It is a matter of great privilege and honour for me to present to you the Trade Policy 2000.
I do so at a time when the global trade environment poses challenges that are matched only by the opportunities that it offers. On the one hand it induces a vigorous competition for our Industry, on the other it promises a greater market access than ever before. There is a huge market out there. It is entirely up to us to remain at less than a quarter of one percent - 0.16% to be precise - of world exports, or to make our presence felt; to stagnate at the 8 billion dollar mark, or to achieve a quantum leap; to restrict 60% of our exports to Textiles along and just eight markets, or to diversify, to live with prices that are amongst the lowest in the world, or to prove to the world, and to ourselves, that the Pakistani nation thrives upon competition; and that it loves to convert every challenge into an opportunity.
I am convinced we can do it. We can do it if every Pakistani - the worker, the farmer, the producer, the exporter, the civil servant, the house wife - everyone - is committed to the cause of exports;
An export culture will develop if there is an alignment between the Government and the business community, a co-operation that generates unison and synergy; a sense of fairness that gives to the other his legitimate due; an understanding that is rooted in mutual trust and is driven by nothing other than national interest.
Trade Policy 2000 has its genesis in the Economic Revival Programme that the Chief Executive shared with you on 15th December last year. It is not just about earning dollars: it is about investment and economic growth; it is about poverty alleviation; it is about creating jobs. It is part of the overall economic strategy of the Government.
It goes without saying that an export strategy is predicated upon a sound macro-economic framework. I hardly need to dilate upon the structural weaknesses of our economy. The budget announced by the Finance Minister seeks to correct this. It is not going to happen overnight but the budget clearly and succinctly presents a road map for recovery; a correction of the fundamentals. The trade policy that I announce to-night is not only premised upon a positive realignment of the economic parameters but is intended to be in line with the 'strategic push' already delineated by the Chief Executive for the revival of our economy.
For sound investment decisions, that are based on the economics of the project rather than seeking opportunities, it is imperative that Government's policies are of a durable nature and based upon known guiding principles. Towards this end;
- Trade Policy 2000 shall lay the framework for the next three years. Such corrective measures as become necessary will be taken immediately rather than held back for the annual trade policy statement.
- Policies shall be driven by market forces, with only such Governmental intervention as is required to 'level the playing field', to remove obstacles, or to guide investments to the more productive sectors. Emphasis shall be one rewarding efficiency and good performance.
- Stakeholder participation shall continue to be the basis of policy formulation.
- Anti export bias shall be reduced through trade and tariff liberalisation, a more open competition, and a marked improvement in the export infrastructure. The exchange and interest rate instruments shall provide the underpinning for the export strategy. I am glad to be able to announce that henceforth the exchange rate mechanism will be responsive to the trade imperatives.
To facilitate a more business - oriented regime we propose to free our basic trade instruments of ambiguities as well as exploitative provisions. Many Government notifications, SRO's etc. that govern trade are riddled with anomalies, largely because of the amendments made ever the years in the same basic document. In order to simplify procedures, make the instruments more comprehensive and user friendly, the Import Trade Order, the Import Policy Order, the Import - Export Procedure Order, and the Export Policy Order have been replaced by just two completely rewritten documents, which are Import Trade and Procedures Order and Export Policy and Procedures Order. These will remain operative until repealed, instead of being revised each year as has been the past practice.
We have also amended the Registration (Importers & Exporters) Order 1993 in order to simplify procedures and to provide for an automatic database upgrade. The new Order shall become available by 15th July after Law Division's scrutiny.
As I stated earlier stakeholder participation is critical to our policy formulation. Here the trade bodies can play a very important role. Unfortunately, however, not all of our trade associations have acted in a professional and responsible manner; nor do at least some of them have a truly representative character. In order to allow serious trade bodies to play a more effective role the Trade Organisation Ordinance is being revised.
It is our intention to rid the trade regime of the so-called SRO culture. We propose to clear the decks but I must say it is a complex situation with several ramifications. The Ministry of Commerce & Industry, together with the CBR, will approach it carefully, but with determination. We have got to restore equity and fair play.
Let us first look at the import side of our trade policy. Some of more significant changes that we have brought about are:
- Requirement of opening of Letter of Credit before shipment done away with.
