trade policy of pakistan 2009-11

8/7/2019 Trade Policy of Pakistan 2009-11

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UNIVERSITY OF CENTRAL PUNJAB

Critical Appraisal of

Trade Policy of PakistanReport

Group Members:Amjad Nawaz L1S07BBAM0122

Sameed Sohail L1S07BBAM

Taimur Khalid L1S07BBAM

Zaman Ali L1S07BBAM

Critical Appraisal of Strategic Trade Policy Framework 2009-12


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2Critical Appraisal of Trade Policy of Pakistan

AcknowledgementFirst praise is to Allah, the Almighty, on whom ultimately we depend for

sustenance and guidance. Also, we would like to thank our friends and familymembers without whom, this project would not have been possible.

Secondly we would like to pay sincere gratitude and regards to our ProfessorKhalid Mehmood (Government and Economy) for assigning this project to us

and helping us throughout the course of this project.

We would like to thank our group member Amjad Nawaz for leading our groupand assigning the tasks and compilation of report. We would like to thankSameed Sohail for his contributions regarding reviews of different articles. Thanks to Taimur Khalid for his input regarding Strategic Trade Policy

Framework. Finally Zaman Ali for writing the report content and preparation of slides.

We dedicate this effort to our family members and friends for their generoussupport.


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Abstract Trade policy is a governmental policy governing trade with third

countries. This covers tariffs, trade subsidies, import quotas, Voluntary ExportRestraints, restrictions on the establishment of foreign-owned businesses,regulation of trade in services and other barriers to international trade.

The purpose of this report is to critically appraise the Trading Policy of Pakistan. As of now, the latest trading policy of Pakistan announced by theFederal Ministry of Commerce was the Strategic Trade Policy Framework forthe year 2009-12. Our aim is to assess the features, targets and the terms inwhich the results are gathered. The paper is our own perception which will becritically appraised.


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ContentsIntroduction .......................................................................................................... 5

Source: Business Recorder ......................... ............................... ...................... ................................ ...... 5

Strategic Trade Policy Framework 2009-12........................................................... 6

P urpose of Strategic Trade P olicy Framework ................................ ......................... ............................. . 6

Main Features ............................. ......................... ................................ ...................... .......................... 7

People Centric: Poverty alleviation and employment generation through export led growth............ 7

Exp orts .................................................................................................................. 8

For Exports Competitiveness The Ministry Suggests The Following Measures: ........................... ........... 8

Review of Export Competitiveness ................................................................................................... 8

R eview of Minister s Sp eech: ................................................................................ 9

Positive As p ects of Trade Policy .......................................................................... 10

Monitoring and Evaluation Method .................................. ................................ ...................... ........... 10

Insurance cover for visiting buyers .......................... ................................ ...................... ..................... 11

Research and Development ........................... ................................ ...................... ............................... 11

Brand Development ........................................................................................................................... 11

Other P ositive Features ............................ ......................... ................................ ............................ ..... 11

Targets ................................................................................................................. 13

Challenges ........................................................................................................... 13

R eaction of Business Community ........................................................................ 13

Source: Daily Times ............................... .............................. ...................... ................................ ......... 15

Conclusion ........................................................................................................... 15

References ........................................................................................................... 16


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I ntroduction

In order to address the challenges confronting Pakistan on the economicfronts, Ministry of Commerce has launched a comprehensive three yearsStrategic Trade Policy Framework (2009-12) document. Minister for CommerceMakhdoom Amin Fahim was the chief guest on the launching ceremony.

The minister appreciated the fact that the Ministry of Commerce hascome up with a mid-term strategic response identifying the challenges andsuggesting policy interventions. He said the world is experiencing one of themost severe recessions in the post-war period.

Our exports have suffered a decline over the last one year and has beenbeset with issues like low productivity and slow diversification of exportproducts and markets, he said. In this backdrop, to formulate such a strategyin order to remain firm in these difficult economic times, to keep focused onour strengths, and to covert challenges into workable opportunities, is a matterof great pleasure and pride for us, he added.

