Pakistan lifts gold import ban
Meantime Pakistan sets revised rules on gold imports in new scheme recently outlined by the government.
Posted: Monday , 09 Sep 2013
MUMBAI (MINEWEB) -
In a major reprieve to its consuming class, Pakistan's Economic Coordination Committee of the Cabinet lifted a one-month ban on the import of gold and, meantime, outlined a revised set of rules.
With gold smuggling rampant in Pakistan, the nation had imposed the one-month ban in early August hoping to stem subsequent flows to India.
Gold imports jumped by 102 percent in 2012-13 in Pakistan and, according to the Pakistan Bureau of Statistics, 6,745 kilograms of gold were imported in 2012-13, as compared to 3,267 kilograms during 2011-12.
"India has been seeking steps to ensure a direct access to Pakistan's gold jewellery markets, to compensate for its export deficit to European countries,'' said a gold retailer and bullion house exporter.
Following recommendations by the Federation of Indian Exports Organisation, bullion retailers dealing in diamond, gems and jewellery had complained that direct access was not allowed between the two countries.
"The precious yellow metal is being routed through a third country including Sri Lanka, United Arab Emirates and other Asian countries,” an official said. “Direct access to Pakistan's jewellery markets would partly compensate for the export deficit to European countries, which has declined significantly due to the ongoing economic crisis.”
Smuggling of gold to India from Pakistan doubled in just four months, siphoning off dollars from the market and eroding the value of the Pakistan rupee.
Thus Pakistan's Finance Minister Ishaq Dar approved a proposal of the money exchangers’ association to temporarily ban the import of gold in order to help the Pakistani rupee regain its value against the dollar.
The ban was imposed in August, when the rupee plunged to a record low of Rs105 ($1) in the open market. Money dealers said the demand supply gap for the greenback had doubled due to the influx of gold import, with importers raising dollars from the market to finance their imports.
Though trade between the two neighbouring nations, India and Pakistan, remained limited to $2 billion, the volume of smuggling had shot up significantly.
The All Pakistan Gem Merchants and Jewellers Association had asked the government to lift the ban. Association Chairman Saeed Mazhar, speaking at a press conference at the Karachi Press Club on August 21, said the ban failed to support the rupee value over 20 days in August thereby proving it wasn’t a solution to strengthen the Pakistan rupee.
Saeed also questioned the 70 percent devaluation of the Pakistan rupee since 2008 in relation to gold. "The government’s failed economic policies and the poor law and order situation has led to the rupee dollar disparity,'' he told media.
He added that if the ban persisted there would be no raw material for the local gold market.
The Association also warned that if the government allowed the current situation to prevail they would stage mass demonstrations throughout Pakistan and shut down their factories as a form of protest.
The Pakistan government, by ending the month-long ban, heeded their demands.
A new scheme controling the import of gold - put forth by Pakistan's Economic Coordination Committee September 3 - contains two options: the Entrustment Scheme and Self Consignment Basis.
The quantity of gold a single party can import under the revised Entrustment Scheme has been capped at 25 kilograms on a revolving basis. Under the revised scheme, a beneficiary is obligated to export the imported gold and ensure value added gold jewellery within 120 days. The time limit earlier was 180 days.
The revised scheme also makes it mandatory to have a contract notarised by legal authorities in the country of origin for gold as well as have the document attested to by Pakistan missions abroad.
The new scheme mandates customs authorities to carry out random sampling of gold jewellery to be exported. Random testing of the jewellery export consignments are to be done at the time of exports to ensure they fully conform with declarations made to customs.
The revised scheme also doubles the minimum value-addition requirements for plain gold bangles, chains, plain gold jewellery and studded jewellery to 8 percent, 12 percent and 13 percent respectively. The previous minimum value addition requirement was 4 percent, 6 percent and 9 percent respectively.
Importers of gold have been been prohibited from selling gold imported under the new scheme in the domestic market.
Under the Self Consignment Basis clause exporters could earlier avail themselves of all of the export proceeds in the form of gold. While this facility defeated the very purpose of encouraging exports in the sector, the new clause entails that no more than 50 percent of export proceeds would be realised in the form of gold. As a result, at least 50 percent would need to be repatriated in foreign exchange through normal banking channels.
Earlier, the maximum period allowed for realisation of export proceeds in the form of gold was 240 days, and for foreign exchange was 180 days. Both these periods have not been reduced to 120 days.
In order to ensure effective oversight and closer coordination between agencies, the import and export of value added gold jewellery has only been allowed from duly notified customs station.
Pakistan's Finance Minister Ishaq Dar said the new scheme for the re-export of gold would not be applicable to those who have imported gold or been authorised to import under the existing scheme.