The business challenge | Political economics


OWhile the fifth Trade Policy Review (TPR) by the World Trade Organization in April this year hailed Pakistan’s efforts to increase its trade by removing bottlenecks, now is not the time to relaxation. Pakistan faces considerable competition in the region from neighbors like India and Bangladesh. He must get his house in order by adopting realistic yet futuristic business policies to reap maximum benefits. With great competition comes great opportunity.

Pakistan’s major exports include textiles, leather and sporting goods, chemicals, rugs and carpets. 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 991.4 billion rupees in June this year from 565.8 billion rupees in the same month of 2021.

Clearly, Pakistan needs concerted efforts to increase trade with countries in the region and the rest of the world.

The State Bank of Pakistan (SBP) reported that the country recorded a current account deficit (CAD) of $17.406 billion in FY22 compared to $2.82 billion in FY22. exercise 21. This is a serious cause for concern.

Pakistan’s Strategic Trade Policy Framework (STPF) 2020-2025 states that Pakistan’s exports have remained stagnant over the past ten years, “standing between $20 billion and $25 billion, thus reducing Pakistan’s market share world exports by 10.5%”.

During the same period, the report adds, “China and India increased their share of world exports by 27% and 18%, respectively, while Bangladesh recorded impressive growth of 95%.”

A look at imports completes the picture: “While Pakistan’s exports have stagnated, imports have steadily increased, leading to a huge trade deficit. The resulting balance of payments crisis has made Pakistan’s growth trajectory more cyclical and remains a threat to future sustainable economic growth,” the document said.

It is hoped that to address the problem of weak export growth, the Strategic Trade Policy Framework (STPF) 2020-25 will aim to increase export competitiveness through a framework of interventions that will have a positive impact on all value chains.

The STPF admits that Pakistan’s exports have been affected due to the low level of export competitiveness faced by companies “due to higher cost of doing business and low product sophistication. The situation is caused by expensive energy compared to competitors, lower business productivity, heavy tax system, higher tariffs on intermediate and capital goods, lack of quality and standard guaranteeing the ecosystem and an unattractive regime for investment in the export-oriented sector.

Since 2012, China has become Pakistan’s largest trading partner, replacing the United States. By contrast, in recent years the largest trade deficits have been recorded with China, India, the United Arab Emirates, Saudi Arabia, Kuwait and Malaysia.

Pakistan’s exports to China exceeded $1.605 billion in the first five months of 2022, up 5.42 percent year on year, according to official data from the General Administration of Customs of the People’s Republic of China. (GACC).

Bangladesh falls under Everything But Arms (EBA) status. The EBA status allows Bangladesh to apply zero duties on all tariff lines, with the exception of agricultural armaments. By comparison, Pakistan is a GSP+ beneficiary. This does not allow it to access all EU tariff lines.

The second phase of the China-Pakistan free trade agreement provides duty-free market access to 313 major export products of Pakistan. The total trade volume between China and Pakistan was $12.06 billion, up almost 19% from 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 55th largest supplier of goods to the United States in 2019. United States imports of goods from Pakistan totaled $3.9 billion in 2019, up 5.7% ($213 million) from 2018, and up 24.0% from 2009. Total U.S. imports of agricultural products from Pakistan totaled $125 million in 2019. Top categories include: rice ($38 million), sugar, sweeteners, beverage bases ($29 million), spices ($18 million), snack foods ($8 million) and fruit and processed vegetables ($7 million).

In the midst of a trade imbalance crisis, there is also a need to focus on e-commerce to boost business activity. According to the Pakistan E-Commerce Policy 2019, Pakistan’s e-commerce industry is rapidly emerging and has the potential to boost the country’s economy. “Existing ICT infrastructure connects remote areas to the general public. Micro, small and medium enterprises have unprecedented growth opportunities inside and outside Pakistan,” he said.

The main stakeholders mentioned in this policy are e-commerce businesses, independent service providers, financial institutions, tax authorities and regulatory bodies, various SMEs and consumers.

Pakistan should also be able to exploit the trade potential offered by GSP+ status. An in-depth report published jointly by the Prime Institute and the Friedrich Naumann Foundation for Freedom, Pakistan, titled Pakistan and the European Union under GSP+ highlights several barriers to competitiveness.

The GSP+ agreement for Pakistan expires in December 2023. The report is therefore timely. The document mentions that only three of Pakistan’s top exports to the EU were among the EU’s top 20 imports “compared to 8 from India and 6 from Sri Lanka”.

For Pakistan to stay in the game, the report says, it must effectively implement the 27 conventions in areas where performance has been unsatisfactory. “If GSP+ status is not extended for the next 10 years, Pakistan will suffer a loss of preferential status in the form of duty-free access as well as a loss of around 1-1.5 billion dollars of textile exports.”

Pakistan faces stiff competition from Bangladesh which has Everything But Arms (EBA) status. EBA status allows Bangladesh to benefit from zero customs duty on all tariff lines except armaments. In relation to this, Pakistan is a GSP+ beneficiary. This does not give it access to all EU tariff lines.

To compete with countries in the region, Pakistan will need to respond to new global trade trends. The WTO Trade Policy Review 2022 states: “Trends in international trade reflect the growing importance of Europe and the Americas as major regional markets for Pakistan, and Asia and the Middle East as its main suppliers; furthermore, merchandise trade under most regional trade agreements (RTAs) remained negligible. Its main individual trading partners remain China, the European Union, the United States and the United Arab Emirates.

According to the review, Pakistan’s trade policy orientation has remained virtually unchanged since 2015. “While no unilateral liberalization has been undertaken, regulatory or institutional developments have taken place in some areas, including trade, anti-dumping, incentive programs, government procurement and intellectual property rights.

To increase its trade with the rest of the world, Pakistan will have to face tough competition and understand the emerging trade dynamics.

The writer is a staff member. He can be reached at [email protected]

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