Revival of Risalpur EPZ: ministry proposes cut in EPZs exports to tariff area

In a major policy reshuffle, the Ministry of Industries and Production (MoIP) has suggested to the government to restrict export of manufactured goods from the Export Processing Zones (EPZs) to 50 percent, instead of 100 percent, to the tariff area on the same pattern as has been adopted in the case of Gwadar EPZ, according to official documents available to Business Recorder.
The proposal, sources said, has been prepared with the objective of reviving the Risalpur EPZ, which was not successful because of stringent conditions imposed by the government at that time.
The Export Processing Zones Authority (EPZA), in collaboration with Sarhad Development Authority (SDA), had established an EPZ in Risalpur, whose main objective was to attract foreign and local investment by facilitating industrialists and traders in setting up export-oriented projects and international warehouses.
First phase of Risalpur Export Processing Zone (REPZ), spread over an area of 92 acres (137 plots), was completed in December 1998. According to the documents, the government was expecting REPZ to open new avenues for exports to Afghanistan and Central Asian markets. However, imposition of a 20 percent limit on exports to tariff area as well as the restriction on re-export to Afghanistan through land route adversely affected business activities in the zone. Out of 54 approved projects in REZP only 9 were implemented and 7 out of these 9 closed due to restrictions on exports. The remaining land allottees have yet to start any business activity.
In response, the Minister for Industries and Production, Manzoor Ahmad Wattoo, constituted a committee to review the issues of REPZ to make recommendations for its revival. The major issues, identified by the committee, were numerous restrictions on exports.
After detailed deliberations, the committee formulated the following recommendations for government's consideration: (i) Allowing export of imported goods as trading items (except negative list) to Afghanistan via land route; (ii) allowing incentives/facilities at par with bonded warehouses for export of imported raw materials to tariff area on payment of leviable duties and taxes in accordance with import policy issued by Ministry of Commerce from time to time; (iii) lease rates/annual ground rent may be revised and made competitive with other industrial estates. The present lease rates for 30 years are $6.5 per sqr metre for industrial and $16 per sqr metre for trading with AGR $ .05 sqr per metre per year and $1.25 per metre per year for industrial plot and trading plot respectively; (iv) 100 percent export of manufactured goods to tariff area may be allowed; and (v) Reconstruction Opportunity Zone (ROZ) classification for exports to U.S may be allowed and parallel EPZ status for exports to non U.S destinations may continue.
According to the documents, the committee further recommended that if the suggested measures cannot be approved by the government then REPZ may be converted into a Special Economic Zone (SEZ) so that investors can avail the incentives package for SEZs.
Industries Ministry circulated the proposal to Finance Division, Federal Board of Revenues (FBR), Ministry of Commerce, Board of Investment and Planning Commission for their views/comments. Most of the stakeholders disagreed with the recommendations of the Industries Ministry.
However, Industries Ministry has stated that the system of 100 percent export from EPZ to tariff area worked smoothly up to 2004 and was consistent with the basic idea behind the establishment of EPZ. The restriction was imposed in 2004 to check the misuse of the facility by Dumper Trucks Manufacturers/Importers.
It would have been more appropriate to take direct action like cancellation of licences, etc. A large number of warehouses are already operating in EPZs and they are free to export but for the success of the REPZs export to Afghanistan must be via land route. However, it was proposed to accommodate export of 50 percent of the produce of the zone to the tariff area on the lines of Gwadar EPZ otherwise public resources spent on establishment of REPZ will go waste.
"The MOIP has proposed that EPZ notification should be modified so that export of manufactured goods to tariff area will be restricted to 50 percent," the documents say.