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  • Jul 6th, 2017
  • Comments Off on When things don’t work, regulate
Akbar Bugti once observed, "You have so many laws, so many orders. What you don't have is law and order". This pithy comment pretty much sums up the Pakistan experience: can't root out corruption have another law, yet another agency; can't manage traffic have another law and more policemen; can't deliver basic services regulate and tax the NGOs.

In short, cover failures through more regulation, without pausing to think why existing laws and regulations are not working.

Faced with the closure of textile mills, and anemic exports, guess what the Ministry of Textiles proposes to do? It wants to regulate. It has drafted the 'Textile Industry (Development, Regulation and Standards) Act 2017'. It is said that the Act aims to 'achieve sustainable growth, employment generation, increased productivity and value addition throughout the textile chain'.

Laudable goals indeed - except, how will the law achieve them?

The 'need' for such a law is reflected in the letter addressed to the Textile Associations: "Ministry of Textile Industry, constituted in 2004, does not have any legal instrument to carry out some of the functions assigned to it under the Rules of Business". Fair enough, but shall we conclude then that all these thirteen years the Ministry has either not done anything, or has done things illegally?

Either way, it raises questions about the need and utility of this Ministry.

The preamble to the draft Act (the typical 'whereas' parts, before diving into the onerous 'therefore') tells us more. It finds it 'necessary' to set standards and initiate schemes for development of textiles (including establishment of institutions!). It also finds it 'expedient' to regulate the industry.

We have often suspected the government functions in silos and not as one whole. This draft Act confirms our suspicions: there does not seem to have been any effort to cross-reference it against existing laws on regulating the industry and Associations, on standardization, on developing the value chain.

As always, textile industry is sure to get entangled in a labyrinthine web where the bureaucrats of all those ministries - Industries, Commerce, Science and Technology (responsible for setting standards) - and the provincial governments will compete with one another to lock it into a choking embrace.

While not explicitly stated, there are sufficient clues in the draft to suggest more bureaucracy is on the cards. Textile Ministry does not have a field presence, and the Act will allow it to install offices all over the country, in the name of 'proper implementation of the law'.

The Act is specific on a new tax (Development Cess @ 0.2% of the value of imports and exports of all textile products) but vague on the exemptions or annulments. What are we, for instance, to make of proposed 'exemption of textiles value chain from Export Development surcharge', particularly when textiles value chain has not been defined in the draft Act, nor any indication given that the Export Development Fund Act (administered by the Ministry of Commerce) will be correspondingly amended to provide for this exemption.

Our money is on exporters paying both the Development Cess and the Export Development Surcharge if the draft law gets enacted. Otherwise, it means the demise of the Export Development Fund that is largely financed by the Textile exporters - and had promised the same noble objectives as the Textile Ministry is now doing. It is another matter if the Ministry of Commerce thinks brick and mortar (eg, SAARC chamber, FPCCI offices, etc.) makes for export growth!

Of course, the Act will sweep into its ambit rugs and carpets, but perhaps the importers and exporters of products as varied as shaving brushes, horse whips, even certain pharmaceuticals, need to worry too: Textiles industry has been defined as 'any unit....engaged in the production ....of textiles', and textiles include 'any other article made wholly or in part with fiber', and the definition of fiber includes fibers of 'animal origin' as well. So anyone using hair of any animal should be on guard.

We allow the State to regulate our lives. That is part of the deal, the social contract. But there are always good laws and bad ones. The good ones are those that give us security of person and property (to protect us from one another, really) and seek to promote our wellbeing. The bad ones are those that are unnecessarily intrusive and bestow upon the State the role of 'big brother' in an Orwellian sense.

Then there are the pernicious laws. These are the laws that empower bureaucracy without giving to the people anything in return.

The world is moving in the direction of deregulation. Candidate Trump's promise to deregulate sent the stock market soaring when he got elected. Several countries have adopted the principle of 'one-in-two-out'. They have embargoed introduction of a new law unless at least one law (in certain cases more) is simultaneously proposed to be excised away.

Excessive (in many cases pointless) regulation has been identified as the principle threat to ease of doing business - businesses have to go through the arduous bureaucratic obstacle course before they can come to grips with their business plans and strategies. Rankled by Pakistan's low ranking of 144 on the Ease of Doing Business index, the government launched its Doing Business Reform Strategy in 2016. More recently, the Prime Minister was obliged to lend the weight of his office to make life simpler (ie less bureaucratic) for businesses. If the instant (proposed) Act is something to go by it would appear the message has been lost in translation.

It will be a wonderful world if laws on their own could solve problems. The trials and travails of the Textile industry and Textile exports are well known, but we see little evidence of the government expending serious effort to develop solutions. Sadly, at least certain quarters give the impression that either Textiles is not worth the effort, or it is a lost cause.

We are all for diversification of our export base, but with a caveat: until we have new goods in the export basket, make the most of what you have.

We have no issues with the Textile Ministry searching for its raison d'etre; finding a justification for its existence. But please, Sir, do not kill the goose, through suffocating attention, just to make your table look more inviting.

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