Pakistans Import Management Strategy

2008

WTO CELL

TRADE DEVELOPMENT AUTHORITY OF PAKISTAN

9/8/2008

2 |Pakistans Import Management Strategy

1. INTRODUCTION
Pakistan has been experiencing severe macroeconomic problems since the last one year. Two biggest economic problems faced by the new government are inflation and the trade deficit. This report focuses on the later and suggests a strategy for reducing the deficit through import management. Trade deficit, defined as exports minus imports, started increasing in 200304. The deficit figure increased from $1060.1 in 2002-03 to $3278.5 in 200304, showing a rise of 209 percent. The average growth in trade deficit since 2003 is colossal 92%. Table 1 shows that the trade deficit has reached 20.75 billion US dollars in 2007-08, which is even higher than the total exports of Pakistan.

Year FY 03 FY 04 FY 05 FY 06 FY 07 FY 08

Table 1: Pakistan's Trade* (in US $) Exports Imports Balance 11160.2 12,220.3 -1060.1 12313.3 15,591.8 -3278.5 14,391.0 20,598.0 -6207 16,451.0 28,581.0 -12130 16,976.0 30,540.0 -13564 19,220.0 39,968.5 -20748.5

* Excluding Re-Exports & Re-Imports Source: Federal Bureau of Statistics, Govt. of Pakistan.

Chart 1, below, shows that the trade deficit has increased by around 7.2 billion dollars in 2007-08, which is the highest ever increase in one year. This is not because of lower exports but due to the unprecedented rise in imports. Pakistan achieved its export target of $19.2 bn in 2007-08, with a growth of 13.22 percent. However, the sharp surge (31%) in imports took the deficit to all time high. The upward sloping steep part of the curve in the front page diagram depicts the severity of the situation. The decade-wise trend line shown as a dotted line shows the long-term rising tendency of the trade deficit.

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If this growth in trade deficit is not controlled at this stage it can make the economy more vulnerable. Government of Pakistan, realizing this problem, constituted a high-level committee to examine different proposals to deal with the issue. The committee comprises of secretaries from Ministries of Finance, Commerce, Industries & Production, Agriculture Food & Livestock, and the Chief Executive of Trade Development Authority of Pakistan (TDAP). This report, prepared by the WTO Cell of TDAP, is to be presented to the Chief Executive, TDAP.

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2. THE IMPORT PICTURE

The external trade data for the years 2006-07 and 2007-08, released by Federal Bureau of Statistics, is reproduced in Table 2 with some modifications. Analysis of the data reveals that out of the total $ 9.4bn rise in imports, $ 7.45bn i.e. almost 80 percent was contributed by few commodities that are shown in red in the table. The import values of these commodities, namely wheat, spices, soybean oil, palm oil, power generating machinery, CBUs & CKDs of motor cycles, CKD/SKDs of buses, trucks and other heavy vehicles, crude petroleum, petroleum products, raw cotton, worn clothing, fertilizer and iron and steel scrap, have increased more than 20 percent in 2007-08 over 2006-07. Highest growth was recorded in wheat (1269%), CBUs of motorcycles (165%), soyabean oil (154.5%), fertilizer (98%), palm oil (76%), petroleum products (65%), iron & steel scrap (63%), power generating machinery (59.5%), spices (58%), crude petroleum (45%), and CKD/SKDs of motorcycles (40%).

Table 2: IMORTS OF SELECTED COMMODITIES

COMMODITIES * July- June, July- June, 2007-2008 2006-2007 (000) $ % Change %

A.

Total Imports FOOD GROUP

1. MILK,CREAM & MILK FOOD FOR INFANTS 2. WHEAT UNMILLED 3. DRY FRUITS & NUTS 4. TEA 5. SPICES 6. SOYABEAN OIL 7. PALM OIL 8. SUGAR 9. PULSES (LEGUMINOUS VEGETABLES) 10. ALL OTHERS FOOD ITEMS

39,968,496 4,209,742
74,344 860,001 79,452 202,099 85,270 103,488 1,614,390 14,750 200,755 975,193

30539709 2,742,275
84223 41559 68185 213812 54021 40666 915779 260334 244773 818923

30.87 53.51
-11.73 1,969.35 16.52 -5.48 57.85 154.48 76.29 -94.33 -17.98 19.08

B.

MACHINERY GROUP
11. POWER GENERATING MACHINERY 12. OFFICE MACHINE INCL.DATA PROC EQUIP; 13. TEXTILE MACHINERY 14. CONSTRUCTION & MINING MACHINERY 15. ELECTRICAL MACHINERY & APPARATUS

7,376,38 3
1,178,246 300,391 438,270 260,452 767,565

6,686,34 6
738511 317313 502898 222201 656631

10.32
59.54 -5.33 -12.85 17.21 16.89

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16. TELE COM A. MOBILE PHONE B. OTHER APPARATUS 17. AGRICULTURAL MACHINERY & IMPLEMENTS 18. OTHER MACHINERY

2,241,419 744,525 1,496,894 136,661 2,053,379

2,206,069 833555 1372514 168392 1874331

1.60 -10.68 9.06 -18.84 9.55

C.

