul-Awwal 25, 1428

ISLAMABAD, April 13: The government is considering an "export-oriented industrial policy" which seeks further tariff rationalisation and proposes freight subsidy and duty-free import of raw material.

Informed sources told Dawn here on Friday that a presentation has been given to both President Gen Pervez Musharraf and Prime Minister Shaukat Aziz over the proposed policy to significantly encourage exports which were declining particularly due to tough competition being given by the Chinese and Indian products.

The officials concerned have been told to partially incorporate various recommendations of the export-oriented industrial policy in the medium-term development framework (MTDF-2006-2011).

Sources said that a final presentation is likely to be given to the president and the prime minister soon to formally approve the policy.

This policy also seeks to offer subsidies in the participation of fairs and exhibitions and holding specific fairs for Pakistan.

Likewise, subsidy for introducing products in the export market and the assistance of the embassies in locating the demands for products have also been sought in the export-oriented industrial policy.

Tariff rationalisation, a source said, was needed to considerably benefit the export industry.

"All imported raw material must be zero-rated," he said, adding the basic materials, including that of steel and plastic, caustic soda, should be allowed duty free to help the weakening export industry.He said a few old industries were allowed to import some kinds of duty-free raw material, but the facility needed to be offered to new industries also.

Asked about the opposition by the World Bank and the Asian Development Bank (ADB) for offering subsidies, the source said that Pakistan would have to consider its own interest which demanded such facilities to exporters.

Pakistan has pursed an import-substitution policy that has resulted in high cost and low quality products. Export orientation ensures low-cost and good quality products because otherwise the country would not be able to compete.

The source referred to some proposals, contained in a study, and related to restructuring of industries for which the government has been urged to select few economic activities in consultation with the private sector.

The study proposed that besides the manufacturing sector and traditional industries of food, textiles and leather, the government should focus on chemicals, electronics, electrical and non-electrical machineries.

Since basic strategy is the promotion of the private sector who should make an optimal choice of economic activities, the study proposed a four-pronged strategy.

Firstly, protection to various economic activities should be neutral and let the private sector decide where to invest. Secondly, with a view to providing equal effective protection rates to various sub-processes, proper cascading of tariffs, should be ensured. Third, the basic raw materials and marginally processed raw materials and import machinery should be duty free. Fourth, fiscal incentives should be used for diversification of activities towards those that have high growth potential.

The government should provide maximum fiscal incentives to pioneer industry, high technology industry and strategic industries. Pakistan used to have five-year tax holiday for pioneering industry in the 1980s and 1990s but hardly any investor made any use of it.

"This may be reintroduced and provided to the industries using new and emerging technologies", the study said.

Similarly, higher incentives should also be provided to strategic projects that involve products or activities of national importance.

These include heavy capital investment with long gestation periods, have high levels of technology, and are integrated, generate extensive linkages, and have significant importance on the economy.