Amid hopes that talks for the normalisation of trade with India will restart once the PML-N’s pro-business government assumes power, the European Union (EU) urged Pakistan on Wednesday to review its policy of giving preference to trading with the EU and instead focus on trade with India.
“Pakistan’s largest trading partner should not be the EU, it should be your neighbours – in particular, India,” EU’s Head of Delegation to Pakistan Lars-Gunnar Wigemark said while speaking at the third international conference on the role of competition in fostering trade and investment.
He also advised Pakistan to become a regional champion for competition by opening its borders for trade and investment without harbouring any fears. Wigemark said Pakistan enjoys a unique position as it is located at the intersection of one of the oldest trading routes in the world, and is blessed with a “talented people, ready to work hard to realise their dreams.”
The comments made by Wigemark came on the heels of would-be prime minister Mian Nawaz Sharif’s stated resolve to improve relations with India. However, the military establishment is said to have advised Sharif to go slow on the issue.
The trade normalisation process, which was started early in 2011, was put on the backburner after the military establishment asked the previous government to link trade normalisation with composite dialogue. India’s reluctance to provide a level playing field to Pakistani exporters also silenced many pro-trade voices in Pakistan.
Wigemark said the economic benefits of regional integration are well-documented. He said Pakistan’s trade with the EU accounted for about 20% of its total trade in 2012: the EU received 21% of Pakistan’s total exports, whereas 17% of Pakistan’s imports comprised of EU-manufactured products. The current volume of trade between the EU and Pakistan stands at 8.2 billion euros.
Wigemark also had a message for the new government: “Be inspired by the recent elections and create a truly level economic playing field for business in Pakistan,” he said. He said the new government enjoys a strong political mandate, which it should use to get rid of problems such as cartels, price-fixing, distorting subsidies and kickbacks.
Competition Commission of Pakistan (CCP) Chairperson Rahat Kaunain Hassan, on the occasion, warned that the establishment of the International Clearing House (ICH) in the telecom industry had reversed the gains achieved through deregulation of the telecom sector.
She said the ICH was in violation of the Competition Act, and said the arrangement is based on price fixing and revenue sharing based on a pre-agreed quota, which is against competition laws.
“The country has reverted to a retrogressive policy due to the ICH,” she observed. “The ICH fixed and raised the price of calls from an average 2.2 cents to a uniform rate of 8.8 cents. The sharing of revenues was based on a fixed percentage through quotas,” she added, “For the Commission, this was an open and shut case of cartelisation,” she said. The Commission had imposed a penalty equivalent to 7.5% of turnover on long distance international (LDI) operators, which is estimated to total over Rs10 billion.
She revealed that, based on data provided by the sector-specific regulator, there has been a huge reduction in the volume of incoming traffic. However, despite the reduction in incoming traffic by 70% – from 1.9 billion minutes in September 2012, to 578 million minutes lately – the revenue of LDIs has increased by 308%.
Similarly, monthly revenues of the Pakistan Telecommunication Authority have decreased from $24.4 million to $16.7 million after the ICH arrangement. Kaunain warned that the ICH was resulting in an increase in gray traffic, and that the country was being isolated at the international front.
The US Federal Communication Commission has already ordered US companies to not pay any termination rates to Pakistani carriers in excess of the rates in effect prior to the ICH agreement.
Published in The Express Tribune, May 30th, 2013.
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