Recently appointed as the chair of Tariff Advisory Committee formed by the Ministry of Commerce, Dr Manzoor Ahmad is no stranger to taxation and international trade. He is currently working as the CEO of World Trade Advisors and the Chairman, Pakistan LNG Ltd (PLL). He has previously served as Director, FAO Liaison Office, Geneva (2008-10); Pakistan's Ambassador to the World Trade Organization, Geneva (2002-08) and Deputy Director, World Customs Organization, Brussels (1986-96).
He started his career in Pakistan Customs as an Assistant Collector (1973) and later became Member Customs, FBR (2000-2002). In that capacity, he carried out serious tariff and trade facilitation reforms. He is also working on the Boards of various economic think-tanks including PRIME Institute, Islamabad and the Institute for Policy Reforms, Lahore.
In this interview, BR Research asked him to walk us through the process behind the ongoing tariff rationalisation exercise; why he thinks trade liberalisation should be the way forward even if it comes without deregulation and liberalisation in other areas of economy; and what changes must the government make to improve the performance of commerce and foreign ministries.
BRR: At a recent moot in Islamabad you said 'Pakistan has very few trade economists'. What is that view based on; and why do you think Pakistan has no or few trade economists?
Manzoor Ahmed: I said that for several reasons. First, whenever any incoming government sets up an Economic Advisory Council, usually no trade economists are included in such bodies. Second, most countries whether developing or developed have well known specialized institutes for international trade. For example, in Vietnam, the Foreign Trade University has been working since 1960, although, at the time they hardly had any international trade.
When I worked as Pakistan's representative to the WTO, I noticed that negotiators from other developing countries were regularly supported by their academic institutions with well-researched background papers. But no such research was provided to our Mission or the Ministry of Commerce.
BRR: And what is the state of international trade law experts in Pakistan who can negotiate with the likes of regional and multilateral bodies such as WTO, and bilaterally with trade partners whether in the famous WTO green rooms, or in the case of FTA, PTA etc?
MA: The situation is gradually improving. Recently, Pakistan's trade negotiating teams on bilateral FTAs included trade economists and were much better prepared than in the past. However, there is not much attention to multilateral negotiations.
For the last several months, the position of the head of Pakistan's Mission to WTO is lying vacant. Also, there is no deputy head of the Mission. It shows the lack of commitment towards multilateral work. Without proper representation, we should not expect any access to being invited to the green room or other such exclusive forums.
BRR: You are the chair of tariff rationalising body. How are you approaching the task? What are the principles and decision-making matrix that guide you?
MA: The basic objective of the tariff rationalization exercise is to reduce anti-export bias in the current tariff policy by reducing duties particularly on raw materials and intermediate goods for the local industry and to simplify the tariff, which is highly complex and non-transparent.
At the same time, we have to keep in view the fact that import-based taxes constitute 47 percent of the current revenue collected by the FBR. Therefore, the tariff reform exercise has to be staggered over the next 2-3 years. The basic principles are to bring tariff rates in lines with the effective applied rates, benchmark them with countries with similar level of development or where we have extended tariff concessions to our FTA partners and not have the same product carry different rates of duties depending on the end user.
We held extensive consultations with all the stakeholders. We requested all the chambers of commerce and industries in Pakistan to come up with an agreed basic draft. We also involved other sector specialized bodies such as the manufacturers of chemicals, steel, home appliances, light engineering goods, papers, textiles, footwear, and sought their wish lists.
All suggestions received either through the associations or individually were reviewed by the Tariff Policy Centre set-up at the National Tariff Commission. In addition to trade representation, all the relevant government bodies such as the Ministry of Commerce, Ministry of Industries, Engineering Development Board, Federal Board of Revenue and independent tariff experts were represented in the Tariff Reform Committee.
BRR: Which sectors are going to witness the most rationalisation; and how are you selecting the sectors?
MA: The reform exercise has looked at the entire tariff. Since duties on agricultural products often vary by the government on the basis of crop size and prevailing prices in the international markets, this sector was not examined in depth. Also, the auto sector was mostly left out as it is guided by its own auto policy set by the Ministry of Industries. The sectors which attracted the most attention are chemicals, iron and steel, paper and paper board, textiles and electrical appliances.
BRR: What process are you adopting to listen to the genuine concerns of the business community; considering that some of their concerns are valid, and considering that they don't have research capacity, that the association/chamber president won't always represent the whole body, and that the interest of one association conflicts with the interest of another?
MA: We held extensive consultations with the business community. In addition, their major associations are also a part of the Tariff Reform Committee. The interests of various manufacturers do conflict in many cases. But we tried to resolve such issues through joint meetings with both sides. For example, the interest of steel manufacturers and engineering sectors were quite different. Similarly, those of textiles manufacturers and chemicals were sometimes very different, but we have tried to narrow the differences through consultations with both sides.
