Home / Economy / Global Trade- Changing Realities | By Dr Kamal Monnoo
http://nation.com.pk/columns/18-Feb-2015/global-trade-changing-realities

Global Trade- Changing Realities | By Dr Kamal Monnoo

Pakistan’s economic leadership and especially the Ministry of Commerce needs to realize that modern day global trade is changing course. Gone are the days where countries single mindedly focused on expansion of trade or had blind faith to slip into the prescribed WTO straight jacket to become a part of the global trade order. Both, the 2008 Financial Crisis and a Noodle Bowl effect of FTAs (Free Trade Agreements), RTAs (Regional Trade Agreements), PTAs (Preferential Trade Agreements), etc have slowly but surely undermined the once unquestioned wisdom of multilateral functioning. Modern day thinking being that while expanding global markets is a worthy goal, history offers lessons that only fair and ‘constructive trade’ is what nations should be seeking – ‘Constructive’ referring to a realization that only such trade is welcome which tangibly adds value to the home economy and ensures a gradual but clear development of its core national industries – Our trade equations with India & China thus far may tell a different story.

This mindset will be critical when formulating Pakistan’s trade vision, strategy and related policies going forward. Not only because we need to be mindful of our economic interests vis-à-vis regional and global trade, but also because there is this new found realization in almost every country or within a common market block that while it will welcome enhanced cum new economic linkages the resulting development from the same must take place at home (meaning within its respective economy). For example, President Ashraf Ghani of Afghanistan made this very clear to the visiting Pak business delegations in recent months that while his government will fully support Pakistani entrepreneurs to tap business opportunities in Afghanistan the resultant activities must ensure development and employment generation in Afghanistan and that these activities should fall in the purview of his country’s formal/documented economy. And this sentiment is in fact gripping all (developing and developed) economies alike. Once the champions of out-sourcing and of trade without barriers, US and Japan, are these days busy doing the very opposite by encouraging their core industries to relocate back home. In the US there is a distinct revival in textile manufacturing, which is overtly facilitated by the US Government and in Japan owing to a combination of controlled labor costs, a devalued Yen and conscious policies unleashed by the Japanese Government to boost home manufacturing, leading Japanese firms like Panasonic, Sharp, TDK, Canon, Daikin and MUJI Corporations are busy in relocating significant parts of their overseas production back to Japan.

In general, countries looking for increased market share in the total global trade are pushing to expand their manufacturing innovation hubs, invest in federally funded research centers that disseminate advanced manufacturing knowledge and willing to provide subsidies that are expressly contingent on exportation. In other words: The Great Trade Game is on! Mega regional and cross-region trade deals are under negotiation and new trading blocs are evolving. The emerging Asian tigers (ASEAN), India and China are further enhancing their trade and therefore political relations by forming a Regional Economic Partnership. To counter China’s influence and pivot itself as the dominant power in the region, the US is negotiating the Trans Pacific Partnership (TPP) with select countries in Asia Pacific and South America. In the latest move, the White House has accused China of providing illegal export subsidies to critical industries. The message is aimed as much at Capitol Hill as it is at Beijing. The Obama administration is flexing its muscles on trade as it presses Congress to expand the president’s authority to secure major trade accords. The administration wants Congress to give it the power to fast track TPP and to negotiate other trade deals that help the US to protect its patents and its other forms of intellectual property. As these trading blocs emerge, Pakistan’s competition stiffens further. For example, once TPP becomes a reality Vietnam will be able to export footwear and textiles duty free to the US and make inroads into the present market share of Pakistan of these items in the US. To counter this Pakistan must also strive to optimize its trade potential both regionally and with countries where it feels it has natural economic linkages but have largely remained untapped owing to various constraints, e.g. access to Central Asian Republics leading all the way to Caucasus and Eurasia. And in doing so, we need to recognize that just like in South Asia, resolving the log-jam between Pakistan and India holds the key to SAARC’s success; successfully ironing out bottlenecks in the Pak-Afghan relationship will ultimately determine the success rate of our efforts in Central Asia and beyond.

Also, when re-strategizing our trade vision amidst changing global trading realities, it will be good to be mindful of the fact that a focus on the western side of our borders by no means signifies an ‘either/or’ approach to our eastern side. Trade and linkage on the western side will entail a significantly different kind of push where market penetration will be slow and returns even slower. The Government of Pakistan will have to invest funds and resources – be prepared for the long haul – because regardless of who thus far has successfully penetrated these markets, their models of engagement have invariably been identical:

– Government to Government (mainly raw materials)

– Big Businesses backed by respective governments to local CAR business houses in-turn connected into the government/ruling elite.

– Private-Public Partnerships facilitated through government to government patronage.

Finally, when expanding economic linkages within the new evolving trading culture, the government of Pakistan should remain clear that it is not only exports what it hopes to achieve, but also a reduction in its import bill through substitution of cheaper energy inputs and alternate solutions to our prevalent energy sector woes. The strength of countries on our western side lies in their wealth of natural resources like gas, coal, high-grade carbons and hydrocarbons, surplus electricity generation capacity, oil, uranium and gold and this is precisely where business will take place. The intangible benefits will accrue from promoting a soft image of Pakistan keen to help them in the fields of education, exchange training programs in defense and security, setting-up of financial systems, stock exchange linkages, joint agriculture endeavors mainly in cotton, corn, animal breeding and fruits, healthcare, and last but not least, in tourism and cultural activities.

Source: http://nation.com.pk/columns/18-Feb-2015/global-trade-changing-realities

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