TRANSPORT GROUP
19. ROAD MOTOR VEH. (BUILD UNIT,CKD/SKD) 19.1 CBU A.BUSES,TRUCKS & OTH. HEAVY VEHICLES B.MOTOR CARS C.MOTOR CYCLES 19.2 CKD/SKD A.BUSES,TRUCKS & OTH. HEAVY VEHICLES B.MOTOR CARS C.MOTOR CYCLES 19.3 PARTS & ACCESSORIES 19.4 OTHERS 20.AIRCRAFTS, SHIPS AND BOATS 21.OTHERS TRANSPORT EQUIPMENTS

2,251,11 6
1,344,760 453,375 209,653 238,539 5,183 543751 135,177 346,036 62,538 299,118 48,516 880,949 25,407

2,395,85 5
1,414,033 451,529 208555 241017 1957 577695 107319 425760 44616 342096 42713 944662 37160

-6.04
-4.90 0.41 0.53 -1.03 164.84 -5.88 25.96 -18.73 40.17 -12.56 13.59 -6.74 -31.63

D.

PETROLEUM GROUP
22. PETROLEUM PRODUCTS 23. PETROLEUM CRUDE

11,380,048
6,158,023 5,222,025

7,335,177
3,734,335 3,600,842

55.14
64.90 45.02

E.

TEXTILE GROUP
24. RAW COTTON 25. SYNTHETIC FIBRE 26. SYNTHETIC & ARTIFICIAL SILK YARN 27. WORN CLOTHING 28. OTHR TEXTILE ITEMS

2,348,808
1,291,809 286,537 295,397 68,243 406,822

1,566,329
646,568 235,066 250,121 55,540 379,034

49.96
99.79 21.90 18.10 22.87 7.33

F.

AGRICULTURAL AND OTHER CHEMICALS GROUP

29. FERTILIZER MANUFACTURED 30. INSECTICIDES 31. PLASTIC MATERIALS 32. MEDICINAL PRODUCTS 33. OTHERS

5,828,912
890,068 101,270 1,308,995 539,606 2,988,973

4,429,516
450,413 96,552 1,152,627 429,973 2,299,951

31.59
97.61 4.89 13.57 25.50 29.96

G.

METAL GROUP
34. GOLD 25. IRON AND STEEL SCRAP 36. IRON AND STEEL 37. ALUMINIUM WROUGHT & WORKED 38. ALL OTHER METALS & ARTICALS

2,542,409
24,696 623,832 1,343,715 146,433 403,733

2,346,147
223,666 381,929 1,191,198 183,282 366,072

8.37
-88.96 63.34 12.80 -20.11 10.29

H.

MISCELLANEOUS GROUP
39. RUBBER CRUDE INCL. SYNTH/RECLAIMED 40. RUBBER TYRES & TUBES 41. WOOD & CORK 42. JUTE 43. PAPER & PAPER BOARD & MANUF.THEREOF

738,115
140,687 154,365 51,015 47,278 344,770

661,258
114,759 151,310 46,159 48,822 300,208

11.62
22.59 2.02 10.52 -3.16 14.84

ALL OTHERS ITEMS

(*) Provisional

3,292,963

2,376,806

38.55

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Group-wise Summary of Imports

Commodities A B C D E F G H I GRAND TOTAL FOOD GROUP MACHINERY GROUP TRANSPORT GROUP PETROLEUM GROUP TEXTILE GROUP AGRICULTURAL AND OTHER CHEMICALS GROUP METAL GROUP MISCELLANEOUS GROUP ALL OTHERS ITEMS Value in thousand $ 39,968,496 4,209,742 7,376,383 2,251,116 11,380,048 2,348,808 5,828,912 2,542,409 738,115 3,292,963 Growth 30.87 53.51 10.32 -6.04 55.14 49.96 31.59 8.37 11.62 38.55 Share 100 10.53 18.46 5.63 28.47 5.88 14.58 6.36 1.85 8.24

Above table is showing increasing trend of imports of all group of commodities. The highest import growth is recorded in Petroleum, Food and Textile group, which was around 50%. On the other hand a 6% decline was recorded in Transport Group. Overall imports increased by 31% in 2007-08 in terms of value calculated in US$, while in terms of Pak rupees this growth rate was 36%. Petroleum Group constituted the largest share in our import bill which was 28.5%, while Machinery Group and Agriculture & Other Chemical Group, was second and third highest groups, with 18.5% and 14.6% share, respectively. Below is more detailed analysis of each of the import groups:

Commodities
FOOD GROUP Milk, Cream & Milk Food For Infants Wheat Unmilled Dry Fruits & Nuts Tea Spices Soyabean Oil Palm Oil Sugar Pulses (Leguminous Vegetables)

2007-08
Unit MT
29,107 1,823,41 5 116,369 102,261 132,909 108,382 1,766,47 1 36,605 333,899

2006-07
Value 000 $
4,209,74 2 74,344 860,001 79,452 202,099 85,270 103,488 1,614,39 0 14,750 200,755 39,586 135,960 115,051 112,136 86,198 48,492 1,710,43 7 586,543 520,922

Growth
Value 000 $
2,742,27 5 84,223 41,559 68,185 213,812 54,021 40,666 915,779 260,334 244,773