- Actual users can now import any importable item up to the limit of US $ 5,000 per annum.
- Advance payment facility extended to all importable goods, subject to a maximum of US $ 5,000 for industrial users this limit has been enhanced to US $ 15,000 in case of air-freighted spares/machinery.
- Shelf life and other labelling requirements for edible products have been simplified.
- Procedures for import of Ozone Depleting Substances made more transparent.
- EPZ units are being allowed to sell-export to the tariff area (a) 'waste' up to 3% of FOB value of exports, (b) vehicles not less than five years old, and (c) imported goods in same state subject to the provisions of the Import Trade and Procedures Order.
- Procedural requirements in respect of certain restricted goods have been simplified so that an importer does not have to obtain NOC's from several government offices.
- Car (gift and baggage) rules have been simplified.
It has also been decided to do away with the L/C margin requirement on imports.
We are convinced that a restrictive import regime and export growth can not co-exist. With this dismantling of the import restrictions we are confident that not only will increased competition lead to significant quality and productivity against it will also catalyze exports.
I must add here, through, that we are not unmindful of the need to protect our industries against any unfair competition. We will no hesitate to use any means that our international obligations permit to forestall any unwarranted surge of imports, or any dumping, or any trade practices that pose an injury to our industry. Our anti-dumping law is already with the Law Division and is due for promulgation next month. We also hope to be able to put in place, by the fourth quarter of this year, effective countervailing and safeguard measures. Towards this end we also propose to re-organize, strengthen and sufficiently empower the National Tariff Commission.
We are equally conscious of the problems of valuation that have arisen from the dismantling of the ITP regime. We intend to correct this in line with established international trade practices. Again, our objective is to check unfair competition.
Piracy of intellectual property has been an area of major concern to our enterprises. To protect, this, new legislation for copyrights, patents, trade marks and industrial designs and integrated circuits has been drafted and shall be promulgated next month.
I would now like to share with you our plans and policies for the more important part of our Trade Policy namely Exports.
We cannot hope to make a breakthrough in exports unless we make our agriculture and industry more efficient more competitive. This will not happen if we let them hide behind high tariff walls. It will also not let them venture out into exports if they thrive in the cocoons of tariff and non-tariff barriers. Economies of scale alone dictate an outward orientation and to seek out the enormous opportunities abroad.
Our exports this year, at about $8.5 billion, are going to be about 11% higher than last year. While it is a satisfactory growth rate, we are painfully conscious of the fact that given the proper environment our potential is much greater. The objectives that we have set ourselves are as follows:-
i) Targeting exports at US $ ten billion in 2000/2001
ii) achievement of sustainable and consistent growth in export earnings,
iii) diversification of our export base,
iv) achievement of greater value-addition in the goods and services being exported by us.
The salient features of our strategy to achieve the above objectives are:
- firstly, the enhancement of our world market shares of our top ten textile and non-textile categories, and
- secondly, to concentrate on selected non-traditional items such as software, engineering goods, chemicals, fruits and vegetables etc. Detailed plan are being developed.
With the confidence that the Chief Executive General Pervez Musharraf and his cabinet have reposed in the enterprise and acumen of our exporters, and in close consultation with, trade we have set for ourselves - for the Government and the exporters - this target of ten billion dollars for the next year. I know this 1 1/2 billion dollar, or 17%, increase over this year's exports is an ambitious target but I have no doubts we can do it. Inshallah we will. We can do it if both the exporters and the export facilitators believe in and pursue the co-operation that I alluded to at the beginning of my speech.
How do we propose to approach this ten billion dollar target? In keeping with the Export Strategy it is proposed to particularly focus on
Following are the specific measures being taken in support of these sectors:
(1) TEXTILES: Textiles is the most important sector of our economy and has been under special focus through Vision 2005 analysis, if our industry has to become internationally competitive it has to begin in this sector. Textile Vision 2005 (covering improvement of cotton quality, project finance, promotional measures, marketing strategies, and quota policy) is in the final stages and shall be announced on 13th August, 2000. In the meanwhile following measures have already been announced.
- Cotton policy, that among other things allows export of raw cotton right from the beginning of the season.
