Yesterday, the Ukrainian ambassador said that his country plans to enhance its bilateral trade with Pakistan to $1 billion, while the Sri Lankan consulate showed interest to increase bilateral trade. The Romanian ambassador is keen to boost bilateral ties, while Brazil hopes for frequent high level interaction to promote trade and investment.
Talk of trade promotion has become a debased currency, given lip service in every forum but delivering little fruits. Latest figures published by PBS indicate that though the trade deficit declined by 4 percent on a month-on-month basis; it increased by a whopping 20 percent as compared to the same period last year.
The ever mounting deficit has led to increased talks about trade agreements. Continuing the FTA mania, Pakistan wants to initiate negotiations with South East Asians for a PTA that will eventually lead to an FTA. Indonesia, Vietnam, Philippines and Japan are on the list for starting the dialogue of which Pakistan already has a PTA with Indonesia.
On one hand, we have the usual arguments in favour of trade agreements, starting with access to markets whose combined imports last year were over $1 trillion. On a formulaic basis of Pakistan’s potential exports to these countries, the increase in volume of trade could be substantial. Cement, semi-milled rice, PET, medical instruments, sugar, fruits, and in Japan’s case linen and apparel are some of our current exports that could arguably find a market in the Pacific nations.
On the other hand, we have Pakistan’s history of chronic trade imbalances with countries with which trade agreements have been signed, of which China with the deficit of $9 billion is the leading example. As it stands, Pakistan has a $1.7 billion trade deficit with Japan, and a $900 million trade deficit with Indonesia. Pakistan enjoys trade surplus of $30 million and $118 million with Vietnam and Philippines respectively.
If trade agreements are signed amidst the noise revolving the mounting trade deficits, logic and rational, never strong suits of Pakistan, could be thrown out the window.
The relatively benign bilateral trade deficits can mushroom alarmingly in the form of auto imports and electrical goods from Japan and the ASEAN countries. For example, Japan faces tariff of 53 percent on cars. Keeping the debate of protectionism vs competition for the auto sector aside, a reduction in that tariff could easily increase Pakistan’s car import bill.
The trade deficit, though alarming, is a necessary evil to keep CPEC on point. Correcting it would involve strengthening the export basket rather than rushing in willy-nilly to sign trade agreements for the sake of appearing to do something.