Trade Policy Formulation

Background to Trade Policy formulation in Pakistan

In Pakistan, trade policy is not only a collection of statements made from time-to-time by the Government or the sum of the Government’s trade-related actions but a formal document, issued once each year. It authorizes changes in trade instruments (tariffs, subsidies and the like) that have fiscal impacts and, obviously, impacts on private interests, including through the revenues arising due to trade protection.

The Trade Policy usually contains a rationale for the proposed changes as well as, possibly, statements on broader trade matters. Since Pakistan’s independence in 1947, a long-established practice has emerged in the formation of the Trade Policy. The responsibility for formation of the Trade Policy and Import and Export restrictions lies with the Federal Government, specifically with the Ministry of Commerce (MOC). The MOC announces the trade policy in July/August every year, closely following the announcement of the Federal Budget in June.

Pakistan’s Trade Policy has always been guided by the economic and political backdrop of the time. The current climate of globalization and the WTO has influenced the Trade Policy in the direction and vision of an export-focused, liberal economy.

MOC does not have a specific cell or commission exclusively in charge of formulation of the Trade Policy. Through long-established practice, various wings of MOC work together, from the embryonic stages of formulation through to the final draft of the Trade Policy. The Federal Secretary and the Minister of Commerce oversee the procedure at various stages. Within MOC, Section Officers in the Trade Policy Wing, the Joint Secretary (JS) Imports, the JS Exports, the JS WTO Wing, the Secretary and the Minister of Commerce all play a role in the Trade Policy formulation and consultative mechanisms. More recently, a post of the Director General (Trade Policy) has been created at the MOC to steer the process of trade policy formulation and implementation.

The informal review of the previous year’s Trade Policy commences some three months after the announcement of the policy, in around November/December of the same year. The Secretary Commerce holds monthly reviews of the current Trade Policy and the Minister for Commerce holds quarterly reviews of it. Any gaps, successes and failures in the Trade Policy are identified for consideration in the next year’s Trade Policy.

From December/January, MOC issues a letter inviting proposals and comments for the formulation of the next Trade Policy. This standard letter, issued by a Section Officer in the Trade Policy Wing of MOC, is widely circulated to selected government agencies and to most business and industry associations, who may make direct written or face-to-face submissions to MOC officials in response to the invitation. Some stakeholders also make representations to officials or the Minister during the year, in addition to their response to the letter of invitation. The letter is not published in newspapers or advertised on the Internet. Furthermore, it is not sent to all relevant stakeholders: indeed some important stakeholders, are missed out.

Interviews conducted in 20061 identified six groups of stakeholders, not all of whom were formally part of MOC’s consultative process:

  1. The Chambers of Commerce and Industry,
  2. Business/manufacturers’ associations,
  3. Specialized government agencies,
  4. Pakistan’s Missions abroad, provinces and international donors,
  5. Academics (not consulted during the Trade Policy cycle), and
  6. NGOs/NPOs (not consulted during the Trade Policy cycle).

Phases of consultation
The following phases typically feature in Pakistan’s Trade Policy consultation process. However, it should be noted that, although distinct, the phases do not take place on a precisely run time schedule. Many consultations during these phases may take place simultaneously and in tandem.

Inter-ministerial consultation mechanism with relevant Ministries
Several government Ministries are formally asked by MOC to provide proposals for the Trade Policy, including, particularly, MOC, Ministry of Industry & Production (MOIP), Ministry of Food & Agriculture (MINFA), Ministry of Finance, Ministry of Communications, Ministry of Science & Technology, Ministry of Narcotics Control, and other ’relevant’ trade related ministries. Deciding which Ministry is relevant to the Trade Policy inter-ministerial consultation appears to be at the discretion of MOC.

When the request for proposals reaches the concerned Ministries, certain mechanisms are triggered. Series of consultations are started with the relevant stakeholders within their scope. For instance MOIP consults with the engineering sector, services sector, and Intellectual Property (IP) and pharmaceutical-related sectors. MOIP sends letters to its stakeholders, including the Chambers of Commerce and the Small and Medium Enterprise Development Authority (SMEDA), asking for their proposals on the Trade Policy being formed. Any proposals received by it are forwarded to MOC.

Similarly, MINFA takes views from the representative bodies of farmers, ginners, livestock breeders and sellers. It holds discussions and seminars on seeds-related issues vis-à-vis the Agreement on Trade Related Intellectual Property Rights (TRIPs) and issues falling under Agreement on Agriculture (AoA). These consultations take place throughout the year, but extra meetings are held during the Trade Policy formulation cycle and proposals formed are reported back to MOC.

Large stakeholders meeting in April
Central to MOC’s efforts at Trade Policy consultation is a large stakeholders’ meeting held annually in April in Islamabad. The purpose of the meeting is to discuss proposals received or put forward by private sector stakeholders either before or during the course of this meeting. Senior officials from all relevant ministries, such as MINFA and MOIP, the Minister and Federal Secretary of Commerce, representatives of the Provinces, as well as various business associations and other stakeholders, are all invited and attend. Stakeholders provide presentations and/or put forward verbal and written proposals. MOC officials collect these proposals for review.

Internal consultative meetings at MOC
Various private sector stakeholders also approach the MOC throughout the year. MOC invites private stakeholders for consultation on various issues. A set of consultations also takes place internally at MOC with some private sector stakeholders in tandem with the Trade Policy formulation process. The scope of these consultations is unclear.

Decision-making after consultation
An extensive set of consultative meetings take place prior to the announcement of the Trade Policy. The proposals collected in various ways all end up, in one way or another, at MOC. Around April, the Trade Policy is still in a ‘matrix’ form at the MOC. There is no written text at this stage. However, final brainstorming sessions start to take place at meetings held by MOC between senior officials, the Joint Secretaries and the Secretary of Commerce, as well as officials from other relevant ministries, the Federal Board of Revenue (FBR), TDAP, State Bank of Pakistan (SBP), and the Provinces.

There may be contradictory interests emanating from the same sector, e.g. the gemstone and gold manufacturers may disagree over a subsidy in the jewellery sector, the prawn farmers and prawn net producers may have a contradictory duty issue in the fisheries sector, and so on. These, too, are debated in various cross-sector meetings convened by MOC.

The ultimate decision as to which proposal to accept or decline for inclusion in the Trade Policy rests with MOC. Final decisions are taken after a flurry of long, high level meetings, involving the Minister and Secretary of Commerce, Joint Secretary (JS) Trade Policy, JS Imports, JS WTO Wing and other MOC officials, as well as inter-ministerial representatives, inter-provincial representatives, TDAP, FBR, and certain private sector representatives, such as textile or sugar, or those able to plead a strong case to the Government.

In May, the ‘matrix’ is replaced by the first text draft of the Trade Policy. This is a secret document not available for comment by the public. Around May/June, the Prime Minister views the draft Trade Policy and calls various meetings with stakeholders, including inter-ministerial representatives, provincial representatives, private sector representatives, FBR and TDAP.

Finally, the Trade Policy is presented to the Cabinet in July at a final stage. Any amendments proposed by the Cabinet are added. The Trade Policy is translated into the Import Policy Order and the Export Policy Order of the year and becomes legally effective and binding.