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Document 1 POLICY
STATEMENTS Trade Policy
Following
is the Text of the Trade Policy 2001-2002 Announced by Fellow Citizens Last year when I
presented to you my first Trade Policy we had been in office for less than
nine months. We were determined and exuberant. We knew things were difficult
but not how difficult. We knew there were no quick-fixes but not how long
it takes to fix things up when the institutional support system is weak.
We knew we faced a challenge but not the enormity of this challenge. Although in dollar
terms our export this year grew by only 6.7%, in rupee terms the gain was
an impressive 21%. There was significant growth, in dollar terms, in such
non-traditional products as Chemicals & Pharmaceuticals (59%), oil seeds,
nuts and kernels (136%), and Gems and jewellery and fans by more than 100%
each. The “miscellaneous” or “others” group’s exports went up from $ 550
million last year to $676 million this year. Export performance
during the year also needs to be viewed in the context of the following
developments: The Real Effective
Exchange Rate was not as favourable as it looks. While the Rupee depreciated
by about 22% vis-à-vis the dollar, the gain in respect of Euro was only
9%. It needs to be borne in mind that about 30% of our exports go to Europe. Draught conditions
caused a set back to our Livestock which affected our export of leather.
Draught also affected horticulture exports. Similarly, lower catch of fish
affected the export of our seafood. When I view our
failings clearly the most compelling one is our inability to create the
‘export culture.’ A major manifestation of this was the stir caused by the
infamous SRO 417 and the stuck up refunds. Generally speaking we have not
been able to make the overall environment as exporter friendly as we would
like it to be. The other failure
has been our inability to ensure a greater degree of product and market
diversification. Our exports continue
to remain concentrated in very few products and markets. However, this is
not something that can be corrected over the short term. We have initiated
the necessary measures, as I shall elaborate later on, and there has been
some improvement, but it will be 2-3 years before we see a meaningful shift. Finally, we have
not been able to do much to make the terms of trade more favourable. Per
prices of most of our exports especially in the Textile sector have been
falling. While this downward trend is a worldwide phenomenon it is more
pronounced in the case of Pakistan which faces a situation of ‘ buyers market’
in respect of most of its exportable goods. Unless we can check the decline
in our unit prices it will be difficult to register significant growth without
making costly additions to our production capacities in most sectors of
our export interest. I must, however, share with you the encouraging trend
of shift towards the higher ends of the value chain. For instance, in the
Textile sector the ratio of made-ups has gone up from 35% in 1995/96 to
52% this year. Fellow Citizens We like to think we have learnt a lot from
our successes as well as our failures and that we are building on the experience
that we have gained. I would like to identify at least two areas, where
we used this experience to correct things. One area is the direction of
our exports and the other reduction of the anti-export bias. For geographical
diversification serious efforts were made, with the full involvement of
our Embassies. Some results, even if small, are beginning to come our way:
our exports to China went up by 75% to UAE and S. Arabia by 25% each, to
Bangladesh by 20%, to Indonesia by 161% and to Korea and Australia by 9%
each. Other than UAE and Saudi Arabia these are all what we refer to as
‘ non-traditional’ markets. Impressive
gains in percentage terms though not in over all value terms have also been
make in Kenya, Nigeria, Iraq and Syria. The point that I wish to make in
this regard is that we have recognized the importance of spreading out into
new markets, and, slowly but surely, we are beginning to achieve this objective,
although, I repeat, we cannot expect immediate gains. The second area
is the anti-export bias. High incidence of import levies has two somewhat
pernicious effects on exports: first, it becomes more profitable to do business
within the country than abroad; second, high level of protection induces
an across the board cost-spiralling effect that obviously undermines the
competitiveness of our exports. We, therefore, undertook a massive tariff
revision exercise. Every single one of the over 6000 tariff lines was examined
and intensively reviewed in a three-month exercise carried out by the Commerce
Division. The Industries Division then held exhaustive discussions with
trade and industry to address their legitimate concerns. Finally, we took it to the CBR and the Ministry of Finance in order
to ensure that the Government’s revenue imperatives were not unduly compromised.
