SUBMITTED TO MANSOOR ALI SHAHANI PUBLIC POLICY

SUBMITTED BY M.USMAN TAHSEEN RAZA SOBIA RAJA IZHAR-UK-HAQ

Critical Appraisal of Trade Policy of Pakistan

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Critical Appraisal of Trade Policy of Pakistan

Acknowledgement
First praise is to Allah, the Almighty, on whom ultimately we depend for sustenance and guidance. Also, we would like to thank our friends and family members without whom, this project would not have been possible. Secondly we would like to pay sincere gratitude and regards to our Professor MANSOOR ALI SHAHANI for assigning this project to us and helping us throughout the course of this project. We dedicate this effort to our family members and friends for their generous support.

Critical Appraisal of Trade Policy of Pakistan

Abstract
Trade policy is a governmental policy governing trade with third countries. This covers tariffs, trade subsidies, import quotas, Voluntary Export Restraints, 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 the Federal Ministry of Commerce was the Strategic Trade Policy Framework for the year 2009-12. Our aim is to assess the features, targets and the terms in which the results are gathered. The paper is our own perception which will be critically appraised.

Critical Appraisal of Trade Policy of Pakistan

Contents Introduction........................................................................................................ 5
Source: Business Recorder......................................................................................................................... 5

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

Purpose of Strategic Trade Policy Framework .......................................................................................... 6 Main Features ........................................................................................................................................... 7 People Centric: Poverty alleviation and employment generation through export led growth ............ 7

Exports ............................................................................................................... 8
For Exports Competitiveness The Ministry Suggests The Following Measures: ........................................ 8 Review of Export Competitiveness ....................................................................................................... 8

Review of Ministers Speech: .............................................................................. 9 Positive Aspects of Trade Policy ........................................................................ 10

Monitoring and Evaluation Method ....................................................................................................... 10 Insurance cover for visiting buyers.......................................................................................................... 11 Research and Development .................................................................................................................... 11 Brand Development ................................................................................................................................ 11 Other Positive Features ........................................................................................................................... 11

Targets.............................................................................................................. 13 Challenges ........................................................................................................ 13 Reaction of Business Community ...................................................................... 13

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

Conclusion ........................................................................................................ 15 References ........................................................................................................ 16

Critical Appraisal of Trade Policy of Pakistan

Introduction
In order to address the challenges confronting Pakistan on the economic fronts, Ministry of Commerce has launched a comprehensive three years Strategic Trade Policy Framework (2009-12) document. Minister for Commerce Makhdoom Amin Fahim was the chief guest on the launching ceremony. The minister appreciated the fact that the Ministry of Commerce has come up with a mid-term strategic response identifying the challenges and suggesting policy interventions. He said the world is experiencing one of the most severe recessions in the post-war period. Our exports have suffered a decline over the last one year and has been beset with issues like low productivity and slow diversification of export products and markets, he said. In this backdrop, to formulate such a strategy in order to remain firm in these difficult economic times, to keep focused on our strengths, and to covert challenges into workable opportunities, is a matter of great pleasure and pride for us, he added. Realizing the need for developing and effectively implementing a national export competitiveness program, the Ministry of Commerce has developed a three years Strategic Trade Policy framework (STPF). It would provide the reference 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 by the government, industry, civil society and donors. Additional Secretary Khawaja Naeem showed deep pleasure at the launching of the STPF, which has been 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 presentation highlighting features of the Trade Policy.

Source: Business Recorder

Critical Appraisal of Trade Policy of Pakistan

Strategic Trade Policy Framework 2009-12

Purpose of Strategic Trade Policy Framework
i. The Strategic Trade Policy Framework sets out the policy guidelines and identifies the principle action areas Need for developing and effectively implementing a national export
competitiveness program. iii.

ii.

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 the help of policy and support interventions by the government, industry, civil society and donors. For active collaboration of the Pakistan Institute of Trade and Development (PITAD) within a short span of time.
Other factors because of which Strategic Trade Policy Framework was introduced: 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

v.

vi.

