Text of Trade Policy 2004-05

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Text of Trade Policy 2004-05




Commerce Minister Humayun Akhtar on Thursday announced Trade Policy 2004-05 in Islamabad. Following is the text of the policy:

1. I deem it an honour and a privilege to be presenting to you the trade policy of Pakistan for the fiscal year 2004-2005. I have this honour for the second time since our Government assumed office in 2002.

2. For Pakistan to achieve the desirable rates of growth, the Government must follow appropriate and consistent economic policies. It is fortunate, that from the beginning of his government in 1999, President Musharraf assigned the highest priority to economic revival and initiated a forward looking reform agenda. The parameters laid down in the President’s economic reform agenda have of course guided economic policy over the past five years. Due to this correct direction and consistency of policy, Pakistan’s economic indicators, including export figures, are the best they have ever been.

REVIEW OF EXPORTS 2003-2004

3. Between 1982 and 2003, global exports had increased by 397% to US $ 7.482 trillion. Pakistan’s exports in the same period increased by 496% i.e. from a share of 0.13% to 0.16%, a 23% increase in world market share. Whilst a turn around in Pakistan has been achieved with export growth rate being 22% more than the growth rate of the world trade, significant potential still awaits us. Exports achieved during 2003-2004 were US$12,273.5 million registering an increase of 10% and surpassing the budgeted level of US$12.1 billion. This is the third consecutive year of year-on-year growth and the achievement of target levels. Compared to 1999-2000, exports have increased by 43%. In the context of the socio political and economic challenges faced by Pakistan and its private sector, this is more than satisfactory. The people of Pakistan and our business community deserve congratulations for this achievement, which would not have been possible without their effort and dedication.

SECTORAL REVIEW

CORE CATEGORIES (TRADITIONAL)
4. Textiles and Garment’s export were US$8.302 billion. This is 68% of the total exports and an increase of US$844 million, or 11.3%, over 2002-2003. Of the total increase in exports of US$1.113 billion, Textile and Garments contribute 75.8%. It is encouraging to note that five of the sub-sectors namely cotton cloth, knitwear, bed wear, cotton yarn and ready made garments, achieved exports in excess of US$ one billion each. Our ‘Other Core categories’ combined, recorded an export level of US$2.353 billion, which is 19.2% of our total exports, registering an increase of US$99 million or 4.03% over last year. These contributed 8% of our total increase in national exports. Whilst Rice at US$627 million and Petroleum products at US$284 million produced appreciable growth over last year, 12.9% and 14.3% respectively, our other traditional product sectors were lower or declined. Exports of leather & leather products, at US$723 million, were 4% higher, molasses at US$48 million were up 4.7%, carpets at US$223 million increased by 0.2%, sports goods at US$310 million declined by 7.7% as did surgical instruments at US$124 million by 17.3%. Performance of our traditional products, other than textile and garments, posting either incremental gains or decline, is a matter of concern as these currently account for 19.2% of our total exports.

‘DEVELOPMENTAL CATEGORIES’ AND ALL ‘OTHERS’ (NON TRADITIONALS)
5. The non-traditional product categories recorded exports of US$1.618 billion, or 13.2% of our total exports. These grew by US$178 million or 12.4%. However wheat exports distort the true performance and excluding wheat, last year exports of which were US$130 million and this year only US$6 million, our non traditional products recorded exports of US$1.612 billion, which is US$302 million or 23% more than last year. Thus the rate of growth of exports of non traditional products was 130% more than that of Pakistan’s total exports. The base of course is still small.

6. During the period 1999 to 2003, world exports increased by US$1.774 trillion i.e. by 31%. During the same period Pakistan’s exports grew by 43% reflecting an improvement in world share. By comparison India increased by 53%, Singapore by 26%, Malaysia 19%, Indonesia 25%, UAE 5%, Philippine 1%, Vietnam 70%, Iran 59%, Bangladesh 25%, Sri Lanka 10% and Jordon 64%.

