Trade Policy 2008-09: a mix of measures

By Mehmood-Ul-Hassan Khan

The federal commerce minister Ahmad Mukhtar announced the trade policy for the fiscal year 2008-09. Decision was taken to improve competitiveness and quality of products, and to develop small and medium sized sector to increase its share in total exports. It set an export target of $22.10 billion which seems to be unachievable due to denial of research and development support, high petroleum prices, severe energy crisis and utility rates in the country.

The government has decided to diversify its exports and participate in re-negotiations on the list of SAFTA and the Regional Agreement on Trade in Services among the SAARC countries.

The minister avoided projecting an import target, may be because of rising international oil and food prices but some estimate should have been provided keeping a target in mind. It offered a number of incentives for traditional products. It planned of 11 new industrial clusters in different cities of the country.  (Table-1)

The government decided to reactivate the Federal Export Promotion Board. It also reviewed the TDAP Ordinance to improve its working. Last but not the least the horticulture sector has been declared an industry. Long awaited proposed package of subsidies for the textile sector was not announced, but it is expected to be made public soon as a separate issue.

Salient features       

(a) The export target for the fiscal year 2008-09 has been fixed at $22.10 billion. It represents a growth of 15per cent over the last year’s exports worth $19.22 billion, with a record net increase (between 2006-07 and 2007-08) of $2.246 billion.

(b) The total imports during the 2007-08 amounted to $39.97 billion giving rise to a trade deficit of $20.7 billion. The new targets are not available.

(c) Main causes for widening trade deficit were the phenomenal increase in oil prices which increased import bill to over $11.3 billion as against $7.3 billion last year; due to poor crop management and food shortage the import of wheat at higher than previous prices; continued increase in price of palm oil from $502.7 PMT to $839.3 PMT; declined production of raw cotton in the country and its imports, import of machinery and fertilizers and chemicals.

(d) Establishment of bio-availability and bio-equivalence laboratories in the National Institute of Health.

(e) In order to increase the non-traditional items, the exports of gems and Jewellery sector, and gold, silver, platinum, palladium, diamond and precious stones be exempted from levy of customs duties & sales tax.

(f) Imports likely to hover around $40bn (speculated)

India-centered trade policy

The positive outcome of the trade policy 2008-09 was to facilitating import of more than 136 new items from India. For the proper tariff management  system, 72 tariff lines were announced/included to the importable list for raw materials, chemicals and industrial inputs, pharmaceutical products, vaccines, fruit and vegetables, fertiliser, machinery and parts and POL and diesel. The total list of tradable products with India has been increased to 1,938 tariff lines from earlier 1,837. The global import of these 136 tariff lines stood at $2.8 billion of which $2.2 billion was spent only on import of POL and diesel. It is predicted that import from India will be increased from the current level import value of $1 billion to over $3 billion. India would be the second largest trading partner of Pakistan after China. Food products, paddy harvesters, dryers, CNG buses would be imported from India through Wagha. To further enhancing the trade ties with India, duty and taxes have been withdrawn on plant, machinery and equipment in the trade policy 2008-09 imported to set up a unit under the Duty and Taxes Remission for Export (DTRE)

Exports of non-traditional item

The duty drawback rate has been increased by one per cent of the FOB value for 14 traditional products, including tents, canvas and tarpaulin, electric machinery, carpets, rugs and mats, sports goods, footwear, surgical goods/medical instruments, cutlery, onyx printers, electric fans, furniture, auto-parts, handicrafts, jewellery and pharmaceuticals. Exports of gold, silver, platinum, palladium, diamond and precious stones have been exempted from customs duties and sales tax to increase exports and encourage investments in the sector. The import of machinery/equipment for mining/quarrying and grinding of minerals (along with spares) will be allowed from India to improve availability of good quality stones for further processing.

Diversified measures

Generally and specifically more focus has been given to facilitate the procedural mechanism to import-export industries in the trade policy 2008-09. It covered all the sector and sub-sector and confined only to major items. Main facilitations are given below.

Export Strategy for 2008-09

(a) Reduction in cost of doing business through proper energy supply and other meaningful measures, (b) simplification of procedural requirements including relief through comprehensive zero rating of various export sectors, (c) supporting appropriate capacity building and vertical integration, (d) maximum facilitation to diversification and expansion of export volumes, (e) more focus to non-traditional items, (f) assistance in marketing through trade promotion activities, (g) boosting of Small and Medium Enterprises in the country, (h) institutionalization of standardization in all possible sectors/sub-sectors, (i) enhancing trade with India in all possible fields, (j) reconstitution of Federal Export Promotion Bureau, (k) coordinating with other government departments to support and facilitate the private sector to achieve increased production of exportable surpluses, (l) improvement of physical and technological infrastructures, and (m) more focus on the exports of seafood

Import strategy                          

(a) Facilitation of those imports that will serve to increase the competitiveness of our exports and therefore increase their over all quantum and value.

(b) Import of used buses (TR Scheme), it has now been decided to allow import of buses which are not more than 10 years old under the same scheme. This facility will help expatriate returning Pakistanis with limited means to create an economic opportunity for themselves as well as ease the shortage of such buses on inter city routes.

(c) Used cryogenic containers,  it has been decided to allow import of used cryogenic containers/cylinders by industrial consumers provided the Department of Explosives gives a prior NOC and the containers/cylinders are:-refurbished prior to shipment.

(d) Secondhand / used cement bulkers. It has been decided to allow import of cement bulker semi trailers, without prime movers in secondhand / used condition to cement manufacturers for transportation of bulk cement subject to the condition that they will not be older than 10 years. 

Causes of poor performance

Trade policy 2008-09 mentioned many causes for poor performance in the fiscal year 2007-08. Multidimensional domestic (poor law & order FATA, NWFP, political instability, revenue loss of $200 million in the five days disturbances followed by martyrdom of Benazir Bhutto on December 27, energy crisis, high cost of production, and ever-increasing geo-strategic concerns due to rising Iran/USA conflict.

The agriculture (1.5per cent as against 3.7per cent) and manufacturing (5.4per cent as compared to 8.1per cent) sectors had to suffer badly due to these causes. Large-scale manufacturing was even more dismal since it registered a growth of only 4.8per cent as compared to 8.6per cent last year.

Decline of bed wear in the US market happened due to stiff competition from India and China as well as preferential tariffs available to other competitors. Furthermore, the bed linen exports suffered due to an average anti dumping duty of 5.7per cent in the EU.

Mixed reaction

Trade and industry leaders have expressed resentment over the Trade Policy 2008-09, which they say totally lacked measures and a proper roadmap badly needed to promote the export trade. The much-expected support for textile industry and the general demand of manufacturing sector to cut their cost of production were not addressed in the trade policy 2008-09. Some say it another ‘joke’ Other termed it meaningless and not business friendly. But most of them appreciated the new paradigm shift in the trade policy and to ëlook-Indiaí which may be beneficial to get some cheaper raw material, including fine count yarn and steel products. Reactivation SAFTA and the TDAP export cluster plans would be proved instrumental to achieve desired targets.

Table-1

Commodity                                                     Place

Surgical Instruments           Sialkot

Gloves and Personal Protective Equipment          Sialkot

Sports Wear          Sialkot

Leather & Leather Products          Sialkot, Charsadda

Sports Goods          Sialkot;

Weaving and textile processing sector          Faisalabad

Light Engineering Sector          Gujranwala

Auto parts          Lahore

Ceramics           Multan, Hala

Ajrak and Bangles           Hyderabad/Hala

Embroidery          Balochistan.