The current level of trade between Pakistan and Bangladesh, and between Pakistan and Sri Lanka is very low, given the fact that all of them are part of the same regional bloc.
Pakistan’s volume of bilateral trade has fluctuated between $120-$130 million out of $10 billion trade of Sri Lanka. In the case of Pakistan-Bangladesh trade, of the total volume of $13 billion, Pakistan’s share has fluctuated between $120-$150 million.
Pakistan’s own major trading partners include the US (24 per cent), Germany (11 per cent), and Japan (11 per cent). Bangladesh and Sri Lanka also mainly trade with these countries. However, for Bangladesh, India also figures as one major trading nation. Bangladesh fullfils 12 per cent of its import requirements from India.
The trading patterns of the three economies have developed over last half a century in a way that they look for trade outside South Asia more than inside the region. Now any major initiative on the part of the governments to open up bilateral trade will change the regional trends, but it will require at least 10 years to make an impact.
Pakistan, Sri Lanka and Bangladesh are all producers of textile products. But Pakistan has some disadvantages. Bangladesh garment industry is much more developed. Sri Lanka has also made its presence felt in the garments sector. The two countries have an edge in textile over Pakistan due to the availability of educated and cheap labour.
Literacy rates in Sri Lanka at 90 per cent and Bangladesh at 56 per cent are higher than those of Pakistan’s 42 per cent. The literacy factor has been able to enhance the efficiency of the human resource in both the countries as compared to Pakistan. That has been a major cause for substantial presence of the two countries in the US textile made-up market.
Initially, the liberal trade will cause a setback to local producers for two reasons. Firstly the high cost and semi-skilled labour of Pakistan makes it less competitive in comparison to these two countries. Secondly, there will be a pressure on Pakistan textile sector to improve hastily in the short term and long run.
But this initial shock can play a positive role, bringing into focus the reality of the post-WTO trade regime, where minimum tariff would expose the local industries to stiff competition in the international market. It will help our industry and trade to brace for the competition lying ahead.
In the beginning, Bangladesh and Sri Lanka, as members of Saarc, had the advantage of taking a substantial chunk of garment market in Pakistan. However, it is not the doomsday scenario for the Pakistani garment sector. The exposure to the Pakistani market can precipitate the possibilities of joint ventures between Pakistani and the South Asian entrepreneurs.
By 2005 India and Pakistan, despite their conflicts, will have to open up trade. Independent studies put the bilateral trade at between $1-$2 billion — most of which occurs through smuggling. Smuggled videotapes of Indian films, artificial jewellery and cosmetics are popular in Pakistan, while copies of Pakistani television shows and dry fruit are smuggled into India. Pakistan loses an estimated $500 million annually in customs duties to smugglers.
Trade can take the shape of re-export going through the process of joint venture. The regional trade is not going to be a clean sweep by the efficient producer in the free trade scenario, which many of the analysts might, lead us to believe. Market acceptability is going to determine the actual benefits of market accessibility.
The other area where three economies of Pakistan, Sri Lanka and Bangladesh have their stakes is the engineering sector. In the South Asian region, perhaps after India, only Pakistan has the requisite edge to take on the challenges of the free trade regime. The current tariff reform process, allowing breathing space to the engineering sector allows the Pakistani engineering firms, vendors as well as licensed brand name manufacturers, to compete with Indian goods on firm grounds.
On account of the well-established heavy industrial complex, India has been an economical producer. The slow progress in the opening up of the regional economies with respect to Pakistan further benefited India.
Pakistan’s light engineering sector has the chance to capture the Sri Lankan and Bangladeshi markets, not only on the basis of low price, but on the footing of quality. The defence production equipment sale to Bangladesh is the first step in this direction.
Pakistan’s engineering sector has found a common cause with the defence sector firms and has the skills to come up with the quality standard component development for the Bengali defence establishment.
Auto sector in Pakistan has been steady in conforming to the deletion programmes. Auto sector needs of the Sri Lankan and Bangladeshi markets should be probed, the market trends be measured and consequential decision be taken which benefits the brand names based in Pakistan. In the auto sector, recently licensed production with the Chinese brand names can find markets in the South Asian countries.
The horticulture sector is one area, where Pakistan has an edge over other countries in the region. Pakistan’s climatic diversities allow the availability of fresh fruits and vegetables round the year. The Sri Lanka and Bangladesh could be markets for the produce.
Pakistan has been importing tea from Sri Lanka, however the amount imported is meagre compared to the average volume. Pakistan imports tea from various sources worth on average $40 million. Of that amount, only $13 million worth comes from Sri Lanka, the rest comes from Kenya. Liberalization of trade has the potential to change the composition of Pakistan’s tea imports in a big way.
It remains to be seem, how much price advantage the Sri Lankan sources can give to brand names active in the Pakistani market. It also needs to be observed how the market would react to the peculiarities of taste and flavour of the tea imported from Sri Lanka. Kenya and Bangladesh will be big competitors of Sri Lanka tea in Pakistan.
Pakistan can face tough competition in the fish and fish preparation sector on its home ground, if the trade with Bangladesh in this sector is opened up. Low tariffs can create some setbacks for the local industry in the initial stage. What will be important will be the market acceptability with respect to the products Bangladeshi suppliers would be offering to the Pakistani market.
The impact on the trading patterns in the major items of trade between Pakistan and Sri Lanka and Bangladesh and Pakistan would be gradual and may not produce quick results as being propagated. However, this opening up will now strengthen the South Asian trade arrangement.
What can be witnessed in the coming years would be a real competitive environment in the South Asian region. India’s auto sector and engineering goods are cheaper, but it will have to work hard to counter Pakistan’s entry into Sri Lanka and Bangladesh because of high-quality of its products.
Similarly, the Pakistani garment sector will have to be more efficient than those of Bangladesh and Sri Lanka to sustain itself even in home market.
Trade agreements signed by three Saarc countries have the potential to set into motion the transformation of the region into a competitive economy. The resolution of regional conflicts may lead to more vibrancy in trade relations.