Value Rs. Mn
264,29 3 4,640 54,091 4,962 12,659 5,393 6,455 101,82 2 912 12,635

Unit MT

Value Rs. Mn
166,24 1 5,108 2,518 4,136 12,965 3,275 2,468 55,529 15,722 14,839

Unit MT
-26.47 1,241.1 4 1.15 -8.81 54.19 123.50 3.28 -93.76 -35.90

Value Rs. Mn
58.98 -9.16 2,048.1 7 19.97 -2.36 64.67 161.55 83.37 -94.20 -14.85

Value 000 $
53.51 -11.73 1,969.35 16.52 -5.48 57.85 154.48 76.29 -94.33 -17.98

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All Others Food Items

60,724

975,193

49,681

818,923

22.23

19.08

The above table shows that Palm Oil has the biggest share of 35.38% in overall Food Group imports. Value of its imports was increased by 76.3% however, quantity increased by 3.3% only. This shows that this increase in import bill is because of the price factor, which has grown rapidly in international markets over the last fiscal year. Almost entire import of this item comes from Malaysia and is included in Pak-Malaysia FTA. Pakistan has allowed its import under Tariff Rate Quota regime with specific duty. So, it is not advisable to take any preventive fiscal measures to reduce its imports. This is an essential food item; therefore any tariff hike would further increase inflation, since being an essential food ingredient, it is a very price inelastic good. As regards, edible oil (Palm Oil plus Soya bean Oil), the jump in import value occurred essentially through continued rise in world prices of edible oils, like palm oil, soya bean oil, canola and rapeseed oil. Malaysia (largest producer of palm oil), USA (largest producer of soya bean oil), Canada (largest producer of canola oil), and Europe (largest producer of rapeseed oil), all engaged in biodiesel production in a big way, diverting their largest commodity away from edible oil market. This supply constraint, in addition to other reasons like ballooning fuel prices, resulted in high import prices for Pakistan for palm oil and soya bean oil, while the quantities imported did not change significantly. It is forecast by commodity analysts that prices of oilseeds would not increase this year, and are in fact likely to fall. This should then be reflected in lower world edible oil prices, and thus lower import for Pakistan. Simultaneously there is an urgent need for MINFAL to mobilize its Oil Seed Corporation to launch some kind of OIL SEED UGAO campaign nationwide. The second biggest import item, in Food Group, is wheat, whose import bill increased by a whopping 1970% in the just-ending fiscal year. This very large import of wheat last year was an extraordinary circumstance, when due to mistaken forecast of surplus production, wheat was allowed to be exported. Later when the mistake was realized, it was too late, and a large quantity had to be imported at high price, as the world wheat prices had gone very high by then. In the current year, the government should be very careful, and closely watch the local production, and distribution, to discourage speculation, and hoarding. Moreover, an export ban, along with

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tight border control to thwart smuggling, would assure that high import of wheat is not required this year.

2007-08 Commodities
MACHINERY GROUP Power Generating Machinery Office Machine Incl.Data Proc Equip; Textile Machinery Construction & Mining Machinery Electrical Machinery & Apparatus Tele Com A. Mobile Phone B. Other Apparatus Agricultural Machinery & Implements Other Machinery

2006-07
Value 000 $
7,376,38 3 1,178,24 6 300,391 438,270 260,452 767,565 2,241,41 9 744,525 1,496,89 4 136,661 2,053,37 9

Growth
Value 000 $
6,686,34 6 738,511 317,313 502,898 222,201 656,631 2,206,06 9 833,555 1,372,51 4 168,392 1,874,33 1 -

Value Rs. Mn
463,43 4 74,651 18,799 27,453 16,421 48,214 140,17 2 46,486 93,686 8,535 129,18 9

Value Rs. Mn
405,48 3 44,787 19,237 30,482 13,475 39,824 133,78 4 50,543 83,241 10,218 113,67 6

Value Rs. Mn
14.29 66.68 -2.28 -9.94 21.86 21.07 4.77 -8.03 12.55 -16.47 13.65

Value 000 $
10.32 59.54 -5.33 -12.85 17.21 16.89 1.60 -10.68 9.06 -18.84 9.55

Among machinery group Telecom apparatus has the greater share of 20.3%. Power generating Machinery had 16% share in all machinery group import bill. Other important item seems Mobile phone whose import has declined by 11%. Machinery Group consists of capital goods which are required for production and are thus essential for the growth of the manufacturing sector. Electric generators comprise a large proportion of Power Generating Machinery. Import of generators has increased substantially during the last 2/3 years, because of insufficient power availability in the country. Before 2006-07 Generator having capacity below 20 kVA (for residential or shop use), was not imported in great quantity. Usually capacity of 75 kVA or above was imported for commercial/industrial purpose. Now due to acute shortage of electricity in the country, small generator for household purpose is also
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imported in large quantity. If electricity is available as per domestic demands, the import of generators is likely to go down significantly.