7. A turn around in exports has been achieved. However, the absolute value of exports at US$12.3 billion suggests significant opportunities remaining. Pakistan must aim for a quantum leap in the short to medium turn. Question is what would constitute a quantum leap for Pakistan. With a GDP level of US$95 billion, exports are presently 13% of GDP. It is estimated that with a GDP level of US$150 billion in 5 years attained through a 10% growth per annum, if we achieve a 25% of GDP level or US$25 to 30 billion in exports, that would be a quantum change. This is a 15 - 20% growth per annum and a practical but stretch objective which Pakistan should air for.

8. I must mention here that while our exports went up, the value of our imports also exceeded our projection of $12.8 billion by 20.9 percent, resulting in a trade gap of $3.199 billion, which was considerably wider than the year before. The underlying factors for this rise, however are heartening, in that the major increases have been in the import of machinery, chemicals and metals. The nature of these increased imports implies that the level of productive investment and production activity in the economy has increased significantly in response to improvement in the policy environment over the last five years. As higher imports of industrial machinery and raw materials results in greater industrial activity, the consequential benefits are increased employment and hence, reduction in poverty.

9. In today’s global trading environment, economies cannot function in isolation. Therefore it is necessary to have a system of international trade that works for the benefit of all. For such a system to be functional, it needs to be rule based and cater to the interests of all countries irrespective of their level of development. The World Trade Organisation (WTO) represents an effort to put in place such a system which is not only rule based, but one where decisions are taken by consensus.

10. The WTO was established and made operational in 1995. Pakistan has been a WTO member since 1995 and has been complying with its legal obligations under various WTO agreements. At this point I WANT TO reiterate that contrary to popular perception, the WTO regime will not come into effect in 2005 since it is already operational

11. However, what makes the year 2005 especially significant from Pakistan’s point of view is that with effect from 1st January 2005 all remaining quotas on our textile exports will be phased out in keeping with the requirements of the WTO agreement on textiles and clothing. The elimination of textile quotas has been a longstanding objective for us because we enjoy a comparative advantage in this sector. The Textile industry of Pakistan, in collaboration with Government, has been preparing itself by making sizeable investments in order to take advantage of the new market opportunities likely to emerge after the end of the quota regime. Our assessment is that in overall terms Pakistan stands to gain from the abolition of textile quotas.

12. Given the major share and importance of the textile sector in our economy and trade, I would like to inform you about some of the specific supportive measures under taken for this sector:

(a) Sales tax on ginned cotton has been eliminated to reduce costs for the spinning sector.

(b) Ban on import of cotton waste has been removed to help towel manufacturers.

(c) Almost all restrictions on relocation of used textile machinery, and related equipment have been removed to encourage aggressive establishment of enhanced textile production capacity.

(d) Garment Cities are being set up to encourage production and export of value added products.

13. I would like to inform you that presently negotiations are underway to further improve the WTO system and the global trading environment. In these negotiations referred to as the Doha Development Agenda, Pakistan is striving to ensure that the final outcome is development friendly and conforms as closely as possible with our economic objectives. In the most important negotiations i.e. on agricultural trade liberalization, Pakistan, along with other developing countries, is calling upon developed countries to make major reductions in their agricultural tariffs and eliminate their subsidies as this would be immensely beneficial for our agricultural sector, given its predominant position in our economy. At the same time, we are also mindful of the need to ensure protection of our farmers against import surges of low priced agricultural products. Accordingly, we have allied ourselves with a group of developing countries that are calling for a special safeguard mechanism to cater to such eventualities.

14. In the non-agricultural sector, Pakistan and the developing countries are willing for further liberalization, subject to the condition, that their interests would be safeguarded. This implies that developed countries will allow effective market access to the exports of developing countries by eliminating unjustified non-tariff barriers, and specifically by reducing tariffs on labour-intensive products like textiles. A very important condition of these negotiations is that the pace and extent of trade liberalization by developing countries will be lesser than developed countries, and will be in keeping with their capacity, so that their economies are not hurt in the process. Since Pakistan has already reduced its tariffs and non-tariff barriers considerably in pursuit of its own economic reform agenda, we do not foresee the need for any major changes in our current tariff and trade regime as a consequence of new agreements under the Doha Development agenda a few years down the line.

