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Pakistan is beginning to show a healthy trend of diversification in export markets away from the West. The share of exports to the European Union and the United States is gradually decreasing in Pakistans overall exports, declining from 39.2 percent in FY10 to 34.8 percent in FY13. The year ending June 2013 marked the second successive year of Pakistans declining exports to its two major exporting partners.
But this is not to say that boosting exports to the West should be ignored at the cost of diversification in other markets. When the PPP-led government announced its Strategic Trade Policy Framework (STPF) [2009-12] in July 2009, it had promised to put in place free trade agreements (FTAs) with both the EU and the US in three years time. That signalled the importance Pakistan attached to these two markets.
However, the government could not show any serious headway on these FTAs. In the aftermath of the 2010 and 2011 floods, and courtesy the declining security situation, Pakistans policy focus remained on seeking concessions from its Western trading partners, rather than negotiating proper trade agreements.
Another objective of the STPF to boost exports to the US was to set up seven Reconstruction Opportunity Zones (ROZs) by 2012. The ROZs, whose proposal was floated back in 2006 when then-US President visited Pakistan, were to rehabilitate the FATA residents affected by war on terror, by providing them livelihood opportunities. Products made within ROZs were to carry zero duty on exports to the US.
But the ROZ Bill is practically dead after nearly nine years of sulking in the US Congress. If the ROZs were indeed going to compensate Pakistan economically for the adverse effects following its participation in US-led war on terror, the previous government, on its part, failed to make a good use of this opportunity. Rather than a long-term fix, it focused on quick aid inflows, like lobbying for the Kerry-Lugar Bill.
Though FTAs are not currently in place, Pakistan is availing other trade programmes offered by the EU and the US. Pakistan is eligible, along with 127 other countries, for the Generalized System of Preferences (GSP) programme that gives duty-free access to the US for over 3,500 products. This programme, however, does not include products that are considered Pakistans flagship exporting items. That is why only five percent of Pakistans exports to the US in FY12 came from the GSP mechanism.
Similarly, Pakistan is also availing the EUs GSP scheme that provides the country (along with many other developing countries) non-reciprocal, preferential access to the EU market. This scheme is applicable till December 31 this year, and will emerge as reformed GSP or GSP plus from January 1, 2014. Pakistan is eligible for the GSP plus status and has already applied for it. But the government needs to comply with some 27 international conventions to be able to qualify for this program.
So far, the new government has shown more inclination towards the region, sending high-level delegations to China and peace feelers towards India. Exports to the Western markets may not remain lucrative in the long term, but they can be shored up through FTAs. Meanwhile, trade diplomacy should be employed to increase the scale and scope of countrys exports to the Eastern markets.

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