Boosting exports through trade policy

Stagnation is written all over Pakistans export figures in recent years. The new government has only entered its eighth week, but one hopes that it will soon come up with its trade policy to boost exports, which is indeed linked with other policies of energy and security that are yet to be announced.
In preparing the next trade policy, the government must review the Strategic Trade Policy Framework (STPF) for the period 2009-12, which was presented by the last government in July 2009. There are takeaways for the current lot of policymakers from the export targets set in that policy and the performance achieved.
To begin with, the STPF spelled export growth targets that were arguably not ambitious enough, especially since exports were expected to rebound anyway following a 7.1 percent slump in FY09. The framework looked to achieve export growth of six percent in FY10, 10 percent in FY11 and 13 percent in FY12. This target was achieved, as shown in the illustration.
To credit the policy for this achievement in admittedly difficult economic years, it is pertinent to ask how much role the said policy had in boosting the export by nearly $6 billion in those three years. The data points out that the export growth was primarily the result of increase in commodity prices, whereas the crucial factor of volumetric rise in exports was largely missing.
Output of the export-oriented industries and value-addition segments did not increase a lot due to energy crisis and limited technology transfer due to dwindling FDI inflows during that period. Pakistani exporters may have earned more during the period due to improved prices and depreciating rupee, but they faced trouble maintaining their market shares abroad, leave alone expansion or diversifying their exports.
STPF did achieve its export growth targets, but failed to raise the exports contribution in GDP. BR Research calculations show that exports marginally declined from 10.52 percent of GDP in FY09 to 10.49 percent in FY12. They further dropped to 10.37 percent of GDP in FY13. It should be clear that setting arbitrary export targets will make things worse, especially when there is disconnect with issues facing the exporting industries.
The previous policy also failed to lift the exports of engineering goods which it had vowed to raise to five percent of total exports by FY12. On the contrary, the engineering goods exports were lower in FY12 compared to FY09. Resultantly, their share in total exports worsened to 1.17 percent in FY12, compared to 1.67 percent in FY09. Again, the policymakers only paid lip service to the sectors issues and the sector suffered.
Another policy objective was to increase Pakistans regional trade to 25 percent of its overall trade by FY12. The policy didn mention which geographic region it was. BR Research calculations show that Pakistans trade with the seven South Asian economies stood at 6.54 percent, or $4.26 billion in FY12. Pakistans regional trade in FY12 stood at $11.75 billion, or 18 percent of its overall trade, when Iran and China (and Hong Kong) are included in the
egion. The policy didn quite score bulls eye here either!
STPF had some other slippages too, especially in negotiating free trade agreements with EU and US, which will be analysed in a later piece. There are high hopes from current government to formulate and implement a well-thought out trade policy that avoids the mistakes of previous frameworks. Governments shift towards economic diplomacy, to attract trade and investment, is a welcome sign in that regard.