Philip Schuler of the Development Group of the World Bank has said that tariff dispersion and tariff peaks increase incentives for protectionist lobbying and has suggested to bind tariff rationalisation in the context of Doha round.
This was the crux of the salient features of the tariff rationalisation study of Pakistan conducted by him and presented here on February 21 before representatives of various associations of trade and industry and the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) represented by Engr. M.A. Jabbar, vice-president, FPCCI.
The meeting was chaired by Tariq Ikram, Chairman, Export Promotion Bureau (EPB).
The liberalisation of tariff structure study has been made by the World Bank for Pakistan to meet the objects set by the World Bank trading system in which Pakistan is already integrated being a member of WTO.
In addition, the study aims at reform objectives to include reducing of tariff dispersion, increasing transparency of trade policy and closing of loopholes and achieve trade neutrality in indirect taxation.
The World Bank study is based on the main message that the recent reforms require more improvements by reducing tariff peaks, removal of discriminatory excise taxation, continue eliminating SROs and lock in liberalisation to prevent backsliding.
It attempts to show the decline of average tariff proportionately increasing the taxes other than import duties. It further analyses the distribution of tariff rates between duty-free imports and imports which attract different slabs of import duties.
EXTRAORDINARY PROTECTION: It also shows that the pattern of protection for industry is between five to 15 percent as against high pattern of protection for food and beverages and textile and apparel from 22 to 24 percent and that the exceptional and extraordinary protections are given to the motor vehicle assemblers up to 200 percent tariffs on imports of similar vehicles.
The study itself attempts to conclude that there are dispersions and tariff peaks.
The dispersions grew even within many industries and among product categories. The ad valorem rates are set as high as 200 percent in exceptional cases to protect car industry.
The World Bank study suggests corrections and says that dispersion reduces economic welfare, increases incentives for protectionists lobbying and creates anti-export bias.
It compares the applied tariffs and pattern of escalation from raw materials to finished goods and their intermediary state.
It suggests that the tariff schedule should be the main trade policy tax instrument for achieving the transparency and eliminating the influence of the powerful lobbies.
The study further defines the existence of SROs as non-transparent, discriminatory and discretionary instruments. It also touches upon foregone revenue on account of concessions driven out from the application of SROs.
It recommends conversion of specific rates to ad valorem and lower highest rates to that of maximum slab, which indication specifically relates to the present high tariff rates on imports of vehicles in Pakistan.
On the tariff peaks the study recommends to bring all tariff rates into normal slabs instead of keeping some of the rates exceptionally high.
The recommendations cover to set the same rates on the same products whether imported or domestically supplied.
In the end the study recommends to prevent backsliding by binding tariff liberalisation in context of Doha round and to continue fiscal reforms that reduce dependence of trade taxes.
Tariq Ikram suggested that the study of tariff rationalisation should relate to the economic development.
Engr. M.A. Jabbar, vice-president FPCCI, suggested the author that the figures of the study in respect of import duty protecting car assemblers needs to be corrected as it starts from 75 percent to 150 percent and beyond and not 30 percent as mentioned in the study.
He also invited the attention of the author that the whole study requires to be revisited in terms of the data and the rationale behind issuance of certain SROs for the industry.
He further said that the author should also study as to why there is discrimination amongst SROs allowing foreign investments at zero rate of import duties in energy and power sector against five to 10 percent rate of import duties for industrialisation by local investors for manufacturing value-added products.
He explained the author that certain conditional use of SROs by industry only take care of import of raw materials at lower rate of duties to allow the margin for value additions to sustain their sales share against similar imports at rate of duties five to 10 percent plus of the rate of duties on import of raw materials against the SROs.
He asked the author to analyse the essentiality of keeping certain SROs as the spirit behind the issuance of these SROs has to be kept in mind before recommending elimination of the SROs.
The keeping of certain SROs is necessary for economic development and in supporting the viability of the domestic industry against which investments have been made to take the market share against similar imports and take share in the overseas market against the similar exports from other competitors.
The participants also brought to the notice of the author that the reasons for putting the tariffs are few which include the protection of domestic industry and as well keep it as negotiating instrument for multilateral negotiations.
The author was advised to revisit the data and perceive the SROs linked to the economic development of the country.
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