RECOMMENDATIONS FOR TRADE POLICY 2007-2008

RECOMMENDATIONS FOR TRADE POLICY 2007-2008 BY M.MUZZAMMIL HUSAIN CHAIRMAN TOWEL MANUFACTURERS ASSOCIATION OF PAKISTAN 77-A Sindhi Muslim Co-operative Housing Society, Karachi Phone: 111-360-360 Fax: 4551628 E-Mail: tma@towelassociation.com URL: www.towelassociation.com RECOMMENDATIONS FOR TRADE POLICY 2007-2008 BROAD OBJECTIVES 1. MAKING PAKISTAN A FREE TRADE ZONES AND CREATING A SHIPPING & TRANSIT TRADE HUB. 2. ACHIEVING REAL PROGRESS IN SME’S SECTOR. 3. REDUCING COST OF DOING BUSINESS BY LOWERING COSTS OF UTILITIES, INFRASTRUCTURE AND TAX RATES RECOMMENDATIONS FOR TRADE POLICY 2007-2008 RE-EXPORT AND TRANSIT TRADE – THE KEY TO TRADE CORRIDOR. 1. PAKISTAN HAS VIRTUALLY NO RE-EXPORT TRADE, DUE TO OUR OBSOLETE TRADE POLICIES AND PROCEDURES 2. COUNTRIES LIKE DUBAI AND SINGAPORE HAVE THRIVED ONLY ON RE-EXPORT TRADE FACILITATED BY FREE TRADE ZONES 3. PAKISTAN’S BUSINESS COMMUNITY IS VERY ENTERPRISING AND CAPABLE OF HANDLING SUCH TRADE AND EARN HUGE AMOUNTS OF FOREIGN EXCHANGE 4. WITH THE ADVENT OF GOWADAR PORT, PREAMPTIVE AND PROACTIVE POLICIES BE PLANNED. RECOMMENDATIONS FOR TRADE POLICY 2007-2008 FREE TRADE ZONE AT PORT QASIM - KARACHI A FREE TRADE ZONE BE ESTABLISHED AT PORT QASIM, KARACHI, OR EXISTING EPZ BE CONVERTED TO FREE TRADE ZONE TO FACILITATE TRADING AND WAREHOUSING ON AN INTERNATIONAL SCALE. BENEFITS : 1. HELP TO BUILD BUFFER STOCKS OF RAW MATERIAL AND COMMODITIES AT LOW PRICES. 2. TREMENDOUS OPPORTUNITIES OF RE-EXPORT TRADE, MAKING PAKISTAN A REGIONAL TRADING HUB. 3. ENHANCE THE IMAGE OF PAKISTAN AS A FAVORED DESTINATION FOR INVESTMENT. 4. PROVIDE CENTRAL ASIAN STATES, AFGHANISTAN, CHINA AND OTHER COUNTRIES IN THE REGION WITH A TRADE CORRIDOR 5. SUBSTANTIAL FOREIGN EXCHANGE EARNINGS, EMPLOYMENT AND PORT REVENUES. RECOMMENDATIONS FOR TRADE POLICY 2007-2008 COST OF DOING BUSINESS 1. HIGH PRICES OF LAND 2. HIGH COST OF UTILITIES 3. NUMBER AND RATES OF TAXES 4. HIGHER PORT CHARGES AND COST OF TRANSPORT & COMMUNICATIONS COMPARED TO OTHER REGIONAL PORTS 5. HIGH COST OF RAW MATERIALS DUE TO LACK OF BASIC INDUSTRIES AND DEPENDENCE ON IMPORTS 6. RESTRICTIVE BUSINESS ENVIRONMENT DUE TO OVER REGULATION. PROPOSAL: TAXES OTHER THAN GST AND INCOME TAX BE PHASED OUT TO REDUCE NUMBER OF TAXES AND COST OF COLLECTION RECOMMENDATIONS FOR TRADE POLICY 2007-2008 RATES OF CUSTOM DUTY ON ELECTRIC GENERATING SETS & ROTARY CONVERTERS ISSUE: THE CURRENT CUSTOM DUTY ON ELECTRIC GENERATING SETS AND ROTARY CONVERTERS HS. CODE 8502.0000 AND PARTS THEREOF HS CODE NO. 8503.0000 ARE 5%,10% AND 20% DEPENDING UPON THEIR CAPACITY AND POWER USED THEREIN. PROPOSAL: IN VIEW OF HIGH POWER COST AND FREQUENT LOAD SHEDDING AND LOW VOLTAGE, CUSTOM