With inward-looking policies, Pakistan the worst performer in world trade
Time to turn to outward-looking policies, emulate successful emerging economies
When we were relatively more open till the late 1960s, Pakistan’s manufactured exports were higher than the exports of Thailand, Malaysia and Indonesia combined. PHOTO: REUTERS
ISLAMABAD:
With the election of Donald Trump to the United States presidency and the majority decision of UK voters to opt for Brexit (or leaving the European Union), the heydays of globalisation might seem to be over. But is it really so?
A recent survey by the reputable London-based consultancy Brunswick showed that more than 80% of Indians and more than 60% of Chinese support globalisation.
Both have seen great improvements in lives of their people and their increasing clout in world affairs as they integrated their economies with the rest of the world. Both countries are, therefore, keen on riding the globalisation wave for the foreseeable future.
Pakistan’s trade deficit touches new height, stands at $32.6b
While the survey did not include Pakistan in its study and no other reliable data is available regarding the country’s attitude to globalisation, from press reports and anecdotal evidence it seems that Pakistanis do not see globalisation favourably.
This may be the only issue where they seem to be great supporters of inward-looking policies of Trump.
Generally, there does not appear to be a realisation in Pakistan that despite free trade agreement (FTA) with China and GSP Plus status in the EU, our biggest export market is still the United States.
Also, it is one of the few countries where we enjoy a substantial trade surplus. If the US restricts its imports, Pakistan has much to lose.
Another way to look at it is from Pakistan’s own perspective. When we were relatively more open till the late 1960s, Pakistan’s manufactured exports were higher than the exports of Thailand, Malaysia and Indonesia combined.
With the nationalisation and inward-looking policies since the 1970s, Pakistan has been one of the worst performers in terms of international trade.
In the early 1990s, Pakistan did start reforming its trade and tariff policies at the urging of international agencies, but for most of that decade, it was still a slow stop-go process because of the prevalent political uncertainty.
These reforms, however incremental, reached a tipping point by 2002 and Pakistan’s trade performance started catching up with other successful countries. At least for the next five years, the export growth was in double digits annually.
Pakistan’s trade deficit reaches record high
Abrupt end
However, this uptrend came to an abrupt end in 2008 when the new government took a number of steps to curb imports and started reversing the integration of Pakistan’s economy with the rest of the world. As a result, exports started stagnating and so did the GDP growth.
Nothing improved with the change of government in 2013 as far as the trade policy was concerned. Not only the new government continued the trade policies of its predecessor, but further distanced itself from the globalisation spree, which has been continuing unabated in the neighbourhood.
As a result, stagnation of exports has turned into negative growth. Had the trend of export growth continued as it was from 2002 to 2007, the exports would have been at least four times what they are now.
Recently, a group of leading industrialists met the prime minister and one of their recommendations was to seek more import substitution policies to protect the ever-infant manufacturing industries of Pakistan. Some press reports suggest that the government is heeding this lobbying for another round of tariff increases.
What is absent is the realisation that undue protection hurts the very industries for which higher tariffs are being demanded.
A regulatory duty of 30% on iron and steel means that not only the users of this basic raw material will be at a disadvantage of at least 30% compared to Pakistan’s competitors elsewhere, but our own iron and steel industry will be less competitive.
Furthermore, when there is a protected market for goods in the country, there is no incentive to export them to the rest of the world.
ICCI expresses concern over record high trade deficit
No say in shaping policies
Poor people and those belonging to the middle class bear the brunt of higher tariffs which make their desired consumer goods more expensive. These are the people who don’t have any say in shaping the government policies.
Those recommending higher tariffs generally belong to well-heeled sections of the society, who can afford expensive consumer goods.
An analysis of the impact of inward-looking policies of the past 50 years and particularly the last 10 years would reveal that the results have been disastrous. It is time to turn to more outward-looking policies and emulate other successful developing countries such as the Asean bloc and China.
This means opting for export-led growth rather than import-substitution policies. The policy-makers should look for the benefit of all Pakistanis rather than a few rent-seekers.