Realizing the need for developing and effectively implementing a nationalexport competitiveness program, the Ministry of Commerce has developed athree years Strategic Trade Policy framework (STPF). It would provide thereference to different trade measures by the Ministry of Commerce and other

ministries from time to time. The overall objective of the STPF is to achieve sustainable high economic

growth through exports with the help of policy and support interventions bythe government, industry, civil society and donors. Additional SecretaryKhawaja Naeem showed deep pleasure at the launching of the STPF, which hasbeen formulated by the Ministry of Commerce with the active collaboration of the Pakistan Institute of Trade and Development (PITAD) within a short span of time. Dr Safdar Sohail, Director General, PITAD made a presentationhighlighting features of the Trade Policy.

Source: Business Recorder


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Strategic Trade Policy Framework 2009-12

Purpose of Strategic Trade Policy Framework

i. The Strategic Trade Policy Framework sets out the policy guidelines andidentifies the principle action areas

ii. Need for developing and effectively implementing a national exportcompetitiveness program.

iii. To provide the reference to different trade measures by the Ministry of

Commerce and other ministries from time to time.

iv. To achieve sustainable high economic growth through exports with thehelp of policy and support interventions by the government, industry,civil society and donors.

v. For active collaboration of the Pakistan Institute of Trade andDevelopment (PITAD) within a short span of time.

vi. Other factors because of which Strategic Trade Policy Framework wasintroduced:

a. For growth with Equity

b. For greater Opportunities for gainful employment

c. For sound macro-economic framework for trade environment

d. For concern with poverty eradication and environmental protection

e. For investing in Human resources

f. For targeting Poverty alleviation

g. For promoting private sector as engine of growth

h. For focus on small scale sector particularly in agriculture


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M ain Features

Objective:

People Centric: Poverty alleviation and employment generation through export led growth

1. Three years strategic framework 2 . Review mechanism 3 . Well-defined business processes4 . Shift from Comparative Advantage to Competitive Advantage5 . Enhance the competitiveness of Pakistans exports

a) Increase the sophistication level of Pakistans exports by increasing

the technology component and value addition.

b) Trade Facilitation

Process Improvement

Aligning Tax Reform with Trade Facilitation with the aim to

reduce the cost of doing business

c) Address supply side constraints power shortage & high financial

cost

d) Reduce anti-export bias6 . Reducing Cost of Doing Business7 . Protection and promotion of SMEs8 . Focus on products with higher sophistication potential9 . Promote agricultural development through exports10. Enable Pakistani exporting companies overcome the negative

effects of global demand contraction

Source: Dawn News (Article)


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E xports

For E xports Competitiveness The M inistry Suggests The Following M easures:

i. First, overcome the most pressing supply-side constraints such as the

shortage of energy, cost of capital and difficulties linked with adverse

travel advisories.

ii. Second, enhance competitiveness of textile and clothing, with the help of

Textile Policy due to be announced shortly which focuses on new

investments, modernization of machinery and increasing total factor

productivity.

iii. Third, deepen and diversify export markets particularly our major

trading partners US and EU as well as countries with which Pakistan

has signed a free trade agreement such as China, Malaysia and Sri

Lanka.

Review of E xport Competitiveness

The trade policy also promised to make immediate efforts to enhance the export

competitiveness. It was stated that by 2012 the competitiveness ranking of the countryis expected, from 101 to 75, the share of engineering exports will increase from 1.5 percent to 5.0 per cent, value addition of cotton will increase, from dollar 1000 to dollar1500 per bale, and regional trade will expand from 17 per cent to 25 per cent. Butcontinued severe energy shortage, high cost of production, high cost of doingbusiness, weak infrastructure, inconsistent policies, lack of FDI, limited scope of jointventure, low chances of technology transfer deteriorating law and order situation, andabove all denial of easy and smooth market access could play pivotal role to achievethe targeted export competitiveness till 2012. In the WTO competitiveness index thereare 12 factors/ points used to construct the competitiveness index. Macroeconomicstability, innovations, knowledge creating activities, technology readiness, andgovernance of the corporate and political institutions are the determinants of the tradecompetitiveness. Apparently it seemed that these essential factors have not beenmentioned in the trade policy. So, the trade policy seems to be a wishful thinkingwhich contains all sorts of proposals and measures for the expansion of exports over amedium term.

