FOLLOWING in the footsteps of prime minister-in-waiting Imran Khan, the country’s influential grouping of businesses, conglomerates and multinationals has come up with a 100-day economic plan that seeks a complete moratorium on new trade agreements and renegotiation of the one with China.
The 100-Day Economic Agenda of the Pakistan Business Council (PBC) calls upon the new government not to fall for the temptation of short-term management and neglect addressing the fundamental flaws that lead to recurring crises. It advocates banking on a “Make in Pakistan Policy” to address fundamental fault lines.
For this, it has proposed a high-level body directly under the Prime Minister with private sector representation to conduct a comprehensive scan of key policies of all ministries which impact the economy — finance, commerce, textiles, industries, power, labour and taxation, education and agriculture in the provinces.
More importantly, the PBC has advocated against pursuing proposed trade agreements with Turkey, Thailand and others at the expense of local jobs.
It seeks to ensure complete transparency of costs, benefits and financial flows associated with the China-Pakistan Economic Corridor (CPEC) projects and have argued that CPEC special economic zone concessions should not hurt the existing industry.
With regional trading blocs becoming more common, the South-Asian region will be left behind if trade normalisation does not happen between Pakistan and India
“The Free Trade Agreement (FTA) with China should be renegotiated” to stem the large trade deficit and achieve maximum job creation through value added exports and facilitating import of raw material leading to import substitution of finished goods. “Parity with the Association of Southeast Asian Nations (ASEAN) on Pakistani goods and encouraging more value addition in Pakistan instead of exporting finished goods would be two deliverables”.
Perhaps encouraged by Mr Khan’s desire for EU-like free movement with Afghanistan, the grouping has thrown light on the potential of regional trade in a related position paper and has campaigned for increased trade with immediate neighbours like Iran, India and Afghanistan.
Giving examples of regional economic blocs, the PBC explains how trade blocs have contributed significantly to the economic development of the countries involved. Though Pakistan is part of both the South Asian Free Trade Agreement (SAFTA) and the Economic Cooperation Organisation (ECO), regional trade, especially through land routes which connect it with its neighbours is still short of potential.
The report states that the four countries — Afghanistan, India, Iran and Pakistan — conducted global trade worth $815.5 billion in 2016 of which only $291bn or 3.57pc was the volume traded regionally.
Pakistan has a Preferential Trade Agreement (PTA) with Iran, and SAFTA govern its trade with Afghanistan and India, yet the country’s regional trade made up around six per cent of its total trade in 2016.
Economic integration in the region is extremely low primarily due to cross-border political tensions between Pakistan and India over the last 70 years.
Iran and Pakistan share a friendlier rapport, yet this has failed to convert into a vibrant trade relationship. Iran’s oil rich economy of $427.6bn, suffered multiple economic sanctions that deeply hurt its economy. Pakistan’s trade with Iran is limited and has further reduced post 2010. As of 2017, Pakistan’s exports to Iran stood at $26.5 million while import amounted to $327m.
Pakistan’s main exports to the country include rice, paper and made-up textiles, while major imports from Iran were electrical energy, petroleum products and fruits and nuts.
Iran may not have the potential to meet Pakistan’s import requirements for any consumer products or industrial equipment, yet it does have the capacity to meet the fuel need which is otherwise imported from UAE and Saudi Arabia. On the export side, there is potential for Pakistan to increase its textile and rice exports to Iran.
Afghanistan’s $21bn economy is highly dependent on Pakistan for its global trade due to its transit trade via the seaports of Pakistan. But due to various historical reasons, the two countries have had very volatile relations with frequent tensions on their border.
Pakistan continues to be the largest trading partner for Afghanistan as of 2016 despite the latter’s increasing economic integration with Iran and yet Afghanistan is Pakistan’s 4th largest goods export market.
Because the country is land-locked, it relies on the ports of Pakistan and Iran for its international trade. As of 2016, its imports stood at $6.5bn while its exports amounted to $0.6bn creating a trade deficit of around $6bn.
India has become the sixth largest economy in the world with a total trade of $617bn billion as of 2016. Despite growing at an average rate of more than seven per cent in the past decade, the country still had a negative trade balance of $96bn in 2016. However, most of India’s imports comprise of capital goods or industrial input which help churn the country’s vibrant industry to achieve such staggering growth number.
Pakistan mainly import textile raw material from India while exports to India were mainly dates, scrap iron and steel, cement and minerals.
“The trade potential between the two countries is immense if both sides open up to trade without bias,” argues the PBC but regrets that India has placed multiple non-tariff barriers while Pakistan has not given Most Favoured Nation (MFN) status to India. With regional trading blocs becoming more common, the South-Asian region will be left behind if trade normalisation does not happen between the two.
Published in Dawn, The Business and Finance Weekly, August 6th, 2018