Ministries need to ‘own’ trade policy for success: PBC

KARACHI: Government will need to ensure harmony in fiscal, trade and other policies to achieve the ambitious exports target of $61 billion within the next five years, a business advocacy group said on Thursday.

“If Pakistan is to become a powerful exporting country, the STPF (Strategic Trade Policy Framework) must be owned by all ministries and its implementation should be overseen by the Prime Minister himself,” Pakistan Business Council (PBC) said. “One of the factors contributing to the failure of past STPFs has been the absence of this buy-in, the fragmentation in, and often conflicts between government policies.”

PBC, in a letter to Secretary Ministry of Commerce Younus Dagha, said the framework should not be the policy of ministry of commerce alone.

The government needs to take some key actions to enhance exports between $36 to 61 billion with annual growth of 10 to 25 percent under the STPF, which the ministry of commerce is developing for the 2018-2023 period.

The council, which represents major business houses in Pakistan, called for manufacturing competitiveness, well-negotiated trade agreements, tax rationalisation, import substitution, human resource development and exports diversification.

“Most of the FDI (foreign direct investment) coming into Pakistan in the recent years has targeted Pakistan’s demographic dividend without generating meaningful exports and import substitution,” it said. “Factoring exports and import substitution into future FDI has been a successful strategy followed by countries such as China.”

The business advocacy group further said poorly-negotiated trade agreements, non-cascading import tariffs, rampant under-invoicing and uncompetitive energy and labour costs undermined the manufacturing industry.

The council called for review of the fiscal policy that failed to encourage corporatisation, capital

formation, accumulation and investment. Ministry of finance and the Federal Board of Revenue are formulating fiscal policies as well as undertaking tax administration, resulting in adhoc measures, such as super tax and cascading taxes on inter-corporate dividends.

“Tax policy therefore needs to be separated from tax administration and a mechanism put in place to ensure that export rebates are directly credited into the exporters accounts by the SBP (State Bank of Pakistan),” it said. “The formal sector suffers from high taxation with manufacturing, which represents 13.5 percent of the GDP, carrying 58 percent of the tax burden.”

The business advocacy group said presumptive tax on ‘heavily’ under-invoiced commercial imports create an uneven playing field for the formal sector and needs to be withdrawn.

PBC said tariff rates and policies must not be seen as tools to raise revenue. “They should instead direct investment into greater value-addition, resulting in reduced import reliance and enhanced exports.”

The council sees rising labour cost in China and China-Pakistan Economic Corridor projects as “valuable opportunities to correct the trade imbalance with China by attracting investors to manufacture more in Pakistan”.

“In domestic appliances, this needs to move beyond mere assembly of imported components,” it said. “In apparel, there is opportunity to export to China as well as to other destinations within the supply chains of Chinese textile groups.”

PBC emphasised a need to diversify products as well as exports markets. Non-traditional markets include Colombia, Argentina, Ghana, Mozambique, Russia, Nigeria, Angola, Mexico, Brazil, Chile, Iran, Ethiopia, South Africa and central Asian states.

The council said upgrading skills is crucial to promote sophistication and quality of products.

“Public-private initiatives to (upgrade skills of) the labour force would be considerably enhanced if industry was allowed to retain and deploy WWF (workers welfare fund) and WPPF (workers profit participation fund) contributions into vocational training and improvement of living conditions of its employees.”

PBC urged the government to professionalise dairy, livestock, fruit and vegetable supply chains to improve Pakistan’s competitive advantage in the agriculture sector.