I am glad to be able to report that the final outcome has been generally
well received. We now have a tariff structure that will lead to productivity
gains that will clearly help our exports. Here I would be failing in my
duty if I do not recognize the highly professional work done by the officers
of the Commerce and Industries Divisions and the CBR in the completion of
this enormous exercise. I would like to
announce her that this effort to reduce the anti-export bias shall continue
this year. Our maximum tariff will
be lowered to 25% next year. I think we have given sufficient warning, and
time, to our industry to become more efficient. They should not link their
profitability to protection at levels that not only hurt exports but also
make the consumers pay for their profits. At the same time
I am fully mindful of the legitimate expectation of our Industry to be protected
against unfair competition. To this end we have put in place the anti-dumping,
countervailing and safeguards laws. National Tariff Commission, who will
administer these laws, are being equipped better, in terms of quality manpower
as well as autonomy of operations. The
new National Tariff Commission Act, that will cover both these aspects,
has been drafted and will be submitted for Cabinet approval early next month. Ladies & Gentlemen After this somewhat
detailed prelude I now turn to the contours of this year’s Trade Policy.
This year we are
departing from tradition. Traditionally, Trade Policy has almost always
been perceived as an occasion for the Commerce Minister to arrive with a
bag full of gifts. We are departing from this tradition for two good reasons.
First, in our view,
Trade Policy should confine itself to the strategic aspects. It should seek
to give a clear signal to the producers and the exporters of the policy
direction of the Government. It should signify durability, consistency and
predictability; and this is just what we are doing. We are building on past
year’s work and keeping the strategic direction the same; only changing
tactics and area of emphasis. Second, and I had
emphasized this in my speech last year; specific issues and remedial measures
pertaining to exports can not afford to wait for the next year’s Trade Policy.
Clearly, if these are important enough they ought to be resolved promptly.
For a quick and
effective resolution of sector-specific and all export related issues we
have found a highly useful platform in the Federal Export Promotion Board.
This Board, headed by the President and Chief Executive, has started to
meet regularly. It has met five times already and has amply demonstrated
its ability to take on-the-spot decisions. During the coming year we propose
to strengthen this process and take up all tactical and micro-level issues
in this forum. Ladies and Gentlemen Achieve our export
forecast of $ 10.1 billion Continue previous year’s objective of greater
value addition and diversification of products and markets Reduce anti-export
bias and improve the export culture Achieve greater market access In the pursuit of
these objectives we will continue to be guided by the demand led strategy
developed last year by the Export Promotion Bureau, namely to get a greater
market share in our major products, like Textiles, Leathers and Rice. The focus to develop
certain sectors like fishery, fruit and vegetables, gem & jewellry will
continue. However, in the light of the tariff reforms greater focus will
be placed on engineering, chemicals and ceramics. We will build on
the geographical success, I talked about earlier, in Africa and China, while
looking for opportunities in South America & Eastern Europe. The EPB
has set country-wise target for each product sector. Before I give you
the overall trade forecasts for the fiscal 2-1-01 I find it pertinent to
share with you an overview of the factors that are likely to impinge upon
our trade performance during the year. On the global scene
we see a continuation, for some more time, of the slow down in the U.S.,
with its fall-our effect on the other major markets. Given the time lag
between external developments and their effect on Pakistan we feel that
the full impact of the slow down will be faced this year. We also anticipate
a stable to soft trend in the prices of primary commodities, including oil.