Critical Appraisal of Trade Policy of Pakistan

Main 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 processes 4. Shift from Comparative Advantage to Competitive Advantage 5. 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 bias 6. Reducing Cost of Doing Business 7. Protection and promotion of SMEs 8. Focus on products with higher sophistication potential 9. Promote agricultural development through exports 10. Enable Pakistani exporting companies overcome the negative effects of global demand contraction
Source: Dawn News (Article)

Critical Appraisal of Trade Policy of Pakistan

Exports
For Exports Competitiveness The Ministry Suggests The Following Measures:
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 Export 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 country is expected, from 101 to 75, the share of engineering exports will increase from 1.5 per cent to 5.0 per cent, value addition of cotton will increase, from dollar 1000 to dollar 1500 per bale, and regional trade will expand from 17 per cent to 25 per cent. But continued severe energy shortage, high cost of production, high cost of doing business, weak infrastructure, inconsistent policies, lack of FDI, limited scope of joint venture, low chances of technology transfer deteriorating law and order situation, and above all denial of easy and smooth market access could play pivotal role to achieve the targeted export competitiveness till 2012. In the WTO competitiveness index there are 12 factors/ points used to construct the competitiveness index. Macroeconomic stability, innovations, knowledge creating activities, technology readiness, and governance of the corporate and political institutions are the determinants of the trade competitiveness. Apparently it seemed that these essential factors have not been mentioned in the trade policy. So, the trade policy seems to be a wishful thinking which contains all sorts of proposals and measures for the expansion of exports over a medium term. Source: Minister of Commerce Speech (27th July 2009)

Critical Appraisal of Trade Policy of Pakistan

Review of Ministers Speech:

According to the speech, the government seeks to expand Pakistan's export product 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 and leather products, the mineral sector, gems and jewelry and services. Besides the short-term measures listed below, the government plans to set up a variety of funds to promote such goals as the channeling of public investment to promising sectors, hedge business against short- and medium-term interest rate risk as well as the improvement of management skills, product development and marketing. The following measures may affect international commerce: 1. To strengthen export competitiveness, the government seeks to compensate inland freight cost to exporters of "cement, light engineering, leather garments, furniture, soda ash, hydrogen peroxide, sanitary wares including tiles, finished marble/ granite/ onyx products." 2. To help designated sectors receive higher prices for their goods, the government will support brand development activities for "surgical instruments, sports goods & cutlery" with grants worth 25 percent of cost. 3. To support the textile industry, import duties on sizing chemicals may be abolished. 4. To promote the export of live sea food, the government has decided to grant 25 percent of freight cost to such products exported by air. 5. To support exports of processed foods, the government wants to compensate exporters partially for necessary research and development investments. This reimbursement could amount to 6 percent of export value. 6. To allow its exporters to enter Muslim markets, the government plans to set up a 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 Underwriters Laboratories. 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 and pharmaceuticals." 9. To reduce the cost of doing business in Pakistan, the government will ease import restrictions on designated specialized machinery, transport equipment as well as spare parts in the construction, waste disposal, oil and petroleum industry. 10. To allow improved development of pharmaceutical and engineering services, the government plans to ease export restrictions on the industries. 11. To provide lower income citizens with computers, the government has decided to allow the import of used computers. However, to allow for the development of a national television industry, used cathode ray tube monitors may only be imported along with used computers. 12. To encourage local vaccine production, the government plans to restrict imports to World Health Organization-approved plants only.

Positive Aspects of Trade Policy

Monitoring and Evaluation Method
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.

Critical Appraisal of Trade Policy of Pakistan

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Insurance cover for visiting buyers

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

All final use products do require continuous research and development for enhancing competitiveness either by technology upgradation, 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
It has been decided that surgical instruments, sports goods & cutlery sector would be granted 25% support on brand development activities.

Other 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.

Critical Appraisal of Trade Policy of Pakistan

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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, finished marble/ granite/ onyx products exporters to be compensated for inland freight cost. 25 per cent of the cost of labs in tanneries to be borne by government and 50pc grants for purchase of flaying machines at slaughter houses. Government to bear 50pc cost of certification of halal products exports. 50pc cost of quality certification for domestic appliances to be borne by government. Tents and canvas, sports goods, footwear, surgical/medical/ veterinary/beauty care instruments, cutlery, onyx products, electric fans, furniture, auto parts, handicrafts, jewelry and pharmaceutical sector zero rated for GST. Old, obsolete machinery be discarded; refurbished and upgraded machinery made available for trade. Engineering units exporting 50pc production to enjoy status of export oriented units.

