IF THE hype that preceded the announcement of the new trade policy had raised high hopes among exporters of radical concessions for them which has now given way to partial disappointments, it was not surprising. Commerce minister Razzak Dawood’s reassuring pronouncement had added to such hopes.
The fact is if the policy which seeks to raise exports in the current financial year to $10.34 billion does not contain dramatic concessions to exporters, the relief in details of the policy are many and greatly helpful. In the prevailing budgetary restraints on the government and the compulsions brought to bear on it by the World Bank and the IMF, it cannot come forward with the large concessions which the exporters expect from the government. In fact, the export targets fixed by the government for the current year which is 13.4 per cent higher than last years performance, is not very high. Of course, it may seem that opting for a trade deficit of $700 million against $1.2 billion last year which itself was a record performance for recent years does not need very large concessions. The Commerce minister himself admits that Pakistan’s export competitors have been resorting to subsidies particularly India, but Pakistan is not coming forward with such offers so the increase in exports is not sought through fiscal relief or large monetary concessions, but through economic reforms, through strengthening the market mechanism and removing many of the useless restrictions or procedural complexities. Until recently the exporters had the advantage of the rising dollar in Pakistan which got them more rupees for each unit of export but that advantage was lost by them since the rupee became stable around sixty to a dollar. One of the significant steps taken now is to enable anyone to export instead of registering himself first with EPB if he has a tax number.
The emphasis on export of new products and the quest for new markets are to be rewarded far more now than before and in liberal terms. This is the right step in a high competitive world.
One of the glaring failures of Pakistan’s export sector has been the very small use to which the export processing zone has been put in an effort to limit its concessions. Great expectations are being raised in respect of what Gwadar may do in the area of free trade, but judging by the poor performance of the EPZ in Karachi compared to the free trade zone of Jebel Ali in Dubai. Gwadar too may not fulfil its large expectations. So a cabinet committee is to look in to how the EPZ can be put in to better use.
The large exports are sought through better market access including through a free trade agreements with Sri Lanka and Bangladesh. Turkey too is to provide a large textile quota to Pakistan and trade agreements are to be signed with the US, European union, and Turkey to increase Pakistan’s exports to those countries and the search for new markets is to be expanded and success awarded more liberally.
But if many of the export groups are skeptical of the brighter picture painted by the Commerce minister its is because there has been large gaps between the government promises and its actual performance particularly in the area of the refund of sales tax and other duties paid on imports for manufacturing the export goods. While the refunds have been increasing they are far from adequate within an economy in which money is costly because of the high interest rates.
The government is however, moving in the direction of refund of sales tax and duties paid by the exporters on locally procured goods which is a healthy development.
Mr Razzak Dawood is optimistic about the performance of the textile sector where the value added has risen from fifty-four to fifty-seven per cent. The investment of $700 million to $1 billion on the renovation and expansion of the textile sector is beginning to pay good dividends and that is very essential to enable the country to do without the quota system from January 2005. He says already four textile items have crossed the billion dollar mark and they include cotton yarn, cotton cloth and bedwear and ready-made garments. And knit wear export has touched the nine hundred million dollar mark and he expects a rise in wheat exports to earn $644 million. The focus should be earning far higher through ready-made garments whose value added should be increasing steadily. The new small and medium enterprises should be able to make a major contribution in that area. Similarly the scope for increasing knit wear exports is very large. In all these areas the emphasis should be on increasing the value addition which should become the national pursuit.
A study by the IMF shows that export enterprises in many countries are marked for far higher productivity than enterprises catering to the local markets. Export enterprises have to seek higher quality with lower prices, (except where there are quotas) and have to have more efficient business practices, than when they meet the needs of the local markets in developing countries where customers are accustomed to low priced products.
But a major deterrent to readily expanding exports is the high cost of production including high energy cost and high interest rates and numerous taxes and the official corrupt practices which the exporters have to cope with Finance minister Shaukat Aziz has been talking of single digit interest rates, while the energy costs have been increasing and water is coming to cost more and more.
The East Asian countries provide the best example of achieving high industrial productivity by concentrating on exports particularly Singapore, Hong Kong and Taiwan.
It is not that the faults always lie with the government, some of the exporters have been indulging in very unethical practices resulting in a large number of complaints in our missions abroad from importers of Pakistani goods.
Some of the custom collectors have also been involved in making illegal refund of taxes not paid by the exporters. Hence the caution on the part of the government and the delay in the refund of the taxes and duties to the exporters.
What is obvious is that the government is becoming increasingly conscious of the problems of the exporters and is trying to come to their help more and more. But, it is not enough if the commerce ministry strives to do that, the government machinery, as a whole including CBR has to do that earnestly and consistently.