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THE proposal forwarded by the ministry of commerce to further liberalise the trade regime by introducing a uniform rate of 25 per cent custom duty was not taken up in the meeting of the Economic Coordination Committee held on August 16 as scheduled.
Sources in Islamabad, privy to the meeting, confirmed that the contentious issue of duty reduction was not even discussed.
Earlier reports suggested that the ministry of industries and production (MOIP) and the Federal Board of Revenue (FBR) were opposed to the proposal. The MOIP resistance stemmed from its belief that the draw-down of tariffs would further hurt a stagnant manufacturing sector. The FBR saw a dent revenue if the custom duties were cut.
The proposal seeks to bring down custom duty to the 10 per cent level over the next few years in phases; for now it proposes uniform rate of 25 per cent on all imports.
The move follows a study commissioned earlier by the Planning Commission to suggest structural changes to improve productivity and manufacturing competitiveness.
The study was not available on the Planning Commission website but an official who wished anonymity told Dawn that the foreign consultant who conducted the study qualified his recommendations. “The professor was cautious and did mention that his recommendations were based on the data provided to him.”
The researcher hinted at insufficient facts and figures. “Well the quality of advice depends on the quality of information provided”, he commented talking to a colleague in Pakistan.
To assess the summary sent to the ECC and understand the position taken by different stakeholders, it might help to start by answering the following three questions: if implemented what would be its economic impact? who initiated the move? why now?
Pakistan is fairly an open economy with an average tariff rate under 20 per cent. Only big ticket luxury items and automobiles have higher rates of duty. If implemented, the direct beneficiaries would be the elite who use imported luxury items. Other major gainers would be foreign suppliers and producers of all such goods who would gain greater foothold in the Pakistani market with fall in the prices of their goods with reduced in duty.
Consequently, the liberalisation would directly hurt, at least in the short term, the sectors that would be exposed to a stiffer competition. In Pakistan the automobile and light engineering sector is expected to bear the brunt. Besides, the reduced rates will depress the custom duty collection. This gives answer to the first question.
Some background information suggests that the move has not been advised by donors or the world trade regulators, the WTO.
The last country review of the WTO conducted in 2008 presented Pakistan in a very positive light. Trade experts believe that Pakistan is ahead of the WTO mandate.
The sources in the relevant circles confirmed that the ministry of commerce acted on a signal from the Planning Commission.
The federal secretary commerce, Zafar Mehmud was away and Amin Faheem, the federal commerce minister was not available to offer formal comments.
A senior officer defended the proposal. “This is what commerce ministry is for: to promote trade. Ultimately free trade helps and not hurts a country”.
“Had it been so simple, the West would have abolished all duties and you wouldn’t have had hard time negotiating for the market access,” said a trade expert defending the position of the ministry of industries.
“Unfortunately, life and the world is little more complex than that. If you see through the white noise, all countries, big and small, jealously guard their interests and liberalise only as much as they deem appropriate. Depending on their situation, all nations support and protect their indigenous industry and farm sectors”, he added.
“Please do not try to read too much in the move. It has probably been initiated (though least supported), by the members of the lower and upper houses of the parliament to bring in cars of their choice in their budget before their terms ends”, Chaudhry Mohammad Saeed, ex president Federation of Pakistan Chamber of Commerce and Industry told Dawn over telephone from Mirpur, Azad Kashmir.
On the possibility of a cut in the price of imported items in other categories such as food popular amongst urban middle class, he dispelled the impression of any change in the price trend. “Do you really believe that imported food items available in Pakistan are imported formally on full duty payment?”
“A formal import would be prohibitively expensive. So either goods are under-invoiced or bought on one-third of the price from super markets in Dubai mandated to remove from shelves edibles three months before expiry or diverted from diplomatic bonded warehouses in connivance with foreign embassy officials, airlines crew and regulators”, Saeed explained.
Kamran Mirza, CEO Pakistan Business Council was cautious and refrained from opposing or supporting the proposal. “As a matter of position, we support liberalisation but for specifics I need complete information to be able to articulate the PBC stand”, he said when contacted over telephone in his office.
“To me, it seems to be the first step towards implementation of the growth strategy approved by the cabinet recently. I am little surprised as I was told that the prime minister has requested for an implementable plan before moving ahead with its actual implementation”, Dr Rashid Amjad, Director, Pakistan Institute of Development Economics commented.
Some time back, Dr Nadeem ul Haq, deputy chairman Planning Commission expressed frustration over the resistance he was facing in implementation of growth strategy. “The economic potential has been curbed by the parasitic elements in the society who suffer from phobia of asset collection. They feed on concessions and are averse to ideas of competition and hard work.
They are the real stumbling blocks in the way of progress,” he told Dawn discussing out-of-box thinking to revive growth.
“It is hard to judge a policy in absence of a proper projection of loss and benefit to the economy expressed numerically.
Before offering my comments I would like to know how much the FBR is expected to lose in revenue and how much the economy would gain in productivity and competitiveness through increased competition”, said a senior bureaucrat watching the current developments from a distance.
