Rev up trade to reduce deficit

LAHORE: Trade, including both exports and imports, is ultimately critical to any economy’s overall productivity, its competitiveness in the markets around the world, domestic employment generation along with long-term job security, and the gross domestic product.

For that to happen we need to have a policy in place that works from the inside out, downside up, and addresses everything that lies in between. Before going forward, one thing needs to be cleared. That is asking for fairness in import policy does not mean ruling out imports on the whole but unethical imports, which not only hurt domestic industry, but also transfer jobs from Pakistan.

Local industries fail to reach economies of scale because of engineered cheap imports managed by avoiding genuine government levies that are also paid by domestic industries. Pakistan with a population of 210 million is a big market and domestic industries can achieve economies of scale if they are provided level-playing field against imports. The skewed and ill-gotten imports are in fact a sort of GSP-Plus for the rouge importers, while the local industry is subjected to levies as if it is marketing its products in export market.

If the normal domestic industries are allowed to achieve economies of scale, their costs would go down and they may venture into exports. The country badly needs foreign exchange and facilitating exports is a better option both for the country and the workers.

Our planners would have to come out of few-sectors-based export facilitation policy to apply it across-the-board. We can market huge quantity of tyres and tubes if the existing players are facilitated to operate on full capacity by curbing smuggling and under-invoicing.

The poultry sector deserves the same zero-rated facility that is provided to the five blue-eyed sectors. This would add at least $2 billion poultry exports immediately with double-digit growth for next five years.

Preparing the entire manufacturing sectors for exports would not only have salutary impact on the economy but would create quality and socially compliant quality jobs. There is evidence at the micro level that exporters, on average, improve the quality of employment as they are innovative, invest in technology education and training, and achieve higher levels of productivity and profitability — relative to domestic businesses.

Moreover they certainly pay better. Exporting firms maintain higher standards of occupational health and safety, equal opportunity employment practices, better working conditions and more likely to be unionised and use collective bargaining agreements when compared to non-exporters.

Having an open economy helps create employment opportunities, but Pakistan still needs social safety nets and labour market institutions that protect the bargaining power of the weak, and help workers adjust to changes in the overall economy.

The exporting industries, due to pressure from their foreign buyers look after their workers’ interests in a better way than the domestic industries. The openness of the economy is meant to benefit the consumers and induce competitive spirit among domestic producers through improvement in technology and efficiency.

With private sector credit crowded out and its cost exorbitant if available there is little chance of technology upgrade in the country. When you are denying fair game to the domestic sector, it would be a folly to open floodgates of imports in the name of openness.

Openness should be within the regulations provided in the law. In a country where smuggling, under-invoicing, and mis-declarations of imports enjoy immunity, the trade principally becomes one-sided or to be more precise imports-only.

Current flawed trade regime of the country is more open than even the most liberal economy in the world. This does not imply that we should go for trade protection, which would be equally injurious to the economy.

Global evidence shows that social protection -social safety nets and well functioning labour market adjustment institutions- is what is needed to cope with major demand shocks to the economy. It is only possible through openness.

Nonetheless, unregulated openness as being practiced in our country would further deteriorate our economy. So it’s time to take some bold decisions to ensure true openness in trade.