May 292008


WTO, despite its dictum on multinational trade discipline, has made provision for preferential and differential treatment in trade to accommodate developing countries to enable them to come at level playing field with industrially rich countries in global trade arena, which has no doubt resulted in serious challenges being encountered by WTO regime from emerging quite a number of trade blocs/regions and resultant trade disputes.

At the same time it has helped developing countries to command approximately 35% of the world export trade by now. However, low income developing countries, including Pakistan, because of several constraints being faced by them are prevented from reaping the benefit of this provision.

Pakistan has little to gain from the system because of handful of its exportable products, resultant of lack of diversification in export destinations as well as export items offered.

Accordingly Pakistan is now facing a persistent trade deficit, which during nine months of current fiscal year has grown to US $14.5 billion, almost 44% over corresponding period last year and by the close of the year will be nearing 9% of the GDP. It has already started eroding country’s forex reserves and also putting pressure on the value of currency.

On the other hand Pakistan, on account of its increasing trade imbalances, is unable to invest in hi-tech machinery and equipment to adhere to demanded standards of products under preferential trade agreements already signed and to be signed with industrially rich countries and also countries in South and South East Asia. Besides above high cost and delays from inefficient practices at Customs, ports and transportation agencies prevent the desired/envisaged enhancement in export volume.

At the same time drastic rise in oil prices internationally and directly linked phenomenon of rising food prices globally because of fast switch over to bio-fuel producing agriculture products like corn, soybean, and sugarcane etc by both developed and developing countries, has immensely constrained the country’s current and fiscal accounts also.

Farmers who could have been benefited by producing surplus wheat, rice and cotton have been roughed out by stagnant drought conditions and irregular supply of water from the existing irrigation system, particularly in Sindh and most importantly due to lack of centrally located storage facilities in each village unit, which compels farmers to sell their crop without waiting for a better price.

As such under production of food as well as cash crops compels government to import wheat and cotton etc at a much higher price, thus making a big dent on forex reserves (built up mainly by home remittances of overseas Pakistanis) and further worsening fiscal deficit and GDP ratio.

Allowing liberal import of machinery, equipment and raw material with expectations of gaining substantial rise in exports in future comes within the definition of ‘intertemporal theory’ of trade, but frequency of internal and external shocks being experienced by the economy have depressed its ability to access the desired productive capacity, hence time lag for coming out of trade imbalances continue to be stretched out.

In the face of growing external borrowings this persistent trade imbalance or trade deficit can again become cause of concern for lending agencies (as happened in late nineties) who have lately started appreciating Pakistan government’s seriousness to enhance the country’s solvency by strengthening its external economy during the period from 2001 onward.

Abrupt rise in oil prices domestically in a situation when it is no longer possible for government to bear the brunt of subsidised oil prices offered to the public and above all total neglect of good governance at all levels, which made possible unabated hoarding and smuggling of food and other essential items and also lack of efforts on the part of establishment to overcome energy crisis has engulfed the common man in a whirlpool of never ending misery and has dragged the country in a situation where it despite having an agrarian economy has to import food items and even cotton in a scenario of escalating prices of food and cash crops internationally.

This in fact should have been an incentive for farmers to enhance cultivation area and yield of crops like wheat, rice, sugarcane and cotton not only for meeting domestic needs, but also for achieving exportable surplus.

Rising external debt is also a matter of great concern in the present situation. It is to be seen whether borrowings are totally being allocated towards investments, which give a higher marginal product than the cost of borrowed funds the country has to pay to funding agencies.

In the present scenario where with the exception of service sector all other sectors of economy, including agriculture and manufacturing, are showing downward trend, because of lack of use of latest technology both for agriculture and manufacturing and also dearth of the needed infrastructure, particularly energy, water, roads and transport seems next to impossible that the current liabilities will be covered by future revenues; thus a vicious circle of borrowings, rescheduling and fresh borrowings will stay persistently.

