Although the new Trade Policy for 2004-05 is rich in its contents, encompassing a wide-ranging export-promotion measures, it lacks coherence and integrated approach in its format and presentation.
After the emergence of globalization and resultant liberalization of trade, the annual announcement of a trade policy, has assumed merely an annual ritual and this practice in many developing countries has been discontinued.
In fact, the export promotion is a sum total of a variety of factors and different policy frameworks, including taxation, industrial and monetary policies, which act as determinants of its pace and pattern.
The trade policy essentially focuses on restricting or liberalizing imports and exports of specific items and can at best highlight the role of allied and supporting components i.e. banking, insurance and shipping.
The new trade policy, in order to make up its diminishing role, now extends its scope to the areas which are covered by industrial or fiscal policies of the country. This new trend has also been strengthened because of being the industrial policy as non-entity for the last few years.
The last trade policy envisaged tariff reduction on certain items, in addition to the long-term projects for industrial development. Textile city was contemplated in the trade policy, but is being executed through the aegis of Ministry of Industries.
On this analogy, all investment-stimulating and production-augmenting measures that are taken in the budget, in the ultimate analysis, aim at generating export surplus and could be incorporated in the trade policy. This strategy leads to overlapping and duplication in functions, creates confusion and renders its comprehension and implementation difficult.
It was perhaps, due to this reason that in the trade policy of 1996-97, it was, in principle, agreed that instead of announcing annual trade policy, a long-term policy, say, of three or five years, having focus on macro-issues, would be announced. However, due to the change in government, the long-term stance to the policy could not be accorded.
A series of projects that were announced in the Trade Policy last year, could not be implemented, as they were a kind of recommendations to other ministries and the ministry of commerce was not directly involved in it.
While the export target of $12 billion for the year 2003-04 was accomplished, the imports outstripped the projected target of $12.4 billion and were valued at $ 15.4 billion. Textiles and garment's export amounted at $8.3 billion, which is 68 per cent of the total exports.
Other core categories, combined together, recorded an export of $2.53 billion, which is 19.2 per cent of our total export. The increase in other traditional products sectors, excepting rice and petroleum products, was either lower or had declined.
These sectors include leather and leather products, molasses, carpets, sport goods and surgical instruments. It will, therefore, be observed that performance of our traditional products other than textile and garments, rice, posting either marginal gains or decline, is a matter of concern as these currently account for 19.2 per cent of our total exports.
The non-traditional products categories recorded export of 13.2 per cent of our total exports. The base of course is still small. It is, however, reassuring in this context that the lion share of imports, consist of machinery and raw-materials.
The process of diversification, both in terms of products and market, has been very sluggish. Despite notable jump in exports, the fact remains that its base continues to be thin and exports are mainly concentrating in cotton, cotton-based products, synthetic textile, rice and leather.
These categories account for about 60 per cent of the total exports. Such a heavy concentration of exports in limited items and especially that of textile, could be a source of export instability.
Pakistan's main export markets are USA, Germany, Japan, U.K., Hong Kong and Saudi Arabia. Although the share of manufacturing has increased, but it mainly comprises labour-intensive and low-value items. Pakistan's share in global trade remains less than 1 per cent. This has to be improved.
The trade policy has not taken cognizance of the performance of a multiple organizations/boards, which are currently engaged in the promotion of export of specific items. What has been the role of Pakistan Software Export Board, the Defence Export Promotion Organization (DEPO) and Export Processing Zone in the promotion of export in their respective areas? The export of software is not more than $ 30 million, whereas in India it has exceeded the mark of $ 8 billion.
Pakistan evolved a regulatory framework, known as Electronic Transaction Ordinance, 2002, to conduct trade through E-Commerce. No mention has been made in the policy about conducting trade through this new mechanism. It is noteworthy that the global trade through E-commerce is now being run into trillions of dollars.
Some of the significant incentives/facilities in the policy are: re-location of industries and rehabilitation of industrial estates, setting up a communication centre in Islamabad. The extension in 25 per cent export freight subsidy and removal of ban on the import of cotton waste are some of the positive measures.
