Trade policy 2008-09

The trade policy for 2008-09, announced on Friday evening by Commerce Minister, Chaudhry Ahmed Mukhtar was followed by his press conference the same day. This is unprecedented as in the past the press conference was delayed at least until the next day to give the press, analysts and industry, time to absorb the pros and cons of the policy.
That this year was different has been attributed to the decision of Prime Minister Gilani to address the nation on Saturday and defend the performance of his government's 100 days in office.
By focusing on an arbitrary day for his own address to the nation while not allowing the Commerce Minister and the country time to absorb the possible fallout of the trade policy Gilani may have inadvertently compromised the reception of his own speech because the trade policy alone, amongst so many others, may be the only representation of a positive, however ambitious, approach to the economy's performance in the current fiscal year.
The Commerce Minister announced an expansion of the list of importable items from India - an expansion that is not likely to be reciprocated by India. The rationale behind this non-reciprocity is simple: the Indians maintain that they have a rather stringent import policy and they are not making the policy Pakistan-specific by allowing only a small number of imports from Pakistan.
In contrast, they maintain, that Pakistan has a very liberal import policy - attributed to not only our need to conform to standard normal international financial institutions (IFIs) conditionalities but also as part and parcel of the fact that the former government was convinced that opening our borders to imports will increase domestic competitiveness.
That this has not happened is evident. Pakistan continues to have a narrow export base and a good farm year is critical for us to register a rise in the total value of our exports. A bad monsoon year inevitably hurts our export prospects. In contrast India, with all its long-term stringency in its trade regime, has, nonetheless, succeeded in registering a significant increase in its exports.
And yet it cannot be denied that importing from India has one in-built advantage that must far outweigh all other considerations: its proximity renders transport costs much lower than if we import from anywhere else in the world. In this context, the decision of the Commerce Minister to further liberalise Indian imports is to be appreciated.
In the context of overall Indo-Pak trade relations, it seems politic to making this unilateral gesture at this time when the signing of the Iran-Pakistan-India gas pipeline deal is expected shortly whereby India will pay us hard foreign currency for gaining access to the pipeline through our territory.
It is the economic partnership between the two countries that will eventually lead to peace in the region; ongoing negotiations at different levels between India and Pakistan have, time and again, had limited success and on several occasions success has followed a reversal.
It has been a long-standing Indian demand to allow it to use Pakistan territory for trade with Afghanistan. This Pakistan has not allowed in the trade policy and correctly so. One of the major reasons is the present law and order issue impacting on our relations with Afghanistan.
The Commerce Minister also restricted trade with India to Wagha border and sea route; however it is imperative to open trade through railways as well as along the other border checkposts between the two countries.
The Commerce Minister, in the trade policy, also announced a new scheme designed to improve exports. This is over and above three existing schemes, namely duty and tax remission and export scheme (DTREs) - allowed to even those Indian imports that are not included in the 1938 total tariff lines - to those items that are manufactured locally and then exported, temporary import scheme as well as manufacturing bond scheme.
What must be remembered is that the DTREs have been abused considerably in the past and the Bawan Shah Group case bears ample testimony to that. The new scheme, over and above to what is available under DTREs, raises duty drawback by one percent of the FOB value for 14 traditional products, including carpets, surgical instruments and sports goods. One only hopes that the loopholes for abuse are well plugged into the new scheme.
Ironically precious minerals, namely platinum, gold, diamonds and precious stones have been exempted from customs duty. This is difficult to comprehend unless the government is targeting the development of the industry. At this stage there is no evidence to suggest that this industry is likely to develop as a consequence of this policy. In addition, in a country where budgetary revenue is way below expenditure and reliance on deficit financing and foreign borrowing a major policy goal reducing customs duty on luxury items makes little economic or indeed political sense.
Chaudhry Mukhtar did not make any mention of research and development (R&D) for export industry in general and the textile sector in particular. It is proposed that the government allows for this and makes the necessary adjustments from the textile sector's gas bills, thus killing two birds with one stone. The Commerce Minister forecast a 15% growth in exports - the same as last year. This may be too optimistic if the energy crisis remains as acute as it is at present and if we have a bad monsoon year.
Imports, in contrast, were not quantified and cannot be as the volatility in the oil market continues. While the trade policy does err on the side of optimism, yet it is a much better treatise than the budget for it does have a vision, of promoting exports, that may well be realised.