15. Public concern is often expressed about whether the Government is making adequate preparations to meet the challenges and opportunities of the WTO system. On this subject, I confirm that our entire trade policy is designed to do just that; by reducing the cost of doing business as well as by enhancing the capacity of our producers to compete on a sustainable basis in the international market. There is however a continuing need to create greater public awareness about the WTO system so that some of the misconceptions in the public mind about the WTO can be corrected. The Export Promotion Bureau has been tasked by me to carry further the efforts already undertaken at the level of the Ministry of Commerce and other Ministries, and launch a major public awareness campaign.

16. From Pakistan’s perspective the best way to increase market access for our exports is further liberalization of world trade through WTO negotiations in a way which is favourable for us. However, the pace of WTO negotiations, by their very nature, are slow and countries are therefore going for interim solutions by concluding as many regional and bilateral preferential trading agreements as possible. In keeping with this trend Pakistan has also intensified its efforts in this area. In July 2003, Pakistan signed a preferential trade agreement (ECOTA) with ECO countries, and The South Asia Free Trade Agreement (SAFTA), along with six other SAARC countries, in January 2004.

17. In the bilateral sphere Pakistan signed a Preferential Trade Agreement (PTA) with China in November 2003. In order to improve our access to the US market we are making efforts to conclude in due course an FTA with the USA, and as a first step we have signed a Trade and Investment Framework Agreement (TIFA) with that country. Similar initiatives are also underway with Sri Lanka, Bangladesh, Iran, Turkey, Indonesia, Kenya, Thailand, Kazakhstan and Laos, as well as within the D-8 and OIC organizations.

18. We have a long history of economic cooperation with the EU which is also one of our largest trading partners. Pak/ EU, economic relations are conducted within the framework of a cooperation agreement and the latest third generation agreement had been awaiting operationalisation for a number of years. This year the European Parliament ratified this agreement, as a consequence of which a new phase of EU-Pakistan Economic Cooperation has begun. This cooperation includes various EU financed projects designed to build up Pakistan’s capacity for increasing its exports.

19. As we liberalize our import regime, either as a result of our international commitments, or as part of our own reform agenda, it is essential that we also have an effective mechanism in place to protect our industries against unfair competition. Such problems mostly arise either on account of dumping by foreign firms, or subsidies to their firms by foreign governments. The National Tariff Commission is a specialized organization within the Government which is authorized to take cognizance of such threats to our industry. Consequently they have initiated some investigations and also imposed anti-dumping duties in a few cases. Besides their statutory functions, they also conduct awareness activities for the benefit of our trading community. NTC has also given technical advice to our exporters facing action under trade defence laws of other countries. Given the importance of their function the institutional capacity of NTC is being strengthened continuously.

20. Today I would also like to make a special mention of the importance of intellectual property rights protection in promotion of trade and investment. The Government of Pakistan is fully alive to its international obligations to protect intellectual property rights and is constantly working to improve its capacity. Besides, we fully understand that such protection is necessary to encourage innovation, creativity and research domestically. A good protection regime will also provide the necessary "comfort" and incentive for foreign investors to invest in high tech facilities in Pakistan. Your Government is therefore resolved to improve our level of enforcement in this area in the coming days in support of our national economic objectives.

REVIEW OF LAST YEAR’S

TRADE POLICY INITIATIVES
21. Our trade policy last year contained an array of new initiatives some of which were trend setters, designed to identify opportunities. It is encouraging to note that a vote of confidence has been expressed by other Federal and Provincial agencies as they have decided to pursue some of these initiatives themselves. I am particularly appreciative of the concerted efforts of the Ministry of Industries to set up the Textile City in Karachi; and of the policy decision of the Government of Punjab to set up Garment Cites at Faisalabad and SUNDAR near Lahore.

22. In order to be able to finance the plans emerging from the 2003-2004 Trade Policy initiatives, a special long-term, fixed mark-up rate finance scheme has been launched in collaboration with the State Bank of Pakistan. Under this scheme, such units are being provided Credit on concessional terms with mark-up rates of 5 to 7.5% repayable over a period of 2 to 7-1/2 years.

23. Diversification of products and markets is an important thrust of our trade strategy, hence a 25% freight subsidy incentive was allowed to exporters to explore non-traditional products and markets. This subsidy was available for products whose annual exports were less than US$5 million or to markets where total annual Pakistani exports were under $10 million. This measure resulted in a 30% increase in exports to the eligible countries.