- Setting up of Ginning Research Institute
- Reduction of Customs Duty on import of saw gins
- Amendment in KCA bylaws to permit shift from varieties to grades
- Grading by PCSI at Ginneries (with effect from 1st July)
- Withdrawal of Excise Duty on import of raw cotton
Under the restructuring and redirection envisaged in Vision 2005, and in order for the focus to shift to the higher value added sectors, it has been decided to withdraw with immediate effect the export finance facility for yarn and grey cloth.
(2) FISHERIES: Already considerable work has been done in support of the legal, administrative, marketing and supply-chain framework. The task ahead is to
concentrate on the supply-chain development and marketing nine varieties that have been identified.
- Minimise "post harvest" losses.
- Improve quality.
- Develop downstream products (canned, analogue etc.).
The following specific measures are being taken for this sector:-
a) Fishing/catching stage operators are being given the status of indirect exporters to facilitate duty free import of machinery and equipment, like navigational equipment, fish finders, storage and handling equipment etc.
b) A committee of the stakeholders is being set up to pursue the commercial plans developed by Export Promotion Bureau, inclusive of the recommendations for the Fisheries Policy.
c) To promote aquaculture suitable land, next to sea, is to be made available.
d) Duty free import of shrimp meal and baby shrimp will be allowed.
e) To promote export of seafood products (as against 'commodity') lowest withholding tax i.e. 0.75% will apply for fish and fisheries products packed in retail packs of 500 g to 2 kilogram.
(3) FRUIT & VEGETABLES: Following measures are being taken:-
a) Quality certification system under Agricultural Produce (Quality & Grading) Act to be redesigned by Export Promotion Bureau in consultation with exporters and MINFAL.
b) Export on consignment basis will be allowed.
c) For valuation purposes the wholesale prices reported by Bureau of supplies may be used as a benchmark.
d) Fruit and vegetable processors will be treated as indirect exporters to allow them duty free import of machinery and equipment.
e) One window facility is being set up at Karachi airport to facilitate export of Fruits & Vegetables.
f) Export of fruit and vegetables, will be allowed freely, and on a regular basis, with no minimum export price or the requirement of registration with Export Promotion Bureau.
(4) RICE: we are going to:
a) allow import of par boiling plants from India.
b) Reduce port handling charges. A committee headed by Minister of Communications and consisting of Chairmen KPT, Export Promotion Bureau, and Rice Exporters Association is being set up to review port charges, including 'by road labour'.
c) Improve yields and quality (lower percentage of broken) by making available improved quality of Irri seeds an emergency basis.
d) Ensure greater market penetration in Indonesia, Iran, Iraq, Philippines, Kenya, Zimbabwe, and South Africa through active governmental support.
e) Encourage Brand development.
(5) GEMS & JEWELLERY: Following measures are being taken:-
a) amend SRO's 131 and 592 to make exports easier and less prone to misuse,
b) amend policy for licensing of gold imports,
c) duty on import of diamonds and rough gemstones is being reduced. A specific rate of duty, corresponding to around 2% ad val, shall be fixed,
d) the value addition requirement for export of bangles is being reduced to 5%.
e) a jewellery design institute is being set up on a priority basis,
f) Export Promotion Bureau and the jewellers association will collaborate on an extensive advertising campaign to promote hand-made jewellery from Pakistan.
(6) SOFTWARE: The package already developed by the IT division is going to make a major contribution-especially in the fields of training, reduction in the cost of Internet use, and the setting up of IT parks and incubators. The budget measures have already been announced to encourage Information Technology exports. We consider these measures to be sufficient for the time being.
(7) LEATHER GARMENTS & PRODUCTS: The following measures are being taken:-
a) Import of following products from India is being allowed.
- Plastic shoe lasts.
- Shoe adhesives.
- Toe puff material.
- Thermoplastic rubber.
- Shoe reinforcement tapes.
- Rubber master batch.
b) Overseas experts (designer, pattern master etc.), are being obtained. They will be attached to the National Institute of Leather Technology (NILT).
c) Leather Products Development Centre is being put under the operational control of NILT to facilitate better skill development.
d) We will work actively the Provincial governments to improve the quality of livestock, so that better raw materials become available to the leather sector.
