It seems that the trade policy 2007-08 is intended to be unveiled in two phases. Apart from the policy announced on Wednesday last, the market believes that the government may come out with an export strategy for textiles in next one to two weeks.
“The policy outlines a strategy for only 35 per cent of the $19.2 billion proposed export target for 2007-08,'' said Fawad Ejaz, a representative of the leather industry while offering his comment on the new policy.
Fawad is bitter because the proposal about the six per cent research and development rebate on the export of leather garments has been put off indefinitely by the Economic Coordination Committee of the Cabinet held last month. The same meeting is stated to have adopted an incentive package for the textiles.
The Federal Commerce Minister Humayun Akhtar had moved the proposal about six per cent R and D rebate for leather garments export along with readymade garments at an ECC meeting two years ago. In 2005, the ECC had decided to offer six per cent rebate on readymade garments which was expected to continue till 2009. However, the same incentive was not approved for leather garments. The commerce minister did not attend the ECC meeting last month.
“In 2006-07, leather garment exports were down by more than 24 per cent,'' Fawad disclosed saying that the R and D rebate was offered to footwear early this year but it was too late. Hence it failed to show an improvement in export performance.
Unlike the previous years, the chairman of the Export Promotion Bureau did not invite leaders of export associations for discussing problems pertaining to fiscal, banking, logistics etc and working out sector-wise export targets for fiscal 2008. The chairman of the recently formed Trade Development Authority of Pakistan (TDAP) did not talk to exporters. “We are not aware as to how much we are expected to export this year'', a leather garment exporter said
There are many irritants which could have been addressed had there been pre-policy consultations. For example, exporters are allowed 100 samples every year for their buyers abroad. They want their ceiling fixed according to the ratio of their business volume. Big exporters have a large buyers' base and need to send more samples.
Carpet manufacturers and exporters are also upset over an import provision about semi-finished carpets for which an SRO has been issued. Yacoob Salehji, a leader of carpet industry has sent a protest note to the government stating that the decision has dealt a crippling blow to domestic labour-intensive carpet-making employing 1.2 million people. More than 60 per cent running cost of the industry goes towards labour charges. He fears that some businessmen might import semi-finished carpets from India, Nepal or China.
Exporters have also reservations about certain aspects of the Export Credit Guarantee Scheme which have made it almost impractical. Exporters say, about 20 per cent of the exports (about $3.5 to $4 billion) are supplied on credit for which they need insurance cover and cash flow to maintain liquidity.
It seems there is a built-in conflict within the government as to how to go about the international trade. The commerce ministry's performance is judged by the improvement in exports and prudence in imports. Imports are expected to serve domestic industry to produce export surplus and meet local market demands. But the finance ministry's sole objective is to generate revenue In 2006-07, the finance minister collected a record Rs841 billion taxes and duties. It has set a target of Rs1,025 billion tax collection in the current fiscal year. Import is one source on which the finance ministry relies heavily to collect as much as 43 per cent of taxes---import duty, sales tax and presumptive income tax. In 2006-07, the government collected more than Rs351 billion from imports. This heavy burden of taxes tend to cripple the industries. While commenting on sluggish export growth last year, the commerce minister in his policy speech on Wednesday pointed out that, ``the declining growth trend in the large scale manufacturing sector during 2006-07 from 10.7 to 8.8 per cent reduced our exportable surpluses''. Even this growth of 8.8 per cent came from imported-oriented auto and electronic industry for which the demand was created by the liberal bank loans. The consumer loaning now constitutes almost 20 per cent of the total bank loans portfolio. The revival of Pakistan Steel driven by price spiral of steel products also contributed to 8.8 per cent growth. But the export-oriented industries failed to come up to the expectations and the exports trailed behind the annual target.
In the current year too, the prime minister was a bit more optimistic while suggesting a $20 billion export target. But the commerce minister was somewhat cautious who wanted it to be less than $19 billion. The government finally settled it at $19.2 billion.
The policy for 2007-08 offers long-term facilitation and vision to the exporters. But the commerce ministry appears to be beset with limitation of funds. It has only two sources for funds at its disposal. One is the Export Development Fund and the other is Export Market Development Fund. The strategy to upgrade skills, production capacities, marketing capabilities, designing , exhibition etc. need a lot of money. Exporters have been given the incentives to obtain certification, open their offices abroad, development of branding.
But all said and done, exports are under the severe impact of high manufacturing cost mainly coming from inflationary trends, high interest rates, high utility tariffs and a miserable infrastructure.
It seems that the trade policy 2007-08 is intended to be unveiled in two phases. Apart from the policy announced on Wednesday last, the market believes that the government may come out with an export strategy for textiles in next one to two weeks.
