But consider that only 45 countries rank below Pakistan and as many as 109 above. That is a depressing thought. There are a host of factors for this sorry state of affairs, but leaving other things aside, experts on international economics believe that the country could have fared much better had it rationalized just its bound rates.
The bound rates are the maximum tariff limits notified by a specific country. It implies that the country has committed to WTO not to raise tariff rates above their notified bound rates. Any violation would be considered illegal.
There is an astounding gap of 50 per cent between Pakistan’s bound and applied rates. Most countries have a buffer of just about 5-10 per cent between the two rates to allow them space to manoeuvre in different categories of tradable items.
The applied tariff regime of Pakistan is quite liberal where average tariff rates are not any higher than 16 to 17 per cent. Tariffs for agricultural products in the country range between 0-10 per cent and for industrial goods they fall between 5-25 per cent.
Compare them with the bound rates: For agricultural products those are on average as high as 101 per cent. And for industrial products the average bound rate looms above 95 per cent. For some products that are not bound, there are the shackles of specific duties, which have been imposed.
These include the automobiles sector. Except for textile and clothing where our bound and applied rates are equal, our bound rates are, in general, 50 per cent higher than the actual applied rates.
This anomaly must have weighted heavily against Pakistan when the prestigious Heritage Foundation of the Wall Street Journal rated Pakistan as one of the least free countries on its 2006 Index of Economic Freedom.
The index measures 161 countries against a list of 50 variables divided into 10 broad factors of economic freedom.
Those broad factors are: trade policy, fiscal burden, government intervention, monetary policy, foreign investment, banking and finance, wages and prices, property rights, regulation and informal market.
In this rating, the lower the score, the greater the freedom. A high score suggests greater level of government interference in the economy and less economic freedom.
A look at the chart shows that Pakistan, unfortunately, carries more marks than many least developed countries.
Senior government officials who were asked to comment, did not wish to be identified. But they were not able to defend the policy.
A senior commerce ministry official hinted that the government was considering this year as to how the bound and applied rates could be synchronized.
“Hopefully this year bound rates will be revised”, he said, and added: “The government has yet to work out a formula to be applied to arrive at a reasonable bound rates for all items covered”.
An expert on WTO when grilled seemed totally confused. He admitted that he could not see any wisdom in such a disparate policy in terms of tariff rates. A senior economist from Lahore when contacted to seek his views on the subject, said bluntly that the commerce ministry was ill- equipped to handle technicalities of trade relations in modern times.
“We lack expertise and support staff to carry out background research needed to evaluate impact of high bound rates on Pakistan’s economy”, said this economist. He observed: “Even if some people understand and have taken a stand on the matter, the hierarchy is not receptive because to accept an idea they always need it to be endorsed by the donors or some reputed consultants”.
In neighbouring India, the unified bound tariff rates on various items range between the high and low of 40 and 25 per cent. The simple average bound tariff rate for non-agricultural products works out at 34.3 per cent.
In January 2004, the country also made significant reduction in applied tariff rates. It maintained the maximum tariff rate for agricultural products at 25 percent. India initiated the process of opening up of its economy in early 1990s.
Pakistan, in contrast initiated the process of liberalisation in early 1980s, which was much before other countries in South Asia did. It took the risk of exposing its nascent industry to international competition. Industry in other neighbouring countries during 1980s grew in comforts of protectionist environment.
Harassed local players here were lectured on benefits of competitiveness. With lowering of tariff barriers, international giants entered the local market and pushed smaller local players to the sidelines.
There were scores of medium sized businesses in electronics, chemicals, leather products, toys, etc, which were left with no option but to wind up their businesses.
The fact is that trade was, then promoted at a heavy cost of the local industry and economy. More enterprising industrialists then turned to trading, so as to brave the tide of foreign items influx.
Aid dependent Pakistan was pressured by the donors to introduce vigorous structural adjustment programmes.
The economic policies of liberalization, denationalization and deregulation entailed adjustment cost.
No one has counted how many factories that provided employment to the local labour, were closed down, but the number ought to be enormous.
But then, why must an industrialist keep the chimneys running, when the price of goods he produced, could not even cover the costs, thanks to the cheaper imported wares?
Hundreds of jobs were cut. The government development spending dropped as it stepped up efforts to control expenditure.
Utilities cost started to escalate. And all of that added up to compound economic problems of the people.
All that the government did was to ask for patience and a promise of a ‘trickle down effect’ of the gains. It is debatable, if those gains have really trickled down.
Now, after years of economic hardships, Pakistan’s economy seems to be in the process of turning around.
There is a marked improvement in growth rate. But concerns are still expressed over the distributive aspect of the benefits of economic expansion. Some economists and experts view this growth to be auto driven.
They feel the government intervention is rather ad-hoc and policy options adopted are the ones advised by western donors instead of being based on quality research and an indigenous long-term vision for the country. The rate of progress, therefore, is much lower than potential.
Some knowledgeable people even express concerns over sustainability of the current rate of economic growth in absence of synchronized policies that harmonize conflicting interests of the stake holders.
The government needs to come up with an explanation as to where did we loose the edge of an early starter on liberalization path?
Why the journey on this path for over 25 years has failed to pay the kind of dividends that the people of the country deserve?
More government, is surely not the answer. But efficient, responsive and responsible government can serve to remove hitches and hurdles in forward march of the economy.