Pakistan: Will the new trade policy deliver?

PAKISTAN has unveiled its new foreign Trade Policy-2009 - the first by the Pakistan Peoples Party-led government.

By M. Aftab (Analysis)

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Published: Mon 28 Jul 2008, 12:13 AM

Last updated: Sun 5 Apr 2015, 12:59 PM

But, the billion dollar question, the business and industry asking is: will it deliver?

It sets a $22.10 billion export target, up 15 per cent from $19.22 billion during the just-ended fiscal 2007-08. It also ensures reasonably good prospects for countries and companies doing business with Pakistan, as Islamabad expects to import a range of goods which could cross the 2008 total of $39.9 billion. However, the government expects imports to total around $37.2 billion in 2009.

The policy, however, does open up Pakistan for greater Indian imports from across the border. It will expand essential imports from India, including diesel, chemicals, fertilisers, CNG-operated buses, capital goods and industrial raw materials. Faster availability and freight savings prompted this decision.

Indian exports to Pakistan in 2008 were $1.8 billion which are likely to rise to $4 billion as a result of the new opening in the trade policy, as Islamabad has added 136 new tariff lines of goods importable from India. The number of tradable products with India now rises to 1,938.

The policy also opens possibilities of Indian investment in Pakistan. To begin with it has offered investment in building CNG-operated buses in Pakistan. The opening up of trade and investment opportunity for India should cater to a large extent New Delhi's persistent demand that Islamabad grants it a most favoured nation (MFN) treatment.

But there already is criticism against the new opening to India. "Our exports to India in 2008 were just $350 million which are unlikely to increase because of restricted tariff regime of India," businessmen say.

"India is becoming an important economic partner, and trade with it will be in the interest of Pakistan," Commerce Minister Ahmed Mukhtar says. He also says "trade with neighbouring countries, including India, will be very much cost effective as compared to trade with other countries." China, he says, is „the biggest potential market for Pakistani exports. Exporters should explore "the vast Chinese market to boost exports." After signing the China-Pakistan Free trade Agreement, exports from Pakistan to China have increased four times.

Mukhtar, unveiling the Trade Policy-2009, however, said: "The government never sets the target for imports as international prices of commodities and oil are unpredictable."

Good prospects for new trade policy - covering July 1, 2008 to June 30, 2009 - will depend on its success to expand export volume, broaden destination, explore new markets, and enlarge export mix.

But there is the grave fact of oil imports in value and quantum spiralling, rising need for industrial inputs, capital goods and machinery which are costing more than ever, and larger and expensive food imports to cover a growing domestic deficit. The oil imports alone rose from $7.37 billion in fiscal 2007 to $11.38 billion in 2008, up 56 per cent. It led to a historic trade deficit of $20.7 billion in fiscal 2008 that ended June 30.

Add to this also the persisting and growing political uncertainty caused by lack of a business vision of the ruling Pakistan Peoples Party (PPP), the judicial crisis aggravating, and the demand that President Pervez Musharraf should leave his job. Despite this, the national budget for fiscal 2008-09, targets a 5.5 per cent GDP, compared to 5.8 per cent in 2007.

The Trade Policy-2009 focuses a good deal on cutting the cost of doing business, demanded by the domestic and foreign investors, and prospective trading partners.

New trade policy improves concessions in areas like customs duty, taxes and remissions on exports, commonly known as DTRE. It allows refund of indirect taxes on inputs used in export products by bringing these taxes to a zero rate.

The policy permits temporary import of construction and transport equipment to reduce input costs for exporters.

Other incentives to exporters include a one per cent increase in rebate for export of fourteen products, produced by medium-sized industries. The industry will receive low-interest loans to ensure compliance with environmental standards. Producers and exporters of rice, pharmaceuticals, horticultural products, and gems and jewellery will also receive incentives.

But the textile industry which, faced with competition from regional countries including China, India, and new comers Bangladesh and Sri Lanka, has been demanding tax breaks, lower cost of state-provided utilities, and other incentives to compete better in the overseas markets, have been left out of the incentives. The government is likely to act on these demands, separately in next few days.

Textile industry contributes 57 per cent to Pakistan's overall exports. It employs 38 per cent of all industrial labour, and accounts for 50 per cent of all industrial output. Mukhtar says "efforts will be made to meet the demands of the textile industry for its promotion and benefit of the country."

Pakistan, by now, has signed Free trade Agreements with China, Malaysia, Iran, Sri Lanka, and Mauritius. Mukhtar says, FTA will be signed with the European Union in early 2009.

The Trade Policy-2009 has received mixed reactions from the business, industry and exporters. Tanveer Ahmed Sheikh, President Federation of Pakistan Chamber of Commerce & Industry (FPCC&I) said, "the export target set by the government is achievable and the incentives announced for industrial plants and machinery are encouraging. But not much has been done to reduce the trade gap. The government's lack of interest in the textile sector is also disappointing."

Azhar Saeed Butt, Vice-President of FPCCI, over enlarging imports from India says, "no plans to increase Pakistani exports to India are envisaged, while a number of our factories have closed down."

But, Shamim Ahmad Shamsi, President Karachi Chamber of Commerce & Industry, said, "the proposal of larger trade with India is positive. It will ensure cheap availability of commodities in Pakistan." He also appreciated the announcement of "making South Asian Free Trade Agreement (SAFTA) between Bhutan, Bangladesh, India, Maldives, Nepal, Pakistan and Sri Lanka, more effective."

Now it is for the industry and exporters to make a success of Trade Policy-2009, and keep a tab on exports and imports to keep the trade deficit in check.

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