December 04, 2006	Monday	Ziqa'ad 12, 1427

A Free trade agreement is a two-way transaction. It is based on reciprocity. What one country gives by way of tariff concessions, the other country returns in equal measure, with certain exceptions for brief periods.

The United States has taken the lead in negotiating FTAs with both developed and developing countries and they cover Pakistan and Morocco as well. The largest FTA, which President Bust seeks, is in the Asia Pacific region, but that is taking a long time in coming up in view of its complexities. Meanwhile, Vietnam has emerged as a strikingly vigorous economy in South East Asia.

Pakistan too is trying to negotiate free trade deals with a number of small countries and large states like the USA and China. It has already signed an FTA with Sri Lanka and the agreement has come in to force. It has now signed another FTA with China which will be effective from July 1, 2007. Negotiations with Malaysia, Thailand and Bangladesh are in the final stages.

Pakistan is also a signatory to the Safta (South Asia Free Trade Agreement) under the umbrella of Saarc which came in to effect from July 1 but it is having its teething troubles.

Pakistan does not seriously evaluate the impact of these FTAs on local industry as it only gets duty concessions on fewer items which it could export and remains oblivious to the counter flow of cheaper goods which is destabilising the domestic production and hurting domestic markets.

Under the FTA signed with Beijing, Pakistan can export 5,104 items at zero duty and 3,942 items on duty between zero and five per cent within five years from July 1, 2007.

That means the same number and kind of goods at low duty rate or duty-free can come in to Pakistan from China. Full details of the agreement are not available to the public to let it know which goods will enjoy such immunity. A better understanding of the agreement can come after details become available to the public.

Meanwhile, a good many of these items have been coming through at low prices and on low duty and some of Pakistan’s industries have been hurt particularly the motorcycle industry and electronics. If far more of such goods come in to Pakistan, its industry can be hit hard as it is not in a position to lower the cost of production, trading and exports.

Nevertheless Pakistan is seeking more large FTA partners, the latest being the European Union with 25 member countries. UK assistance is being sought to facilitate such an agreement with its vast possibilities. It appears that we want FTAs with almost the whole world, particularly the major trading countries.

Such perfervid efforts for signing FTAs with other countries came in for severe criticism at a seminar organised by the Directorate of Customs and Training in the FPCCI premises. Speakers said that too many FTAs may result in the dumping of goods in Pakistan which can hit the local industry, already facing quite many problems.

Engineer MA Jabbar, who heads the WTO unit of the FPCCI, said that Pakistan had hardly 10 items for export through the various FTA deals. They were mostly primary goods and some processed items which get low prices. They have a market of barely $400 million in China at a time when all varieties of Chinese goods have been flooding the Pakistani market.

A good many of the Pakistani items are smuggled into the country by traders avoiding the low duties and that had hurt the domestic industry.

It was said at the seminar that until recently the complaint was that a sum of Rs100 billion was being spent on the public sector to keep it afloat, but now the same amount is being spent on the textile and other industries to make them profitable which has discouraged the need for these industries to become competitive.

Yet the industrialists are not satisfied with such incentives and financial support. FTAs with rich countries, is for Pakistan to move in to unfamiliar grounds.

Before the quota system expired, our textile leaders said they would do very well in a quota free world. But while last year’s exports fell short of the modest target of $17 billion, export growth during the July-October has been only 1.3 per cent over the same period last year.

The imports in the same period rose by 7.7 per cent and the import budget would have been far larger if the world oil price had not come down.

The Federal cabinet on Wednesday approved a protocol for granting of preferential tariff to the 57 members of the Organization of Islamic Conference. That would mean more goods coming in from Muslim states at concessional tariff and intensifying the competition with the Pakistani goods.

Pakistan may not be able to take full advantage of the FTAs as its exportable surplus is small and most of that is based on agricultural output which is not very elastic. Except for Basmati rice, they are not high priced or high value exports. Pakistan will not be a great gainer by exporting more coarse cotton yarn.

Former commerce minister Razzak Dawood used to lament that the difference in the export earnings of the first item of Pakistan - textiles- and the second item- rice- was more than 10 times. That showed the weakness of the Pakistani export structure and made it more of a one product exporting country and this situation is not getting remedied or improved significantly.

Most of the exports are not really value added items as they are primary goods and some processed items unlike what Switzerland, Holland or Japan export.

In such a situation, M.A. Jabbar complains that Pakistan is not helping its industry by giving it a subsidy of Rs100 billion and ridding it of the need to become more competitive and vigorous in its approach to the markets.

Textile Minister Mushtaq Ali Cheema has detailed the financial concessions to the textile sector and promised more if the industry would use that well, but the industry is far from satisfied and clamours for more concessions in a do or die situation.

In such a context comes a decision of Nike not to manufacture footballs in Pakistan in view of child labour in the industry and other social abuses. Such problems should be eradicated by the government, instead of promising to do so and doing little else besides that.

It is not enough if the old EPB has become the new Trade Promotion Authority. Old wine in new bottles, say the exporters. Far more has to be done to accelerate the exports in reality and make them truly value added.

The government should take positive steps to lower the cost of production and the cost of doing business. Taxation hurdles in the way of free flow of trade should be eliminated. It is not enough if the government relies more on the exporters. It has to move forward with practical steps to boost export.