OUR policy makers are busy negotiating several free trade agreements (FTAs). After successfully signing of such an accord with Sri Lanka and China, negotiations are in progress with Japan, Switzerland and Egypt to promote bilateral trade.

FTAs have the potential to improve exports but also open up domestic markets for foreign goods. Therefore, it remains uncertain as to how these will impact the trade balance.

To quote officials, Pakistan is signing FTAs with other countries to export leather products, minerals, sea food, grain, fruit and vegetables but it should have enough capacity in these areas so that real benefits offered by these agreement can be realised.. The fact is that our exports of traditional products like carpets, sports, surgical, leather, engineering and footwear recorded a more than 30 percent decline during July-December-2006 as compared to the corresponding period last year.

The government has just remained focused on textile sector and has ignored comparatively small industries. Chinese rice is already giving tough time to Pakistani exporters as IIRI-6 Chinese rice is available at much lower price than offered by Pakistan Similarly, Pakistan’s fish foods are facing serious challenge in the export market due to out-dated modes of production and marketing and the poor hygienic conditions in the supply chain.

This is more evident if we look at the trade data with Sri Lanka. In the first year (2005-06) of FTA implementation, Pakistan's exports to Sri Lanka stood at $159.212 million as against the pre-FTA sales of $155.830 million. On the other hand, Sri Lankan exports to Pakistan stood at $71.288 million, up from $44.813 million in the pre-FTA year.

If we look at China’s trade, it imports electronic components and it is not dependent on western markets but more heavily dependent on Asian countries like Japan, Korea and Malaysia and this is very unfortunate that electronic items are nowhere in Pakistani exports.

Furthermore, if we look at the Japan’s trade, the major imports are of petroleum, clothing and semiconductors. About 81 per cent of its imports in clothing are from China, five per cent from Italy and remaining 14 per cent from other countries, Pakistani textile industry is not competitive because of its high cost of doing business. It cannot keep up with the pace of changing trends in fashion. So, it seems very unlikely that Pakistan will be able to increase its exports as a result of these FTAs.

If an FTA is to promote trade, exports as well as imports. the picture should be crystal clear that what surplus do we have to export and what will we import rather than claiming that we will export rice, cutlery, sports, surgical etc without any capacity enhancement and making local industry competitive.

A most recent example for our policy makers is talks on free trade agreement between Japan and Switzerland where it is well defined that Japan will export more electronic goods to Switzerland whereas Swiss pharmaceutical and watch making companies will find a better way to increase shipments to Japan. Both countries have excess capacity for their FTA. Recently Pakistan has also started negotiations with Switzerland for an FTA without having a surplus to export to Switzerland.

Free trade is not the only factor that can help promote trade between two countries. Even, if an FTA is signed between the South Korea and USA, it will not be able to offset the growing exports of China to South Korea and it will remain a challenge for the USA even with low tariffs. An other very good example is that of Mexico, though there is a free trade agreement between Mexico and the United States even then Mexican exports are facing a challenge due to increasing China’s exports to USA.

This gives a message to the policy makers that it is not just the FTA that can boost exports but first they should control cost of doing business due to rising inflation which is making Pakistani goods more expensive than other countries at an average rate of eight per cent in last three years. Hence, they are not competitive in terms of price even if tariffs are reduced as a result of FTA. Besides price, quality is another concern.

These trade agreements should be based on strong footings and the future projections of their benefits. In fact, liberalising and opening up the economy may not bring the desired results because we are facing the limitations that others don’t.