The writer served as Pakistan’s ambassador to the WTO from 2002 to 2008
Published in The Express Tribune, September 18th, 2017.
With the election of Donald Trump to the United States presidency and the majority decision of UK voters to opt for Brexit (or leaving the European Union), the heydays of globalisation might seem to be over. But is it really so?
A recent survey by the reputable London-based consultancy Brunswick showed that more than 80% of Indians and more than 60% of Chinese support globalisation.
Both have seen great improvements in lives of their people and their increasing clout in world affairs as they integrated their economies with the rest of the world. Both countries are, therefore, keen on riding the globalisation wave for the foreseeable future.
Pakistan’s trade deficit touches new height, stands at $32.6b
While the survey did not include Pakistan in its study and no other reliable data is available regarding the country’s attitude to globalisation, from press reports and anecdotal evidence it seems that Pakistanis do not see globalisation favourably.
This may be the only issue where they seem to be great supporters of inward-looking policies of Trump.
Generally, there does not appear to be a realisation in Pakistan that despite free trade agreement (FTA) with China and GSP Plus status in the EU, our biggest export market is still the United States.
Also, it is one of the few countries where we enjoy a substantial trade surplus. If the US restricts its imports, Pakistan has much to lose.
Another way to look at it is from Pakistan’s own perspective. When we were relatively more open till the late 1960s, Pakistan’s manufactured exports were higher than the exports of Thailand, Malaysia and Indonesia combined.
With the nationalisation and inward-looking policies since the 1970s, Pakistan has been one of the worst performers in terms of international trade.
In the early 1990s, Pakistan did start reforming its trade and tariff policies at the urging of international agencies, but for most of that decade, it was still a slow stop-go process because of the prevalent political uncertainty.
These reforms, however incremental, reached a tipping point by 2002 and Pakistan’s trade performance started catching up with other successful countries. At least for the next five years, the export growth was in double digits annually.
Pakistan’s trade deficit reaches record high
Abrupt end
However, this uptrend came to an abrupt end in 2008 when the new government took a number of steps to curb imports and started reversing the integration of Pakistan’s economy with the rest of the world. As a result, exports started stagnating and so did the GDP growth.
Nothing improved with the change of government in 2013 as far as the trade policy was concerned. Not only the new government continued the trade policies of its predecessor, but further distanced itself from the globalisation spree, which has been continuing unabated in the neighbourhood.
As a result, stagnation of exports has turned into negative growth. Had the trend of export growth continued as it was from 2002 to 2007, the exports would have been at least four times what they are now.
Recently, a group of leading industrialists met the prime minister and one of their recommendations was to seek more import substitution policies to protect the ever-infant manufacturing industries of Pakistan. Some press reports suggest that the government is heeding this lobbying for another round of tariff increases.
What is absent is the realisation that undue protection hurts the very industries for which higher tariffs are being demanded.
A regulatory duty of 30% on iron and steel means that not only the users of this basic raw material will be at a disadvantage of at least 30% compared to Pakistan’s competitors elsewhere, but our own iron and steel industry will be less competitive.
Furthermore, when there is a protected market for goods in the country, there is no incentive to export them to the rest of the world.
ICCI expresses concern over record high trade deficit
No say in shaping policies
Poor people and those belonging to the middle class bear the brunt of higher tariffs which make their desired consumer goods more expensive. These are the people who don’t have any say in shaping the government policies.
Those recommending higher tariffs generally belong to well-heeled sections of the society, who can afford expensive consumer goods.
An analysis of the impact of inward-looking policies of the past 50 years and particularly the last 10 years would reveal that the results have been disastrous. It is time to turn to more outward-looking policies and emulate other successful developing countries such as the Asean bloc and China.
This means opting for export-led growth rather than import-substitution policies. The policy-makers should look for the benefit of all Pakistanis rather than a few rent-seekers.
The writer served as Pakistan’s ambassador to the WTO from 2002 to 2008
Published in The Express Tribune, September 18th, 2017.