24. Availability of contamination free cotton is an essential pre-requisite if Pakistan is to take a quantum leap in textile exports. To this end, targeted research on issues of the ginning sector and creation of awareness among stakeholders is necessary. Accordingly, a Cotton Research Institute is being established in Multan in collaboration with Pakistan Cotton Ginners Association. Land for this facility has been identified, and feasibility prepared, on the basis of which the necessary financing has been firmed up from the Export Development Fund.

25. Export of gems and jewelry is a new sector with major potential. To support this sector, a gold assaying / hall marking facility is being established in the proposed Dazzle Park in Karachi. The necessary ground work is complete and funding has been lined up from the Export Development Fund.

26. The Fisheries Sector is also receiving priority attention, with special emphasis on shrimp and fish farming. Our partners in this effort, the Governments of Sindh and Baluchistan have already earmarked land in the coastal area and consultants are being hired to help in setting up shrimp and fish hatcheries and other state of the art facilities.

27. Agricultural exports are also a focus of our attention and we have a number of initiatives under way in this sector. Specifically, projects for an apple treatment plant in Quetta and date processing plants in Khairpur, Turbat and DI Khan are being implemented through a specially established Horticulture Development Board. Additionally, specialized agro processing Zones are also being established in Mirpur Khas, Salam, Multan and Risalpur.

28. A ground-breaking initiative was the establishment of garment cities in Karachi, Lahore and Faisalabad. Funding for this initiative of Rs1.42 billion has been arranged from the Export Development Fund. Furthermore, land for the Lahore project stands identified, and its procurement is underway. Two sites in Karachi and three in Faisalabad have also been short-listed and selection of the most appropriate sites will be made shortly, so that these facilities become operational in the very near future.

29. Relatively higher electricity rates have been making it difficult for our export enterprises to be competitive. We have been able to successfully work with WAPDA and KESC on the concept of cheaper ‘bulk’ and ‘off-peak’ rates to facilitate our industrial producers. Consequently cheaper power rates have been notified by WAPDA and KESC.

30. Some industries in Pakistan have developed in clusters like electric fans in Gujrat or cutlery in Wazirabad. For these clusters a development strategy was conceived whereby some common services would be provided to them. Such common services would include training facilities, testing services, bonded warehouses and combined marketing support, wherever feasible. This project is underway in collaboration with UNIDO and funds amounting to US$211,000 have been arranged from the Export Development Fund.

31. Marketing of our export products is of course a critical activity of the Export Promotion Bureau. There is a continuing emphasis on this activity to support our exporter community. A major initiative in this regard is the proposed holding of a mega event in the form of "EXPO PAKISTAN", scheduled from 2nd - 5th February 2005, at Karachi. On this occasion, besides show casing all our products with export potential, side events like seminars, conferences etc. will also be organized to get maximum marketing mileage. Preparations for successful mega events require massive effort, and these are well underway.

ENTERPRISE CAPACITY BUILDING AND TECHNOLOGY UPGRADATION
32. A Scheme to assist enterprises in technological upgradation and export marketing by providing them consultancy services has been launched. 50% of the cost of consultancy is being met by the EPB except in the case of leather products and carpets, where this package has been increased to 75%.

BRAND-NAME ACQUISITION / FRANCHISING
33. EPB has launched a Scheme to assist Pakistani exporters in acquiring and franchising foreign brand names so that their products may be easier to market abroad. EPB is engaging consultants to assist interested Pakistani exporters in making such acquisitions and is also picking up 50% of the cost of these consultancy services.

PROMOTING PRODUCTS MADE IN PAKISTAN
34. A Scheme to promote sale of Pakistani products abroad has been launched to help interested exporters. Under this Scheme, space in high traffic prestigious shopping malls is being arranged as per the requirement of exporters for display / sale of their products and EPB will pay 50% of the rent. In the first phase this scheme is being implemented in Dubai.

RELOCATION OF INDUSTRIES
35. Some existing industries are relocating from developed countries to countries where production costs are lower. The EPB has launched a Scheme to assist Pakistani Companies to arrange the transfer of such industrial plants to Pakistan and will share 50% of the transfer costs like freight of machinery.