2007-08 Commodities
Unit MT Value Rs. Mn
140,32 1

2006-07
Value 000 $
2,251,11 6 1,344,76 0 453,375 209,653 238,539 5,183 543,751 135,177 346,036 62,538 299,118 48,516 880,949

Growth
Value 000 $
2,395,85 5 1,414,03 3 451,529 208,555 241,017 1,957 577,695 107,319 425,760 44,616 342,096 42,713 944,662

Unit MT

Value Rs. Mn
145,35 8

Unit MT
-

Value Rs. Mn
-3.47

Value 000 $
-6.04

TRANSPORT GROUP 19. ROAD MOTOR VEH. (BUILD UNIT,CKD/SKD) 19.1 CBU A.Buses,Trucks & Oth. Heavy Vehicles B. Motor Cars C. Motor Cycles 19.2 CKD/SKD A.Buses,Trucks & Oth. Heavy Vehicles B. Motor Cars C. Motor Cycles 19.3 PARTS & ACCESSOR 20.AIRCRAFTS, SHIPS AND BOATS 21.OTHERS TRANSPORT EQUIPMENTS

84,344 28,403 13,187 14,889 327 34256 8,556 21,798 3,902 18,598 3,087 54,422

85,735 27,373 12,646 14,609 118 35,022 6,507 25,809 2,706 20,748 2,592 57,371

-1.62 3.76 4.28 1.92 177.12 -2.19 31.49 -15.54 44.20 -10.36 19.10 -5.14

-4.90 0.41 0.53 -1.03 164.84 -5.88 25.96 -18.73 40.17 -12.56 13.59 -6.74

Motor Cars in CBU form, is a large chunk of consumer goods imports in the Group, which could be a good candidate for tariff hike. Being a an elastic good, it is likely that with tariff increase on motor cars in CBU form (H.S.Code------), the import value of around $250 million, in each of the last two fiscal years, would shrink. Though the target of import reduction would be met by this step, it is important to think through the likely chain of events in the domestic market. As the price of imported cars goes up (due to suggested tariff increase), the domestic car assemblers would get additional tariff protection, which they are most likely to exploit by increasing the prices of domestically produced cars.
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2007-08 Commodities
PETROLEUM GROUP PETROLEUM PRODUCTS PETROLEUM CRUDE

2006-07
Value 000 $
11,380,04 8 8,585,59 3 8,208,28 5

Growth
Value 000 $
7,335,17 7 3,734,3 35 3,600,8 42

Unit MT

Value Rs. Mn
718,75 8 389,09 5 329,66 3

Unit MT

Value Rs. Mn
444,61 0 22 6,331 21 8,279

Unit MT
-

Value Rs. Mn
61.66

Value 000 $
55.14

10,205,44 3

6,158,023

18.87

71.91

64.90

8,636,093

5,222,025

5.21

51.03

45.02

Petroleum Group: This group is the single largest drain on the countrys forex, with $11.4 billion worth of imports in the last fiscal year, which is over 28% of the total import bill. Pakistan is not alone in suffering from price hike in crude oil prices. In the fiscal year just ended, unprecedented prices were witnessed within the year. Indias oil import bill, for example, went from $69 billion to $120 billion in the year 2007-8. With the start of the current financial year, thankfully, the crude oil prices are showing a slowing down trend. This month (August 2008), the crude prices are around $119, the lowest they have been in last 3 months. If this trend holds it would help to bring the galloping oil import bill for Pakistan under control. Further, Pakistan should immediately launch renewable energy producing projects, in solar and wind energy. Biofuels can be a good option as well, since Pakistan has a large capacity/potential to produce ethanol, a co-product of refined sugar. Following Brazils model, Pakistan could start with E15 gasoline (in the short term) and go up to a maximum of E85 (in the long term), potentially saving a huge amount of foreign exchange. AEDB(Alternate Energy Development Board) may be mobilized on war footing and given specific targets for annual production of energy from renewables. Incentives provided to local farmers and entrepreneurs in Pak rupees would be translated into saving of precious foreign exchange, besides generating tremendous employment opportunities in the rural as well as the industrial sectors. The model used for CNG sector is the one that has proved immensely successful, as Pakistan currently has the second largest population of CNG cars. A similar model employing the private entrepreneur is the way to jumpstart the renewable sector, instead of the bureaucratic approach of the AEDB, which has kept the whole renewables program shrouded in secrecy.

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TEXTILE GROUP Raw Cotton Synthetic Fibre Synthetic & Artificial Silk Yarn Worn Clothing Othr Textile Items

2006-07
Value 000 $
2,348,80 8 1,291,80 9 286,537 295,397 68,243 406,822

Growth
Value 000 $
1,566,32 9 646,568 235,066 250,121 55,540 379,034

Unit MT

Value Rs. Mn
146,93 0 80,713 17,950 18,518 4,287 25,462

Unit MT

Value Rs. Mn
94,998

Unit MT
94.93 6.22 7.75 12.82 -

Value Rs. Mn
54.67 105.72 25.97 22.12 27.32 10.78

Value 000 $
49.96 99.79 21.90 18.10 22.87 7.33

898,819 139,733 127,243 176,766 -

461,106 131,553 118,089 156,681

39,234 14,249 15,164 3,367 22,984

Textile Group: The increase in imports of this group is basically the increase in import of Raw Cotton, which has shown a big increasing trend for the last few years, jumping the most (nearly 100%) in the year 2007-08. This again is an area in which MINFAL can give an input as to why the local cotton crop is unable to provide enough raw materials to the upstream industry. Despite rising world prices for cotton, the government needs to study what is holding back the increase in local Raw Cotton production.
2007-08 Commodities
Agricultural And Other Chemicals Group Fertilizer Manufactured Insecticides Plastic Materials Medicinal Products Others

2006-07
Value 000 $
5,828,91 2 890,068 101,270 1,308,99 5 539,606 2,988,97 3 1,478,94 7 29,089 815,794 12,304

Growth
Value 000 $
4,429,51 6 450,413 96,552 1,152,62 7 429,973 2,299,95 1

Unit MT

Value Rs. Mn
365,44 3 55,156 6,353 82,069 33,889 187,97 6

Unit MT

Value Rs. Mn
268,60 7 27,306 5,848 69,897 26,080 139,47 6

Unit MT
37.21 -4.73 0.88 28.21 -

Value Rs. Mn
36.05 101.99 8.64 17.41 29.94 34.77

Value 000 $
31.59 97.61 4.89 13.57 25.50 29.96

2,029,32 0 27,714 822,967 15,775 -

Agriculture & Other Chemical Groups: The biggest increase in this group has been in Fertilizer Manufactured, and Plastic Material, both of which are agricultural input and industrial input respectively. While the quantities have increased with the value for fertilizer, plastic material has witnessed price increases, reflecting rising world crude oil prices. Additional tariff on these items would not be advised, as these are inputs to the national agriculture and national industry, respectively.