Hence debt servicing, along with interest, would continue to add to fiscal as well current account deficit of the country. Apart from long term measures to improve the country’s business climate by bringing in political stability and improved law and order situation, mainstreaming investment and combined vigorous strategies to develop human capital and needed infrastructure, some immediate steps need to be taken to remove growing trade imbalances are:

Suitable incentives in the form of better price of the crops more or less matching international level and exposure to new farming technologies need to be provided to farmers to prompt them to substantially increase yield per acre of all the crops, to the extent that exportable surplus is made available.

Asian Development Bank and World Bank must be approached for additional financial assistance other than routine funding provided to low income developing countries under World Food Program from time to time; for development of research activities and facilitating use of new technologies by farmers enabling them to improve quality and yield of all crops.

Besides that as laid down under WTO regime, industrially rich countries need to honour their commitment to increase overall aid to low income developing countries in lieu of their delaying removal of subsidies allowed to their farmers, Government of Pakistan must approach all its allies in fight against terrorism, particularly US and European Union countries for special grant/aids and also trading space for its exportable goods and services to facilitate its integration in global trade.

Stringent steps are needed to combat hoarding and smuggling of food crops to adjoining countries. System should be put in place to ensure farmers getting full benefit of rising trend in prices internationally of agriculture products being exported by them by eliminating altogether the role of middle man in the process.

In view of rising prices of food and cash crops internationally WTO must prevail upon industrially rich countries to eliminate all subsidies granted to their farmers hampering trade liberalisation as envisaged under WTO regime. This will provide space to developing countries to enter global market in a big way. In this regard European Union as a whole in view of record high price of milk and dairy products in international market has already stopped subsidies to dairy farmers.

In order to curtail import of oil drastic policies are needed to restrict use of cars both officially and privately. Till the time country becomes self sufficient in production of oil use of luxury cars must be altogether banned and public, including students, need to be prompted to use buses and local trains for travelling to work and educational institutions. Each nucleus family irrespective of size must be prevented from using more than one car, through legislation.

All expenditures allocations for development of infrastructure, particularly for energy, water supply, roads and means of transportation and also for development of human capital are utilised effectively so as to achieve the desired growth of both agriculture and industrial sector enabling the country to have exportable surplus of value added products needed for enhancing export volume to the desired level.

Besides above the country must enter into more regional trade agreements with the South, South East Asian countries, particularly SAARC countries, in order to counter the adverse conditions inflicted by buyers from European Union and United States etc, particularly with regard to export of value added textile products. Initiatives from the side of agencies like ADB and UNCATD, who are prompting qualitative and quantitative analysis of regional cooperation of trade like SAFTA ( to which Pakistan is already a signatory) etc, their findings must be taken as basis of enhancing bilateral trade agreements with other South East Asian countries.

Similarly for cheaper and quality import items the nearest supplying country must be approached irrespective of political routs with them. In order to improve export trade volume in a highly competitive environment value addition should be the guiding principle both with regard to agriculture and industrial products.

A little headway has been made with regard to fruits and flowers. Seedless Kino and wide variety of globally demanded flowers are now accessing quite a number countries in Middle East, European Union, China and Malaysia etc. Wide varieties of mango need to fetch more export markets by further improving quality of packing.

Industrial products quality and packing, particularly of textile items, must be strictly adhered to according to specifications given by buyers. A large number of export consignments are not lifted by the importers or payments are blocked for non-adherence to buyers’ instructions regarding quality and designing etc. Similar cases occur in the case of exports of leather, woolen and sports goods.

Designer items in clothing, fashion accessories and furniture both wooden and made of marble, if given further publicity/exposure through Pakistan Trade Development Authority by sending trade delegations and arranging exhibitions in European, Middle Eastern, Central and South East Asian countries including China, African and European countries in particular can fetch a greater export market.

There is also a need to give boost to SME sector, particularly those industries, which are able to produce value added exportable goods. Apart from providing easy accessibility to institutional credit on the basis of their business performance and fund/cash flows, small enterprises owners must be provided all incentives and concessions, which are available to those exporters operating in Export Processing Zone. This particular requirement was part of the Trade Policy for the year 2007-08, but it is yet to be implemented.

Courtesy: Business Recorder, 29/5/2008

 Posted by at 9:10 pm

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