April 28, 2008	Monday	Rabi-us-Sani 21, 1429

As the eight-year long ‘economic miracle’ begins to unravel, one of its more obvious manifestations is the galloping trade deficit that by the end of the current fiscal could exceed our total foreign exchange reserves. Other than checking the import of the less essential goods, any attempt to curtail the import bill will be counter-productive, even if it was possible. It is the other part of the equation, exports - that offers hope.

Admittedly, exports are not likely to yield more than a five per cent compound average growth rate this year over fiscal 2007. Exports face serious challenges. The hardening of Indian and Chinese currencies, and the 20 per cent plus inflation in Viet Nam, has only softened the blow. The measures initiated by the ministry of commerce during 2000-2003, that resulted in doubling of our exports over the last eight-year period, have run out of steam.

Several factors contribute to the limping export growth. Some of these are structural in nature, requiring longer term response. Of a more immediate concern are the others that are really a function of costs. The uncertainties surrounding our export capacities - from higher costs to security issues and travel advisories to power and gas outages - demand countervailing measures.

The exporters expect monetary compensation: interest rate moratoria, if not substantial write-offs; cheaper export refinance and subsidised utilities. Some would even argue in favour of exchange rate realignment. Unless a significant shift in Real Effective Exchange Rate warrants it, the re-alignment is fraught with serious risks to the macroeconomic framework, whose stability is critical to export growth. Past experience establishes the limitations of this option, it has never yielded durable export gains.

There is one more path-- market access. A favourable access can mitigate several challenges, some of which are not of our making. It also draws its inspiration from all the heady talk of the ‘democracy bonus’. A ‘preferential trading arrangement’ with our principal trading partners--the EU and the US-- will considerably offset our export disadvantages.

With the EU, Pakistan had successfully negotiated a duty-free market access arrangement. It came at a price – we had to get our textile import tariffs bound with the WTO on the ‘applied rate’ basis – but it was well worth it. It not only led to a substantial growth in exports to the EU but also provided leverage for more gainful deals in the US. Unfortunately ,this was lost in 2006, arguably because of a flawed strategy. We were seen to be ‘demanding’ compensation (for the price we were paying for our role in the war on terror), rather than ‘negotiating’ a deal.

With a competent team of negotiators, it should be possible to resurrect a fair arrangement. It will of course need the full backing of the new government that has to accept that the other side will expect a quid pro quo – social compliance, for instance.

With the US we used up precious ‘political space’ negotiating the Bilateral Investment Treaty, presented as the precursor to the Free Trade Agreement. This was always a non-starter, as the senior ministry of commerce officials of the time had maintained. Focus then shifted to the Reconstruction Opportunity Zones (ROZs) in Balochistan, NWFP, and certain other parts that will have duty-free access to the US market. The bill has now been moved in the US congress.

If the kudos and the laurels to the advent of the ROZs have been slow in coming, it is simply because enough is not known and the fear of the ‘devil in the details’ haunts the Pakistani exporter. Yes, certain business people were associated with the negotiating process but the inconsistent versions that have percolated down to the exporters makes it a guessing game. A singular absence of authentic official statements gives rise to concerns.

Of course, no government can negotiate through the media and everyone respects the required confidentiality during the negotiating process, but by the same token, the affected parties have a right to know what is in store for them. This becomes even more unassailable now that the legislative process has started. What the exporters are hankering for are answers to three fundamental questions:

* What sort of export gains are estimated over a five year period? (A projection beyond five years will be of a distorting nature as there will be far too many variables to factor in, including possible overall reductions, autonomous or negotiated, in the US tariffs).

* Could there be any implications for ‘non ROZ’ exports ? (Special anti-circumvention measures, safeguard measures, surveillance arrangements etc. etc.). This is of critical importance given the novelty of the initiative that covers virtually half of a country, and is not at all comparable to the US experience of other special ‘zones’.

* What, if any, quid pro quo was promised?

If the ROZ gains are not substantial, or if it in any way affects the normal exports to the US, especially of textiles, it is time to engage the US authorities. It will be unfair for us to let our US friends to go through what they perceive to be a huge favour and then complain of inadequacy. We may retrieve it on the grounds of a new regime that believes in full and transparent consultations.

The most efficacious route to an alleviation of our export challenges, over the short term, is through market access. What is needed is political will and a competent team. Everyone knows the time interval between the initiation of negotiations and their finalisation but even the formal initiation gives a powerful signal to the market.

The writer is chairman of Pakistan Bed-wear Exporters Association