Steps have also been suggested to promote exports of items like fisheries, marble, granite, furniture, jewellry, footwear, sports-goods and surgical instruments. The permission to import a wide-ranging items including tractors, bulldozers, under the gift and transfer of residence scheme is a welcome provision of the policy.
In addition, a host of other export-promotion measures, (either direct or indirect), have been made and EPB has been made responsible to implement them through the Export Development Fund (EDF).
However, the down-ward revision of duty drawback on export of polyester-based textile products by CBR, was not appreciated by the exporters. Similarly, the rehabilitation of industrial estates through the partial financial support of stake-holders, was not welcomed by the business community.
It is against this optimistic background that the export target for the ongoing year, has been fixed at $ 13.7 billion and that of import is $16 billion. The over-riding reliance to accomplish the target, has been primarily laid on the textile sector, which has undergone BMR process by making a huge investment of $ 4 billion during the last few years.
It is, therefore, expected that the textile-based products would make inroad in European Union and USA markets in the post-quota era in 2005. At the same time, it is comprehended that after China's entry into the WTO, barring certain categories of textile, would have an edge on Pakistan's products. Meanwhile, there would be a fierce competition from India, Thailand and Bangladesh, especially in garments sector.
Pakistan's rupee has been under pressure for sometime past and it has already lost some points against US dollar. Therefore, its declining-value could initially be helpful in the promotion of exports, but in the long term, it could render exports uncompetitive, because of costlier imports of raw-materials, machinery, etc.
During the preceding year, the performance of the agricultural sector was depressed and the country has now to resort to imports of food items, particularly wheat. However, in the event of better performance of this sector, the possibility is that the import bill of agricultural products will be reduced.
The current trend of price rise in edible oil as well as the termination of Saudi Arab oil facility could lead to enhanced oil import bill. As such, the situation for the current year, either in respect of export or import, is not predictable and could be determined by the behaviour of international markets.
The policy also visualizes conclusion of a number of regional and bilateral preferential agreements. Pakistan is a member of South Asia Regional Cooperation (SAARC), which was set up in 1985 and Regional Cooperation of Development (RCD), which was established as far back as 1964 and subsequently converted into Economic Cooperation Organization (ECO), but both these groups failed to deliver the goods, specially as promoter of regional trade.
The intra-regional trade of EU is around 70 per cent, that of Asean 25 per cent and of SAARC 5 per cent only. Now South Asia Free Trade Agreement (SAFTA) has been concluded, which is indeed a late starter and will actually be operative in 2006. ECO suggests tariff reduction to 15 per cent by 2008.
The policy frame-work of both the regional alliance is not cognizant of the fast-changing economic scenario of the global market. Besides, the Free Trade Agreements (FTAs) generally suit to the developed countries or those which have sufficient export-surplus.
In conclusion, it must be stressed that the role of annual trade policy, following globalization and emergence of WTO regime has lost its utility and to make up the deficiency in contents, it has surpassed its scope and recourse has been found in encroaching upon the jurisdiction of other ministries.
Its announcement, unlike the past, remains an annual ritual and does not cause any stir in the business community, except issuing some statements of appreciation. Either it should be a long-term policy and be announced after three or five years or it should be an integral part of the federal budget.
At the same time, the trade policy instead of concentrating on fiscal infrastructure, industrial and human-resource developments, must concentrate on banking, shipping and insurance sectors, which are the allied sub-sectors and directly influence the pace of trade. Its most of the measures are of recommendatory nature, rather than decisions to be followed by different ministries and departments.
The policy appears to be a mix of fiscal and industrial policies and as such poses the problem of implementation. Many projects initiated in the erstwhile policies, remain unimplemented.
The trade policy 2002-03 stipulates for the setting up of EXIM bank and warehousing scheme abroad and many similar projects in the last trade policy were announced, but there is no progress on any of these schemes.