Source: Minister of Commerce Speech (27 th July 2009)


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Review of M inister s Speech:

According to the speech, the government seeks to expand Pakistan's exportproduct range in the medium term. To do so, the government has identified

certain promising sectors. These are said to be the nation's chemical sector,pharmaceuticals, meat and meat products, agro-processed exports, leather andleather products, the mineral sector, gems and jewelry and services.

Besides the short-term measures listed below, the government plans to set upa variety of funds to promote such goals as the channeling of public investmentto promising sectors, hedge business against short- and medium-term interestrate risk as well as the improvement of management skills, productdevelopment and marketing.

The following measures may affect international commerce:

1. To strengthen export competitiveness, the government seeks to compensateinland freight cost to exporters of "cement, light engineering, leather garments,furniture, soda ash, hydrogen peroxide, sanitary wares including tiles, finishedmarble/ granite/ onyx products."

2. To help designated sectors receive higher prices for their goods, the governmentwill support brand development activities for "surgical instruments, sportsgoods & cutlery" with grants worth 25 percent of cost.

3. To support the textile industry, import duties on sizing chemicals may beabolished.

4. To promote the export of live sea food, the government has decided to grant 25percent of freight cost to such products exported by air.

5. To support exports of processed foods, the government wants to compensateexporters partially for necessary research and development investments. Thisreimbursement could amount to 6 percent of export value.

6. To allow its exporters to enter Muslim markets, the government plans to set upa Halal Certification Board. The cost of certification shall be subsidized with up

to 50 percent of expenditure.7. To increase international market access for electrical appliances, the

government decided to bear half the cost of certification through UnderwritersLaboratories.

8. In an attempt to increase overall competitiveness, the government promised to"zero rate" exports completely. As the elaboration of such a measure will take


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time, the government has decided to provide "interim relief to the sectors of tents & canvas, electric machinery, carpets, rugs and mats, sports goods,footwear, surgical/ medical/ veterinary/ beauty care instruments, cutlery,onyx products, electric fans, furniture, auto parts, handicrafts, jewelry andpharmaceuticals."

9. To reduce the cost of doing business in Pakistan, the government will easeimport restrictions on designated specialized machinery, transport equipmentas well as spare parts in the construction, waste disposal, oil and petroleumindustry.

10. To allow improved development of pharmaceutical and engineeringservices, the government plans to ease export restrictions on the industries.

11. To provide lower income citizens with computers, the government hasdecided to allow the import of used computers. However, to allow for the

development of a national television industry, used cathode ray tube monitorsmay only be imported along with used computers.

12. To encourage local vaccine production, the government plans to restrictimports to World Health Organization-approved plants only.

Positive Aspects of Trade Policy

M onitoring and E valuation M ethody As far as the monitoring and evaluation of the Strategic Trade Policy

Framework is concerned, the Pakistan Institute of Trade and

Development Islamabad, an independent policy think tank of the

Ministry of Commerce, would undertake a systematic evaluation of

the impact of Trade Policy 2009-12 on the trade performance of

Pakistan with a view to enhance the effectiveness of different trade

policy interventions, suggest course corrections and lay the scientific

foundations for the preparatory work for the next Trade Policy.


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I nsurance cover for visiting buyersy These days, the purchasers, inspectors and sourcing agents of

overseas buyers are reluctant to travel to Pakistan and the exporters

have to meet them in other countries. To overcome this problem, it is

said that they plan to launch a scheme for picking up the full cover

for Pakistan for the buyers with valid insurance policies. The scheme

will be funded from Export Investment Support Fund and managed by

National Insurance Corporation.

Research and Development y

All final use products do require continuous research anddevelopment for enhancing competitiveness either by technology up-

gradation, skill development or by improved management systems. A

fund is planned to be dedicated to support these activities named

Technology, Skill and Management Up-gradation Fund of Rs. 3 billion

is being established.

