Another mistake in the making?

Among the plethora of FTAs being negotiated or re-negotiated is the Pakistan Gulf Cooperation Council FTA. Comprising of UAE, Bahrain, Saudi Arabia, Oman, Qatar, Kuwait, and Yemen, the GCC countries is oil exporting bloc with an average per capita income of $30.5 thousand and annual imports of $432 billion.

Pakistan’s exports to GCC countries are less than $2 billion, accounting for less than 10 percent of Pakistan’s total exports. On the other hand, $14 billion of Pakistan’s imports were from GCC countries, comprising of 34 percent of Pakistan’s total imports.

There is definitely potential for Pakistan’s exports. For example, Pakistan has only a 12 percent market share in the rice imports of GCC countries whereas India has the lion’s share of the $2.2 billion market. Medical instruments market is another that can be tapped. GCC’s imports in 2016 were $1.6 billion of which Pakistan’s share was less than 1 percent.

Imports from GCC countries is obviously comprise heavily of oil with the bulk of imports originating from UAE, followed by Saudi and then Kuwait. The average tariffs levied on oil imports from these countries as per ITC data was 8 percent in 2016.

Keeping the politics of Qatar crisis aside, trade with GCC can be beneficial. If savvy ministry officials can negotiate favourable tariffs and terms for Pakistan’s exports, there is a huge appetite for consumption in the GCC countries that prefer to export oil and import everything else.

However, the GCC countries are among the richest in the world. Their dependency on oil exports is so high that they prefer to import manufactured goods and high end items like gold jewellery, diamonds, and cars. Pakistan’s top exports are resource based, not value added. In that itself, Pakistan’s exports have a limited market. For example, there is little potential for cotton since these countries tend to import readymade garments rather than make their own.

But the biggest risk of an FTA with GCC countries lies in Pakistan’s oil imports. An FTA skewed towards GCC countries may result in an exponential increase in the trade deficit if it raises Pakistan’s petroleum bill. After the FTA with China, a potential FTA with GCC countries can pose the biggest threat to Pakistan’s current account.

Given Pakistan’s history in negotiating FTAs, the efficacy of this FTA in promoting Pakistan’s exports and improving its trade deficit remains highly doubtful. If this FTA is negotiated on lines similar to other trade agreements, Pakistan stands to lose a lot.