Trading with neighbours

Currently, a high level delegation of the private sector is visiting Bhutan, representing Pakistan in the forth coming 70th executive committee meeting of SAARC Chamber of Commerce and Industry. Across the globe, Federal Commerce Minister Khurram Dastgir Khan led a Pakistani trade delegation to Senegal on July 20-21.

As part of TDAP’s goals, it seems Pakistan is working towards geographically spreading out its exports. However, exploring Pakistan’s trade potential with a continent thousands of miles away (read “Exercises in Futility” published on 25 July, 2017) makes little sense while SAFTA is underutilized.

Since the signing of WTO, trade globally has moved towards increased volumes within regional trading blocs. North American Free Trade Agreement (NAFTA), Association of Southeast Asian Nations (ASEAN) and Latin America’s Southern Common Market (Mercosur) are some examples of successful trading blocs. Compared to them, SAFTA is hardly used at all by its member countries.

It is widely recognized that SAFTA is underutilized because the two main economies of SAARC, Pakistan and India, are too deeply at odds with one another to promote trade within the region. Given the size of India’s 1 billion people market, if trade was to be liberalized between the two countries, Pakistan stands to gain more than India.

Keeping India-Pakistan bilateral trade aside, within SAFTA most countries trade with India rather than Pakistan. Within SAFTA, trade with India comprises of 15 percent of total international trade of all SAARC countries (excluding Pakistan). The corresponding figure for Pakistan is 2 percent.

This makes sense since Bangladesh, Bhutan, and Nepal share borders with India. However, while Pakistan does not have even a toehold share of international trade with Bhutan, Maldives, and Nepal, India has $755 million trade with Afghanistan.

Pakistan’s trade should be directly related to the economic size of its partner countries and inversely related to the distance between them. Yet, trade delegations explore the potential benefits of partnering with ECOWAS while SAFTA continues to amble ignored in the background like it has been doing so since its formation.

Even if trade with India is considered unfeasible due to ground realities, there is no reason to ignore trade potential with other member countries of SAFTA. For example, Sri Lanka’s trade with India is 12 times more than Sri Lanka’s trade with Pakistan, despite the Pakistan-Sri Lanka FTA. Similarly, while India-Maldives bilateral trade was at nearly $300 million in 2016, with Pakistan it was at $6 million. Comparing the four regional trading blocs, a certain degree of inertia can be observed. Within Mercosur, ASEAN, NAFTA and SAFTA, there has been no increase in intensity of international trade within member states over the last decade.

While for NAFTA it means that Mexico, Canada and America’s international trade is deeply linked, for Pakistan it implies that strong political and strategic policymaking is required to change the status quo that has prevailed for decades.