DUTY ON ALL THESE ITEMS SHOULD BE 0%. RECOMMENDATIONS FOR TRADE POLICY 2007-2008 CUSTOMS LICENCING OF CONSOLIDATOR/ FORWARDER ISSUE : IN LAST BUDGET CARGO CONSOLIDATORS / FORWARDERS WERE REQUIRED TO GET A LICENCE FROM CUSTOMS, CARGO CONSOLIDATORS / FORWARDERS ARE ALSO REQUIRED REGISTRATION WITH D.G. PORT & SHIPPING VIDE S.B.P. CIRCULAR NO. 19 DATED 16-12-2002. OUTCOME: EXPORTERS FACE SERIOUS PROBLEMS FROM UNLICENCED/UNREGISTERED CARGO CONSOLIDATORS / FORWARDERS AS THEY ARE STILL WORKING AND IN CASE COMPLAINTS,LICENCING AUTHORITY CAN NOT RESOLVE THE PROBLEM TO THE SATISFACTION OF STAKEHOLDERS. RECOMMENDATIONS FOR TRADE POLICY 2007-2008 CUSTOMS LICENCING OF CONSOLIDATOR/ FORWARDER PROPOSAL: 1. LICENCING OF CARGO CONSOLIDATORS /FORWARDERS BY THE COLLECTOR OF CUSTOMS (PREVENTIVE) MUST BE COMPLIED WITH AND RULES BE FURTHER IMPROVED FOR STRICT MONITORING OF CARGO CONSOLIDATORS /FORWARDERS FOR SECURITY OF EXPORTERS’ CARGO UNTILL SAFE DELIVERY AT DESTINATION. 2. SIMULTANEOUSLY REGISTRATION AND MONITORING WITH D.G. PORT & SHIPPING FOR FREIGHT CONTRACTS RECOMMENDATIONS FOR TRADE POLICY 2007-2008 ISSUANCE OF ONE CARRIER B/L SIGNED BY MASTER OF VESSEL OR AUTHORISED AGENT OF EACH FCL EXPORT SHIPMENT ISSUE : IN EXPORT TWO B/Ls ARE BEING ISSUED UNAUTHORIZEDLY OF ONE EXPORT SHIPMENT WHERE SHIPPERS AND CONSIGNEE (OWNERSHIP) FOR FCL SHIPMENTS IS CHANGED IN FAVOUR OF FORWARDER DIFFERING WHAT IS DECLARED ON EFORM AND GD. RECOMMENDATIONS FOR TRADE POLICY 2007-2008 ISSUANCE OF ONE CARRIER B/L OUTCOME: THIS EXERCISE TRANSFERS EXPORTER TITLE ON GOODS AND FORWARDERS BECOME OWNER OF GOODS AND FORWARDER FOR SAKE OF BUSINESS/VESTED INTEREST DELIVERS GOODS UNAUTHORIZEDLY, ULTIMATELY CAUSING LOSSES TO EXPORTERS IN SHAPE OF DISCOUNT/CLAIMS, DELAYED PAYMENTS OR TOTAL REFUSAL OF PAYMENT. RECOMMENDATIONS FOR TRADE POLICY 2007-2008 ISSUANCE OF ONE CARRIER B/L PROPOSAL: MONITORING BY CUSTOMS THAT ON EXPORT SHIPMENTS ONE CARRIER B/L DULY SIGNED BY MASTER OF VESSEL OR AUTHORISED AGENT IS ISSUED AND SHIPPER AND CONSIGNEE REMAINS SAME AS DECLARED ON E-FORM AND GOODS DECLARATION IN STRICT COMPLIANCE WITH FOREIGN EXCHANGE ACT CHAPTER XII RULE 11. RECOMMENDATIONS FOR TRADE POLICY 2007-2008 R&D SUPPORT TO TOWEL INDUSTRY ISSUE: EXPROT ORIENTED TOWEL INDUSTRY IS UNDERGOING SEVEREST EVER CRISIS IN THE FACE OF STIFF COMPETITION FROM COUNTRIES LIKE CHINA, INDIA, BANGLADESH ETC. PROPOSAL: a. R&D SUPPORT TO TOWEL MANUFACTURING AND EXPORTING UNITS BE INCREASED FROM 3-5% TO 10% TILL 2010 AS BANGLADESH IS ENJOYING LDC STATUS TILL 2014 TO HAVE LEVEL PLAYING FIELD IN COMPARISON TO BANGLADESH. RECOMMENDATIONS FOR TRADE POLICY 2007-2008 R&D SUPPORT TO TOWEL INDUSTRY b. AS R&D SUPPORT IS GRANTED TO EPZ UNITS, THERE