NationalVolume 13 Issue # 16

Trade policy fails to meet its target

According to the latest reports, Pakistan would miss its over-ambitious export target of $35 billion by June 2018, which the federal government set in the three-year Strategic Trade Policy Framework (STPF) 2015-18. Now another trade policy framework covering the period 2018-2023 has been formulated with the target of $61 billion exports by 2023.

The new policy is said to revolve around eight key factors: “institutional strengthening, trade promotion and branding, trade facilitation, marketing access and regional connectivity, services strategy, product development, compliance and gender mainstreaming.” That is what the last STPF focused on as well. But nothing concrete was achieved.

The latest official claim is that Pakistan can push exports above $35 billion in the next five years. As proof, the government cites the figure that after a drop in exports over the past three years, the shipments have recovered at an average pace of 10-11% per month since the beginning of the current fiscal year in July 2017. If the pace of growth is maintained in remaining months of the year, then Pakistan’s exports will reach $23 billion by the end of the current fiscal year.

The last document had said: “STPF 2015-18 has identified four main pillars on the basis of (i) key enablers, (ii) evaluation of STPF 2012-15, (iii) emerging global trade scenario and (iv) extensive consultation with the private sector and other stakeholders. These pillars are as follows: (a) Product sophistication and diversification (research and development, value addition, and branding); (b) market access (enhancing share in existing markets, exploring new markets, trade diplomacy and regionalism); (c) institutional development and strengthening (restructuring, capacity building, and new institutions); and (d) trade facilitation (reducing cost of doing business, standardization, and regulatory measures).”  The last STPF had clearly spelled out that improving export competitiveness is one of its targets, whereas improving industrial competitiveness was also one of its key enablers across various factors, including quality infrastructure, labour productivity, access to utilities, and level of technological development. But few of these objectives were achieved.

Experts are of the opinion that Pakistan has failed to meet its export target mainly due to delay in implementation of most of the policy initiatives and partly due to a nine-month delay in announcement of the policy. Major causes of the policy failure are lack of diversification of exports, little innovation and value addition in export goods, insignificant research to know latest consumer needs and failure to find new markets. Seventy per cent of exports comprise three traditional products including textiles.  Secondly, the country mostly exports commodities in bulk instead of shipping them in packages. Around 74% of food items and 40% of textile goods are exported in the form of commodity. Needless to say, higher value addition may attract higher export income.

Recently, a consultative session on the Strategic Trade Policy Framework (2019-23) was jointly organised by the Ministry of Commerce and US Agency for International Development (USAID) at which various export options were discussed. The consensus of opinion at the meeting was that Pakistan has a lot of potential and can achieve an export growth rate of 15-20% per year.

To achieve this target, the new policy must be based on the lessons learned from the failure of the last one. One of the key failures previously was lack of an inter-ministerial and inter-governmental working relationship vital to achieve targets of such a tall order. In this connection, it is important to mention that several tax reform commissions have advised the government to form working groups comprising the Ministry of Commerce (MoC) and the FBR; MoC and Ministry of Finance; MoC and SMEDA; MoC and SBP and the MoC and provincial governments. These working groups, according to their respective domains, were advised to look at a broad range of affairs, including tariff rationalisation, informal trade, release of refunds and export development funds, capacity building for SME exporters, bank lending and getting the provinces to implement the conventions under GSP+ conditionality.

Marketing experts have recommended that the new STPF be implemented in liaison with provincial departments because, following the devolution, a host of economic functions such as labour laws, etc., now lie with the provinces. The STPF should also set up specific delivery units for each of the spotlight sectors in the light of Pakistan’s consistent failures in public service delivery which is a complex process requiring coordination of multiple stakeholders.

As experts have repeatedly pointed out, it is also time to rethink the mandate of the Ministry of Commerce. As it is, among other things, the MoC manages the administration of state-owned insurance companies. Besides, the MoC already has a mandate to “assess and provide actionable intelligence to government entities on both foreign trade and domestic commerce” in addition to the MoC’s task to look into “how to increase the productivity” in the real sectors.

All said, before releasing the details of the latest STPF, the government should first clearly state what it did or did not achieve from the last policy, together with the reasons. Also, after the completion of the ongoing consultations, the government should share the draft with the wider public with a view to correcting any shortcomings in the light of public feedback. It is no use setting lofty targets without creating an enabling environment for the same.