Liberalised trade: for better or for worse?

Survey highlights strong opposition among businesses to opening up of economy.

KARACHI:

Which sector of Pakistan is more insecure about liberalising trade policy with India and Afghanistan: manufacturing or trading?

According to the results of a recent survey, analysts and private sector officials believe that the manufacturing sector has more concerns over liberalised trade with Pakistan’s neighbours, if compared to the trading sector (importers, retailers, wholesalers etc).

Surprisingly, however, a very high proportion of retail business entities (48%) consider that granting the Most Favoured Nation (MFN) status to India will have a negative impact on their business, while a mere 7% feel that the result on business will be positive.

These revelations come in the results of the bi-annual ‘Business Confidence Index’ (BCI) survey, conducted recently by the Overseas Investors Chambers of Commerce and Industry (OICCI). OICCI conducts this study every six months through an independent research company, in order to gauge sentiments of key stakeholders regarding different business-related matters. The survey takes responses from businesspersons from varied backgrounds: from the heads of multinationals, to owners of small businesses in busy city districts.

Such strong opposition from the retail sector to liberalised trade comes as a surprise to some analysts, as it has widely been perceived that traders would have been more interested in opening up trade with India. The OICCI Secretary General M Abdul Aleem is one such analyst.

“The result is surprising, because one can understand the concerns of the manufacturing sector – which may feel the heat once trade is eased with India,” he said, “but the concerns of the retail sector have caught us unawares.”

Since the survey includes many small retailers, one can assume that a majority of them have concerns about India’s MFN status and/or the Afghan Transit Trade Agreement, he added.

In response to a question, Aleem said that it is true that the organised sector of Pakistan is more likely to support the MFN status to India than the unorganised sector. However, there are some organised sectors – like the auto industry – which may not be partial to free trade with India. Some sectors also have concerns about non-tariff barriers, which may affect Pakistani exports to India, he added.

The respondents were given five options for possible effects the MFN status to India and Afghan transit trade agreement will have on their businesses. The options were ‘very positive’, ‘positive’, ‘neutral’, ‘negative’ or ‘very negative’. Almost half of all retailers surveyed said the results will be negative or very negative.

Furthermore, “The majority of all business sector entities believe that the MFN status to India and the Afghan Transit Trade Agreement will have an adverse effect on businesses,” the survey said.

Muzammil Aslam, managing director of Emerging Economics Research, said that traders are nonetheless more in favour of liberal trade with neighbours, especially with India, if compared to manufacturers – who have repeatedly expressed concerns on the MFN status being given to India.

“We should open up our economy for regional trade,” said Aslam. “We are already competing with China, which is much more competitive than India. Therefore, we must not look at short-term problems, but focus on long-term economic growth.”

Khurram Schehzad, analyst at AlHoqani Securities, said that the manufacturing and trading concerns may persists for a few years on the MFN and Afghan Transit Trade Agreement, “Just as we saw strong opposition when World Trade Organization (WTO) laws were being implemented in Pakistan.”

“Regional trade is always crucial for economic growth,” he continued. “Liberal trade with our neighbours will help our economy the most, because we have India and China –the two fastest growing economies of the world.”

“Liberal trade helps competition and improves efficiency in industries, which will eventually strengthen our economy in a growingly competitive world,” he concluded.

Published in The Express Tribune, October 3^rd, 2012.