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January 14, 2016

Trade negotiators need to sign beneficial FTAs


January 14, 2016

LAHORE: Our trade negotiation strategy is flawed as the free trade agreements (FTA) Pakistan has with other countries are not benefitting us; mainly because our negotiators failed to get concessions provided on high potential Pakistani items, which they accorded to other countries.

Countries sign FTAs to obtain mutual benefits from trade. They provide freer access on some items to its FTA partner that it imports from other countries at higher tariff. In the same way it obtains duty concession on certain items from its partner to gain advantage over its competitor.

It has been observed that in most of the FTAs signed by Pakistan, its partners have obtained lucrative concessions from us to boot out its competitors from the Pakistani market. However, Pakistani negotiators failed to get similar concessions on many items that have high potential in the partners market.  The most painful aspect in this regard is that its FTA partners have accorded concessions on the same items to many other countries.

Pakistan for instance failed to secure concessions that make its high potential export items competitive against China’s other trade partners. It has greater advantage in cotton (HS 52051200), frozen fish (HS 03033900), and leather (HS 41131000) but its tariffs in these eight digit HS code export items are much higher than what China has fixed for ASEAN countries. As China has allowed the import of these items at much lower duty it shows that the Chinese producers are not hurt.

The question is why Pakistani negotiators failed to obtain matching concessions from China or did they ever ask for these in the first place. We failed to obtain concessions that would not hurt Chinese businesses in any way, but ourselves were liberal in granting concessions which hurt our domestic industry. The affected industries include steel, tiles, paper, and paper board. This brings in to question the competence of the trade negotiators.

Trade negotiation is an art through which the negotiators try to grab maximum benefit from the final agreement that is reached; it is true for agreements between private sector entrepreneurs and government to government negotiation.

While negotiating FTA, the experts have to analyse the impact of the concession they are granting to the FTA partner on their home industry. Similarly, by giving certain concessions they assure it would improve the competitiveness of the economy. The concession would reduce the flow of the same items from MFN countries, and if the FTA partner is a neighbouring economy, it would reduce transportation costs on both sides of the border.

For instance importing high technology from China at reduced duty would benefit the local economy, and no jobs would be lost. But allowing import of tiles at concession would hurt the local tiles industry and reduce job opportunities in the country.

If we look at other FTAs, one is Comprehensive Free Trade Agreement (FTA) between Pakistan and Malaysia that became operational from January 1, 2008. Even in this case Pakistan failed to secure significant concessions on high trade potential items, such as HS61 items (accessories, knitted or crocheted) where the duty is 20 percent.

Malaysia imports the same items under HS16 from China at 0 duties and from India at 10 percent import duty. A research by Pakistan Business Council reveals that same discrepancy exists in case of HS84 and HS85 items that relate to gas turbines, vacuum pumps, air conditioners, and refrigerators. Pakistani products under these HS codes face a duty regime of 20 percent while duty on Chinese products is zero and that on India is 10 percent.

Pakistan’s export items face less favourable tariffs than the same items from Indonesia’s FTA partners China, Japan, South Korea, and India. It is worth noting that barring China, under all the FTAs Pakistan signed with other countries, its exports have ranged from $28 million (Mauritius) to $266 million (Sri Lanka).

One wonders whether it is worthwhile to spend so much time, energy and money to sign such low potential FTAs. Pakistan is now in advance stage of negotiations on FTA with Thailand. Pakistan’s exports to Thailand were $61 million in 2004 that increased to $118 million in 2014. Thai exports during the same period increased from $434 million to $876 million. The FTA if signed on the same pattern as the previous FTAs, would increase Thai export substantial to Pakistan, but there would be no significant improvement in Pakistani exports to Thailand.


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