While this will have a benign effect on our import bill it will adversely
affect export of our Rice, Cotton, Petroleum products, and, to a certain
extent, synthetic textiles. For Raw Cotton the
pundits are forecasting a bearish trend in international prices as the demand
is falling short of the supply position. While generally speaking our textile
exports do well in years of low cotton prices, our per unit prices will
come under increased pressure. Although import of textile machinery these
last two years has been quite encouraging we need to do much more in terms
of capacity additions - and productivity gains - to compensate for per unit
losses. On the domestic
front the roll back of subsidies on export finance and rationalization of
drawback rates will require an adjustment effort. Keeping these and
other factors in view we are pitching our exports forecast at $ 10.1 billion
this year. With projected imports of $ 11 billion we expect the trade deficit
to stay below one billion Dollars. In designing this
year’s Trade Policy the question that we put to ourselves was: what will
it take to facilitate a quantum jump, and then sustain it. In our pursuit
for this quest we have closely studied the policies and experiences of several
countries around the world. We have come to the conclusion that before anything
else the ‘structural weaknesses’ need to be corrected. Ladies & Gentlemen
Let me submit to
you what in my view are the five major ‘structural weaknesses’ or
the ‘fault lines’ of our export effort. First and foremost it is the exporter profitability.
It is axiomatic that if adequate profits are not there the desired effort
will not be there either. The entire export
infrastructure has to be smooth and free of irritants so that exporters
can devote themselves to production and marketing rather than waiting outside
Government offices. Our competitiveness
has to be improved through adequate availability of export finance, greater
productivity, and lower tariff—induced costs. Barriers to entry
of new exporters need to be lowered. In every country with significant export
growth the main thrust, particularly for product and market diversification,
has been led by an emerging generation of exporters, often from the ranks
of small and medium enterprises. Easier and more
meaningful access for our products to our main markets abroad. To improve exporter
profitability we are taking the following measures. Delayed refunds
have become a matter of acute embarrassment for the Government. It has created
serious liquidity problem for our exporters and has hampered growth of exports.
We are determined to correct this. We will make sure that the system neither
provides for any abuse by the unscrupulous parties nor brooks any delays. In the meanwhile
we will actively market the Duty and Tax Remission for Export (DTRE) rules. Before we do so we will of course remove
some of the procedural snags inherent in these rules that have been identified
by the Trade. We feel exporter - friendly remission rules will enormously
help the exporters as their funds will not be tied up in the duty, excise,
and sales tax elements of their input goods. It will also (debug) the refund
system by eliminating, quite substantially, the need to seek refunds. To supplement the
DTRE rules it is important that the scheme of Common Bonded Warehouses is
immediately revived and put into place. This will reduce the ‘carrying costs’
of exporters as they will not need to stock up on a large array of raw materials
and accessories. The Common Bonded Warehouses will work as a virtual Duty
Free shop for their inputs. As you are aware
the duty drawback rates have been revised.
We are not in favour of artificially high drawback rates as such
subsidies create a moribund cartel of beneficiaries and discourage the entry
of new comers. Having said this, I am informed by several exporters that
these revised rates have not been correctly worked out. I have had a word
with the Finance Minster and the Chairman CBR who have assured me that all
legitimate objections will be fully redressed within the first quarter of
this financial year. If Commerce, Industries and CBR can work well together
to tackle tariff restructuring, I am sure we can solve refund and rebate
issues as well. Inshallah we will.
i.
An exporter who posts at least a ten percent growth over his last year’s
exports will be allowed to retain 50% of his additional exports in his local
foreign currency account. He may use this amount for purchase of machinery
and equipment and raw materials and payment of commission, promotional expenses
etc.
ii.
Export Development Surcharge will be waived on the additional exports.
iii.
Exporters who show better performance will be given monetary rewards.
An ‘incentivization scheme’ that seeks to reward three categories of exporters
(large, medium and small) for increase in overall exports, new markets,
value addition etc. has been devised. An amount of Rs. 2 billion has been
allocated for this scheme. Now a word about
export infrastructure. While there are many areas that come in the way of
flow of goods and services from the production point to destination, we
first want to attack the systemic obstacles in our procedures and process.