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METAL GROUP Gold Iron And Steel Scrap Iron And Steel Aluminium Wrought & Worked All Other Metals & Articals

2006-07
Value 000 $
2,542,40 9 24,696 623,832 1,343,71 5 146,433 403,733

Growth
Value 000 $
2,346,14 7 223,666 381,929 1,191,19 8 183,282 366,072

Unit MT

Value Rs. Mn
159,58 6 1,542 38,949 84,600 9,171 25,324

Unit MT

Value Rs. Mn
142,27 9 13,565 23,163 72,241 11,113 22,197

Unit MT
-95.68 40.53 2.15 -

Value Rs. Mn
12.16 -88.63 68.15 17.11 -17.48 14.09

Value 000 $
8.37 -88.96 63.34 12.80 -20.11 10.29

1,052 2,097,73 7 2,131,65 5 -

24,369 1,492,70 3 2,086,70 9

Metal Group: Import of this group increased by 8.4% which is very much normal. However, import of gold has been decreased by 96%. Import of Iron & Steel Scrap is increased by 63.3%. This increase was because of relatively larger import of ships for breaking. This was also confirmed by Ship Breakers Association. They have also pointed out that its import is expected to decline in the coming financial year due to SBP restriction of 35% cash margin on L/C. International world price of steel is going up rapidly, therefore import of steel scrap should be encouraged, failing which import of steel would add to our import bill in the coming financial year.
2007-08 Commodities
MISCELLANEOUS GROUP Rubber Crude Incl. Synth/ Reclaimed Rubber Tyres & Tubes Wood & Cork Jute Paper & Paper Board & Manuf. thereof

2006-07
Value 000 $
738,115 140,687 154,365 51,015 47,278 344,770 81,959 8,905,46 8 126,436 418,394

Growth
Value 000 $
661,258 114,759 151,310 46,159 48,822 300,208

Unit MT

Value Rs. Mn
46,246 8,819 9,640 3,188 2,966 21,633

Unit MT

Value Rs. Mn
40,096 6,958 9,174 2,799 2,963 18,202

Unit MT
2.98 -10.78 1.91 3.01

Value Rs. Mn
15.34 26.75 5.08 13.90 0.10 18.85

Value 000 $
11.62 22.59 2.02 10.52 -3.16 14.84

84,403 7,945,11 7 128,857 431,005

Miscellaneous Group: All items under this category are Raw materials and are of essential nature. These items are used by our domestic industries for domestic consumption as well as for exports. Therefore any measure to decrease its import is not advisable.

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3. COMMENTS & CONSIDERATIONS