Brand Development y It has been decided that surgical instruments, sports goods & cutlery

sector would be granted 25% support on brand development

activities.

O ther Positive Features Duty-free import of customized cars up to 1,350cc allowed for

disabled people.

Duty-free import of motorized wheelchairs to be allowed. Limit for physicians samples increased to 20 per cent. Import of used computer components allowed. 25 per cent subsidy for brand development activities on surgical

instruments, sports goods, cutlery sector. Research and development centers to be established in Karachi and

Sialkot for leather exporters.


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25 per cent freight subsidy for live seafood products exported by air. Facility to remit $10,000 per invoice as advance payment for import of

spare parts. Value addition in cotton to rise from $1000 to $1500 per bale by

2012. Industry to receive compensation for power shutdown in the form of

electricity charges credit. Cement, light engineering works, leather garments, furniture, soda

ash, hydrogen peroxide, sanitary wares including tiles, finishedmarble/ granite/ onyx products exporters to be compensated forinland freight cost.

25 per cent of the cost of labs in tanneries to be borne by governmentand 50pc grants for purchase of flaying machines at slaughterhouses.

Government to bear 50pc cost of certification of halal productsexports.

50pc cost of quality certification for domestic appliances to be borneby government.

Tents and canvas, sports goods, footwear, surgical/medical/veterinary/beauty care instruments, cutlery, onyx products, electricfans, furniture, auto parts, handicrafts, jewelry and pharmaceuticalsector zero rated for GST.

Old, obsolete machinery be discarded; refurbished and upgradedmachinery made available for trade.

Engineering units exporting 50pc production to enjoy status of exportoriented units.

Vaccine imports restricted to only import from World HealthOrganisation (WHO) approved plants.


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Targets

The trade policy envisaged an export growth of 6 per cent (18.8 billiondollars) for 2009-10, 10 per cent (20.7 billion dollars) for 2010-11 and 13per cent (23.4 billion dollars) for 2011-12. The export targets for the nextthree years should not be difficult to achieve, especially because therupee is likely to weaken this year and the global commodity prices areset to rise (cotton prices are up by 46 per cent and rice by 4 per centsince last February, improving the competitiveness of exporters).According to Federal Bureau of Statistics, the trade deficit during the

year 2008-09 has shown negative growth of 18.52 per cent as comparedto the deficit of last financial year when imports witnessed 12.87 per centnegative growth by declining from $39.965 billion during 2007-08 to$34.822 in 2008-09. Exports were recorded at $17.781 as compared tothe export of $19.052 during the last financial year, showing a decreaseof 6.67 per cent.

Ta rgets 2 00 9- 10 2 010 - 11 2 011 - 1 2 Exports $18.8 Billion $20.7 Billion $23.4 Billion

Challenges

Trade policy 2009-10 would face many challenges. The problems being faced by

the economy involves infrastructure deficit, severe energy shortage, poorinnovation and technological infrastructure, low labour productivity, low levelsof manufacturing value addition. Furthermore, there is little foreign directinvestment in manufacturing and exportable sectors, lack of surplus, absenceof economies of scale in the production processes. All these challenges maymake the desired targets difficult to achieve.

Reaction of Business Community The trade policy received mixed reactions. Many businessmen rejected

the trade policy 2009-10, terming it directionless and flawed. Some termed itwishful list. Other labeled it insufficient. Many chambers of commerceinterpreted it differently. But majority showed their deep concerns about itsdifferent measures, concessions and mechanism. Federation of PakistanChambers of Commerce and Industry president said that the trade policyseems a medium-term policy framework for the next three years. He said theproblems of foreign exchange reserves, higher trade deficit and consequentlylow investment, unemployment and low GDP growth will continue. It is the


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second time that import targets were not mentioned in the trade policy. Themeasures to improve the local base of industry have not been taken. The AllPakistan Commercial Exporters Association (APCEA) Chairman, welcomed thenew trade policy formulated for three years, but said achieving the targets setfor the current fiscal would be difficult. He questioned how the export target of $18.8 billion could be achieved when half of the industrial units were closed.

