Trade Research
Home / Research & Initiatives / Trade Research / PBCs Views on the Strategic Trade Policy Framework

PBCs Views on the Strategic Trade Policy Framework

0

Introduction

The Pakistan Business Council (PBC) notes the Ministry of Commerce’s ambition to enhance exports, as embodied in the recently issued Strategic Trade Policy Framework (STPF) 201518. A single stakeholder’s ambition however, cannot be a strategy! A pragmatic and achievable strategy requires buy-in from all stakeholders. The Ministry of Commerce is to be lauded for leading the thought process. Unfortunately in Pakistan’s context, it is not the sole stakeholder in trade (especially exports) nor adequately resourced or empowered to deliver the ambition.

Stakeholder Buy-In: The Missing Link

The PBC advocates a long-term national trade strategy to be developed jointly by all relevant ministries i.e. commerce, industry, textiles, agriculture, planning, labour, finance, etc. Secondly, that all provinces buy into it; and last but not the least, that implementation of the strategy is overseen by a high level body accountable to the Prime Minster. Only then will trade (including exports) receive the priority and focus that countries like Vietnam and Bangladesh have successfully achieved and sustained in the recent past.

Import Policies Need To Dove-Tail Into Export Strategies

In Bangladesh’s case, burgeoning garment exports feed off a well-aligned strategy, covering the import of cotton that it doesn’t grow. 40% of Malaysia, Vietnam and Thailand’s exports are based on imported inputs. In Pakistan, import content is less than 10%. Without a sound strategy covering the entire value chain, a clear allocation of responsibilities and a robust accountability process, the ambition to boost exports will remain only an ambition.

A Failure To Learn From The Past

Like all sound strategies, the STPF should have addressed the weaknesses of previous STPFs. The STPF for 2012-15 under-delivered on its export target, despite GSP Plus access to the EU in 2014. The current STPF fails to draw lessons from that period. Aside from restricting security sensitive items, the STPF is silent on how imports will be managed. The STPF thus fails to qualify as a “trade” strategy.

Strengthening Competiveness Of Domestic Manufacturing Largely Ignored

A proper exercise to develop a long term trade strategy would perforce address the competiveness of domestic industries. In a country with a population of 200 million people, industries should enjoy an inherent advantage of size and scale that could be deployed to limit imports and boost exports. However, poorly negotiated Free Trade Agreements have resulted in cheap imports which (through a combination of the misuse of Afghanistan transit treaty, smuggling, under-invoicing, defective import valuations, counterfeiting and widespread tax evasion) have so severely undermined local industries’ capacities and capabilities that survival in the domestic market is a challenge and global competitiveness is a far stretch. Indeed, these negative factors have encouraged businesses to trade rather than manufacture, a trend that needs to be urgently arrested and reversed if we are to create employment opportunities for our growing young population. The STPF fails to address the competiveness of domestic industry or import reliance in a holistic manner.

FTAs And PTAs Are Not A Panacea For Export Growth

The PBC has consistently cautioned against hastily entering into FTAs which fail to protect local industry, undermine tax revenues, and often also fail to secure terms for Pakistan exports that are (and will remain) competitive against alternative sources into evolving destination markets. The FTA with China is a case in point. Whilst cheap imports from China have undermined local industries, China now offers more concessional access to ASEAN countries than it does to Pakistan, thus impacting exports. The Ministry of Commerce’s limited resources would be better deployed in renegotiating existing FTAs. The PBC has also advocated transit arrangements for Afghanistan that secure domestic industries from misuse. Large markets in most cities brazenly deal in smuggled and counterfeited items. Controlling smuggling, etc., are outside the purview of the Ministry of Commerce, and so only an inter-ministerial approach can address the fundamentals of competiveness. Whilst laudable that the Ministry of Commerce has taken the lead in trying to shape a trade policy, other ministries must join in pulling in the same direction.

Strategy For Promoting New Markets & New Products – Vague

An export strategy must focus on the diversification of products and destinations, and include the export of services. Textiles, the main-stay of Pakistan’s exports, represent just 6% of world trade. The incentives included in STPF 2015-18 to encourage diversification are so small that they do not warrant discussion. Unless Pakistan can proactively and continuously address export competiveness in the dynamic and competitive global markets, it will constantly play a catch-up game with countries, who have a more focused export vision.

Nothing Concrete For Defending Existing Export Levels

The STPF draws attention to the need to promptly refund taxes and there can be no disagreement with that. However, it fails to address the necessity to simplify duty drawback and export rebates. Pakistan’s energy and labour costs (50% to 100% higher than eye-ball competitors) impact exports, especially as a large percentage is still in the low value-added, mass oriented, low-margin segment. A graduated incentive system linked to the degree of value addition and incorporation of local inputs would help reposition exports to less costsensitive segments. The STPF touches on the need to build brands to sustain exports. Whilst true, there is no concrete proposal, for example to allow exporters to retain a meaningful percentage of export earnings for investment in brand building.

No Value Addition Strategy For Our Textiles

Pakistan should discourage raw cotton, yarn and fabric exports, as opportunities to convert to higher value exist or should be created. By exporting commodities and semi-finished items, we nurture competition from countries such as Bangladesh that have no domestic supplies. They then hurt our value-added exports.

The STPF Fails To Account For The CPEC Opportunity

CPEC will no doubt be a game changer for Pakistan and there is hardly a facet of the economy that will not be touched by it in the 2015-18 period covered by the STPF, yet the STPF fails to mention it. There needs to be greater transparency on how CPEC will impact the competiveness of domestic industries and the safeguards that will be deployed to prevent it becoming a channel for cheap imports and thus undermining existing investment in areas outside the intended Special Economic Zones, which reportedly will enjoy special privileges. Pakistan should leverage CPEC to attract a meaningful percentage of the eight million jobs that are likely to move out of China given the rising labour and conversion cost there. The export/import impact of CPEC as well as the inward/outward capital/interest flows need to be modeled and shared to avoid surprises later. To date, there is a general reluctance to look a gift horse in the mouth; domestic industries fear that it could turn out to be a Trojan horse needs to be allayed!

The STPF Can Potentially Still Deliver Stakeholder Consensus

For all its gaps, the STPF is well-timed to bring all stakeholders together. It is therefore important that the SPTF not be viewed as a purely Ministry of Commerce initiative, but rather as part of a larger initiative which aims to significantly increase Pakistan’s exports, while leading to an increased competiveness of domestic manufacturing.

The Pakistan Business Council, A Significant Stakeholder In Growth

The PBC members from 11 sectors (manufacturing and financial services) have a significant stake in, and are committed to, transforming the operating environment to achieve sustainable growth of the economy and the betterment of the Pakistani people. In aggregate, the PBC members generate 23% of Pakistan’s exports, represent 10% of GDP, contribute 16% of tax revenues and employ 250,000 people. Pakistan today is on the cusp of a unique opportunity. The fall in global commodity prices and improvement in the security environment allows the government to make critically needed structural reforms. If undertaken, economic growth, including employment and exports will surely accelerate and help rid Pakistan of the stigma of being a laggard in key indicators in South Asia.



Contact Us

We're not around right now. But you can send us an email and we'll get back to you, asap.