Pakistan's major trading partners — who reviewed the trade policies and practices pursued by the country since 2008 — concluded in a WTO meeting in Geneva last week that Pakistan’s expanding economy needs more fiscal consolidation, infrastructure expansion and trade liberalisation.
The country’s regulatory framework and development initiatives also came under strong scrutiny.
The participants put over 200 questions over what they considered hurdles in the way of freer and larger trade volumes. Most active in the discourse were representatives from the US, China, EU, Malaysia, Canada, Singapore, Australia, Argentina and Japan.
Some members raised the issue of the presumptive income tax of 1pc on export proceeds. They believed that exporters pay lesser income tax as compared to non-export companies, and a member termed this difference a subsidy
Ahead of the review, the WTO secretariat had prepared a comprehensive research document on Pakistan’s trade regime. Pakistan had responded through a position paper to the WTO secretariat, highlighting the government’s efforts to improve the economy and foreign trade. These two documents became the basis for the five-year review.
Trade policymaking in Pakistan has been a ‘ritualistic’ process. It is focused on demands for cash subsidy on exports or a ban on imports or tariff increases to ward off international competition.
There is no overall strategy, and, at best, the trade policy tends to adjust competing interests and often ends up promoting interests of certain groups at the cost of others. This approach was brought into the spotlight by the queries at the review meeting.
The frequent use of ad-hoc trade policy instruments, mostly SROs — tax and trade-related special regulatory orders — came under discussion. These ad-hoc trade policy instruments, it was stated, have undermined the predictability of the trade regime.
For example, the government has imposed 10pc regulatory duty on the import of non-essential and luxury goods. Regulatory duties on the export of raw hides and skins and molasses etc are being levied to cater to the local value-added domestic industries’ demand for raw materials. Recently, the government imposed regulatory duty on the import of sugar and wheat as well. The EU wants these duties to be withdrawn.
Most of the countries wanted Pakistan to lift its ban on the import of poultry and poultry and livestock products from negligible-risk countries. The WTO members appreciated Pakistan’s commitment to phase out the remaining tax concessions and exemptions by the end of June 2017.
Some members also raised concerns over the high degree of protection afforded to the domestic automobile industry. While encouraging the rationalisation of tariffs, they appreciated the move to end the SRO culture.
While welcoming a small reduction in the applied MFN tariff since 2008, several members voiced concerns with respect to the big difference between applied and bound rates. Similar reservations were also expressed about the abolition of duty-free tariff lines.
A number of members raised the issue of what they considered to be a high degree of overall tariff protection, which favours import-substitution. Subsidies in various forms were also questioned. These included subsidies for promoting exports and applying mark-up rates for export finance schemes to promote certain products. Certain members reiterated the need to reduce subsidies and export prohibitions.
Other issues that were raised included the support price for wheat, pricing in the pharmaceutical industry, import- licensing procedures, safeguard mechanisms and the high number of anti-dumping investigations.
The lack of notifications, particularly those pertaining to agriculture and domestic support, was also mentioned.
Contrary to these observations, a senior Pakistani official who was a part of the review said everyone had appreciated and encouraged the elimination of SROs.
“We generally got a good response; the members appreciated our trade and economic performance.” He added that, by and large, the response was very positive. “They told us to improve our cost of doing business ranking, and encouraged Pakistan to sign government procurement agreements and information technology agreements,” the official said.
The proposed establishment of the Exim Bank was also highlighted during the review. The bank is likely become operational by the end of this calendar year. The imports and exports of all sectors, including agriculture, will be eligible for financing by the Exim Bank.
The issue of the presumptive income tax of 1pc on export proceeds was also raised by some members. They believed that exporters pay lesser income tax as compared to non-export companies. A member termed this huge difference in income tax a subsidy.
Other issues raised during the review included transparency in procurement rules, effective enforcement of standards, complete capital account liberalisation, effective supervising authorities for ensuring coordination and compliance and progressive liberalisation in trade and services.
WTO Director-General Roberto Azevêdo, in his concluding remarks on Pakistan’s trade regime, said he would like to underline that despite the many challenges faced by the country, its economy had proved to be resilient and several of its policies since the last review demonstrated its commitment to moving towards more transparency and predictability.
“I am encouraged by the progress Pakistan continues to make in its pursuit of a more prosperous future. Pakistan has a vast array of natural resources, a strategic geographical position and a large, willing and young labour force,” he said.
“The challenge for Pakistan is to harness this potential through appropriate policies and reforms, including improving the business climate; further liberalising the trade regime and ensuring its predictability; reducing state intervention in the economy; providing adequate infrastructure facilities, especially those related to the power sector; and improving the fiscal situation by broadening the tax base,” he concluded.
Published in Dawn, Economic & Business, April 6th, 2015