Pakistan’s economy fails to benefit from FTAs: PBC

KARACHI: Pakistan’s economy failed to benefit from any of the six bilateral trade agreements over the past one decade with the country struggling to get tariff incentives from its trading partners, a business advocacy group said on Wednesday.

“(Government) negotiators failed to secure access for several items having exports potential,” the Pakistan Business Council (PBC) said in its white paper.

The country has so far signed free and preferential trade agreements with six countries, including China, Malaysia, Sri Lanka, Iran, Mauritius and Indonesia. China is the biggest free trade partner among all. Pakistan’s government is presently negotiating with China to finalise the second phase of FTA. 

The PBC said China granted more favourable terms to the Association of Southeast Asian Nations, Australia and New Zealand, but its FTA with Pakistan didn’t include any clause with similar tariff concessions for local exports.  

Since the signing of FTA with China back in 2006, Pakistan managed to avail only five percent of the concessional lines, while Chinese imports enjoyed 57 percent of tariff concessions.   

Bilateral trade between China and Pakistan increased manifold over the years to $10.029 billion in the fiscal year of 2015-16. China, the world’s largest exporter, has been running a trade surplus with Pakistan since the beginning. In 2015, the surplus was $9 billion.

The council pointed out the discrepancy in this figure too. China’s statistics showed that the deficit grew $14 billion in 2015 from $3.2 billion in 2006. “The disparity was ostensibly due to under invoicing in Pakistan,” it said. 

Imports from China significantly outgrew exports during this period. “Largest increase in exports was of commodities and low value   added items, generating very few jobs in Pakistan,” it added. “Imports were, however, of value     added items, undermining local industry, jobs and tax revenue.”

The PBC, representing local and multinational companies, expressed concern over the proposed FTAs with Turkey and Thailand. “Both Turkey and Thailand would seek best of China and Sri Lanka FTA terms, which if granted would impact the remaining local industry,” it said.

The council said there is a significant mismatch between export capability of Pakistan, Turkey and Thailand. “For every additional $ increase in Pakistan’s exports to Turkey, Turkish imports to Pakistan would increase roughly by $3. Similarly, for every potential $ increase in Pakistan’s exports to Thailand, imports from Thailand would increase by $4,” it added.

The business advocacy group is also apprehensive of negative impact of the FTAs on the local industries, especially auto, chemical, plastic sectors in which both Turkey and Thailand are seeking preferential entry.  

Pakistan already enjoys relatively low tariff access to both the countries, while Turkey, the council said, is highly protective to its local industries. The country has already slapped anti     dumping, countervailing and safeguard levies on Pakistan’s cotton yarn, made ups and Polyethylene terephthalate – known as PET – a thermoplastic polymer resin of the polyester.

The council said the FTAs operate without considering their impact on imports, trade deficit, local industry, jobs or tax revenue.

It called for an effective trade strategy, covering the entire value chain, a clear allocation of responsibilities and a robust accountability process to boost exports.

“Import policies need to dovetail into export strategies,” it said. Unlike Pakistan that has 10 percent import content in exports, 40 percent of Malaysia, Vietnam and Thailand’s exports are based on imported inputs.

The group also sees benefits of a shift in focus towards the information and communication technology (ICT) sector on the economy.

“For the longest time, Pakistan’s fiscal and other incentives for business have been focused on the manufacturing sector,” it said. “If Pakistan is to position itself as a meaningful player in the growing digital economy, it needs to significantly improve the policy framework to encourage the ICT sector.”

The UN’s International Telecommunications Union said a 10 percent increase in broadband penetration leads to 1.4 percent rise in GDP growth, while every 1,000 new broadband subscribers create 33 direct and indirect jobs.