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

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Targets
The trade policy envisaged an export growth of 6 per cent (18.8 billion dollars) for 2009-10, 10 per cent (20.7 billion dollars) for 2010-11 and 13 per cent (23.4 billion dollars) for 2011-12. The export targets for the next three years should not be difficult to achieve, especially because the rupee is likely to weaken this year and the global commodity prices are set to rise (cotton prices are up by 46 per cent and rice by 4 per cent since 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 compared to the deficit of last financial year when imports witnessed 12.87 per cent negative growth by declining from $39.965 billion during 2007-08 to $34.822 in 2008-09. Exports were recorded at $17.781 as compared to the export of $19.052 during the last financial year, showing a decrease of 6.67 per cent. Targets Exports 2009-10 $18.8 Billion 2010-11 $20.7 Billion 2011-12 $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, poor innovation and technological infrastructure, low labour productivity, low levels of manufacturing value addition. Furthermore, there is little foreign direct investment in manufacturing and exportable sectors, lack of surplus, absence of economies of scale in the production processes. All these challenges may make 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 it wishful list. Other labeled it insufficient. Many chambers of commerce interpreted it differently. But majority showed their deep concerns about its different measures, concessions and mechanism. Federation of Pakistan Chambers of Commerce and Industry president said that the trade policy seems a medium-term policy framework for the next three years. He said the problems of foreign exchange reserves, higher trade deficit and consequently low 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. The measures to improve the local base of industry have not been taken. The All Pakistan Commercial Exporters Association (APCEA) Chairman, welcomed the new trade policy formulated for three years, but said achieving the targets set for 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 that the 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 for improving 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 the country. The government has fixed export growth target of 6 percent for 2009-10 and 2010-11 and 13 percent for each of the successive years. Talking to Daily Times, chairman Pakistan Tanners Association (PTA) appreciated the government's initiative for launching comprehensive leather and leather products export plan in consultation with the major players of the leather sector. He said it was a good omen that the government would share 25 percent 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 sector will be able to avail the facilities from the Export Investment Support Fund (EISF). It will provide matching grant for setting up effluent treatment plants in individual tanneries. He said the scheme being launched to compensate inland freight cost to exporters leather garments including cement, light engineering, furniture, soda ash, hydrogen peroxide, sanitary wares, tiles, finished marble and granite and onyx products would provide some relief to these sectors. He said matching grant to establish design studios or design centres in the factories would benefit the leather sector. He said facilities from the EISF for leather apparel industry would prove supportive to the sector. The EISF may be used for providing matching grants to district governments for installing flaying machines. However, he expressed his reservation for not providing a level-playing field to the leather sector and announcement of any relief package to the second export sector of the country with $1.25 billion.

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Finished leather is one of the major export products and an intermediate product in which substantial value-addition can be achieved by adopting modern 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 surgical instruments' sector would be granted 25 percent support on brand development activities would greatly help to keep the brands intact. He said foreign surgical manufacturers largely use the brands of Pakistan that was resulting in lower prices for country's manufacturers in these sectors. Shortage of skilled manpower is impeding the growth of surgical instruments manufacturing industry. The decision to establish a centre of excellence for catering to the training, designing, research and development needs of surgical instruments' sector at Sialkot will help the sector, he added. The Ministry of Commerce proposes to set up an Enterprise and Entrepreneur Fund (EEF) for incentivizing the improvements in firm management capabilities in 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 implementation stage where our government fails. After going through the whole trade policy of Pakistan we conclude that it covers almost each and every aspect of trade. Policy making is directly linked with implementation of those policies, and this is the place where our government fails to graduate from. Some of the trade targets were too optimistic, the ministry failed to understand the condition of the local industry. Increased decline in manufacturing because of lack of energy like electricity and gas has affected the industry on the whole. Therefore increasing the trade targets means that they 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 FAHIM Minister for Commerce 27th 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