Pakistan's current and potential trade agreements have been severely criticized time and again by this column. Ranging from accusations of being ill-prepared and accepting concessions on items that already have 0 percent tariff to the potential of imports damaging local economy, negotiators of trade agreements have a lot to answer for.
However, imagine as in an ideal situation where Pakistan's negotiators were masters of this art and went into meetings well-prepared. Would Pakistan still be facing a substantial trade deficit? The answer is, yes.
Pakistan's competitive advantage in China has eroded away completely in recent years (read "Pakistan-China FTA farce, published by BR Research on September, 22). For example, Pakistan's top export cotton and its derivatives face extremely tough competition from Vietnam which is covered under the China-ASEAN trade agreement. However, if Pakistan was given preferential market access for all its major exports, would its trade deficit with China turn into a trade surplus?
Obviously, as long as Pakistan imports high value-added goods from China and exports resource-based goods, trade deficit will persist. But this in no way implies that it is acceptable for negotiators to give away market access without receiving significant concessions in return which has been the case time and time again.
In itself, trade deficit is not all-evil as it is painted to be. A fast-growing economy, which is what Pakistan hopes it is and will be courtesy CPEC, pulls in more imports as its expands. Pakistan's imports of capital goods are for the betterment of Pakistan's long term economy. The larger issue is the decline in exports which Pakistan's trade agreement negotiators are culpable for, at least in part.
Along with the myriad of issues faced by the manufacturing community is the lack of access to markets of Pakistan's trading partners. From lack of R&D, availability of finance, energy related issues to the lack of capacity to enjoy economies of scale, Pakistan's industry faces a lot of challenges. But if these challenges were to be done away with, Pakistan's exports would still be hampered by its ineffective trade agreements. For example, even if Pakistan's rice is superior to Vietnam's, Pakistan faces 65 percent tariff compared to ASEAN's 33.7 percent. It would not make economic sense for Chinese importers to opt for Pakistan's rice when the alternative costs significantly less.
A stronger and more competitive manufacturing industry goes hand in hand with better market access. Rather than raising a hullabaloo about rising imports, policies conducive to facilitating and improving the quality and range of Pakistan's exports are required as well as trade agreements that allow Pakistan's products better market access.
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