ECC rejects intervention price for cotton procurement

Updated May 22, 2020

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Approves incentive policy for local manufacturing, assembly of mobile phones. — APP/File
Approves incentive policy for local manufacturing, assembly of mobile phones. — APP/File

ISLAMABAD: Amid contesting agriculturists, the Economic Coordination Committee (ECC) of the cabinet on Thursday rejected an intervention price for cotton procurement in the public sector and approved an incentive policy for local manufacturing and assembly of mobile phone sets.

Informed sources told Dawn that Minister for National Food Security and Research Syed Fakhr Imam’s recommendations for a minimum intervention price for procurement of cotton through the Trading Corporation of Pakistan (TCP) came up for discussion at the ECC meeting.

Originally, Mr Imam came up with Rs4,224 per 40kg intervention price which was scaled down to about Rs4,000, but the proposal was turned down on merits of the intervention price rather than the amount.

Foreign Minister Shah Mehmood Qureshi attended the ECC meeting as a ‘special guest’ for pleading farmers’ case for a minimum intervention price to improve their cash flows and encourage them to grow more crop. Minister for Economic Affairs Makhdoom Khusro Bakhtiar also supported the farmers’ case.

Approves incentive policy for local manufacturing, assembly of mobile phones

Adviser to the Prime Minister on Commerce Abdul Razzak Dawood countered the move. His prime argument was that textile industry was already disadvantaged to regional competitors like India because of their cheaper and better quality cotton availability. If the government blocks local textile mills from cheaper avenues, including through imports, it would mean damaging textile exports.

Adviser to the PM on Institutional Reforms Dr Ishrat Hussain, Minister for Industries and Production Hammad Azhar and Special Assistant to the PM on Petroleum Nadeem Babar and Finance Secretary Naveed Kamran Baloch supported the counter narrative and agreed that intervention price would be counterproductive and open up a Pandora’s box.

Adviser to the PM on Finance and Revenue Dr Abdul Hafeez Shaikh, who presided over the meeting, said that while it was necessary for the government to support cotton farmers, there should be some targeted mechanism to directly benefit the deserving, instead of intervention price. He advised Mr Imam to come up with a long-term solution to improve quality and increase output of cotton, saying the government would provide every possible support.

It was argued that cotton was a commercial crop and could not be compared with wheat or sugarcane crops for which support price or intervention price could be justified on the premise of food security. The users should be free to obtain their raw material from wherever they find feasible. Also, there is no mechanism in place to ensure that intervention price would actually be paid to farmers and would not be misused by middlemen.

Moreover, cotton crop is not a federal subject and hence the federal government can support cotton seed improvement and research and development and may bring the provincial governments on board to provide subsidy and ensure minimum intervention price through the TCP. Again, there is no binding on textile industry to purchase cotton from the TCP when they can procure cotton at lower rate from other sources, including through cheaper imports.

An official statement said that the ECC had an in-depth discussion on the matter and maintained that an effective and sustained support to cotton growers was vital and necessary due to importance of cotton for the local and export industry. However, such a support should be extended in the form of direct targeted subsidy to the formers.

The ECC directed the Ministry of National Food Security and Research to present proposals for promoting research and development and to improve seed quality and yield per acre. The ECC decided that since the matter was not federal in nature, a mechanism should also be adopted by the ministry to engage with the provincial governments, particularly Punjab, at the higher government level for introducing some intervention with regard to ensuring better price to cotton growers.

Mobile phone manufacturing

The ECC approved the Mobile Device Manufacturing Policy to promote local manufacturing and assembly of mobile phone handsets and directed the relevant ministries to engage with the investors to get ready for relocation of their industries to Pakistan as soon as the Covid-19 lockdown eased.

It was reported that some vendors from Europe and China were planning to relocate their mobile phone handset factories to Pakistan as they move on to the next level of industrialisation in line with 5G technology roll out.

The policy is targeted at localisation and indigenisation of parts of mobile phones.

The ECC was told that under the policy, parts of mobile phone handsets would be used for the entire range of mobile phone devices produced in Pakistan instead of being limited to a particular model.

The policy will have a positive impact on allied industry, including packaging and plasting. The expected arrival of high end brands will give local industry an opportunity to become part of the global value chain. In addition, setting up of research and development (R&D) centres and an ecosystem for software application is also visualised under the policy.

As part of the policy, the ECC approved removal of regulatory duty for CKD/SKD (completely knocked down/semi knocked down) manufacturing by the PTA approved manufactures under Input/output Co-Efficient Organisation (IOCO) approved import authorisation.

The ECC also approved removal of fixed income tax on CKD/SKD manufacturing of mobile devices up to $350 category and increased fixed income tax on $351-500 category by Rs2,000 and more than $500 by Rs6,300 on CKD/SKD manufacturing only.

It also approved removal of fixed sales tax on CKD/SKD manufacturing of mobile phone devices. The Pakistan Telecom Authority (PTA) will allow activation of handsets manufacturing in the country under import authorisation of inputs by IOCO in CKD/SKD kit (8517.1211) and not under HS Code 8517.7000 i.e. parts. This will eliminate misdeclaration in parts category at the import stage.

The activation of CBUs (completely built units) imported through notified routes after payment of all levied duties and taxes as fixed by government from time to time will continue till further amendment.

In up to $30 category, words “except smart phones” are to be inserted for CBU imports under 8517.1219 to avoid misdeclaration. R&D allowance of three per cent will be given to local manufactures for exports of mobile phones and locally assembled/manufactured phones will be exempted from four per cent of withholding tax on domestic sales.

The government will commit maintaining tariff differential between CBU imports and CKS/SKD manufacturing till the expiry of the policy. The local industry will ensure localisation of parts and components as per roadmap included in draft policy and the Engineering Development Board would act as secretariat of the Mobile Phone Manufacturing Policy and ensure development of allied parts, components and devices.

Published in Dawn, May 22nd, 2020