Proposals seeking reduction in import tariffs opposed

Some economic ministries have opposed the Planning Commission''s proposal of bringing import tariff down to a maximum 10 percent ad valorem. It has been reliably learnt here on Saturday that few ministries have finalised their viewpoint on the Planning Commission''s proposed ''tariff rationalisation plan''.
According to the viewpoint of one of the economic ministries, "Trade Liberalisation Programme" was initiated during fiscal year 1996-97 and import tariffs were steadily reduced. The "Tops Down" process simplified the tariff structure, reducing the number of slabs to four with minimum rate of 5% and maximum 25% from 14 slabs ranging from 0% to 65% during fiscal 1996-97.
The tariff structure remained the same up to fiscal year 2007-08 when tariff rates on many products were raised to 30% to 35% and a few items were brought down to 0%. This was done in close consultation with the stakeholders and has been in practice since than without any distortion.
It is also important to highlight that plant, machinery and equipment used for setting up an industry are already subject to a lower rate of customs duty of 5%. Similarly, industrial inputs though attract higher tariff rates under first schedule to the Customs Act, 1969, are subjected to lower rates under various regulatory notifications. Likewise, essential commodities and pharmaceutical raw materials also attract lower import tariff.
Under the existing scheme, majority of imports are subjected to lower import tariff rates in the range of 0% to 25%. Hence, lower tariff rates, besides minimising tax revenues would hurt local industry, and thereby double jeopardy for exchequer, which would lose substantial chunk of domestic taxes.
It should also be taken into consideration that developed economies consider 15% duty rate as "Tariff Peak". Zero percent tariff whenever applied, is either on basic raw materials or other inputs not available in their countries. Finished goods on which no duty is levied are those in which they have strong technological advantage. It said that Pakistan also need to wait for the outcome of Non Agriculture Market Access (NAMA) negotiations among the World Trade Organisation (WTO) member countries and other Free Trade Agreement (FTA) negotiations so that it may have an industrial base to offer concessions it needs for market access and export growth. Protection can be justified in industries that have potential to generate benefits but need time to acquire production efficiency.
It is also emphasised that Pakistan is not a least developed country with zero industrialisation. A general 0% to 10% import tariff rate would increase trade deficit, erode foreign exchange reserves, severely hurt local manufacturing, increase unemployment, increase poverty and bring an overall economic misery. Ministry of Industries and Production opined that all tariffs above 25% should be discussed individually on their merit or otherwise. Further, the customs import tariffs cannot be reduced to the extent that future potential of industrial development is compromised.
It further said that the government of Pakistan is already facing problems in negotiating Free Trade Agreements (FTAs) with various countries as it has little to offer to its trading partners due to already lowered import tariff rates. Tariff on materials and goods not produced locally cannot be arbitrary reduced so that leverage is available in negotiations.