ISLAMABAD: The incumbent government has approved Pakistan’s first ever Trade Dispute Resolution law meant to mediate disputes between local and foreign importers and exporters. The bill, which was unanimously approved during a meeting of the National Assembly’s Standing Committee on Commerce, is expected to facilitate both local and foreign businesses and improve Pakistan’s ranking on the Ease of Doing Business (EODB) index of the World Bank.
Why it was needed and what it means
Pakistan has long faced an issue whereby importers and exporters have not had an appropriate platform to bring disputes to. International trade regularly has such disputes. For example, if a Pakistani denim exporter takes an order from an Italian company, that company will have certain expectations as to the standard of the denim products they are making. If the product that is exported from Pakistan to Italy does not meet that standard, then the Italian company does not have any forum to complain to. This then makes foreign companies less inclined towards doing business with Pakistani manufacturers. It also goes the other way around.
The Ministry of Commerce (MoC) had set up a Trade Dispute Resolution Organization (TDRO) in 2015 to resolve the ever-increasing number of such disputes in international trade, but the organisation was unable to handle the task for want of legal cover.
If the bill, which has been approved in committee, is passed by the legislature then exporters will be able to file a claim or complaint in Pakistan against their foreign respondent.The arbitral award obtained in Pakistan would be enforceable in any member countries who have ratified the UN Arbitration convention, which
“Pakistan’s foreign trade is being expanded due to international trade liberalisation under World Trade Organization (WTO), and also resulting in growth in the number of disputes. If the issue is not resolved efficiently, it can damage Pakistan economically as well as its image,” said Secretary Commerce Muhammad Sualeh Ahmed during a briefing. “Currently there is no law in Pakistan which settles the disputes of Pakistani exporters with their foreign buyers. The imports and exports Control Act 1950 addresses the disputes of foreing importers only with the Pakistani exporters.”
The committee was informed that the new law is swift, relatively inexpensive and expeditious. Further the new TDR system contract enforcement position would improve the level of trust of foreign buyers of Pakistan. Through the TDR system, contract enforcement positions would also improve, leading to elevation of Pakistan’s WB EODB Index.
What was happening before?
According to insiders, TDRO, since its inception, has only resolved a highly negligible amount of disputes that too with the mutual consensus of disputing parties. On the other hand, the TDRO and other concerned departments receive over a hundred complaints regarding foreign trade per month. “In the absence of any mechanism and body for quick resolution of disputes, a large number of cases are pending at various courts inside and outside the country,” they said.
The TDRO needed a legal cover to make it mandatory for all exporters and importers to sign an agreement under which they would accept the decision of the organisation in case of any dispute with trade partners abroad. The foreign trade partners usually cannot act against exporters or importers in Pakistan in case of any complaint. They have the only option of going through the hectic process of courts. In case of small disputes involving small amounts, they usually avoid going to courts, sources claim.
As per the existing law the ministry has no legal authority at call for any information or documents from importers / exporters for the purpose of investigating complaints received against them from the local or foreign buyers / suppliers or take any punitive action against them, if they do not provide the requisite information/documents or the charges levelled against them, the complaints are proved and they are ultimately found guilty of the trade malpractices reported/alleged against them in the complaints.
Keeping the legal issue in view, the MoC had drafted the TDRO act, empowering the ministry to call for any information / document(s) from the importers / exporters and debar them from import / export in case of their failure to provide the desired information documents or the establishment of their involvement in any trade mal-practice / irregularity.
As per available documents related to previously prepared draft of the TDR through the move, TDRO may be empowered to debar the delinquent importers/exporters, for a specific period, for example, limited to two years or so, from import or indenting export for reasons including
- a) For contravening or failing to comply with any provision of the proposed Order/SRO;
- b) For failing to comply with any regulation relating to import, export or foreign exchange control;
- c) For under-invoicing or over invoicing the value of imports or exports;
- d) For selling, transferring or violating the conditions of any import or export authorization issued by MoC or any officer authorised in this behalf;
- e) For obtaining or attempting to obtain any import or export authorization by fraud;
- f) For committing any practice relating to trade, commerce and industry, which in the opinion of the Federal Government is detrimental to the public interest;
- g) For not complying with /implementing the decision given by TDRO in case of any trade dispute;
- h) For refusal to furnish original export contracts entered with foreign buyers or any other information or data relating to such contracts on demand by the TDRO.
Through the proposed legislation TDRO could be authorised/empowered to,
- a) ask the State Bank of Pakistan (SBP) and Pakistan Customs to debar any firm(s) / company/companies, for any reason given mentioned above, from import and / or indenting and/or export for a limited period, specifying the exact period up to two years or so, giving reasons for such debarment, and it should be binding on the SBP / Customs to debar such firm(s) / as the case may be, from importing and/or indenting and/or export, under intimation to TDRO.
- b) Blacklist by itself any firm(s) for any reason, mentioned above, making it ineligible, for a period up to two years or so, to avail the facilities otherwise extended by TDRO to the importers / exporters for improvement / enhancement in their exports including the facilities extended for participation in the local as well as foreign fairs / exhibitions and delegations organised by the dispute resolution body.
How it will work if passed
The purpose of drafting a law on trade dispute settlement was to provide for the establishment of a comprehensive regime in Pakistan for the swift and effective resolution of trade disputes. Making such a law was of paramount importance for the better promotion of trade in Pakistan, protection of all trading interests and improvement of Pakistan’s standing internationally.
Through the TDRO, foreign parties would be given video conferencing facilities to participate in the trade dispute process. Efforts were being made to make arrangements for acceptance of TDRC decisions in foreign countries, however, non-compliant foreign companies would be blacklisted in Pakistan.