The government of Sindh has criticised the federal government for signing international trade pacts on the basis of political motivations instead of economic rationale. Chairperson Sindh Board of Investment (SBI), Naheed Memon, has communicated the directives of Sindh Chief Minister Syed Murad Ali Shah to the federal government at a time when the federal ministry of commerce is going for talks with China on FTA-II.
A two-member team headed by Joint Secretary Waqar Ali Shah is also in Tehran to finalise modalities for commencement of talks on a Free Trade Agreement (FTA). Pakistan has signed six free trade agreements (FTAs) and preferential trade agreements (PTAs) since 2006.
According to the government of Sindh, although these trade agreements are meant to mutually benefit trading partners, yet Pakistan has not benefited from any of these. More specifically, FTA with China led to an increase in trade deficit from $2.9 billion to $4.1 billion, FTA with Malaysia led to an increase in trade deficit from $1.6 billion to $1.9 billion and PTA with Indonesia led to an increase in trade deficit from $800 million to $1 billion approximately.
The chairman SBI argued that in view of the loss of export earnings to Pakistan on account of politically motivated trade agreements, it is now imperative that the FTA proposed with Turkey should be examined carefully. The list of goods to be included in the FTA should be based on an analysis on the following criteria:
(i) The Relative Comparative Advantage (RCA) that Pakistan has in these products should be investigated; specifically, if Pakistan has an increasing RCA, an infant industry protection argument should be applied and free access to import in these industries should not be given; (ii) Pakistan's export potential for products should be assessed in cases where the government believes that tariff elimination or concession would give Pakistani industry market access. Giving market access without developing industrial capacity and export potential will not prove beneficial for Pakistan; and (iii) for products which have a decreasing RCA, an impact on industry and emplacement should be investigated as a loss on both accounts if Turkish imports flood the market.
A business case for consideration and a vote against FTA with Turkey: (i) Ontex Pakistan (Pvt) Limited was established in 2011 as a foreign owned subsidiary of Ontex Global, a Turkish company; (ii) company produces and sell baby diapers, femcare and adult incontinence products; (iii) Ontex invested in a state-of-the-art diaper manufacturing plant in Port Qasim Industrial Areas (Karachi); (iv) investment of $18 million; (v) number of employees is 200; and (vi) tax paid in 2015 was Rs 710 million.
The Sindh Board of Investment was of the view that the manufacturing unit would be shut down in case of FTA with Turkey. "Pakistan has structured and ratified FTAs and PTAs mostly on the basis of political motivation while economic rationale has remained absent. We believe in protecting both employment and infant industry and recommend that a thorough empirical analysis of impact on Pakistan's export and Pakistani industry be employed before such an FTA with Turkey ratified," she continued.