THE commerce ministry has a minimal role in the formulation and implementation of the trade policy owing to the all-pervading presence of the federal finance division, the Federal Board of Revenue and the State Bank of Pakistan in an area which should be essentially outside their domain.
Similarly, the commerce division is ironically handling the affairs of the finance division, like insurance.Sadly, the commerce division is not much active in the critical areas that are actually assigned to it, like the tariff policy and inter-provincial trade etc.
The functions assigned to the commerce ministry and its surrender of its turf to other ministries and departments have led to the irrelevancy of the trade policy. All major financial aspects covering trade and exports are governed by the State Bank of Pakistan (SBP) and the Federal Board of Revenue (FBR).
Any unit exporting over 70-80pc of its products should get all sorts of priorities and facilitations, including priority supply of gas. Its sales tax refunds should also be rapidly processed
The major function of tariff policy, including tariff setting, is done by the FBR. The tariff slabs and rates are dictated by international donors like the International Monetary Fund, theWorld Bank and the Asian Development Bank directly to the FBR. It is interesting that these three donors work in complete unison to enforce their dictates.
If the trade policy were to be made relevant for boosting exports and developing the economy, what would it entail? What measures would be required and where could Pakistan’s trade in general and exports in particular reach in five to 10 years? What role does the commerce ministry has to play in setting priorities and objectives for the national economy and in framing the trade policy?
These questions will have to be addressed both by the government as well as by the ministry if the export target of $50bn has to be achieved in six to seven years. For this, several suggestions are mentioned as follows.
Fragmented policies have to be unified. The National Economic Council (NEC) is the highest economic policy and approving authority as per the constitution, and it is headed by the prime minister. The council must approve the industrial and trade policy parameters in unison with the 20- or 25-year vision.
The industrial and trade policies must be announced as one package. All export incentives (except for marketing) must be based on improvements in the factory-floor efficiency process. This is how Malaysia improved its industrial efficiency.
Exports must be considered a priority due to their job-generation capability. It is normal to have intra-governmental and inter-departmental differences over policies; for example, a policy may increase exports but reduce revenue, leading to its opposition by the FBR. It is precisely the job of the prime minister to fix the national priority.
And the commerce ministry has the advantage of taking such issues to the Federal Export Development and Promotion Board (FEDPB), which consists of all relevant ministries and is also headed by the prime minister. The ministry should come up with the critical issues and the minister may request the PM to chair the meeting, which he has not been able to do because of his busy schedule.
Meanwhile, the ministry should also play its strategic role. It should take up its critical role of setting tariffs and fixing refinance scheme rates instead of allowing the FBR and the SBP to do so, as it is the government that is footing the bill and will gain from increased export earnings.There will be resistance, but these issues have to be taken to the FEDPB.
Similarly, export facilitation rules should be framed by the Trade Development Authority of Pakistan (TDAP) and not by the FBR. The FBR’s role is to collect taxes and control illegal flow of goods across borders. Any export facilitation measures that have to be given — like the temporary importation for exports and duty and tax remission for exports (DTRE) etc — should be framed by the TDAP and not the FBR.
The FBR may only monitor and ensure implementation. Duty drawback rates should also be set by placing the Input Output Coefficient Organisation under the TDAP. Any resistance may, again, be taken up at the FEDPB.
The commerce ministry should focus on policy and leave the rest to the TDAP. The ministry became rudderless by getting involved in issues like the delay in sales tax refunds, getting gas supplies for industry and deciding to promote ‘which product to which countries.’ All of this should be left to the TDAP, and the ministry should focus on policies and major strategies.
It should also move away from wasting its energy on useless foreign trade agreements. A perfect example is the ministry doing a FTA with Singapore, where import is duty free. Hardly any Pakistani is expected to invest there in the foreseeable future. Such manpower and energy may instead be used to help exporters increase their foreign sales.
There is also a need to create smart connectivity between industry, academia and research and development facilities, thus encouraging value-addition and innovation. The ministry should bear 50pc of the cost of connectivity to pre-declared major academic and research centres like LUMS and IBA etc. And it can start with the Gujrat and Gujranwala divisions for engineering goods and garments in Karachi and Lahore.
Full attention should be paid to compliance issues and inter-governmental meetings should be held regularly. The benefit of this became visible when the country was awarded the GSP Plus status by the EU, while delayed responses led to the Walt Disney company walking off Pakistan.
Any unit exporting over 70-80pc of its products should get all sorts of priorities and facilitations, including priority supply of gas. Its sales tax refunds should also be rapidly processed.
Meanwhile, the trade policy should be announced before the federal budget, so that whatever measures are approved by the prime minister and the cabinet get factored into the budget.
Lastly, professionals should be hired to run the affairs of all relevant departments, including the commerce, textile and trade ministries.
Apart from these suggestions, the business community and those serving the commerce division and the TDAP may have much better ideas. The point of this article is that if the prime minister takes ownership of the trade policy and sees it as an instrument of economic growth, the trade policy would become a relevant instrument of exports and economic development.
The writer is a former additional secretary of the Ministry of Commerce