Pakistan needs to diversify exports to US

Govt should work on turning textile sector more competitive in global arena


Zafar Bhutta July 15, 2019
PHOTO: FILE

ISLAMABAD: The United States has been one of Pakistan’s major trading partners. For the past several years, the trade volume between the two countries has been stagnant, hovering around $5.5 billion. However, in calendar year 2017, the Pakistan-US bilateral trade crossed $6-billion mark for the first time.

Given the product mix of Pakistan’s exports, its major and closest competitors in the US market are China, India, Vietnam and Bangladesh. In the past five years, apart from 2017, Pakistan’s share in the US market has been stagnant but its competitors have increased their share both generally and in textile. The current PTI government is focusing on import compression and boosting exports. So, the time is ripe for Pakistan to diversify its exports to the US.

At the same time, Pakistan is entering the second phase of industrialisation under CPEC. In this phase, Chinese industrial units will be relocated to Pakistan for manufacturing different products. Pakistan believes it will help step up exports from the country.

However, on the other hand, a major threat is the trade war between China and the US, which may hamper the plan of raising exports to the US market.

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Calculated at $6.38 billion in 2017, the trade between Pakistan and the US recorded an increase of 15% over calendar year 2016. In 2017, Pakistan’s exports to the US rose 4% year-on-year at $3.57 billion with a trade surplus of $765 million.

Bilateral trade volume in July-April 2018-19 stood at $5.5 billion against $5.3 billion in the same period of previous fiscal year.

Pakistan is comparatively a small trading partner of the US. Its exports had a mere 0.16% share in total US imports of around $2.34 trillion in 2017. Top five exporting countries to the US last year were China ($505 billion), Mexico ($314 billion), Canada ($300 billion), Japan ($136 billion) and Germany ($118 billion). Pakistan ranks at 59th place in this list. Pakistan’s main export goods include articles of apparel and home textile, leather, surgical instruments, cotton fabrics and yarn, plastic, carpets, sugar confectionery and rice.

Pakistan’s main imports from the US include machinery and electrical equipment, soybean, milk powder, maize, peas, cotton, iron and steel, rail locomotives, chemicals and pharmaceuticals.

In case of textile and apparel, Pakistan has a share of around 3% in total US imports of $99 billion, which is smaller compared to 36% for China, 12% for Vietnam, 7% for India and 5% for Bangladesh.

Vietnam and India have both increased their share in the US textile market since 2012 while China’s share has shrunk. The US has an elaborate regulatory mechanism governing imports. As of July 2018, the harmonised tariff schedule (HTS) of the US had 105,168 tariff lines, of which 36.8% were duty-free tariff lines, 1.9% were subject to tariff quotas and the dutiable tariff lines had average rate of 7.6%.

At present, the US has free trade agreements with 20 countries including South Korea, Mexico, Morocco, Oman, Bahrain and Jordan. Because of the free trade agreements, Bahrain and Jordan have developed their textile sector and have begun to compete with other countries in the US textile market. The US has also bilateral investment treaties with 42 countries and trade and investment framework agreements (TIFA) with 52 countries. Pakistan also has TIFA with the US and the TIFA council is a formal bilateral forum where the two countries discuss issues governing trade and investment.

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TIFA with the US

TIFA between Pakistan and the US was signed on June 25, 2003 in Washington DC. Wide-ranging initiatives are covered under the agreement which include enhancement of bilateral trade in goods and services and securing favourable conditions for long-term development and diversification of bilateral trade.

Under the agreement, a council has been constituted comprising representatives of both countries and co-chaired by Pakistan’s minister of commerce and the US trade representative. The TIFA council aims to monitor trade and investment relations, identify opportunities for expanding trade and investment, and identify issues relevant to trade and investment that may be appropriate for negotiations at an appropriate forum.

Both countries have an understanding that the TIFA council will meet once at least in a year.

The TIFA council has met eight times since its inception. The eighth meeting was held on October 18, 2016 in Islamabad. Its meetings have not been held annually and the ninth meeting was scheduled for 2017 in Pakistan, but it has been put off to date.

In a meeting, the US authorities had stressed the need for value addition. Bilateral trade was more than $6 billion in 2017 and the target was $8 billion for 2018. However, the goal could not be met. Both sides had developed consensus for increasing trade by searching for new market avenues.

Recently, the US has withdrawn some tariff concessions for India, Bangladesh and Turkey. Pakistan comes under the GSP scheme of the US, which provides an opportunity to the country to grab a larger slice of the US textile market. However, the textile sector of Pakistan has become uncompetitive and the textile ministry should work on turning the sector more competitive in the international arena.

The writer is a staff correspondent

Published in The Express Tribune, July 15th, 2019.

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