SHOULD BE SIMILAR STATUS (EPU) FOR TOWEL INDUSTRY OUTSIDE EPZ FOR A LEVEL PLAYING FIELD. c. WITHOLDING TAX BE ZERO RATED FOR TOWEL INDUSTRY UPTO 2015. d. EXPORT REFINANCE RATE BE REDUCED BY 50% FOR FIVE YEARS. e. UTILITY CHARGES BE CAPPED TILL 2010 TO PLAN MARKETING STRATEGY. f. EDF BE SUSPENDED TILL 2010. RECOMMENDATIONS FOR TRADE POLICY 2007-2008 WORKERS WELFARE FUND 2%W.W.F MAY BE ABOLISHED ALTOGETHER AS THE COMPANIES ARE ALREADY PAYING HIGH CORPORATE TAX OR MINIMUM TAX. RECOMMENDATIONS FOR TRADE POLICY 2007-2008 WORKERS PROFIT PARTIPATION FUND (WPPF) ISSUE: 5% WPPF IS VERY HIGH. OUTCOME: IT RESULTS IN PAYMENT TO GOVERNMENT TREASURY IN THE FORM OF LEFT OVER AMOUNT. PROPOSAL: WPPF BE BROUGHT DOWN FROM 5% TO 2.5% AND THE ENTIRE AMOUNT MAY BE DISTRIBUTED AMONG THE EMPLOYEES AS THIS IS THE LEVY IN THE NAME OF WORKERS, THEREFORE, THE EMPLOYEES SHOULD BE BENEFITTED RECOMMENDATIONS FOR TRADE POLICY 2007-2008 INDUSTRIAL POLICY 1) INDUSTRIAL POLICY SHOULD BE FORMULATED IN THE LIGHT OF OUR ASPIRATION FOR A SUSTAINABLE AND DYNAMIC ECONOMIC GROWTH AND OUR COMMITMENT UNDER WTO. WE NEED TO DEVELOP STRATEGY TO GET MAXIMUM BENEFIT FROM GLOBALIZATION. 2) THE COUNTRY URGENTLY NEEDS TO BUILD AND STRENGTHEN THE LOCAL INDUSTRY TO PROTECT IT FROM SUCH MEASURES AS AN ANTI-DUMPING, COUNTERVAILING DUTIES, AND SUBSIDIES BY FOREIGN GOVERNMENTS CREATING UNFAIR COMPETITION. RECOMMENDATIONS FOR TRADE POLICY 2007-2008 INDUSTRIAL POLICY ESTABLISH A MACRO ECONOMIC AND REGULATORY REGIME THAT SUPPORTS EFFICIENT INDUSTRIAL DEVELOPMENT. IMPROVE, ENHANCE,A ND DEVELOP HUMAN CAPITAL THROUGH SKILL DEVELOPMENT AND TECHNICAL ORIENTATION. CREATE A STRONGER DOMESTIC BASE FOR TECHNOLOGICAL DEVELOPMENT BY MAKING GREATER EFFORTS TO PROMOTE R&D. CAPACITY BUILDING, AND INDUSTRY – ACADEMIA LINKS RECOMMENDATIONS FOR TRADE POLICY 2007-2008 INDUSTRIAL POLICY 1) SUPPORT SME, CAPACITY BUILDING THROUGH INNOVATIVE SERVICES IN COOPERATION WITH THE PRIVATE SECTOR AND TECHNICAL ASISTANCE AGENCIES. 2) THE UNABATED, UNCHECKED, AND BLATANT INFLOW OF SMUGGLED GOODS HAS HAD A VERY NEGATIVE AND DISASTROUS EFFECT ON DOMESTIC INDUSTRY. 3) ESTABLISHMENT OF INDUSTRIAL ESTATES, SECTORAL VILLAGES AND INFORMATION TECHNOLOGY PARKS ESPECIALLY AROUND KARACHI, THE FINANCIAL AND COMMERCIAL HUB OF PAKISTAN. RECOMMENDATIONS FOR TRADE POLICY 2007-2008 FINANCING: INTEREST RATES ARE VERY HIGH IN PAKISTAN THEREFORE, NEED TO RATIONALIZE UP TO 2% TO 3%. DUE TO HIGH MARK UP RATE THERE IS DECLINE IN BANKING CREDIT TO PRIVATE SECTOR. THEREFORE, MARK UP RATE BE REDUCED TO 8% AND INFLATION BE CHECKED RECOMMENDATIONS FOR TRADE POLICY 2007-2008 SKILLED MANPOWER FOR OPERATIONS AND MANAGEMENT BE ENSURED. 