Free market: New rules of trade, do more to get more

To compete, we need to be better, cheaper, faster.

When Pakistan’s Commerce Secretary asked the US government to ‘increase’ the trade it does with Pakistan during the fifth meeting of the US-Pakistan Trade and Investment Council last week, Adam Smith and David Ricardo must have turned in their graves. Smith brought the world out of the mercantilist mindset and Ricardo taught us theory of comparative advantage.

However it seems that now we have coined a new theory of international trade: do more-in terms of global security- and get more-in terms of trade.

Pakistan has been constantly asking the US and EU governments to grant more duty free access to its products much like they do to poorer countries. The bad news is that we are no longer poor by the world’s standards. While the world would like us to treat better than Sub Saharan African countries, we would like us to be seen poorer so that we can still enjoy special trade status.

We have masked our business incompetency behind natural disasters and security policy disasters.

When Pakistan approached WTO last year to grant its bed linen products duty exemptions on account of flood disasters, this was blocked by India. The Indian government had a point: all the textile factories were in the areas not affected by the flood therefore any exemptions will not help the flood struck people. In fact Indian mission argued that it’s better to directly help flood victims instead of subsidising the textile factories.

For quite some time, Pakistani government officials have been claiming that we have suffered losses worth 68 billion dollars due to war on terror in last ten years. This is yet another example of masking our business failure behind security policy. We know it well that Pakistani exports have largely stagnated at post 2005 level of $20-25 billion window. The major transformation which occurred around that time was opening of international trade and lifting of trade quotas. As Pakistan started losing to its regional competitors, a new theory had to be coined to explain this failure of our policy and business elite. It is true that Pakistan did suffer tremendously at the hand of terrorists but still it will be an intellectual dishonesty to associate all losses with security policy alone.

It is unlikely that any country will give Pakistan a greater access to its market simply because of security implications.

Size and direction of international trade is a direct function of our competitiveness which boils down to a simple question: are we better, faster, cheaper? Bangladesh’s explosive growth in garment exports - hitherto Pakistan’s comparative advantage - in the last five years provide us a simple answer. They are better, faster and cheaper.

Bangladesh now exports garments worth 19 billion dollars a year without growing any cotton  and with energy outages that rival Pakistan. In fact it imports cotton from India and Pakistan and sells them back their cotton, value added several times over.

Earlier this month, when Indian government announced duty free access to Bangladeshi garments, it achieved several objectives. It ran over its own dwindling textile giants who, much like their Pakistani brethren, protested against giving Bangladesh duty free access. It also helped normalise its relationships with Bangladesh. Above all, the Indian government ensured that its citizens will get better and cheaper goods.

The Indian prime minister knows that the prosperity lies in open and free trade, not in restricting it. Free trade is not a zero sum game. Our trade and commerce policy makers would do well by focusing on the business conditions, competitiveness and market demands instead of selling security policy and natural disasters. The mantra of our government to get more as they do more is self-defeating.

The writer is Executive Director of Alternate Solutions Institute, a free market think tank based in Lahore

Published in The Express Tribune, October 24^th, 2011.