ECC turns down plan for Risalpur EPZ: three-man panel to revisit proposal

[Naveed Yaseen]

MUSHTAQ GHUMMAN
ISLAMABAD (November 22 2009): The Economic Co-ordination Committee (ECC) of the Cabinet has turned down Industries Ministry proposal regarding restriction of export of manufactured goods in tariff-free zones to 50 percent, instead of 100 percent, on the same pattern as in Gwadar EPZ, Business Recorder learned from official documents obtained from Industries Ministry.

This controversial proposal was considered by the ECC in its meeting on November 17, 2009, which was presided over by Finance Minister Shaukat Tarin. The ECC did not give clearance to the proposal as some ECC members were of the view that if it was approved in its present form, it might be challenged in the courts.

The ECC was informed that the Export Processing Zone (EPZ) in Risalpur was established with the objective of attracting foreign and local investment and to provide incentives to local industrialists and traders for setting up export-oriented industries, particularly for export to Afghanistan and Central Asian markets.

However, the imposition of 20 percent limit on exports to tariff areas and restrictions on exports to Afghanistan through land route etc have adversely affected business activities in the zone. The ECC was informed that a review committee to recommend measures for revival of Risalpur Export Processing Zone was established.

The committee recommended a number of measures, including permission to re-export imported goods as trading items (except negative list) to Afghanistan via land route, and treat Risalpur EPZ at par with Reconstruction Opportunity Zones (ROZ) classification for exports to the United States of America (USA). It was argued that the investment already made on infrastructure facilities established in the Risalpur Export Processing Zone (REPZ) would go to waste if it was not revived.

It was, however, observed that several issues required to be addressed before re-submission of the case to the ECC. First phase of Risalpur Export Processing Zone (REPZ), spread over an area of 92 acres (137 plots), was completed in December 1998. According to the documents, the government was expecting that the REPZ would open new avenues for export to Afghanistan and Central Asian markets.

However, imposition of 20 percent limit on exports to tariff areas and restriction on exports to Afghanistan through land route etc adversely affected business activities in the zone. Out of 54 approved projects only 9 were implemented. Seven out of these 9 projects have closed due to restrictions on exports. The rest of the land allottees have yet to start any business activity.

Keeping in view the disturbed situation, the Minister for Industries and Production, Manzoor Ahmad Wattoo, constituted a committee to review the issues of REPZ and recommend measures for its revival. The major issues identified by the committee were focused on numerous restrictions on exports.

After detailed deliberations, the committee formulated the following recommendations for the consideration of the government: (i) Allowing exports of imported goods as trading items (except negative list) to Afghanistan via land route; (ii) allowing incentives/facilities at par with bonded warehouses for export of imported raw materials to tariff area on payment of leviable duties and taxes in accordance with import policy issued by Ministry of Commerce from time to time; (iii) lease rates/annual ground rent may be revised and made competitive with other industrial Estates.

The present lease rates for 30 years being $6.5 per sq. metre for industrial and $16 per sqr metre for trading with AGR $.05 sqr per metre per year and $1.25 per sqr metre per year for industrial plot and trading plot respectively;(iv) 100 percent export of manufactured goods to tariff area may be allowed, and ; (v) Reconstruction Opportunity Zone (ROZ) classification for exports to US may be allowed and parallel EPZ status for exports to non-US destinations may continue.

According to the documents, the committee further recommended that if the suggested measures could not be approved by the government then REPZ may be converted into a Special Economic Zone (SEZ) so that the investors can avail incentive packages for SEZs.

However, Industries Ministry is of the view that the system of 100 percent export from EPZ to tariff area worked smoothly up to 2004 and was consistent with the basic idea of establishment of EPZ. The restriction was imposed in 2004 to check the misuse of the facility by dumper trucks manufacturers/importers.

It would have been more appropriate to take direct action, like cancellation of licences, etc. A large number of warehouses are already operating in EPZs and they are free to export imported goods. It is essential for success of REPZ that warehouses may export the imported goods to Afghanistan via land.

However, to accommodate export of 50 percent of the produce of the zone to tariff area can be considered on the lines of Gwadar EPZ otherwise huge public resources spent on establishment of REPZ would go to waste if it was not revived. Sources said that a three-member committee, comprising Secretary, Finance, Secretary, Commerce, and Secretary, Industries, would revisit the entire proposal and submit it to the ECC in its next meeting.

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