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CWA # 621, 7 December 2021

Pakistan Reader
The Strategic Trade Policy Framework: A boon or a bane?

  Sneha M

After a two-year delay, the cabinet finally approved the Strategic Trade Policy Framework (STPF) 2020-2025

On 9 November, the cabinet validated the Strategic Trade Policy Framework (STPF) 2020-2025 after a two-year hiatus. The STPF envisions diversifying exports from the traditional sector to standardized globally-competitive products. The Commerce Ministry of Pakistan involved various stakeholders in the public and private sector, involving the State Bank of Pakistan, Federal Board of Revenue, trade associations, Ministries/ Divisions to build a strong economy.

The Strategic Trade Policy Framework (STPF): Aims and Objectives
The cornerstone of the 2020-25 policy is to achieve geographical and product diversity, manufacturing cost reduction through tariff rationalization, regional connectivity, and improved market access through free trade and preferential trade agreements across boundaries. Additionally, through regional connectivity and “Look Africa Policy,” Pakistan is all set to transition its economy to international standards. 

Under the STPF is believed to accomplish export diversification rather than relying on traditional export sectors- textile, sports, carpet, and leather. However, the new product exports, particularly in the engineering and pharmaceuticals sectors, will be encouraged. For instance, Dawlance, known for its home appliances in Pakistan, has become its first company to export globally competitive Micro-ovens. 

The framework will also focus on improving regional connectivity for access to Central Asian Republics, Turkey, and Iran and access to Europe and Russia via these countries. Being the fourth strategic framework, the government has allotted Rs.45 billion for its implementation in the subsequent five years by providing support and subsidies to different sectors. 

Examination of previous policies
Previously, the Strategic Trade Policy Framework was implemented in 2009-12, 2012-15, and 2015-18. The framework, however, was unsuccessful in attaining its aims, particularly in terms of the export targets. Hence, in the 2020-25 framework, the government has not announced an export target. Additionally, it has directed the finance division to estimate an “achievable export target” and submit it to the Economic Coordination Council for approval.

For example, the SPTF 2015-18 was a landmark policy implemented by correcting mistakes committed in 2009-12 and 2012-15 frameworks. The 2015 policy aimed to enhance annual exports to USD 35 billion, improve export competitiveness, transition the “factor-driven” economy to “innovation-driven,” and increase regional trade share. Nevertheless, according to the economic survey of 2017-2018, it is clear that annual export reached only USD 17.1 billion. Further, the rest of the targets didn’t meet the desired results. Additionally, the policy failed due to procedural and budgetary bottlenecks.

However, such effective government interventions in terms of the Strategic Trade Policy Framework, National Trade Policy, Tariff Policy, and other ongoing initiatives to ease the economy will positively impact competitiveness and eventually enhance the import and export ecosystem.

A Conscious Approach: Three strategies to adopt
First, initiating export strategies. While it appears promising, it is hoped that the government would adjust it to the world's current economic realities, devastated by the coronavirus outbreak. Pakistan has not been spared the effects of the outbreak; over half of Pakistan's exports go to the coronavirus-affected countries. The pandemic has indeed caused damage but simultaneously has created unexpected opportunities for specific products. Therefore, the SPTF must recognize and tap those industries through product diversification or initiating export strategies to revive the trade balance. 

Second, the trade deficit. In the first quarter of this fiscal year, Pakistan's exports to nine regional nations increased by 31.56 per cent. In contrast, imports increased by nearly 43 per cent, according to the latest figures issued by the State Bank of Pakistan. Since December of last year, the trade deficit has been expanding, owing primarily to an exponential increase in imports and moderate exports development. 

Third, the financial crunch. Under the 2015-18 policy, the government barely disbursed Rs500 million of the Rs20 billion budget, resulting in inadequate performance. If such a financial crunch is avoided and a transparent and accountable system of allocating funds is adopted, then the policy will have meaningful outcomes. 

In conclusion, the policy can be effective if its objectives are adhered to and placed under periodic monitoring and assessment. Such practices can reduce policy implementation gaps, which have historically remained a weak link in the export ecosystem due to multi-organizational roles.

References
Mubarak Zeb Khan, “New Strategic Trade Policy Framework approved,” Dawn, 10 November 2021
Strategic Trade Policy Framework (STPF) 2015-18,” Ministry of Commerce, Government of Pakistan 
Mubarak Zeb Khan, “Five-year trade policy finalized,” Dawn, 27 June 2020

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