Political uncertainty and absence of a clear economic direction continue to diminish the foreign trade potential of Pakistan
While the Fifth Trade Policy Review (TPR) by the World Trade Organiastion in April this year was appreciative of Pakistan’s efforts to increase its trade by removing the bottlenecks, it’s no time for slackness. Pakistan faces considerable competition in the region from neighbours like India and Bangladesh. It has to put its house in order by making realistic yet futuristic trade policies to reap maximum benefits. With great competition come great opportunities.
The major exports from Pakistan include textiles, leather and sports goods, chemicals, carpets and rugs. Pakistan also exports significant quantities of rice, sugar, cotton, fish, fruits and vegetables.
According to the Pakistan Bureau of Statistics, Pakistan’s trade deficit widened to a record Rs 991.4 billion in June this year, from Rs 565.8 billion in the same month in 2021.
Clearly, Pakistan needs concerted efforts to increase its trade with the regional countries and the rest of the world.
The State Bank of Pakistan (SBP) has reported that the country recorded a current account deficit (CAD) of $17.406 billion in FY22 compared to $2.82 billion in FY21. This is a serious cause of alarm.
Pakistan’s Strategic Trade Policy Framework (STPF) 2020-2025 says Pakistan’s exports have remained stagnant for the last ten years, “ranging between $20 billion and $25 billion, thereby reducing Pakistan’s share in the global export market by 10.5 percent”.
During the same period, the report adds, “China and India enhanced their share in global exports by 27 percent and 18 percent, respectively, whereas Bangladesh registered an impressive growth of 95 percent.”
A look at the imports completes the picture: “While Pakistan’s exports have stagnated, imports have kept rising resulting in a huge trade deficit. The consequent balance of payments related crisis has made Pakistan’s growth trajectory more cyclical and remains a threat to future sustainable economic growth,” says the document.
It is hoped that to address the issue of low exports growth, the Strategic Trade Policy Framework (STPF) 2020-25 will aim at increasing export competitiveness through a framework of interventions that will have a positive impact across the value chains.
The STPF admits that Pakistan’s exports have been affected due to low level of export competitiveness faced by enterprisers “due to higher cost of doing business and low product sophistication. The situation is caused by expensive energy compared to competitors, lower enterprise productivity, cumbersome taxation system, higher tariffs on intermediate and capital goods, lack of quality and standard ensuring ecosystem and unattractive regime for investment in the exports-oriented sector.”
Since 2012, China has emerged as Pakistan’s largest trading partner, replacing the United States. On the other hand, in recent years, the biggest trade deficits were recorded with China, India, the United Arab Emirates, Saudi Arabia, Kuwait and Malaysia.
Pakistan’s exports to China crossed $1.605 billion in the first five months of 2022, up 5.42 percent year on year, according to the official data from the General Administration of Customs of the People’s Republic of China (GACC).
Bangladesh falls under the Everything But Arms (EBA) status. The EBA status allows Bangladesh to avail zero percent duties on all tariff lines with the exception f armaments. In comparison, Pakistan is a GSP+ beneficiary. This does not allow it access to all EU tariff lines.
The second phase of the China-Pakistan Free Trade Agreement gives zero-tariff market access to 313 major export commodities from Pakistan. The total volume of trade between China and Pakistan was $12.06 billion, up nearly 19 percent compared with 2021 when it stood at $10.14 billion due to Covid-19.
According to the Office of the United States’ Trade Representative in Pakistan, Pakistan was the United States’ 55th largest supplier of goods in 2019. The US goods imports from Pakistan totalled $3.9 billion in 2019, up 5.7 percent ($213 million) from 2018, and up 24.0 percent from 2009. The US total imports of agricultural products from Pakistan totalled $125 million in 2019. Leading categories include: rice ($38 million), sugar, sweeteners, beverage bases ($29 million), spices ($18 million), snack foods ($8 million), and processed fruits and vegetables ($7 million).
In the midst of a crisis of trade imbalance there should also be a focus on e-commerce to give a boost to trade activity. According to E-Commerce policy of Pakistan 2019, Pakistan’s e-commerce industry is emerging rapidly and has the potential to strengthen the country’s economy. “The existing ICT infrastructure is linking remote areas to the mainstream. Micro, small and medium enterprises have unprecedented growth opportunities within and outside Pakistan,” it says.
The key stakeholders mentioned in this policy are e-commerce enterprises, freelance service providers, financial institutions, revenue authorities and regulatory bodies, various SMEs and the consumers.
Pakistan should also be in a position to tap the potential of trade the GSP+ status offers. An in-depth report published jointly by Prime Institute and Friedrich Naumann Foundation for Freedom, Pakistan, titled, Pakistan and the European Union under GSP+ points out several barriers to competitiveness.
The GSP+ arrangement for Pakistan expires in December 2023. The report is therefore timely. The document mentions that only three of the top commodities being exported by Pakistan to the EU were among the EU’s top 20 imports “as compared to India’s 8 and Sri Lanka’s 6.”
For Pakistan to stay in the game, the report says, it needs to effectively implement the 27 conventions in areas where the performance has not been satisfactory. “In case the GSP+ status is not extended for the next 10 years, Pakistan will experience a loss of preferential status in the form of duty-free access as well as a loss of around $1-1.5 billion of textile exports.”
Pakistan faces tough competition from Bangladesh which has the Everything But Arms (EBA) status. The EBA status allows Bangladesh zero percent duty on all tariff lines with the exception of armaments. Compared to that, Pakistan is a GSP+ beneficiary. This does not allow it access to all EU tariff lines.
To compete with the regional countries, Pakistan will have to respond to the emerging global trends in trade. The WTO’s Trade Policy Review 2022 says: “The international trade trends reflect the rising importance of Europe and the Americas as Pakistan’s main regional markets, and Asia and the Middle East as its main suppliers; furthermore, merchandise trade under most regional trade agreements (RTAs) has remained negligible. Its main individual trading partners remain China, the European Union, the United States and the United Arab Emirates.”
According to the Review, the thrust of Pakistan’s trade policy has mostly remained unchanged since 2015. “While no unilateral liberalisation has been undertaken, there have been regulatory or institutional developments in certain areas, including trade facilitation, anti-dumping, incentive schemes, government procurement and intellectual property rights.”
To increase its trade with the rest of the world, Pakistan will have to embrace tough competition and understand the emerging dynamics of trade.
The writer is a staff member. He can be reached at firstname.lastname@example.org