1) IT SHOULD BE NOTED THAT INDIAN OVERNMENT, IN ITS 2005 BUDGET, HAS OFFERED 10% UNCONDITIONAL EQUITY WITHOUT REPRESENTATION ON THE BOARD OF DIRTECTORS AND WOULD PROVIDE FINANCE FOR A TENURE OF TEN YEARS (WITH THREE YEARS GRACE IN REPAYMENT AND INTEREST REMISSION OF 5%) PLUS UNINTERRUPTED AVAILABILITY OF UTILITIES. THE SAME FACILITY BE PROVIDED TO LOCAL INDUSTRY. RECOMMENDATIONS FOR TRADE POLICY 2007-2008 SKILLED MANPOWER FOR OPERATIONS AND MANAGEMENT BE ENSURED. • INSURANCE CREDIT GUARANTY SCHEME RATE IS VERY HIGH IN PAKISTAN AS COMPARED TO INDIA, WHICH APPROXIMATELY 0.35%. SO THE RATE IN PAKISTAN SHOULD BE REDUCED. IT WILL BENEFIT OUR EXPORTERS AND THEY WILL EXPORT ON RISK BASIS. • SESSI / EOBI / EDUCATION CESS BE ABOLISHED AND IN PLACE GROUP INSURANCE BE INTRODUCED. • THE OTHER AGENCIES WHICH ARE NOT LINKED TO GOVERNMENT REVENUE BE STOPPED TO VISIT / INSPECT FACTORIES. RECOMMENDATIONS FOR TRADE POLICY 2007-2008 INCREASE IN INPUT COST RECOMMENDATIONS FOR TRADE POLICY 2007-2008 1. 2. 3. 4. 5. WAGES CESSES GAS LOGISTICS OTHERS These increase with lower duty drawback keeping negative impact in growth. RECOMMENDATIONS FOR TRADE POLICY 2007-2008 ON AVERAGE 40 FT. CONTAINER FILLED WITH 9,000 KGS OF TERRY TOWELS RECOMMENDATIONS FOR TRADE POLICY 2007-2008 LABOUR REQUIRED TO PRODUCED 9,000 KGS OF TOWELS Weaving Winding 215 35 Warping Folding Loading Processing 35 5 5 35 Cutting Stitching Cropping Checking / Packing 10 65 65 15 TOTAL 485 RECOMMENDATIONS FOR TRADE POLICY 2007-2008 OTHERS 1. Income Tax 2. Mark-up 3. Forwarding SALE PROCEEDS FOR 9,000 KGS TOWELS Year 2003 2004 2005 2006 Total Impact Average US$ Kg 3.96 3.74 3.79 3.75 US$1= (Average) Sale Proceeds for 9,000 Kg 57.70 57.50 58.40 60.00 2,056,428 1,935,450 1,992,024 2,025,000 Rcvd / Kg 228.49 215.05 221.34 225.00 Less: Raw Material etc. %age +/- 57.12 - 53.76 (5.88) 55.33 2.92 56.25 1.66 (1.53) DUTY DRAW BACK ON SALE OF 9,000 KGS TOWELS Year 2003 2004 2005 2006 Total Impact Average 2.29 1.30 1.30 0.82 To Sale 9,000 Kg 41,660 21,663 22,442 14,317 Rcvd / Kg Rs. 4.63 2.41 2.49 1.59 %age +/- - (48.00) 3.60 (36.20) (65.63) R & D ON SALE OF 9,000 KGS TOWELS Year 2003 2004 2005 2006 Total Impact Average (W+D) To Sale 9,000 Kg Rcvd / Kg (Rs.) - - - (3+5% ) 61,110 6.79 7.37 INFLOW ON SALE OF 9,000 KGS TOWELS Year SALE PROCEEDS DUTY DRAW BACK R&D 2003 57.12 4.63 2004 53.76 2.41 2005 55.33 2.49 2006 56.25 1.59 6.79 TOTAL Rs./ Kg of Towel 61.75 56.17 57.83 64.63 INFLOW ON SALE OF 9,000 KGS TOWELS 60 50 40 30 20 10 0 2003 4.63 0 6.79 2.41 0 2.49 0 1.59 57.12 53.76 55.33 56.25 2004 Sale Proceeds 2005 Draw Back R&D 2006 OUTFLOW ON SALE OF 9,000 KGS TOWELS 2003 WAGES 4.49 CESSES 0.54 GAS 2.53 LOGISTIC (FREIGHT) 26.36 INCOMETAX 1.71 EDS 0.57 BANK CHARGES 0.30 