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Time to do things differently

July 16, 2018

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GLOBALISATION has produced both winners and losers. The winners want more opening up of national markets for international trade and global investors.

It is argued that the competition local goods face from foreign merchandise imparts efficiency, enhances productivity and provides consumers with cheaper goods. Foreign investment brings in the capital, technology and human skills needed to modernise national economies faster.

While the losers — whether it is a country, segments of the national economy or the population left behind — seek and defend protectionism.

CPEC has helped Pakistan adopt a different approach to globalisation; a sound trade-linked investment has the potential to reduce trade and structural imbalances in our economy

To quote former International Monetary Fund managing director Dominique Strauss Kahn, globalisation had led to a “lethal cocktail of prolonged high unemployment and high inequality (which) can strain social cohesion and political stability, which in turn affects macroeconomic stability.”

In the realm of regional integration, especially in a post-Brexit period, the European Union is suffering from want of consensus on how to move forward on the basis of convergence of interests of all its members. The member-states are engaged in a great debate on how to make the EU work better.

Hit by severe crises, the eurozone has ceased to be the most advanced model for regional economic integration. However, China is an example of an economy that succeeded by adopting a different approach towards tackling globalisation.

It used a productive blend of selected protectionism and well-thought out staggered liberalisation of foreign trade and investment to become the world’s second largest economy. Though it significantly shelters its regulated market, China has benefited immensely from liberal global trade practices and is therefore on the forefront in Asia.

Beijing is gradually opening up its markets to foreign goods and services. Under pressure to do so from the EU and the United States — with whom it has huge trade surpluses — it occasionally makes big deals to create stakes of leading European and American manufacturers in its domestic market. US President Donald Trump views China’s massive bilateral trade surplus as a problem for the US.

The US is now trying to balance its bilateral foreign trade with the EU, China and countries in Asia as well as its neighbourhood and protect its domestic market from competitive foreign goods. It is also trying to protect its strategic assets, particularly advanced technology, from falling into the hands of foreigners.

The US currently suffers from a deficit of over $46 billion on goods trade per month. It means a loss of manufacturing space in the country. The profitability of overseas business of the US multinationals is falling. Worldwide data show that corporate productivity and profitability are generally declining.

Investment activity is focused on mergers and acquisitions, and cash/financial assets are stashed in offshore islands not finding enough lucrative outlets for investment in Greenfield projects. The mobility of global capital required for economic development has been seriously restricted.

Pursuing an “America First” policy, Trump is shoring up the domestic economy. The tax breaks and deregulation of the domestic market have yielded positive results. Over the past one and a half years, business confidence has soared. Corporate earnings have started picking up.

Optimism among small firms is reported to be a near an all-time high. Trump has reduced taxes on new foreign profits and provided tax rebates to US transnational firms to repatriate cash held in foreign subsidies.

The China- Pakistan Economic Corridor has helped Pakistan adopt a different approach to globalisation. The Chinese investment is going into energy and infrastructure projects, increasing productivity and imparting efficiency to Pakistan’s economy.

In interviews published in Dawn Business and Finance last week, the Federation of Pakistan Chambers of Commerce and Industry President Ghazanfar Bilour said: “We have to rely on our resources and manage the economy ourselves.”

And the Overseas Investors Chamber of Commerce and Industry President Wahab Khan stated: “Pakistan should also show determination and good governance to navigate through challenging times.”

Building upon what has been achieved so far; policymakers are working on a draft on a Trade-Related Investment Policy Framework which will provide incentive packages for 19 priority sectors considered critical for export promotion and import substitution.

A separate National Tariff Policy draft has also been put on the commerce ministry’s website. The commerce ministry is planning to get the draft approved by the current interim cabinet.

In view of the sector-wise intensive consultations to make proposals acceptable to the prospective investors, Commerce Secretary Mohammad Younus Dagha hopes that the local investors will develop joint venture proposals which can attract foreign partners.

A sound trade-linked investment has the potential to reduce trade and structural imbalances in the economy, but its success depends upon joint efforts of Chinese and Pakistani investors.

jawaidbokhari2016@dawn.com

Published in Dawn, The Business and Finance Weekly, July 16th, 2018