Incorporated in Draft Report: Ministry expresses concern over PC's recommendations

The Ministry of Industry and Production (MOI&P) while intimating its conflicting view on the Planning Commission's recommendations regarding tariff rationalisation, termed it a paradigm shift in the government policies of providing even playing field to the local industry in relation to substitutes and promoting indigenisation.
The sources told Business Recorder on Thursday that the Ministry expressed its concern over the recommendations, incorporated in the Draft Report on "Pakistan's Trade Policies-Future Directions". The ministry informed the Planning Commission that the proposals would have far-reaching implications on the local industry. It was further stated that the tariff concessions proposed in the Draft Report could be misused by the industry operating in the informal sector while it would not benefit to the exchequer, and the industry as well.
About the proposal to keep the import tariff low and uniform, the ministry said the customs tariff is usually based on internationally accepted Harmonised Commodity Coding and Description System. The method adopted in this system is its movement from simple to complex products while the method is not only followed intra chapter, but also within chapters of customs tariff internationally.
The dynamics of each commodity is counterproductive whereas the import tariff reflects the policies of the government. The tariff is also subjected to bindings agreed by the Government of Pakistan in WTO, besides those agreed bilaterally with various countries.
As far as bringing all the tariffs down to a maximum advalorem rate of 10 percent, the Ministry was of the view that under the existing scheme, majority of imports are subjected to lower rates in the range of 0-25 percent. Hence, lowering tariff rates and subsequent diminishing tax revenues, would not only hurt the local industry but would also cause substantial loss to the national exchequer. It should also be taken into consideration that developed economies consider 15 percent duty rate as "Tariff Peak". Zero-percent tariff, wherever applied, is either on basic raw materials or other inputs not available in their country. However, the finished products having no duty are only viable in the presence of strong technological advantages.
A general uniform rate from zero to ten percent would not only increase trade deficit but also would also erode exchange reserves, severely hurt local manufacturing, increase unemployment, increase poverty, and bring an overall economic misery. In view of this, the Ministry is of the considered opinion that all tariffs above 25 percent should be discussed individually. Moreover, the import tariffs cannot be reduced to the extent that future potential of industrial development is compromised.
The government is already facing problems in negotiating Free Trade Agreements (FTA) with various countries as it has little to offer to its trading partners due to already lowered tariff rates. Tariff on materials and goods not produced locally cannot be arbitrarily reduced so that leverage is available in negotiations. The ministry, in a reply to the Planning Commission, said the MOI&P supports liberalisation of trade through gradual reduction of tariffs, which should be carried out in close consultation with all the relevant stakeholders in a phased manner and by way of a thorough study of Effective Rate of Tariff Protection (EPR) by the National Tariff Commission.
The same tariffs on individual products for all importers including commercial importers is not feasible, as concessionaire tariffs are provided for inputs considered necessary for making the industry competitive with imports, and not for commercial trading activity. Concession is provided on inputs, which have multiple uses and are specific to priority industry, which requires time to acquire production efficiency. Moreover, checks and balances are required to be maintained as Pakistan face challenges in shape of trade deficit, revenue generation, employment creation and developing priority sectors. In this situation a balance needs to be created through targeted efforts.
Regarding the abolition of present regulatory duties, the Ministry contended the regulatory duties are levied not to generate revenues, but to regulate consumption/imports of certain items. Presently, only a few luxury items are subjected to regulatory duty. Thus the proposal may open floodgate for inferior quality imports, besides adversely affecting domestic industry.
Regarding slashing 25 percent tariff on cars and 15-20 percent on motorcycle followed by further cut to a maximum of 10 percent, the Ministry said the auto industry is considered mother of all industries and engine of growth due to its multiplier effect. The uniform tariff for all cars irrespective of engine capacity, as suggested in the Draft Report, may not have a notable impact on smaller cars as the price gap between the local and imported cars is visibly higher. The ministry also refused to support reduction in tariff on motorcycles in CBU condition, so as to ensure growth of local industry.