BRR: Pondering over his experience as commerce minister in the last regime Khurram Dastgir recently said that 'there is no constituency for free trade in the country'. Given your interaction with the business community during the process of tariff rationalisation, do you agree with Mr Dastgir? Can you share some examples?
MA: Yes, I fully share his assessment. While the protectionists lobbies work hard to defend their interests, there is no one to protect the interests of consumers. According to the World Bank, Pakistan's "current tariff policy has been shaped more by revenue and protectionist considerations than long-term competitiveness-enhancing measures".
A recent study by UHY, a UK based international accounting and consultancy network, indicates that consumers in Pakistan face customs duty rates nearly four times more than the global average. However, no one raises such concerns. Instead, the focus is always on more tariff and non-tariff measures. Our interaction with the business community showed that while they were interested in getting duties on raw materials reduced, most of them wanted their current high level of protection to be kept intact.
BRR: Do you think trade liberalisation will work in the absence of deregulation, privatisation, liberalisation in other sectors such as power, gas; and whether trade liberalisation works in the face of other procedural aspects of ease of doing business? Can you give us some examples from history where trade liberalisation has worked without deregulation in other areas of economy?
MA: Trade liberalization has worked in almost all other countries which realized its importance. The earlier a country opened up and integrated with the rest of the world, the more prosperous it has become.
Chile liberalized in the 1970s; ASEAN followed by Turkey and China in the 1980s, and India 1990s onwards. The most recent successful example of trade liberalization is Vietnam whose export were about the same as Pakistan about 20 years ago, but now has at least ten times more exports than us.
All these countries were able to lift millions of people from poverty. Countries such as Pakistan, Egypt and some Latin American and African countries that have stayed relatively closed have remained relatively poor.
While it would help if trade liberalization were carried out along with deregulation and privatization, the benefits of trade liberalization even on its own are significant. In most countries, trade liberalization accelerated other reforms and improved ease of doing business.
BRR: Similarly, to what degree trade liberalisation works in a country that lacks the basic skills & education to compete globally?
MA: We can take a lesson from the last tariff liberalization exercise which was carried out during 1997 to 2002. Those reforms resulted in our exports and manufacturing growing annually at double digits. Unfortunately, since the financial crisis of 2008, we have reversed many of the earlier reforms through regulatory and other duties. As a result, our exports have been stagnant.
Liberalization brings investment and new technologies. Countries with similar level of basic skills and education as Pakistan have galloped ahead through trade liberalization. What we have to understand is that if we have a duty of 50 percent on a basic raw material like iron and steel, it means that not only the users of this material are at a disadvantage of at least 50 percent compared to Pakistan's competitors elsewhere, but our own iron and steel industry will not have any compulsion to be more competitive.
It is the same with the finished products. If our auto parts are protected through a duty of 35 percent, it means that we are at least one-third less efficient. When we try to export such highly protected products, we are unable to do so as they have to compete in open markets.
BRR: PM Imran Khan had recently held a trade envoys conference. What were the hits and misses of that moot?
MA: It would have been better to include trade experts in such conferences. I do not recall that any of the Pakistan's current or previous experienced trade experts or negotiators were invited to that event. The envoys conference was conducted in a silo and even the government ministries and departments involved in trade issues such as those setting trade policies, import tariffs or standards were not invited to give their input.
BRR: Boosting trade is beyond the scope of commerce ministry since it involves so many other departments and ministries across federal and provincial government. Would you suggest any other alternate platform or executive coordination committee since clearly commerce ministry has clearly failed in coordinating all those countrywide departments and ministries over at least the last 20 years?
MA: Yes, there is a need to review the existing trade policy setting mechanism. In many countries such as Turkey and the United States, international trade is managed through the Prime Minister or the President's office to ensure better coordination. At least we should have a Cabinet level committee to coordinate international trade issues, as we have done for energy through setting up of a Cabinet Committee on Energy (CCOE).
Currently, our trade issues are subservient to taxation issues as the Minister of Finance usually enjoys a much more powerful role. Pakistan's main trade policy instrument is its customs tariff, but unfortunately, the Ministry of Commerce has so far had very little role in setting customs tariffs. In fact, quite often the Ministry of Commerce and FBR were working at cross purposes. While the Ministry of Commerce has been signing FTAs to get more market access, FBR has been imposing regulatory duties even on the FTA partners to deny market access.
BRR: Why do commerce and foreign ministries have different maps of the world? And what is the solution?
MA: This has been a problem in many countries. Therefore, many countries such as Australia Argentina, Brazil, Canada and New Zealand have merged their foreign and trade ministries. In some countries such as India, better coordination between the two ministries is ensured through posting of senior level (Joint Secretary) officials in the Ministry of Commerce.