Another misguided trade agreement

An addition to the list of trade agreements that Pakistan is in the process of negotiating is Pakistan Vietnam PTA which is intended to lead to an FTA. Keeping the lack of efficacy of Pakistan’s trade agreements aside, the potential trade agreement of Vietnam is just another example of the lack of direction and sense in our trade policy.

Vietnam is Pakistan’s competitor in the world textile market and hence is unlikely to import from Pakistan. Its rice needs are met by domestic production and neighbouring ASEAN countries. Hence it is highly dubious that demand will be generated for Pakistan’s top exports through the trade agreement. In the defence of policy makers Vietnam’s imports in 2016 were nearly $200 billion of which Pakistan’s share was a measly $239 million. Trade with Vietnam as a percentage of trade with the ASEAN bloc, that has a combined population of 625 million, combined GDP of $2.6 trillion and combined imports of $1.1 trillion, is an insignificant figure. While the demand for Pakistan’s textile products will be limited, there is potential to export cotton, cotton yarn and fabrics.

However, the potential to import from Vietnam is far greater, especially with 2016’s auto policy in place. The ASEAN countries have a strong auto sector. Under the auto policy, new investors can import non-localised parts at a duty 10 percent lower than before. Localized parts can be imported at half the previous duty than before by new entrants. Duty for CBU has been reduced by 10 percent as well. The purpose of the auto policy is to increase competition in the local market and push existing players to improve their quality and product. However, it can also have the impact of increasing the import bill as foreign auto parts become cheaper.

It seems unlikely that potential gains in cotton exports can offset imports of auto parts and similar goods. The trade agreement with Vietnam can very easily head in a direction similar to our trade agreements with other countries; imports of expensive value added products and exports of cheap resource-based goods.