Friday, October 5, 2012

Case For Pakistan-USA Free Trade Agreement

Majyd Aziz

Preamble:
Pakistan and the United States of America are strong trade and investment partners and whatever market access is available to Pakistani exporters is reflective of the importance that USA holds for Pakistani goods, especially textiles. However, for various economic, political, military, and social reasons, there has seldom been a solid support for allowing liberal market access to Pakistan. So much so, the much-touted initiative of Reconstruction Opportunity Zones succumbed to political exigencies as well as two major events in Pakistan. One was the imposition of Emergency by President Pervez Musharraf and the second was the tragic assassination of Benazir Bhutto. These two events paid put to the ROZ initiative.

Over the last many years, officials from both the countries have continued their negotiations for a Bilateral Investment Treaty. BIT was seldom on the radar of Pakistani economic planners until some months ago Chairman Pakistan Board of Investment, Salim Mandviwalla, took the process forward in one of his official trips to Washington and the ball has started rolling again. Notwithstanding the ignorance of, and lack of knowledge of, BIT by many a business leader, the fact remains that a successful negotiation of the Treaty and its immediate implementation by both the countries would pave the way for the negotiations on the Free Trade Agreement.

Rationale:
Pakistan has been rather lethargic in executing successful Free Trade Agreements with her various trading partners and, even then, except for certain items or sectors, Pakistan has not been able to avail and utilize the benefits and advantages of FTA. Pakistan has signed FTAs with Sri Lanka, China, and Malaysia and of course, for whatever is its worth, Pakistan is also a signatory to the South Asia Free Trade Agreement (SAFTA) as decided by SAARC countries.

The Pakistan-Sri Lanka FTA was signed in June 2005. For the year 2005, Pakistan exports to Sri Lanka were $154 million and imports were $ 59 million. In 2011, exports rose to $350 million while imports remained pretty much stagnant and were only $ 61 million. Although Pakistan’s exports to Sri Lanka (the first country that signed FTA with Pakistan) have seen an exponential growth, the main concern is that Pakistani exporters have not been able to seriously make their mark in Sri Lanka.

The Pakistan-China FTA was inked in July 2007. For the year 2007, Pakistan’s exports were $613 million and imports (official) were $4,164 million while in 2011, exports rose to $1,680 million and imports (official) jumped to $6,500 million. The Pakistan-Malaysia FTA was signed in 2007 too. Pakistan’s exports in 2007 to Malaysia were $81 million and imports were $1,157 million while in 2011, exports went up to $243 million and imports increased to $2,728 million.

At present, the bilateral trade between Pakistan and United States is a matter of great concern. Pakistan’s exports to USA have generally ranged between $3,000 million and $4,300 million annually since 2004 and, in fact, recently there has been a decline in total exports. Imports have been between $1,500 and $1,750 million except for the year 2007 when PIA procurednthe new Boeing planes. While the share of Washington in Pakistan’s total exports was 23% in 2004 and 22% in 2007, it decreased to only 15% in 2011. Pakistan’s share of total US imports is less than 0.20% while the share of textiles is between 3.3% and 3.5% of total US textile exports.

It is, therefore, in the larger interest of the country, a nation that has been in the forefront in the Global War On Terror, a developing country that has spent in excess of $75 billion fighting the war, and a proud nation that has lost nearly 4000 valiant soldiers and nearly 38,000 civilians in fighting terrorists and extremists, that the United States must take the lead and provide Pakistan with a level playing field in market access, in duties and incentives, and in ensuring that equality and non-discriminatory attitude is ensured for Pakistani goods, products, and services.

Products:
Textiles have been the main exports to United States and it maximum concentration has been given to promote this sector. However, no significant increase has been registered in enhancing the figures. This is a matter of deep consternation too and is impacting on expansion in the bilateral trade with USA. Pakistani textile exporters are fighting a long-drawn battle with China, India, Bangladesh, and Sri Lanka to protect their share, but over the past years these four countries have encroached upon the territory. Each passing year would witness a growing pressure on Pakistan’s textile exports to USA since the African countries, utilizing the AGOA incentives, the South American countries, and even the West Indies nations would increase their market share in America. Therefore, it is incumbent upon Pakistani negotiators to ensure that atleast the niche textile products do qualify and are included in the items allowed under FTA. They are cautioned not to accept or rely upon the list of textile categories that were included under the ROZ initiative.