Outdated laws and regulations, and the plethora of procedural ‘formalities’
have become a key constraint to accelerating trade. They also impose high
compliance costs. Delayering of this multitude of regulations is being consistently
cited as a priority reform area. Review Commercial
regulations and laws constraining competition and/or imposing high and unnecessary
compliance costs. Reduce the public-private
interface (reporting requirements, permissions, record keeping, discretionary
authority of public officials in granting approvals. etc.) to a minimum. Identify and remove
entry barriers where they exist. Alongwith the deregulation
committee we need to improve certain critical areas of Trade and Transport
Facilitation viz the standardization, simplification and harmonization of
commercial trade and transport aspects Customs processing procedures. Ports
procedures. All aspects of inland
transportation, including multimodal. We have already
started to work on this and the National Trade and Transport Facilitation
Committee has become functional. The
Secretariat of this Committee is in FPCCI (Pakistan Shippers Council). Export Finance In the area of enhanced
export competitiveness export finance occupies a central position. While
the ‘subsidy’ on export finance has been withdrawn as part of the commitment
with the IMF - henceforth interest rates will be linked to Market-based
Treasury Bills (MBT) -- we have been working with the State Bank to put
together new instruments that will facilitate easier and greater access
to export finance. The main elements
of the new export finance package are: Greater availability.
With the subsidy element gone more funds have been ‘unlocked’ to make it
possible for SBP to provide to the Banks greater funds for export finance;
a kind of an “open line of credit”. This will enable the banks to get SBP
to reimburse to them the credit extended to exporters, without the restrictions
of deposit ratio requirement etc. Separately, SBP has set up Credit Advisory
committees in various cities to facilitate lending to exporters, especially
Small, Medium, and emerging exporters. Pre-shipment export
finance guarantee. A new agency in the private sector (Pakistan Export Finance
Guarantee Agency—PEFGA) has been set up that will facilitate SME’s to access
bank financing for working capital. PEFGA will provide bankable guarantees
that may be used as collateral. PEFGA will start its operations during the
current month. It is also in the process of finalizing arrangements with
international credit insures to provide post-shipment cover. I will formally
launch this scheme on 16th July, inshallah, when PEFGA opens
its doors for business. Foreign currency
export finance facility (FCEF). This $ 150 million facility will enable
exporters to meet their import requirements by borrowing from this facility
(in US dollars) at LIBOR _+2%. Repayment will be made from their export
proceeds. ADB has already released
the first tranche ($ 30 million) to the SBP. If there is adequate additional
demand for this facility it will be enlarged. Political risk guarantee
(PRG): This facility seeks to convert Pakistan triple C country risk into
triple a risk. The PRG facility will effectively transfer key Pakistan country
risk into ADB risk, helping to: Keep Pakistan country
limits open for international banks confirming eligible import L/C ‘s; Ensure continued
access to finance and effectively reduce the cost of import for export production. The political risks
covered will include inconvertibility, debt moratorium, change of law, expropriation
and political violence. This facility, due to be launched this month, will
help exporters achieve better terms in negotiation of their import L/C’s. New Generation of
exporters. It is important
to facilitate entry of new exporters and encourage the emerging ones. As
I said earlier it is an established fact that the strongest impetus to export
growth comes from the small and medium emerging exporters. Pakistan’s subsidy
regime and lack of a proactive policy for the promotion of SME’s has contributed
to raising of barriers for the entry of new comers. This fact at least partly
explains our failure to achieve the desired product and geographical diversification. During the year
we propose to induct a large number of new/emerging exporters through a
“ hand-holding” exercise. Major components of the scheme will be: Capacity building
of identified SME’s that will cover product development, quality upgrade,
cost reduction measures and sale promotional efforts through private sector
professionals. For the first year estimated expenditure of Rs. 20 million
shall be provided from the Export Development Fund. Organically grown
“ industrial clusters” (Sialkot, Gujranwala, Faisalabad, Korangi etc. etc.)
have enormous locked -in potential that can be unleashed by creating the
necessary synergy among them. By
providing common facilities through collaborative interaction not only will
cost reducing economies of scale be generated but the backward linkages
will also be strengthened. The basic concept, based on international experience,
is being developed in collaboration with UNIDO and shall be launched by
the end of the year. EPB will sponsor
special delegations abroad of the selected SME’s to explore market prospects.