The chairman of gemological institute of Pakistan, said it was surprising thatthe gems sector had been ignored in the policy despite the fact the country,especially the NWFP, was rich in mineral resources, which could be utilised forimproving the economy.

The policy is set in a three-year Strategic Trade Policy Framework (STPF)aimed to bring forth a positive strategic change in the export sector of thecountry.

The government has fixed export growth target of 6 percent for 2009-10 and2010-11 and 13 percent for each of the successive years. Talking to Daily

Times, chairman Pakistan Tanners Association (PTA) appreciated thegovernment's initiative for launching comprehensive leather and leatherproducts export plan in consultation with the major players of the leathersector. He said it was a good omen that the government would share 25percent financial cost of setting up laboratories in the individual tanneries.Saddain also hailed the government's help in setting up effluent plants in

various tannery sites in the country. Under the trade policy, the leather sectorwill be able to avail the facilities from the Export Investment Support Fund(EISF). It will provide matching grant for setting up effluent treatment plants inindividual tanneries.He said the scheme being launched to compensate inland freight cost toexporters leather garments including cement, light engineering, furniture, sodaash, hydrogen peroxide, sanitary wares, tiles, finished marble and granite andonyx products would provide some relief to these sectors.He said matching grant to establish design studios or design centres in thefactories would benefit the leather sector.He said facilities from the EISF for leather apparel industry would provesupportive to the sector. The EISF may be used for providing matching grantsto district governments for installing flaying machines. However, he expressedhis reservation for not providing a level-playing field to the leather sector andannouncement of any relief package to the second export sector of the countrywith $1.25 billion.


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Finished leather is one of the major export products and an intermediateproduct in which substantial value-addition can be achieved by adoptingmodern production processes and creating trendy finishes.Former chairman Surgical Instrument Manufacturers Association of Pakistan(SIMAP), Aamir Riaz Bhinder said the government's plan to decide that surgicalinstruments' sector would be granted 25 percent support on branddevelopment activities would greatly help to keep the brands intact. He saidforeign surgical manufacturers largely use the brands of Pakistan that wasresulting in lower prices for country's manufacturers in these sectors.Shortage of skilled manpower is impeding the growth of surgical instrumentsmanufacturing industry.

The decision to establish a centre of excellence for catering to the training,designing, research and development needs of surgical instruments' sector atSialkot will help the sector, he added.

The Ministry of Commerce proposes to set up an Enterprise and EntrepreneurFund (EEF) for incentivizing the improvements in firm management capabilitiesin 10 sectors chosen to push Pakistan higher on the sophistication ladder.

Source: Daily Times

Conclusion

No books it sounds all nice and great, but problem lies in the implementationstage where our government fails.

After going through the whole trade policy of Pakistan we conclude that itcovers almost each and every aspect of trade. Policy making is directly linkedwith implementation of those policies, and this is the place where ourgovernment fails to graduate from.

Some of the trade targets were too optimistic, the ministry failed tounderstand the condition of the local industry. Increased decline inmanufacturing because of lack of energy like electricity and gas has affectedthe industry on the whole. Therefore increasing the trade targets means thatthey wont be able to achieve those trade targets.


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References

http://www.dailytimes.com.pk/default.asp?page=2010\05\21\story_21-5-2010_pg5_2

http://www.commerce.gov.pk/wordpress/

TRADE POLICY (2009-10) Speech by MAKHDOOM AMIN FAHIMMinister for Commerce27 th July, 2009

http://www.globaltradealert.org/measure/pakistan-strategic-trade-policy-framework-2009-12

http://worldtradereview.com/news.asp?pType=F&iType=C

http://www.wto-pakistan.org/documents/tpr/Pakistan_Final_statement.pdf

http://jang.com.pk/thenews/aug2009-weekly/busrev-03-08-2009/p5.htm

trade policy of pakistan 2009-11

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