Economies determine the standing of nations in the world while markets determine the power.
Reliance and belief in the power of markets is certainly gaining ground over mere political slogans in international relations.
With its population of 450 million, in 27 countries, the European Union (EU) is the largest economy and the largest trading bloc in the world. The current foreign and trade policy of Pakistan does not seem to be internalising the aforementioned fact. There is, however, still time and margin to improve.
Pakistan’s total share in EU’s imports was merely 0.3% in 2019, despite having the GSP Plus status, and that too was mostly in textiles.
For the EU market, the list of largest import partners starts with China, followed by USA, the UK, Russia, Switzerland, Turkey and on the 10th place is India while Pakistan ranks in the 40s.
A positive point, however, is that between 2013 and 2019, Pakistan’s exports to the EU increased by 65%. This is still far less than the potential.
Flipping the story to the side of Pakistan, the EU is Pakistan’s largest export market, taking up 35% of the export share. This resonates to feel even higher, realising that almost one-third of Pakistani imports finds a market in the EU, a statistic which speaks of its own importance.
Top exports, from Pakistan to the EU, include textiles, raw animal skins, vegetables, foodstuff and tobacco. The volume of exports has been on a rising trend since 2011 but the share in EU imports remains at 0.2-0.3%, which states that the size of the EU market is growing but not the share of trade between the EU and Pakistan.
A significant point to be noted is the absence (or negligible volume) of services’ exports from Pakistan to the EU.
It is no-brainer that the manufactured and processed goods carry the value addition in their sale prices that raw skins, textile yarns, unprocessed goods and vegetables do not.
One, however, may not find a logic why Pakistani exporters do not consider this for the European market, which is a “premium” consumer market. There is enormous potential for the manufacturing sector and high-skilled labour to contribute to value-added exports from Pakistan.
Preferences and standards
Training and specialisation by the skilled labour and deployment of latest machinery would be required to ensure Pakistan’s textiles and leather accessories meet the aesthetic preferences of the EU market; cutlery, surgical and pharmaceutical instruments are all designed and produced as per the European standards; and exotic herbs, spices as well as Basmati rice, cane sugar, fertilisers, Himalayan salt, and fruits are packaged according to quality packaging standards of the EU.
Stitched, printed, embroidered and tailoured for the EU sizes apparel would make more contribution. Marbles, tiles, leather goods and artwork such as carpets and Kashmiri Pashmina would need export regulatory policies to increase compliance with international standards of quality and production.
Emphasis on quality packaging of international standards for foodstuff and edible products would increase the opportunity for processed foodstuff exports. Bringing foreign investment via partnerships with European clothing brands would give a big boost to Pakistan’s textile exports.
To strengthen relationship from its side, the EU has granted Pakistan the Generalised Scheme of Preferences Plus (GSP+) status. Based on this status, around 80% of Pakistan’s exports to the EU are quota and tariff-free, hence, having an advantage over many other competitors.
Currently, Pakistan’s exports are mainly composed of textile but there is potential for many more products under the GSP+. This gives Pakistan a potential goldmine to diversify its export base.
A diverse export base could help Pakistan multiply the benefits of being one of the only eight countries which have the GSP+ status from the EU.
Before the EU can be regarded as more than just trade partner, Pakistan needs to first realise the importance of this trade partnership. A strong commitment to developing exports and an economic and trade policy makeover is required to capitalise on this potential and increase export earnings through “Made in Pakistan”.
As the EU is also one of the main “development” partners of Pakistan, there needs to be a revamp of Pakistan’s policy and approach towards the bloc so that it takes a comprehensive and holistic approach, combining economic, diplomatic and development policies. In a globalised world, highly competitive and proactive trade policies and export development need to be in place in order to gain entry into potential markets.
Doing so requires market study, spotting opportunity, knowledge of competitors’ strategy and reshaping one’s skillset and investment to optimise one’s resources and outperform competition - something one feels quite less in trade policy of Pakistan.
With a large labour force, land area and untapped natural resources, Pakistan can learn lessons from its eastern neighbour and focus on revamping its economy and shape a trade policy where the country achieves trade-led economic growth and ranks amongst top producers and exporters of the world.
Why not aim for a situation where “Made in Pakistan” becomes a mark of recognition and quality and an essential component in the global supply chains.
Mukhtar Ahmad is an international economist. Hira Nisar is a trade policy professional based in Brussels
Published in The Express Tribune, February 22nd, 2021.