Commodities are the way to go: Countries in the Developing World have always been grumbling about the unjust terms of trade. Whether in the 1960s or the 1980s, the refrain in the international trade forums has been that most developing countries are producers of commodities (whose prices are stagnant), while the Developed countries produce industrial goods (whose prices are buoyant). This results in unequal terms of trade between the two groups, thus trapping the Developing Countries in perpetual poverty. Now in a long, long time, there has arrived an opportunity for the hewers of wood and drawers of water. Thanks to the liberalization of international trade, great wealth has been generated globally. Tremendous growth rates achieved by countries like China and India, have resulted in unprecedented demand for commodities, resulting in historically high prices. Our trade deficit is largely due to dollars expended on commodities, especially cotton, wheat, sugar, etc which Pakistan has a great potential to boost production of, given the large population engaged in agriculture. Similarly, import bill for petroleum can be significantly reduced, by developing biofuels like ethanol and biodiesel, both requiring an agricultural production base which potentially Pakistan does possess. We should be celebrating and gearing up to take advantage of the rising commodity prices instead of mourning over them. Falling Exchange Rate is an implicit tariff on imports: We are living in an era of liberal trade regime. Using a floating exchange rate in a market economy, trade balance is the most important factor (besides interest rate and inflation) in determining our exchange rate. Vice versa, the floating exchange rate is also a corrective to negative trade balance. As the trade deficit rises sharply (like in our case), the rupee starts to depreciate against dollar and other currencies of our major trading partners. This automatically would make our imports more expensive (for the local population) and our exports cheaper and more attractive for our trading partners. Thus as the basic economic theory would predict, imports should fall (if they are elastic) and exports should rise (if there are no supply constraints), correcting our deteriorating trade balance. In such a scenario, the talk of using tariff measures to restrict imports is not advisable, as the depreciating currency is already taxing the imports. In case of Pakistan, rupee-dollar exchange rate has changed from Rs.61 to Rs. 72 (in August 2008), thus imposing an implicit tariff of around 20 percent on all of our imports. In such a situation, imposing tariff on even non-essentials would be of dubious use, besides creating distortions in the economy, resulting in what economists term as a net welfare loss.
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To increase your exports you have to increase your imports: A mercantilist mindset of the 1960s is still strong and kicking in Pakistan when it is suggested that somehow we can strategize and boost our exports while at the same time cutting our imports through imposing tariffs. In this day and age of integrated trade and intra-industry trade, this dictum does not work. The more one aspires to boost exports, the greater is the need to allow imports freely. China is a great example. While its annual exports are around one and a quarter trillion dollars, its imports are not far behind being near to the trillion dollar mark. Short-term, and Long-term Strategy: Even if under severe circumstance an economy decides to cut down its imports, it needs to design short-term, medium-term and long-term strategies. If the shortterm focuses on reducing imports to improve balance of payment position, long-term shall focus on enhancing both exports and imports. Contractionary Fiscal & Monetary Policies: If the rise in imports is mainly because of rising aggregate demand due to rising incomes and remittances, and falling interest rates, contractionary monetary and fiscal policies can also bring down the imports. Since the State Bank has already taken a stringent stance, a downward pressure on imports is expected. With the rise in interest rates and raised margin requirements the imports are expected to fall. This stance would get a support from the fiscal side when tariff or non-tariff measures are taken. Inflation vs Trade Deficit: Increasing the tariffs on imports can reduce the trade deficit, but it can also push inflation up, which is already galloping at a high rate. Hence, extreme care is necessary in identifying the exact tariff lines to be taxed. Price elasticities of the products need to be taken into account. Impact on substitutes & complementary products also needs to be considered. Which Commodities to be targeted for tariff hike? : Our imports, when broken down into components, fall into the categories of industrial raw materials, capital goods, foods & grains, fuel & energy, pharmaceutical & other life saving drugs, and consumer goods. Industrial/agricultural raw materials, fuel & energy, and capital goods
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cannot be considered for possible tariff hike, as it would have a direct negative impact on the countrys industrial/agricultural growth. Similarly, foods & grains (which includes edible oil, wheat, sugar, etc.) are not good candidates for tariff hike, since it is a necessity for the whole population, and would cause further food inflation, which is likely to hit the common man. Pharmaceutical & other life-saving drugs cannot be further taxed for obvious reasons. Thus the only remaining category, consumer goods, can be labeled as non-essential goods, and be looked at for possible tariff hike. An attempt has been made to pick and choose such imported consumer goods for tariff hike, which either are produced locally as well, or which if not produced locally are consumed by the middle and upper classes. These could be items like imported cheese, mobile phones, toys, apparel, etc. Table---- at annex-----, details such possible items from the non-essential consumer goods category. Possible raised tariff levels are also suggested in the table, taking into consideration our Bounded Tariff commitments at the W.T.O.

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Annexure
LIST OF NON ESSENTIAL ITEMS
S# 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 HS Code 1801.00 00 1804.00 00 1806.10 00 1806.20 10 1806.20 20 1806.31 00 3303.00 10 3303.00 20 3304.10 00 3304.20 00 3304.30 10 3304.91 10 3304.99 90 3305.10 00 3305.30 00 3305.90 10 3305.90 20 3306.10 10 3307.10 00 3307.20 00 3307.30 00 3307.41 00 3307.90 10 3401.11 00 3401.19 00 3401.30 00 3403.19 Description Coca beans , whole broken raw cocoa butter, fat and oil Cocoa powder chocolate chocolate preparation chocolate crumbs Filled bars Eau-De-Cologne Perfumes Lip Make up Preparations Eye Make-up Nail Polish Powder Talcum Powder Shampoo Hair Lacquers hair cream Dyes for hair Tooth Paste Pre-shave, shaving or after shave personal depdorants Perfumed bath and salts and other "Agarbatti" contact lens solution For toilet use|(including medicated) Soap in other forms surface activity products washing skins Greases 50 75 75 75 75 75 75 75 75 75 70 50 75 75 70 Boun d duty 100 100 100 100 100 100 75 75 75 75 75 Curre nt duty 5 5 30 30 10 30 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 20 Previo us duty 5 5 20 20 10 25 20 20 20 20 20 20 20 25 25 25 25 25 25 25 25 25 20 25 25 25 20 chan ge 0 0 10 10 0 5 15 15 15 15 15 15 15 10 10 10 10 10 10 10 10 10 15 10 10 10 0

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10 3404.20 00 3404.90 10 3405.10 10 3405.10 20 3405.20 00 3405.30 00 3405.40 00 3406.00 00 3407.00 10 3601.00 00 3602.00 00 3603.00 00 3604.10 00 3605.00 00 3606.10 00 6401.10 00 6401.92 00 6402.12 00 6403.40 00 6404.11 00 6406.10 00 6406.20 10 6406.91 00 6406.99 00 6501.00 00 6502.00 00 6504.00 10 6505.10 00 6506.10 00

28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56

artificial waxes and prepared waxes sealing waxes For footwear For Leather Polishes,cream for Wooden furniture Polishes and similar preparations for coach work pastes powders Candles , tapers and the like Dental wax and other preparations for use in dentisery Propellent powders Prepared explosive Safety Fuses, detonating fuses, caps, electric detonators Fire works Matches liquid or liquid gas fuels, Cigarettes lighters Footwear incorporating a protective metal covering the ankle but not corering the knee Ski boots, footwear with outer soles of leather, Sports wear, tennis shoes, basket ball, gym training shoes upper and parts thereof other than stiffeners of rubber of wood of other material Hat forms hat bodies and hoods of felt Hat shapes plaited or made by assembling strips straw hats hats and other headgear knitted or crocheted Hair nets safety headgear

