Free trade, most economists agree, is a fine idea. But most also agree that free trade has its own set of problems, and one cannot jump into trade deals headfirst without long-term planning and adequate negotiation. Pakistan has been grappling in trade deals for some timewith minimal success it would seem from the trade numbers available to us. Perhaps, there arent any comprehensive studies that evaluate how successful or unsuccessful they have been. But one thing is for sure, Pakistan has not done its homework yet to make such deals work.
That is also one reason why despite signing over 11 free and preferential trade agreements with countries, and one regional agreement with South Asian Association of Regional Cooperation (SAARC) nationswhich has hit snags because there has been no trade normalization with IndiaPakistani exports are dwindling- fast.
The truth is, there may never be any headway on SAARC if India and Pakistan dont play nice, so maybe the Economic Cooperation Organization (ECO) will be Pakistans next safe bet. The ECO had its 13th summit just a few days ago where expanding regional trade (doubling in the next 5 years) is the big agenda point. Doubling trade? We are on board with that.
Lets first review what trade looks like with the ten ECO countries that include Afghanistan and Turkey-two primary trade partners for Pakistan within the partnership. Pakistans exports to ECO nations went from 6 percent to 14 percent in 2011; and down to 9 percent in 2015. The big jump in 2011 was likely because of the new transit trade (APTTA- an upgrade from ATTA) that Pakistan signed with Afghanistan. Meanwhile, because of the agreement, over 54 percent of all of Afghanistans exports are transited through Pakistan; having gone up from 22 percent in 2011 when the agreement was first signed.
On the other hand, Pakistan is not much of an importer from ECO nations (2% to 3% of all Pakistani imports), which might sit well in the echo chambers where free trade is recognized as the antithesis to industrialization.
One can agree that Pakistan will play a crucial, even leading role in this regional bloc. Having said that, as this column has pointed out time and again (Read our stories: Trade deals require focus, and Catching on to trade ideals), the problem with Pakistans burgeoning trade deficit is really the lack of reforms on enhancing exports. True, the government announced promising export promotion measures in the budget and in the export package launched recently. There is also a strategic trade framework that is supposed to pass for short term policy. But these measures are easy to implement and will result in incremental growth.
Pakistan needs a comprehensive trade strategy that looks at fundamental issues within the manufacturing sector, which currently is low-tech, dangerously low on value-addition, lacks innovation, and has been unable to establish long term linkages with investors abroad. The continued reliance on commodity goods and intermediate good exports needs to be discouraged. Essentially, Pakistans exports today are used by other countries to add value to and export those onward (yarn is a prominent example).
The trade strategy should include a policy that focuses on helping industries produce value-added products; that diversifies the export mix; and that redefines the lens through which trade deals are viewed and negotiates. Ideally, trade deals should help in importing the cheapest inputs that are used for exports, in creating business-to-business linkages to create value-chains, in enhancing technology transfer, as well as training.
A lot of research, data mining and planning will have to go into making a free trade deal, particularly a regional trade deal contribute to a substantial push in Pakistans exports. Right now, is ECO a game changer for Pakistan, not at all. Is the government doing the homework to make trade deals work- it does not seem like it.
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