A new trade regime

Such policy would attract foreign direct investment in avenues

Pakistan’s exports are plummeting not only because demand for our raw commodities and low-value products in the rich markets has collapsed but also because we lack enough exportable surpluses in items that are in demand globally and/or regionally. In fact, we don’t make such items at all. And minus China we have next to negligible trade relations with regional countries.

One could get a good idea about our export potential by taking a quick glance at the list of our main exports: cotton and knitwear (28 per cent of total exports); bed wear, carpets and rugs (8 per cent) and rice (8 per cent). Others include leather, fish, sports goods and fruits and vegetables. Main export partners are the United States (15 per cent of total exports), the UAE (10 per cent), Afghanistan (9.5 per cent), China (nine per cent), the United Kingdom (three per cent) and Germany (two per cent). And here is a list of our main imports: machinery, petroleum and petroleum products, chemicals, transport equipment, edible oil, iron and steel, fertiliser and tea. These imports account for over 70 per cent of total imports. Among these categories, machinery, petroleum/petroleum products and chemicals account for over 50 per cent of total imports.

Both lists are depressing. There appears to be no way we can reduce our dependence on the items listed on the import side. And there seems to be no way we can expand the list of our exports or make our manufacturers invest in higher value-added exports.

In order to come out of this stagnating trade regime, we need to remodel it, turning it into a warehouse or transshipment trade regime. This would mean a well-thought-out trade policy that would allow almost free-of-duty entry of raw materials, intermediaries and equipment in knock-down condition to be warehoused in Pakistan and then forwarded to final destinations after the required value addition. Such a regime would also require letting the rupee appreciate/depreciate on its own without any artificial crutches. Such a policy would also attract foreign direct investment in avenues in which it would be more economical for the sponsors to fabricate items inside Pakistan for local consumption and also to re-export them to the four corners from Pakistan.

Published in The Express Tribune, August 13^th, 2017.

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