70 70 75 75 75 75 75 75 70 75 75 75 75 75 75 75 75 75 75 75 70 75 75 75 70 70 70 70 70

5 10 25 10 10 25 5 25 10 20 20 20 25 25 20 25 25 25 25 25 20 25 25 25 20 20 20 20 20

5 10 25 10 10 5 5 25 10 25 20 20 25 25 20 25 25 25 25 25 20 25 25 25 20 20 20 25 20

0 0 0 0 0 20 0 0 0 -5 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 -5 0

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6507.00 00 6601.10 00 6601.91 00 6602.00 10 6603.20 00 6701.00 00 6702.10 00 6702.90 00 6703.00 00 6704.11 00 6704.20 00 6901.00 00 6902.10 10 6903.10 00 6903.20 10 6904.10 00 6905.10 00 6906.00 00 6907.10 00 6910.10 10 6910.10 20 6910.10 50 6910.10 60 6911.10 10 6911.10 20 6911.10 30 6911.10 4 7001.00 00 7002.10 00 7002.20 00 Head bands, linings covers, hat foundations, hat frames Garden or similar umbrellas having telescop shaft walking stick ans seat stick umbrella frames including frames mounted on shafts Skins and other parts of birds Of plastics other material human hair, dressed thinned,bleached completE Wigs Of human hair Bricks, blocks tiles & other Ceramic goods capable of resisting tempreature other refractory ceramic goods, retorts, crucibiles cold tundish lining sets, building bricks roofing tiles ceramic pipes wall tiles wash basin bath tubs Sink Toilet ceramic Dinner Sets Dishes Plates Tea cup and saucers Cullet and other waste and scrap of glass, Balls Rods 75 75 75 75 60 70 70 75 75 75 75 75

57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86

70 75 75 75 70 70 75 75 70 70 70 75 75 60

20 25 25 25 20 20 25 25 20 20 20 25 25 10 20 25 25 25 25 35 35 35 35 35 35 35 35 10 20 20

20 25 25 25 20 20 25 20 20 20 20 25 25 10 20 25 25 25 25 25 25 25 25 25 25 25 25 10 20 10

0 0 0 0 0 0 0 5 0 0 0 0 0 0 0 0 0 0 0 10 10 10 10 10 10 10 10 0 0 10

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7002.31 00 7002.39 10 7003.20 00 7005.10 00 7005.21 00 7005.30 00 7006.00 10 7006.00 20 7007.11 11 7007.11 12 7007.19 00 7013.28 00 7015.10 00 7018.90 10 7019.31 00 7019.90 20 7020.00 20 7101.10 00 7101.20 00 7101.21 00 7102.10 00 7102.39 00 7103.99 00 7105.10 00 7108.11 00 8509.40 10 8517.11 00 8517.12 10 8517.18 10

87 88 89 90 91 92 93 94 95 96 97 98 99 10 0 10 1 10 2 10 3 10 4 10 5 10 6 10 7 10 8 10 9 11 0 11 1 11 2 11 3 11 4 11 5

Of fused quartz or other fused silica neutral glass tubing wired sheets Non wired glass coloured throughout the mass wired glass Glass plate worked Glass sheet worked Rear or window glass Glass for Doors , window, sliding , wind screen Laminated safety glass Drinking Glass Clock and watch glasses for correctivespectacles Eye glass Mats Glass Wool For vacuum flasks Natural Pearls Worked Unworked Unsorted simply sawn, cleaved or burted Rubies sapphires and emeralds Of diamond Powder Food Grinders Line Telephones

70 70 75 75 75 75 75 75 50 50 75

20 20 25 25 25 25 25 25 35

20 20 25 25 25 25 25 25 35 35

0 0 0 0 0 0 0 0 0 -35 0 0 -15 0 0 0 0 0 0 0 0 0 0 0 0 10 0

25 25

25 25 25 10 5 10 25 5 0

60 60 60

10 10 5 10 25

55

55 55 55 55 55 55 75 50

5 0 5 5 5 5 30 20 Rs. 500/per piece 10

5 0 5 5 5 5 20 20

Cellular Mobile Phones Video Phones

0 10 0

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11 6 11 7 11 8 11 9 12 0 12 1 12 2 12 3 12 4 12 5 12 6 12 7 12 8 12 9 13 0 13 1 13 2 13 3 13 4 13 5 13 6 13 7 13 8 13 9 14 0 14 1 14 2 14 3 14 4 14 5 8519.50 00 8519.89 30 8521.10 10 8521.10 20 8525.80 40 8525.80 50 8528.72 11 8528.72 12 9101.19 00 9101.91 00 9105.11 00 9105.19 00 9106.10 90 9107.00 00 9108.11 00 9110.19 00 9111.80 00 9112.90 00 9114.10 00 9114.20 00 9114.30 00 9114.40 00 9114.90 00 9201.10 00 9201.20 00 9201.90 00 9202.10 00 9205.10 00 9206.00 00 9207.10 00

