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A revolutionary trade policy.

A Revolutionary Trade Policy

In framing the new trade policy, the Government has been inspired by the success of last year's policy. New measures adopted in that policy have laid a solid base for the trade structure. The key elements in that strategy were incentives for value-added exports and encouraging investment in export-oriented industries. This led to a four per cent growth in exports in dollar terms in 1989-90 out of which value-added exports grew by 24.7 per cent. The improvement was well pronounced in the export of textiles (up 26.5 per cent), leather manufactures (up 29.9 per cent), sports goods (up 46 per cent) and miscellaneous value-added items (up 40.8 per cent).

The new trade policy, announced recently, has blazed a new trail in the field of decision-making. It is an imaginative and forward-looking policy which should give Pakistan's exports a shot in the arm and thus help narrow the balance of trade gap which is presently a major source of concern.

The yawning gap in the balance of payments is the bane of Pakistan's economy. Hence there is an urgent need to augment export earnings by one, preferably two, billion dollars. Pakistan's trade deficit in 1989-90 stood at 2100 million dollars with imports estimated at 6.8 billion dollars and exports at 4.7 billion dollars. Such a big gap is a serious drain on the national economy and has therefore to be closed/gradually. At present Pakistan is in a position to fund only 60 per cent of its imports through export earnings. The new trade policy aims at meeting 70 per cent of the import cost through exports. Pakistan would achieve a major breakthrough, the day it is able to finance 80 per cent of the imports through export earnings. And it would be definitely a red letter day in the nation's history when it meets the entire import cost through exports. A bold and vigorous effort has to be made to achieve the ultimate goal step by step. It is in this context that the new trade policy is to be judged.

An analysis of Pakistan's import-export trade in 1989-90 reveals that imports totalled 6.8 billion dollars, a level at which it seems to be stabilising. The figure is expected to stand at 6.9 billion dollars in 1990-91. This has belied the fear that a liberal import regime would widen the trade gap. The erosion of the value of the rupee has checked any abnormal increase in imports. There is consensus that curtailment of imports through artificial barriers would invoke retaliatory steps from Pakistan's trade partners. Hence the trade gap can be bridged only through rapid expansion of exports. The new trade policy has initiated this process.

In recent years, the performance of Pakistan's export sector has been quite satisfactory but it leaves much to be desired. In 1989-90, exports recorded a growth of 4 per cent with leather goods and textiles topping the list. There was a decline in the export of cotton, rice and carpets. With the growth in the domestic consumption of cotton, its exports would naturally decline. If the rapid expansion of the indigenous textile industry is any indication, very soon there will be little or no cotton surplus available for exports. Items like yarn, cloth and garments would figure prominently on the export list and it is for these value-added goods that new markets should be exported in earnest without any loss of time. Pakistan is looking forward to the softening of quota restrictions and trade barriers at the forthcoming Uruguay round of trade talks scheduled for late this year. Pakistan is also making vigorous effort to win fresh quota concessions from the European community. But this is not enough.

With the fast changing scenario in Eastern Europe and its proposed shift to market economy, vast avenues of export are expected to open up in this region. Pakistan has so far done nothing to exploit the export opportunities in these potential markets. There is an urgent need to undertake a comprehensive survey of the market and make projections taking into account its potential needs.

The new trade policy has set the tone of a vigorous export promotion drive. Its main objectives are said to be deregulation of the economy, expansion of exports, facilitating the availability of raw material for industry and agriculture and improvement in the quality of goods. A notable feature is the incentive package provided for encouraging exports in the service sector like insurance, banking and tourism. Besides a determined bid has been made to dilute the effects of rupee depreciation on the productive sectors of the economy. The Government's earnestness to facilitate the private sector in mounting a vigorous drive for export promotion is reflected in the widening of the scope of existing concessions. A convincing package of incentives has been provided to the exporters. The significant features of the policy are Open Bond Scheme for import of machinery by export-oriented industries, removal of export duty from open-ended textile units, enhancement of the monetary limit from Rs. one to Rs. two crore on the import of machinery on commercial basis and tax concessions to a host of sectors in export field. It now remains to be seen how the private sector responds to the new incentives.

If the country is able to earn an extra amount of one billion dollars from exports, it will be no mean achievement indeed. It will inspire confidence in Pakistan's economic destiny. It would improve balance of payments position obviating the need for seeking structural adjustment loans from the International Monetary Fund with all its harsh conditionalities. It would mean attainment of economic sovereignty in true sense.

The new trade policy is a significant step towards liberalisation of trade with the phasing out of whatever restrictions have remained in the regime. Not only have newer items and services been included in the exportable list but a large number of items have been removed from the negative and restricted list of imports and have been placed on the free list. These items not only include industrial machinery and raw materials but some consumption items as well.

According to the Federal Commerce Minister, this is part of the Government's programme for complete liberation of import trade in order to adhere to the commitment made with the GATT. Import liberalisation has been defended on the ground that the purpose is to enable the domestic industry to compete with the world technology. And this is, in a nutshell, the rationale of the inclusion of consumption items in the free list of import. These mainly consist of manufactured and semi-manufactured goods which would put on alert the local parallel industry forcing it to justify its existence through better performance and quality improvement.

Undue protection had made the local industry inefficient and hence time had come to make it exist only on merit. The Government's stand is that those producing inferior, substandard or technologically poor goods deserve no quarter. Liberalisation of imports would not lead to glut conditions in the country nor would the import bill shoot up to excessive limits. The 44 new items which were included in the free list last year did not have any adverse impact on the import bill at all. Total licensing for these 44 items during the 11 months from July 1989 to May 1990 stood at Rs. 97 million or 0.44 per cent out of the total import bill of Rs. 120 billion which is really insignificant. The Commerce Minister has maintained that import liberalisation was part of the policy package aiming at vertical improvement in trade.

In framing the new trade policy, the Government has been inspired by the success of last year's policy. New measures adopted in that policy have laid a solid base for the trade structure. The key elements in that strategy were incentives for value-added exports and encouraging investment in export-oriented industries. This led to a four per cent growth in exports in dollar terms in 1989-90 out of which value-added exports grew by 24.7 per cent. The improvement was well pronounced in the export of textiles (up 26.5 per cent), leather manufactures (up 29.9 per cent), sports goods (up 46 per cent) and miscellaneous value-added items (up 40.8 per cent).

Taking the cue from this, the trade policy for 1990-91 has major thrust in the following areas: 1) Incentives for promotion of export of services. 2) Special incentives for setting up of export-oriented industries. 3) Incentives for additional value-added products. 4) Procedural simplification. 5) Broadening the base of exportable surplus. 6) Institutional support for exports.

The State Bank of Pakistan would allow import on consignment basis for a period of six months on case-to-case basis. Thereafter, the matter will be reviewed in consultation with relevant agencies. Books have been exempted from import licence fee.

A committee has been set up under the chairmanship of the Secretary, Management Services Division, to simplify the existing procedures relating to imports and exports. A representative of the Federation of Pakistan Chambers of Commerce and Industry would also be a member of the committee.

A manual of import and export is being published for the facility of importers and exporters. Ministry of Commerce is undertaking an exercise in consultation with the Central Board of Revenue to harmonise Pakistan Customs Tariff and Import Trade Control Schedule II based on Harmonised Commodities Description and Coding System.
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Title Annotation:Pakistan
Author:Jabir, Rafique
Publication:Economic Review
Date:Jul 1, 1990
Words:1576
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