Pro-India Trade Policy – I

The first Trade Policy-2008-09 of the PPP government has been announced without mentioning import target. According to the policy, imports cannot be quantified due to continuous instability in the oil and food prices in international markets. This means all previous commerce ministers of Pakistan as well as world were fool to make import targets. However, the export target was fixed at $ 22.10 billion, representing an increase of 15 percent over the last year, the same rate achieved in 2007-08.

The policy said the government has tried to draw up a trade policy that has a new direction and vision and will have an impact on the lives of those who are the neediest. How it will impact positively the poor's lives was not indicated, presently it is impacting negatively.

Moreover, it seems that the government has unofficially given the status of 'Most Favoured Nation' (MFN) to India. Commerce Minister, Chaudhry Ahmed Mukhtar said India is our neighbour and we are gradually liberalising our bilateral trade. The composite dialogue process, especially on economic and commercial cooperation has been instrumental in addressing the bilateral issues. We are announcing to enlarge the list of importable items from India, which is based on the requests of our stakeholders, which stakeholder requested them was not mentioned. The whole business community, except a few, is opposing imports from India. They said commerce minister has announced a policy which only encouraged imports from India while exports to that country was totally ignored.

The policy said cheaper raw material sourced from India would make exports more competitive in international markets. Import of diesel and fuel oil from India allowed, because it will be cheaper due to the difference in transportation cost. This will also help us to address our global trade deficit. How it will reduce the global trade deficit is not known.

Customs duty on the import of CNG buses was already reduced from 15 percent to zero in the budget 2008-09. Moreover, in case any Indian manufacturer of CNG buses makes a firm commitment to establish manufacturing of such buses in Pakistan, the Ministry of Commerce may provide special dispensation for import of 10 buses via Wahga from each possible investor as test consignment.

The policy expanded the list of importable items from India, not expected to be reciprocated. The Indian import policy allowed only a small number of imports from Pakistan. The Commerce Minister also restricted trade with India to Wahga border and sea route; but it is expected that it may open trade through railways as well as along other border check posts.

The ministry of commerce notifies amendments in the trade policy and also issued a list of importable goods from India, in which 136 more tariff lines had been added, enhancing the list from 1802 to 1938. Pakistan has diverted its global trade worth $ 4.132 billion towards India following inclusion of 438 new importable items in the positive list during the past 10 months.

Ahmad Mukhtar also announced a new scheme designed to improve exports. The over and above three existing schemes, namely duty and tax remission and export scheme (DTREs) - allowed to even those Indian imports that are not included in the 1938 total tariff lines - to those items that are manufactured locally and then exported, temporary import scheme as well as manufacturing bond scheme.

It is to be noted that the DTREs have been considerably misused in the past and, over and above what is available under DTREs, raises duty drawback by one percent of the FOB value for 14 traditional products, including carpets, surgical instruments and sports goods. It is hoped that the loopholes for abuse would be well plugged in the new scheme.

Chaudhry Mukhtar has not mentioned of research and development (R&D) for export industry in general and the textile sector in particular. It was proposed that the government would make necessary adjustments for the textile sector's gas bills. Thus the policy ignored the textile sector at least for the time being. Due to persistent crisis in the sector and the high cost of doing business, the import of the textile machinery has declined by 13 percent. However, the government has extended the six percent R&D support programme for the apparel sector up to June 30, 2009.

Enumerating the factors on the external front he said the international oil prices have been doubled, from around $ 68 to $ 145 per barrel. The increase in the international prices of food items, especially wheat and edible oil, the depressed US economy and turmoil in the international financial markets has reduced external demand for our exports.

In spite of the challenges, on the internal and external fronts that made it difficult for exporters to fulfil their export orders on time and at competitive prices, the export sector has registered a growth of 13.23 percent during 2007-08.

On the internal front power shortages, resulted in load-shedding of electricity and gas impacted our economy. Monetary and exchange rate policies, rising costs of salary bills and raw material, were other factors. While the government itself has increased salaries for Rs 4,000 to Rs 6,000, therefore, no one can be blamed for higher salary bills. Blaming increasing competition in export markets cannot be justified because it is not only for Pakistan but all countries are facing the same problem.

The large-scale manufacturing registered a growth of only 4.8 percent as compared to 8.6 percent last year. Last year the export target was $ 19.22 billion, which was $ 2.2 billion higher than the $ 17 billion achieved in 2006-07. During the year the exports of services were $ 2.9 billion and defence-related exports amounted to $ 63.9 million. Performance of textile group was not satisfactory as the exports were $ 9591.9 million i.e., $ 245.8 million or 2.5 percent less than last year. In spite of this decrease the overall exports growth was 13 percent.

Pakistan exports a few categories such as cotton manufactures and synthetic textiles, leather, rice and sports goods, concentrating on seven products only to seven countries. They collectively accounted for around 72.4 percent of the total exports. In terms of markets also, traditionally 50 percent of exports go to seven countries namely the US, Germany, Japan, UK, Hong Kong, Dubai and Saudi Arabia. The trend from 2003-04 to 2006-07 shows that the growth of exports during this period was around 114 percent in Latin America, 81 percent in Africa and 60 percent in the European group of countries.

The policy said it would help reduce costs of doing business, enhancing competitiveness of exports, but what measures are being taken was not indicated while gas, electricity and oil prices increase making products more costlier. The minister said in order to reduce cost of manufacturing and to make our exports more competitive, it has been decided that:

Plant, machinery and equipment imported to set up a unit in DTRE scheme will be exempted from duty and taxes. Inputs in DTRE will also be allowed to be imported from India.

Pakistani seafood is facing difficulty in exports, therefore it has been decided to undertake following measures to support the sea food sector:

Consultancy services will be arranged through FAO/INFOFISH for aquaculture; peeling shed at Karachi Fish Harbour will be set up in coordination with the Trade Development Authority of Pakistan (TDAP) and Sindh government. Funding will be arranged through the Public Sector Development Programme. Training programme for fishermen in catching of fish will be arranged by the Sindh government. Initial programme of training for trainers will be arranged in collaboration with TDAP. It is expected that these steps will help the fishers sector to enhance exports.

Gems and jewellery is one of the non-traditional items and to encourage the exports and investment all anti-export biases, gold, silver, platinum, palladium, diamond and precious stones has been exempted from levy of customs duties and sales tax. Mining industry is facing serious problems of availability of good quality stones for further processing due to old style blasting which creates wastage of precious resources. It has been decided that the import of machinery/equipment for mining/quarrying and grinding of minerals (along with spares) would be allowed from India. However, it is difficult to hope that this industry would develop as a consequence of this policy.
Source-thepost.com.pk