Special facilities will also be provided to these SME’s in the overseas
trade fairs sponsored by the EPB. It is proposed to
exempt exporters with total export of less than dollar one million from
the Export Development Surcharge. In the context of
exports it has long been said that we should produce what the markets want
instead of trying to market what we produce. Unfortunately, this has not
been possible for want of organizational support through the entire production
and supply chain. The linkage between production and markets has been a
weak one. To counter this it is proposed to set up special organizations
that will be responsible for the furtherance and development of the entire
range of activities from production to export marketing. To begin with,
organizations for Rice, Engineering, Horticultural, Plastics and Leather
products shall be set up. These organizations will be autonomous and run
by experts hired from the market, and where-ever we find a willing and institutionally
well organized Trade Association we will be happy to entrust it with the
responsibility of overall management of the organization. Market Access
I look upon providing
unhindered access for our exports to would markets as the primary responsibility
of the Government. If we cannot ensure this the noble philosophy of WTO
shall be reduced to naught. WTO will then be looked upon as an instrument
of neo-imperialism. I sincerely hope this does not happen and that the whole
debate does not degenerate into a North - South battle of attrition of the
60’s. To provide effective
market access Ministry of Commerce ha already compiled a comprehensive list
of all kinds of barriers that our products are faced with in the various
markets. Necessary remedial measures
are now being initiated. On a more pro-active
side, we propose to undertake the following specific measures to facilitate
effective market access. Preferential tariffs.
Pakistan is placed at a disadvantage in major markets of its export interest
(USA, EU, ASEAN) who have regional trading blocks/preferential tariff rates
for some of our competitors. Unfortunately, the two regional trading blocks
that Pakistan belongs to (SAARC and ECO) do not provide any meaningful opportunities
for Pakistan’s exports. We wish to seek, both multilaterally and bilaterally,
a more meaningful access to our major markets. Towards this end we are already
in negotiation with some of our major trading partners. Lower tariffs for
our products will give the desired impetus to our export drive. Creation of equity
assets abroad. One of the weaknesses of our export drive has been our inability
to effectively counter buyer perception that Pakistan is an unreliable supplier,
especially in terms of quality and “ in-time” delivery. To counter this
a major scheme is being introduced for Warehousing of Pakistani products
abroad. Under this scheme groups of exporters will be encouraged to set
up a company in major cities around the would to market their products through
‘bonded stores’ in these cities. Partial funding will be provided from the
EDF. This facility will
not only reassure the buyers regarding the quality of the products but the
‘just in time’ delivery will also cut down their carrying costs. Social compliance.
There is an increasing buyer emphasis on the suppliers meeting social, environmental
and labour standards. This is in
response to strong consumer demand. Barring the major ones our exporters
are not geared to meet these requirements and to this extent lose out on
significant marketing opportunities. We are setting up
a scheme, through funding from the EDF, to help exporters acquire SA 8000
certification that will clear them, for purchases by major buying houses. Export to Afghanistan.