In addition to these sector specific promotional measures further export liberalisation action have been agreed. Some of these are:-
a) Ban on export of wheat to be removed Ministry of Food & Agriculture shall lay down the export procedures and conditions.
b) Registration of contracts with Export Promotion Bureau in respect of agricultural and livestock products is being done away with, except the following:-
c) Requirement of NOC from department of Archaeology for the export of used copper and brass utensils will be required any longer.
d) Requirement of NOC from Wildlife Council for export of birds is to be done away with, except for species covered by the Convention on International Trade and Endangered species.
e) Requirement of NOC from Ministry of Petroleum and Natural Resources for export of lubricants, naphtha etc. to be removed.
f) Permissible limit for (export of) samples enhanced to $5,000 and for gift parcels to Rs 10,000.
It has also been decided to allows export of all non-restricted goods as accompanies baggage without the requirement of foreign exchange encashment certificates or other conditions. All 'irritants' to 'suit case trade' will be removed. This measures will not only contribute to greater economic activity but also introduce Pakistani products abroad in the most cost-effective manner possible.
Quality of our products, whether primary commodities or manufactured goods, is of the utmost concern to us. Total quality management is an important element of our export strategy. Unfortunately, our present systems of quality check at export stage have become a barrier to exports rather than a promotional measure.
It has been decided to hold in abeyance the requirements of quality certification requirement for export of agricultural products and the Pakistan Standard mark for engineering and electrical goods. Export Promotion Bureau has been asked to develop, in consultation with trade and the concerned government agencies, professionally designed and easy to administer quality check systems with the help of carefully scrutinised private sector agencies. We hope to be able to put these systems in place very quickly.
OTHER EXPORT MEASURES:
a) Exports by land route to and through Afghanistan to Central Asian Republics do not provide for full duty drawback and sales tax refunds, even where payment is received in foreign exchanges as this facility is prone to misuse. However, it is felt than an export opportunity, with considerable growth potential, should not be compromised. It has accordingly been agreed that export of 'selected products' (i.e. that cannot be easily smuggled back and in respect of which adequate safeguards have been built) be allowed through land route, with usual refund facilities.
b) To facilitate ISO certification Government has been providing a subsidy (Rs 150,000) to enterprises. This programme ends in December this year. It is being extended to 30-6-2001. It is also proposed to cover QS 9000 under this scheme.
c) Last year's trade policy had allowed full duty drawbacks on exports through parcel-courier service. However, in actual practice drawbacks have been capped at 5%. It has been decided to remove this cap.
d) SRO 593 allowing import of duty free machinery by an engineering unit for export production is being extended until 30-6-2001.
e) SRO 818, allowing import of raw materials for exports, is being amended to include textile made-ups.
To supplement these promotional measures it is necessary to improve upon Export facilitation. Two critical areas here are our Missions abroad and the Export Promotion Bureau.
The Chief Executive has given clear and categoric instructions to the foreign Office that the primary function of our embassies shall be trade promotion. The Foreign Office is accordingly installing systems to monitor, on a regular basis, the trade promotional performance of our missions. I am confident our exporters will in future find our embassies to be a friendly place with proactive export assistance.
Export plans for various countries will be developed and communicated by Export Promotion Bureau to the respective missions. Ambassadors will communicate with Export Promotion Bureau on all commercial matters.
Export Promotion Bureau, that is the lynchpin of our facilitation processes, is being given a new look; indeed, my feedback from the exporters is that already they are beginning to feel the difference. We are going to provide greater and better human financial resources to the Export Promotion Bureau. We are going to empower them further so that Export Promotion Bureau is more than a trade fairs and delegations authority. Any exporter who has a legitimate complaint - whether against a bank, a port official, or another Government functionary - week Export Promotion Bureau's immediate intervention on such matters, and
Export Promotion Bureau shall have the requisite authority to take prompt remedial measures.
Additional export facilitation measures approved by the Cabinet today are:
Sea freight rates from Pakistan are significantly higher (42% to 950% compared to Bombay - Dubai) and add considerably to the cost of our exports. It is critically important for the sea freight rates to be competitive.
Ministry of Communications has accordingly been asked to
a) Benchmark port charges and other related costs with other ports in the region, and
b) Revise KPT and PQA charges to make them more competitive.
c) Devise suitable measure to make freights ex-Karachi more competitive.