Answering Machine MP-3 Plyer V.C.R V.C.P Digital Camera Video Camera Recorder Liquid crystal display TV Other Wrist-watches With electrically operated Alaram clocks Wall clock other for motor cars & vehicles Time switches with clock or watch Fully automatic Rough moments other cases Parts springs, including , hair springs Jewels Dials Plates & brigas Other Upright Pianos Grand Pianos Other Played with a boy Brass wind instrument Percussion musical instruments Keyboard instruments 50 50 50 50 60 60 50 60 50 60 50 50 50 60 60 60 60 60 70 70 70 70 70 70

20 20 20 20 10 10 35 35 5 5 20 20 5 5 10 5 5 5 5 5 5 5 5 10 10 10 10 10 10 10

20 20 20 20 10 10 25 25 5 5 5 20 5 5 10 5 5 5 5 5 5 5 5 10 5 10 10 10 10 10

0 0 0 0 0 0 10 10 0 0 15 0 0 0 0 0 0 0 0 0 0 0 0 0 5 0 0 0 0 0

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14 6 14 7 14 8 14 9 15 0 15 1 15 2 15 3 15 4 15 5 15 6 15 7 15 8 15 9 16 0 16 1 16 2 16 3 16 4 16 5 16 6 16 7 16 8 16 9 17 0 17 1 17 2 17 3 17 4 17 5 9208.10 00 9209.91 00 9301.11 00 9301.20 00 9301.90 10 9301.90 21 9301.90 22 9301.90 30 9301.90 41 9302.00 12 9302.00 13 9303.30 10 9303.30 90 9401.10 00 9401.20 10 9401.20 20 9401.30 00 9401.40 00 9401.61 00 9401.90 10 9402.90 20 9403.10 00 9403.30 00 9403.40 00 9403.50 10 9403.50 20 9404.10 00 9404.30 00 9405.50 00 9406.00 20

Musical boxes Parts and accessories for pianos Self- propelled Rocket launchers, flame throwers, gernade Fully automatic shotgun Bolt action Semi automatic Machine guns Fully automatic pistols Revolvers Pistols,multiple barrel Hunting or target Shooting Rifels Semi automatic Seat of kind used for aircraft For motor Cars For vehicles Swivel seats with variable height adjustment garden seats and camping equipment Upholstered Other seats Hospital bed with mechanical fittings metal furniture of a kind use in office Wooden furniture wooden furniture in kitchen Wooden cabnites Wooden beds Mattress support Sleeping bags Non electric lamps and lighting fittings Dairy live stock and poultry sheds

70 70 75 75 75 75 75 75 75

10 10 15 15 15 15 15 15 15 15 15

10 10 15 15 15 15 5 15 15 15 15 25 25 5 35 35 25 25 25 35 25 25 25 25 25 25 25 20 25 25

0 0 0 0 0 0 10 0 0 0 0 10 10 0 0 0 0 0 0 0 0 10 10 10 10 10 0 0 10 0

75 75 55 75 75 75 75 75 75 75 75 75 75 75 75 75 70 75 75

35 35 5 35 35 25 25 25 35 25 35 35 35 35 35 25 20 35 25

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17 6 17 7 17 8 17 9 18 0 18 1 18 2 18 3 18 4 18 5 18 6 18 7 18 8 18 9 19 0 19 1 19 2 19 3 19 4 19 5 19 6 19 7 19 8 19 9 20 0 20 1 20 2 20 3 20 4 20 5 9406.00 30 9406.00 40 9503.00 10 9503.00 20 9503.00 30 9504.20 00 9504.40 00 9505.10 00 9506.11 00 9506.32 00 9506.40 00 9506.51 00 9506.59 10 9506.59 20 9506.62 10 9506.69 10 9506.69 20 9506.69 30 9506.69 50 9506.69 60 9506.69 91 9506.99 12 9506.99 20 9506.99 30 9506.99 40 9506.99 50 9506.99 60 9506.99 70 9507.10 00 9507.20 00

Silos for cold storage Tricucles, scooter, pedal cars, head gear footwear and headgear Aero models Video games Playing cards Articles of Christmas festival Skis Golf Balls Table tennis Lawn tennis, Rackets Badminton rackets Squash rackets Footballs, soccer balls Cricket balls Hockey balls Polo balls Tennis balls Table tennis balls Volley balls Football bladder Cricket bats Cricket Wickets Cricket pads Cricket sets Hockey sticks Polo sticks fishing rods Fish hooks,

75 75 75 75 75 70 75 75 60 60 70 75 75 75 50 70 70

25 25 25 10 5 20 25 25 10 10 20 25 25 25 20 20 20 20 20 20 20

25 25 25 10 5 20 25 25 10 10 20 25 25 25 20 20 20 20 20 20 20 10 20 20 20 20 20 20 10 10

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

50 50 50 50 50 50 50 60 60

10 20 20 20 20 20 20 10 10

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20 6 20 7 20 8 20 9 21 0 21 1 21 2 9701.10 00 9701.90 00 9702.00 00 9703.00 00 9704.00 00 9705.00 00 9706.00 00

Paintings drawings and pastels other original engravings prints original sculptures and statuary Postage and Revenue stamps zoological, botanical mineralogical etc Antiques of an ahe exceeding

60 60 60 60 55 55 60

5 5 5 5 5 5 10

5 5 5 5 5 5 10

0 0 0 0 0 0 0

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