Currently zero rating of dollar exports to Afghanistan is available on only
six items (Cement, Rice, Pharmaceuticals, Glass sheets, G.I. Pipes and Hardware
Items). It is proposed to expand this list to include the following products
(subject of-course to existing safeguards on zero-rated exports to Afghanistan):
Safety Matches;
Furniture (wood,
plastic, metal & fibre glass); Water Storage Tanks
(fibre glass, plastics, and metal); Tobacco leaf (in
crates/cartons); Gur; Agricultural machinery,
electric motors, pumps, fans, transformers; Leather manufacturers and footwear;
and Confectionery items, jams, juices, pickles. This will not only
expand our exports but also help redress a long-standing demand of the NWFP
government. Having deliberated
upon the structural weaknesses and our policy response to them, let me assure
you I am not suggesting for a moment that this is an exhaustive list of
weaknesses; nor that we are the first ones to have stumbled upon them. All
I want to say is that we will relentlessly pursue this five point agenda
all through the year. To ensure that we do not let this agenda get lost
in the maze of government routine I am setting up an Implementation Task
Force headed by the Commerce Secretary. I shall personally review the progress
of the Task Force every second month, and where necessary take the matter
up to the Federal Export Promotion Board for resolution and direction. Ladies & Gentlemen Despite all the
rhetoric surrounding it there is one important sector that Pakistan has
not so far capitalized upon. This
is the export of services. The General Agreement on Trade in Services recognizes
161 services that are globally traded. Except for some attention to I.T
Services the sector has been largely neglected. We are looking upon a one
billion dollar accretion to our export in this sector that can be achieved
over the short term. Institutional Support.
It is important to set up an organization that caters to the export needs
of all these services and is dedicated to the following objectives:-
This organization
will be professionally managed with the stakeholders having the main say
in the running of this body. Initial
funding shall be provided from the EDF. While this organization
will take some time to get operationalised, we are providing the following
facilities to the export of entire range of ‘services’
i.
Retention from export proceeds for commission etc. @ 35%, as is the case
with I.T.
ii.
Permission to export equipment from Pakistan, without a bank guarantee,
and its free re-import upon conclusion of contract.
iii.
Facilities from
banks for bonds, performance guarantees and advance payments. Details will
be work out in consultation with
State Bank of Pakistan/Banks/Insurance Companies.
iv.
Work actively to
provide Technical Assistance to friendly countries for this sector. Of the many different
service categories we hope to see Financial, Architectural, Educational,
Engineering, Construction and Technical Services to be among the first to
take advantage of the facilities being provided. Ladies & Gentlemen It is also important
that we prepare the groundwork in new sectors for further exports. A new
area started a few years ago was local assembly of Televisions. The encouragement
given last year has enabled this activity to progress substantially.
Encouraged by the success we have now finalized what is known as
the Emerging Electronic Products Assembly Scheme (EEPAS). Under this scheme
we have expanded the range of products to include mobile phones, cassette
players, electronic calculators. DVD players etc. Objective of this
scheme is to become a recognized world-class assembler of local and foreign
branded goods. It will encourage investment and create employment, especially
for women. Once adequate experience
has been gained we hope these products will become export earners. In order to enable
investors to chart out their own course the following main facilities are
announced:-
i.
EEPAS is an ongoing scheme and there shall be no deletion programme for
the next 5 years.
ii.
CKD kits would attract customs duty of 5%.
iii.
EDB and CBR will
work together with stakeholders for necessary survey reports etc.
iv.
There will be no
limit on number of units any assembler may like to assemble. With the formulation
of this policy we hope investment and job creation will start and locally
assembled products will be available in the market. To sum up, Ladies
and Gentlemen, the focus of this year’s policy is on correcting the fundamentals.
Yes, it is short on incentives and rewards, but having carefully studied
the last five or so ‘incentive-studded’ Trade Policies, I am convinced the
way forward is in visiting and resolving the key constraints to a sustainable
export growth. The basic export strategy has been developed together with
the stakeholders and this is being maintained and you will agree that long-term
thinking is setting in. The fundamentals to correct our refund, rebates,
export finance, less government and market access. We are determined to
resolve these, and as always in full consultation with the exporters. In my speech last
year I had said, “ things today are more challenging than yesterday”. The
emerging world environment obliges me to add that things will be even more
challenging next year. However, we have all worked hard together and achieved
a record figure. Let us resolve to maintain this tempo, and build on our
successes and release our full potential. We may have missed
the 10 billion dollar mark but I draw sustenance from the $ 1.4 billion
increase during these last tow years and the significant volumetric increases
posted by us. This is a tribute to the determination of our exporters. I
have no doubt the same determination will help them prevail against all
odds. We can do it and Inshallah we will.
Pakistan Zindabad.n
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