Pakistans years old plea of extended trade relations with the European Union (EU) on free trade basis seems to have found some ears that actually listen. The Foreign Minister, Shah Mehmood Qureshi, gleefully announced that the EU has finally agreed to initiate free Trade Agreement with Pakistan.
EU is Pakistans largest trading partner being the largest export market for Pakistani goods and the second largest region for Pakistan imports. The Pak-EU bilateral trade volume jumped to €8 billion in 2009 from €5 billion back in 2004. Pakistans commerce ministry seeks to double the bilateral trade size to €15 billion within three years of FTA implementation.
Pakistans trade balance with the European Union has shifted from Pakistans favour and found a new and seemingly permanent base in the EUs hub. It was in 2004, that Pakistan showed a trade surplus of €1.2 billion with EU - ever since, Pakistan has been on the receiving end with the trade deficit exceeding €1 billion.
The trade balance shift is best explained by the fact that the imports during 2004-2008 grew at a rapid pace of 21 percent, but exports virtually remained stagnant. It is pertinent to note that Pakistans exports to the rest of the world, in the meanwhile, jumped by 8 percent, which shows the love lost between Pakistan and the EU.
History suggests that having FTAs with countries/regions enjoying trade surplus is not always a good idea as all what it does is worsen the trade deficit at home - evident from the experience of the mounting post-FTA trade deficits with China, Malaysia and Sri Lanka.
A serious lack of innovation in Pakistans value added textile sector, which constitutes more than 70 percent of exports to the EU has kept the textile related exports at constant levels in the last five years. A bundle of problems in the textile industry ranging from post quota regime, global over-supply, domestic infrastructure and power issues - has kept the textile growth in check.
There lies a heightened fear that doing away with the current preferential trade system might turn out to be hazardous for Pakistans textile exports to the EU. According to the Global Competitiveness Report, Pakistan ranks behind India, Thailand, China, Turkey and Indonesia in global competitiveness.
The likely factors attributed for low relative competitiveness of Pakistans exports are the high cost of production, low productivity, inadequate technological up-gradation and investment in workers training and concentration of exports in a few items among others.
A number of leading experts within the textile industry believe that Pakistan could merely become a supplier of raw materials to China and India in the free trade regime, given its competitiveness in low value-added items and in certain end products.
It is a widely believed notion that the government policies do not provide adequate support to the value-added sector. Therefore, it is required that the government implements the textile policy in its true spirit in order to provide a level playing field to the local producers.
In a nutshell, Pakistan needs to find ways to increase production at home before getting into the FTA with the EU, or else the dream of €15 billion bilateral trade would remain a distant one. And even if it does materialize, it would only be by virtue of swelling imports.
=============================================================================
Pakistan export to EU
=============================================================================
2004 2006 2008
Euro mn % share Euro mn % share Euro mn % share
=============================================================================
Agri products 253 8 218 7 353 10
Chemicals 103 3 88 3 158 4
Machinery 85 3 59 2 44 1
Textiles 1,407 42 1,388 42 1,463 40
Clothing 1,120 33 1,114 34 1,143 32
Other manufacturers 266 8 291 9 268 7
-----------------------------------------------------------------------------
Pakistan imports from EU
=============================================================================
2004 2006 2008
Euro mn % share Euro mn % share Euro mn % share
=============================================================================
Agri products 161 5 303 7 316 8
Fuel and mining 90 3 136 3 224 6
Chemicals 532 18 574 14 529 14
Machinery 1,631 55 2,396 57 1,950 50
Textiles 24 1 28 1 27 1
Other manufacturers 173 6 289 7 263 7
=============================================================================
Comments
Comments are closed for this article.