Rethinking trade

Pakistan has a longstanding history of economic and political cooperation with the Gulf Cooperation Council (GCC), a regional economic and political organisation that comprises Oman, Saudi Arabia, the United Arab Emirates (UAE), Qatar, Bahrain, and Kuwait.

The regional giant has annual GDP of around $1.6 trillion, with over $1,300 billion in trade volume with the world. Even though the council shares common geostrategic interests with Pakistan, its trade volume with the country has been declining steadily in recent times.

Pakistan’s exports to the UAE have plummeted – from close to $4 billion in 2012 to slightly over $1 billion in 2020. The GCC used to be one of the top destinations for Pakistan’s exports of precious metals, gems and jewellery, cereal and textile products. However, the share of such items in exports has declined significantly in recent times.

It is interesting to note that trade between India and GCC countries has been gradually expanding, surpassing over $120 billion in 2019, eroding Pakistan’s market share – an area of great concern for the country.

On Pakistan’s part, there are multiple reasons for the current dismal trade performance which include, but are not limited to, a lack of macroeconomic stability, low productivity, the high cost of doing business, and inconsistent government policies.

Pakistan is also seeking to develop bilateral trade agreements particularly with Saudi Arabia, Oman, and the UAE. While pursuing trade cooperation is critical, it is also crucial to first evaluate whether such free trade agreements (FTAs) with major economies such as China and Malaysia have been successful. Many argue that the anticipated benefits from these agreements will not be realised due to the absence of complementary policies that would have increased the use of concessions under FTAs.

Bringing in new investment and technology in export sectors is essential for FTAs to succeed. Owing to these hurdles, foreign investors seem less inclined to invest in the country’s so-called thriving textile sector. This declining interest of investors is attributed to strenuous regulations and a high cost of doing business; macroeconomic instability is also a hindrance.

Also, factors such as the energy crisis, lack of skilled labour, poor infrastructure, outdated technology, and lack of export culture are some supply-side constraints which eroded Pakistan’s export competitiveness.

The detrimental effect of Pakistan imports on exports is a major concern for Pakistan in an era when manufacturing activities are globalised, and imports are being used to enhance exports. The bulk of imports in Pakistan are final goods and consumables, which contribute little to exports.

Most of Pakistan’s exporters have rarely ventured into new markets or market niches. Another more serious issue is that only few of them are capable of taking advantage of new export opportunities in terms of market location and new product lines or opportunities to become more integrated into the global supply chain.

Pakistan's production line is not up to the mark in terms of competence and efficiency. Its exports to the GCC are confined to primary products including rice, meat, seafood, fruit and vegetables, and are currently facing stiff competition from other regional competitors like China and India – the GCC is working on a trade deal with the latter.

Pakistan may lose out if just merchandise goods are included for tariff reduction purposes in the trade agreement. Merely negotiating or lowering tariff rates under the FTA will not provide considerable benefits to Pakistan.

It must include services such as health, education, business and banking services, and information and communication technology (ICT) in this trade agreement.

Pakistan must improve its technological prowess by encouraging productive imports. To fully benefit from the possible free trade agreement, it has to diversify its export base.

The writer is an assistant professor at Abdul Wali Khan University, Mardan. He can be reached at kamal@awkum.edu.pk