Phase I of the Karachi Exhibition complex is near completion. For its efficient management a company, in the private sector, is being set up. This company will also manage phase II of the complex and explore possibilities of setting up a similar complex at Lahore.
To induce greater empathy for the cause of Exports it had been decided to set up an Export Facilitation Unit (EFU) in the CBR, for which a special post of Member (Exports) was created. It is proposed to strengthen the EFU.
It is axiomatic that a tax on imports is a tax on exports. Without losing sight of revenue and legitimate protection to industry considerations we need to review our tariffs. For this purpose a high powered committee, including some eminent economists, is being set up. Its recommendations shall become available by October this year which shall be adopted, if necessary under a phased programme. This will enable the entrepreneurs to make proper investment decisions. I must reiterate that we want to approach further liberalization in a systematic manner, with full stakeholder participation, with the intent to let investors have a clear understanding of the future trend of tariff rates.
I now come to the main enabling measures contained in the Trade Policy.
Duty draw back systems continue to be an area of serious concern. In its search for a system that is fair to the exporters without becoming vulnerable to abuse, Government has provided various No Duty No drawback, manufacturing in bond, temporary importation schemes and now the export pass book system. Despite this array of choice I am afraid neither the Government nor the exporter is really comfortable with it.
There is no doubt that this is a complex issue, given the multiplicity in the sources of inputs as well as the category of buyers. We are carefully studying the various options. In the coming weeks we will devote all or energies to develop a viable system that properly address the concerns of the governments as well as the exporters. And, of course, the exporters will be closely associated in this exercise.
The high cost of capital puts us at a disadvantage against our competitors and the current Export Finance Scheme suffers from several weaknesses. The committee constituted to review the Export Finance Scheme has submitted its recommendations which are being examined in detail. The major objective is to provide greater and easier availability of export finance. We are already working with the State Bank to ensure a greater tilt towards the preferred and greater value addition sectors, easier access for the small and medium, emerging and indirect exporters, and greater availability at the pre-shipment stage.
For a variety of reasons our banks have been less than proactive in advancing export credits. We hope to be able to make export finance a priority, especially once the new Export Credit Guarantee Scheme gets operationalised.
The existing Export Credit Guarantee Scheme administered by the Pakistan Insurance Corporation has not been working. We are now launching a new scheme, with private sector management and equity funding hopefully coming from Asian Development Bank, IFC, and Commercial Banks etc. The Offering Memorandum is ready. Capitalisation is estimated at US $ 10 million. Besides covering the export risk at pre-shipment stage the guarantee will serve to meet the collateral requirements of the banks that will particularly benefit the small exporters. The scheme is expected to be launched before December this year. Work is also at an advanced stage for the setting up of Foreign Currency Import Facility that will provide a "dollar window", with interest rates pegged to LIBOR, for import of inputs by the exporters.
It had been agreed to set up a Product Up-gradation and Market Development fund. This, however, was never operationalised. It is proposed to set up this fund during the current year to finance, on a matching grant basis, exporters' endeavours aimed at product upgrading and market development, including brand development and overseas advertising support. Preference will be given to non-traditional products and new markets. It is proposed to set up this fund with an amount of Rs 1 billion from the Export Development Fund.
To mitigate the impact of certain cost penalties that are not recoverable through the drawback/refund system, as also to give recognition to those who increase their exports, it is proposed to launch a scheme that will reward eligible exporters. The rewards will be on a graduated scale corresponding to the percentage increase in the value of exports over last year. This minimum threshold will be a 15% increase over last year. The scheme will not cover primary commodities.
Formulation of this Trade Policy has been a truly collective effort, with the exporters themselves being the main architects. I thank them most sincerely for their help and guidance.
Coming from a business background no one could be more conscious of the cost of excessive governmental regulations than I am. I have shared with you some of the measures that we have already taken to reduce government intervention. We will continue to pursue this objective.
Fellow businessmen, things today are more challenging than they were yesterday, that we will not be able to face tomorrow on crutches. It is a competitive world and in the ultimate analysis efficiency, and efficiency alone, shall prevail. The Government is determined to eliminate all obstacles and irritants, to reduce the anti-export bias, to replace the SRO culture with the export culture. I am sure with a friendly environment you will be able to take advantage of every opportunity that is out there; that together we will make a difference.
Let us achieve the ten billion dollar target as our first test.
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