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Published 04 Apr, 2016 07:01am

Trade policy promises without path

THE long delayed Strategic Trade Policy Framework for 2015-18 was finally announced last week. It aims to enhance exports to $35bn by 2018, which would require a miracle.

Exports have been falling in recent years but the new benchmark would mean boosting them by 36pc annually.

We’ve never managed to do this in the past. Fortunately, previous governments had similar ambitions: in 2007, a target of $43bn to be achieved by 2013 was fixed and later $95bn cumulative exports were to be achieved during 2012-15.


The key issue is to make Pakistan and its industries a part of global value chains


Sadly, the goals went unmet, they are now forgotten and few questioned why or how we failed.

The rationale provided in the new STPF, for achieving this jump of almost 50pc in exports over the next two years, are certain supposed enablers such as product sophistication and diversification; access to new markets; institutional development and strengthening, and trade facilitation. However, none of these are new. They are mere wish lists without any clear idea as to how they would be realised.

The elephant in the room is our tariff policy. It needs serious overhaul. There is no example of any other country addressing its trade policy without focussing on the tariff policy, since the two are closely linked.

Pakistan has failed to reform its tariff structure since 2002 and in fact in recent years has reversed many of the earlier reforms. For example, until July 2014 a substantial number of industrial raw materials and machinery were duty-free. Now almost none of the 6,000 tariff lines are zero-rated. Enhanced import duties on raw materials and machinery have obviously reduced competitiveness of the economy and consequently the volume of exports is rapidly falling.

Pakistan’s economy was already among the least integrated and the most protected ones in the world and in the last two-three years this isolation has been exacerbated. When the WTO reviewed Pakistan’s trade policy in early 2015, it noted “overall tariff levels remain high, which weakens productivity growth and constitutes an impediment to efficient resource allocation and the integration of Pakistan into global value chains.”

The key issue that should have been addressed in the trade policy was how to make Pakistan and its industries a part of global value chains (GVCs). In other words, how can we make it easier to import and export intermediate inputs. It is being a part of the value chains that determines the success of any country in raising its exports and attracting foreign investment.

The policy should have been a roadmap for adopting a ‘whole-of-the-supply-chain’ approach. For this purpose, it should have addressed certain vital issues such as improving business environment, lowering taxes on international trade, and getting rid of the import substitution policies.

Unfortunately, there is little or no commitment in the policy to address any of these issues. Pakistan’s ranking in the World Bank index on the Ease of Doing Business for ‘“Trading Across Borders’ has been slipping each year. Our recent commitment under the WTO Trade Facilitation Agreement shows very low ambition. In fact, the indications are that Pakistan would not be undertaking any reforms in its existing trade facilitation regime.

In fact, there seems to be a disconnection between various policymaking bodies of Pakistan. For example, the recently announced Automotive Development Policy continues import substitution in sharp contrast to the export-led growth envisioned by the commerce ministry.

The STPF seeks transitioning from a ‘factor-driven’ economy to an ‘efficiency-driven’ and ‘innovation-driven’ economy. In view of these lofty goals, one would have expected the ministry to accede to the WTO Information Technology Agreement and wrap up its deliberations, which have been going on for the last 18 years. On the contrary, the trade policy has restricted import of 3D printers which will only be allowed with the permission of the ministry of interior.

Many view this new technology as the harbinger of a third industrial revolution. This takes us back to the days when at the beginning of the information technology era computers were subjected to cumbersome import procedures. Must we repeat that mistake by depriving our economy of the latest innovations?

The STPF has announced several new schemes to be supported through subsidies. Hand-outs are always welcomed by potential beneficiaries and the government should have realised that such schemes have been grossly misused in the past.

Several scams involving billions paid in export subsidies to fake exporters during the PPP regime are still under investigation. We also open our exports up to the risk of retaliatory duties. By giving subsidies to some sectors and denying them to others the government is picking winners and losers. This should not be the role of the state.

The framework is more a list of promises than a path towards export-led growth. It speaks to the competing goals on the minds of policymakers: raise revenue by increasing the cost of trade or grow the economy by boosting exports. For better or for worse, it’s unlikely that much will change within the lifespan of this new document. Pakistan needs a more coherent trade policy to remain competitive and achieve growth rates similar to our neighbouring countries.

The writer is a Senior Fellow, ICTSD, Geneva.

Published in Dawn, Business & Finance weekly, April 4th, 2016

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