FTAs fail to boost exports, hit manufacturing sector: PBC

KARACHI: The free and concessionary trade agreements (FTAs) Pakistan signed with six countries largely remained unfruitful for the economy, as the country cultivated trade deficits in relation with almost all the partners, a think tank said on Wednesday.

The Pakistan Business Council (PBC), in its report, ‘Selected Trade and Manufacturing Data for Pakistan’, said the FTAs signed with trading partners failed to boost exports. “The concessionary trade agreements planned by the ministry of commerce seem unsatisfactory,” the PBC said.

The country has so far signed concessionary trade agreements with six economies. Except Sri Lanka, the country faced trade deficits in relation to all the countries. The share of Pakistan’s manufacturing sector in its domestic market was slowly eroding, the think tank added.

Trade agreement with Sri Lanka was signed in 2005 and Pakistan’s exports at that time were worth $0.154 billion, which increased to $0.26 billion by 2015. Trade balance was $0.187 billion. However, in trade agreements with China, Malaysia, Indonesia, Mauritius, and Iran, Pakistan witnessed a trade deficit.

The PBC said despite the council’s repeated requests for a moratorium on fresh FTAs, the commerce ministry was currently busy in finalising Phase-II of the China-Pakistan FTA as well as FTAs with Thailand, Turkey, and South Korea.

In its major findings, the PBC said that massive under-reporting and mis-declaration or under invoicing in imports has continued. 

“In 2015, the gap between Chinese reported exports to Pakistan and Pakistan’s reported imports from China increased to $5.4 billion,” the PBC said. Since the signing of FTA in 2006 between the two countries, the total unaccounted-for imports from China made a whopping $25.8 billion in untaxed imports.

The PBC also said there were huge leakages in transit trade. It said imports of primary raw materials for non-existent industries, as well as products for which there was no significant demand in Afghanistan, continued.

The report said Pakistan’s exports, which were stagnant at $24-25 billion levels for the past two years, saw a significant drop in the last calendar year. Pakistan’s current export levels were roughly half of its import. “At the current levels, Pakistan is headed for a major balance of payment crisis,” it added.

The PBC advised the authorities to create exportable surplus of manufactured goods and value-added agricultural products, which would allow a breathing space to address the major issues facing the economy.

It said local industries, like ceramic tiles, paper and paperboard, electrical motors, footwear, and readymade garments were being disseminated. Industries, which have already been wiped out, include stationary, toys, bicycles, and electric heaters. 

“In the absence of a level-playing field for domestic manufacturing, no amount of improvements in the supply of energy will make a difference to investment and jobs in the manufacturing sector,” the PBC said.