Customs revenues, which had until recently formed the largest single source of revenue for Pakistan, may vanish altogether soon and become a thing of the past.

That may be the outcome of a move by the United States to do away with customs tariff altogether to make movement of goods worldwide easy and smooth by the year 2015, and prior to that bring down the tariff to five per cent by 2010.

The US wants to achieve that through the mechanism of the World Trade Organization (WTO) and had put forward that proposal at its recent meeting.

While the developed countries are in favour of such a move, the developing countries are outraged. They just can’t imagine doing away with the large revenue from customs duty as well as giving protection to their industries which do not want to face an open competition with the industries of the developed countries.

The US is countering that argument with the assertion that 87 per cent of the exports of developing countries are manufactured items and so they have little to lose through the proposed change.

Much of such exports from the developing countries could be primary manufactures with little of the value-added. or even none at all. In the area of textiles, for example, they could be coarse manufactures which bring little more than the value of the cotton if exported as a raw commodity. Or they could be simply yarn with a low price tag, as has been the case with much of Pakistani textile exports.

The developed countries have little to lose and much to gain by sweeping off the customs tariff around the world as their revenues from customs tariff now is low,while their primary source of revenues is income and corporate tax.

In Pakistan the customs tariff which in the 1970s and 1980s had been as high as 120 per cent has been coming down. Two years ago that was 35 per cent, and now 25 per cent, under external pressure.

The customs revenue last year was Rs50.5 billion against the budgeted Rs69.6 billion and the revenue projection for the current year is Rs56.5 billion.

The customs revenues the country achieved last year was as low as the Rs50.5 billion which it achieved in 1990-91. Thereafter it rose to Rs88 billion in 1994-95 and then to Rs89 billion in 1995-96. After that they have been coming down, particularly following the reduction of the import tariff from 35 to 30 per cent and then to 25 per cent on an average. Luxury items like cars are the exception. To add to that, there is the 15 per cent general sales tax on most imports.

In fact by now the general sales tax has become the largest single source of revenue for Pakistan. The GST revenues this year is to be Rs206 billion, within the overall tax revenues of Rs. 460 billion or around 45 per cent.

Compared to that income and corporate tax revenues are a low Rs143 billion.

Judging by the manner in which the sales tax revenues have been increasing steadily and rapidly— from Rs19.9 billion in 1990-91 to Rs205 billion this year - Pakistan may not be much of a loser if the customs tariff goes off altogether. The rise in sales tax revenues over the years will be more than the loss of Rs50 billion as customs revenues.

But the vanishing of the customs tariff may present a serious threat to Pakistan’s industry if enough protective measures of a non-tariff kind are not devised within the next 8 to 13 years.

Pakistan and other developing countries may be able to dilute or delay the abolition of import tariff, but will not be able to block that altogether. Hence the Pakistan government and the industries have to prepare for the serious challenges to come from now on.

Prior to that, the textile quota system which provides a very large cushion to the textile industry of the developing countries will vanish by the end of 2004 and Pakistan’s textile industry will face severe and sustained competition from 2005. And since the textiles form about two-thirds of Pakistan’s exports the momentum which will enable the industry face a world without textile quotas should be able to carry the industries as a whole forward to meet the challenge of doing without any tariff protection at home.

The fact is that if our industries will find their home markets attacked following the end of the import tariff all around, they will have also the advantage of the markets of all other countries being opened up for them without tariff barriers. If they are truly competitive and efficient they may be able to export far more to other countries then the sale they may lose at home as foreign goods become cheaper here.

The US and other developed countries have been advising Pakistan to truly diversify its exports instead of staying too focused on cotton. While we agree to do that, we have not done much in actual practice. The time has come for such slackness to go and a more adventurous spirit in our manufacturing sector and exports. Our exporters have to look for new markets instead of confining their interest to traditional areas like the U.S. where they have profited by the quota system which is a kind of licence to print money. And we have to look for new products to export and make them truly value-added. The gain of 8 to 10 per cent in value by making our cotton totally clean is a pointer to the direction in which we should be moving.

Storage and transport facilities in the country should also improve and cut down waste and infection. The infra-structure has to be developed adequately to make smooth and speedy movement of goods possible. And we have to remove the exporters’ complaint that Karachi port is the most expensive port in Asia because of the malpractices prevalent there.

Workers have to be trained to become more productive and efficient. And business practices have to become more efficient and upright and there should be far less complaints against our exporters from our commercial secretaries abroad.

Above all the cost of production has to be brought down. Credit has to be made cheaper as well as electricity. Cutting the cost should be the prime concern of the government and industry, and trade and industry should be ready to accept lower levels of profits instead of the high real profits they are accustomed to. And the government should ensure a steady supply of power, gas and water, and reduce the number of unscheduled holidays. In effect we should have a truly modern and highly competitive economy.