KARACHI: The Pakistan Business Council, based on its detailed study of the advantages and disadvantages of accession to WTO’s Information Technology Agreement (ITA), has recommended that Pakistan should not sign the agreement.
In line with the PBC’s “Make-in-Pakistan” thrust, it concluded that the ITA will result in a net loss to the economy by replacing locally-manufactured products with imported products under the ITA-listed categories.
This will not only undermine the efforts to encourage investment by electronics manufacturers in Pakistan, but it will also cost Pakistan its independence to apply policy interventions to gradually increase its product space for exporting electronic products. Furthermore, by signing the agreement, there will be an untenable negative impact on the balance of payments, considering the fact that Pakistan’s Compounded Annual Growth Rate (CAGR) in imported electronic products listed under the ITA is 13.2 percent, much higher than the global CAGR of 8.4 percent.
The report used the PBC’s Make-in-Pakistan lens as follows:
LOSS OF JOBS: Pakistan has experienced de-industrialization due to the policies that discourage manufacturing and make it easier to import finished products. Allowing zero-duty across the board on components and finished, ready-to-sell electronics will result in closure of existing manufacturing units. It will also discourage additional investments in production facilities for electronics. This will lead to a loss of manufacturing jobs, which is an undesirable outcome.
REDUCED POTENTIAL FOR EXPORTS: After analyzing the export data on ITA products of countries, it is evident that signing the ITA is not a pre-requisite for improving the production and exports of electronics and IT products. In other words, there is no evidence to support that countries with basic manufacturing capability in electronics, as is the case for Pakistan, receive any special access to the electronics value chain by signing the ITA.
DISCOURAGING IMPORT SUBSTITUTION: By disallowing cascading of tariffs under ITA and removing the advantage for local manufacturing, for example as envisaged in the Mobile Phones Manufacturing Policy, companies may lose interest in investing in smart phone assembly in Pakistan. Not only will this have an adverse impact on the external account, but Pakistan will also miss opportunities to acquire technologies in manufacturing electronics by reducing the chances of foreign companies to enter Pakistan.
LOSS OF REVENUE: The government will lose a significant source of revenue in the form of custom duties by joining the ITA. The FBR has estimated revenue loss of Rs3.5 billion from 105 tariff lines following Pakistan’s accession into the ITA.
NO COMPULSION: No country is bound to join the ITA as it is a voluntary agreement. Countries which have an existing export base in the sector gain by joining the ITA, which facilitates entry into new markets.
Copyright Business Recorder, 2020