MARK-UP 12.34 LOGISTIC (FORWARDING) 0.94 Electricity 2.03 C/Store & R/Maintenance 1.50 Admin. Expenses 2.00 Contigency 1.00 TOTAL Rs./ Kg of Towel56.32 Year 2004 4.49 0.54 2.67 29.90 1.61 0.54 0.28 11.61 1.06 2.03 1.50 2.50 1.00 59.73 2005 6.29 0.75 3.03 29.52 1.66 0.55 0.29 11.95 1.17 2.03 2.00 3.00 1.50 63.74 2006 Total Impact 7.19 0.93 3.89 31.00 2.25 0.56 0.29 15.19 1.56 2.03 2.00 3.00 2.00 71.89 15.57 OUTFLOW ON SALE OF 9,000 KGS TOWELS 35 30 25 20 15 10 5 0 2003 Wages EDF C/Store/Maint Cesses Bank Charges Admin. Exp. 2004 Gas Mark-up Contigency 2005 Freight Forwarding 2006 Income Tax Electricity NEED SUPPORT FROM GOVERNMENT Year 2003 2004 2005 2006 Realized / Kg of Towel 61.75 56.17 57.83 64.63 Cost incurred / Kg of Towel 56.32 59.73 63.74 71.89 (+ / -) / Kg of Towel 5.44 (3.56) (5.91) (7.26) %age 8.80 (6.34) (10.23) (11.23) NEED SUPPORT FROM GOVERNMENT 80 70 60 50 40 30 20 10 0 -10 -20 71.89 61.75 56.32 59.73 56.17 63.74 57.83 64.63 5.44 8.8 -3.56 -6.34 -5.91 -10.23 -7.26 -11.23 2003 Received 2004 Expenses 2005 Net (+/-) %age (+/-) 2006 NEGATIVE GROWTH INTERNAL FACTORS IN CMBINATION WITH NEIGHBOURING COUNTRIES INCENTIVES LEADS TO DECLINE EXPORTS EXPORT OF TOWEL & MADEUPS 1999-2006 ITEM 1999-00 US$ ‘000’ 2000-01 US$ ‘000’ 2001-02 US$ ‘000’ 2002-03 US$ ‘000’ 2003-04 US$ ‘000’ 2004-05 US$ ‘000’ 2005-06 US$ ‘000’ TOTAL Towels MADE-UPS 503,182 195,627 307,555 572,592 241,688 330,904 618,621 267,715 350,906 734,614 374,839 359,775 820,104 403,500 416,604 977,098 501,642 475,456 1,010,162 599,721 410,441 EXPORT OF TOWEL & MADEUPS 1999-00 TO 2005-06 1000000 800000 600000 400000 200000 0 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 TOWE LS M ADE -UPS TOTAL EXPORT OF TOWEL & MADEUPS 07 Vs TARGET 07 & EXPORT 06 EXPORT OF TOWELS & MADEUPS (US$ '000') TARGET VS EXPORT Month Target 07 Export 07 Export 06 Balance +/- %age +/Jul $ 98,400 $ 66,135 $ 74,710 $ (32,265) (33) Aug $ 98,400 $ 79,694 $ 92,223 $ (18,706) (19) Sep $ 98,400 $ 78,685 $ 104,151 $ (19,715) (20) Oct $ 98,400 $ 69,493 $ 83,406 $ (28,907) (29) Nov $ 98,200 $ 77,970 $ 60,218 $ (20,230) (21) Dec $ 98,200 $ 92,777 $ 84,282 $ (5,423) (6) Jan $ 98,200 $ 63,192 $ 77,282 $ (35,008) (36) Feb $ 98,200 $ 80,567 $ 76,585 $ (17,633) (18) Mar $ 98,400 Apr $ 98,400 May $ 98,400 Jun $ 98,400 TOTAL $ 1,180,000 $ 608,513 $ 652,857 $ (177,887) (23) EXPORT OF TOWEL & MADEUPS 07 Vs TARGET 07 & EXPORT 06 EXPORT OF TOWELS+MADEUPS (Target Vs Export) $120,000 $100,000 $80,000 Target 07 Export 07 Export 06 US$ 000 $60,000 $40,000 $20,000 $Jul Aug Sep Oct Month Nov Dec Jan Feb SUPPORT NEEDED FROM GOVERNMENT 15% ADDITIONAL R&D REQUIRED FOR TOWEL INDUSTRIES TO BREATH NORMALLY. RECOMMENDATION FOR TOWEL INDUSTRIES THANK YOU