Therefore, Pakistan must adopt a two-pronged strategy in trade with USA. First, to maintain and gradually increase the share of textiles, and, secondly to concentrate on penetrating the US market with full backing and support for other sectors that are ripe for Pakistani products. It is heartening to note that Pakistani manufacturers of PET Resin have obtained a good share in USA and thus this product must become a component of the items under FTA. Recently, two mega pioneer plants have been set up in Karachi to produce BOPET that would not only save $40 million as import substitution but would also have an export market in excess of $30 million. It is proposed that this pioneer industry should also be included in FTA.

Pakistan is rich in minerals. There is a huge market for Barite, both in ore form and well as powder form, for the oil-drilling industry. Pakistan has never exported this mineral to USA but now some exporters are targeting this sector too. China is a regular exporter of this mineral and Pakistan can make inroads if there is an incentive in the form of zero duties and preferential treatment.

Export of Pakistani mangoes made headlines, but the Non-Tariff Trade Barriers stymied all efforts of the fruit exporters and the government to establish footprints for the fruit in USA. The entry of mangoes in the American market would enable the acceptance of Pakistani fruits in USA, in raw form, in pulp form, and in canned or packaged form. This sector needs the attention of negotiators too.

There are many other miscellaneous items that can be favorably exported to USA such as confectionary, gems and jewelry, leather products, handicrafts, marble items, herbal oils, and many other such items. Already software exports have found a reliable and favorable market in USA but most of the exports are unreported or acknowledged. It is important that TDAP must also set in motion programs to introduce and market new non-traditional items into the USA.

At the same time, FTA would enable Pakistan to import state-of-the-art machinery, energy equipment, medical equipment, oil drilling equipment, raw cotton, and many new innovative products that would be instrumental in improving, production, productivity, and economic savings. Furthermore, the Finance Ministry must also develop an understanding for financing of American products for Pakistan at favorable rates, terms and conditions with US Ex-Im Bank, OPIC, and even directly with major American financial institutions.

Roadblocks:
It must be understood that the signing of FTA between Pakistan and USA may not have a smooth sailing. The three main players in creating complications, hindrances, and anti-FTA hype are certain Members of Congress (who would dig out issues such as Balochistan imbroglio, Shakil Afridi incarceration, harboring a terrorist network, etc), the American labor unions, specifically AFL-CIO, who abhor the concept of FTA, and of course the ever-vigilant Indian Diaspora through its various organizations. Pakistan has suffered from this intensive lobbying in the past and there is more of a negative image of Pakistan nowadays than in the past. The yo-yo relationship between Washington and Islamabad is a testimony to this mindset.

To counter any such moves and to further protect the share of the American market, it is incumbent upon the private sector to manifest a determined role in evolving a workable and effective lobbying strategy. It is proposed that FPCCI or even the Textile Forum must hire the services of well known lobbyists in USA who can advice, guide, and pursue the interests of Pakistani exporters. A Political Action Committee could be set up under which the case for Pakistani exporters could be highlighted at various forums and institutions, especially in developing relationship with members in House of Representatives and in the Senate.

The post-November scenario, after the US Presidential elections may bring about a revisit of the delicate relationship between the two countries. It is crucial that trade and investment must not be held hostage to other sensitive issues that are impacting this relationship.

Future:
The policymakers in both the countries understand the dynamics of this delicate relationship. Pakistan needs to be economically sustainable since most of the policies made by economic managers have not been as effective as envisioned and planned. Both countries have the critical mass to accept the ground realities. Washington must take the essential first steps to initiate a strong economic relationship since only through trade and investment would Pakistan hold the fort and overcome the myriad problems, both homegrown as well as externally influenced, that have affected the lives of 190 million denizens of Pakistan.

4 comments:

  1. A good insight to the state of affairs. Sure you have a deep knowledge of policies of various governments here, commitment of bureaucracy to follow trade agreements and the active or otherwise role of our embassies. I am witness to a discussion in Dubai sometime back, people get items from India within 48 hours, where as from Pakistan, no such commitment or effort exists. Lastly how would our manufacturer/exporter do business with the uncertain policies and ever increasing costs of production.

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