Several times since last year the Pak-Thailand FTA was in the news for being nearly finalized. However, round after round of negotiations (there have been 7 as yet) have not proved fruitful. Can it be that the policy makers of Pakistan are finally learning how to bargain for better market access? One can only hope so as the 8 and supposedly final round of negotiations start this month on the 21st.
In previous FTAs, Pakistan has not always fared well. (Read: “Trade Deficit – Not a failure of FTAs” printed on 25 July, 2017). It is debatable whether this FTA will be boded well for Pakistan’s declining exports. Thailand never had been a major export market of Pakistan with Pakistan’s total exports to Thailand accounting for less than 1 percent of its total exports. Pakistan already has a significant trade deficit of $810 million from trade with Thailand.
Surgical goods are one of Pakistan’s strengths in exports. Thailand’s imports of surgical goods was $286 million whereas Pakistan’s export to Thailand $2 million, even though Pakistan faces 0% tariffs on this good. This begs the question as to why Pakistan is not benefitting from the current tariff regime before negotiating an FTA that could potentially adversely affect the auto sector.
The Thai delegation has repeated requested access to Pakistan’s auto sector since the bulk of imports from Thailand are auto-related. In other FTAs, the auto sector is not included in the list of concessions. The lower FTA duties may lead to the rollback of localized parts and result in shelving of planned investments in the future localization and loss of revenue to the Federal Board of Revenue.
If the auto sector becomes part of the FTA, it may also damage government efforts to attract investments from existing and new players in the auto assembly and parts manufacturing industries.
If the FTA with Thailand resulted in a trade deficit due to imports of the latest agriculture technology and machinery that would boost Pakistan’s agro-based economy, then such a deficit would be justifiable. But if Pakistan’s still nascent auto industry will be adversely impacted, along with a glut of consumer goods such as cell phones, then Pakistan will find itself in a similar situation as the other FTAs.
One justification for the FTA that has been widely touted is the FTA with Thailand as an entrance to the ASEAN market. Since signing the FTA with Indonesia, with whom Pakistan had a trade deficit of nearly $2 billion in 2016, Pakistan’s trade deficit with ASEAN has increased as Indonesia is the main trading partner of Pakistan within ASEAN. To enter the ASEAN market, or any other market for that matter, Pakistan needs more to improve its basket of exports and its quality rather than sign FTAs with its member countries.
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