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TPP and its Impact on Pakistan | Azam Mohammed

TPP and its Impact on Pakistan | Azam Mohammed

EACH of the 12 Pacific Rim countries that recently concluded negotiations over the Trans-Pacific Partnership would have us believe that this historic opportunity would usher in a new era of prosperity and economic growth.

The TPP is a regional trade agreement that aims to reduce tariffs and other trade barriers among member states and establish common frameworks for labour and intellectual property rights and dispute settlement etc. Its overall objective is to increase trade and investment among member states, with each country claiming to its citizens that it would generate employment.

The 12 countries provide a curious mix, their location on the Pacific Rim notwithstanding. There are giant economies like the US and Japan, mid-sized ones like Australia, Canada and Mexico, and relatively smaller ones like Singapore, Brunei, Malaysia, Vietnam, New Zealand, Peru and Chile.

With the reduced duty for Vietnam and other TPP member-states like Peru and Mexico, Pakistan will face major challenges in exporting textile products to the US

The agreement is still a long way from being ratified by all countries, particularly the US, let alone implemented. The official draft has still not been released despite the passage of almost three weeks since the conclusion of the negotiations.

The TPP began in earnest in 2008 when America announced its interest in joining the existing Trans-Pacific Strategic Economic Partnership Agreement (TPSEP, or P4), which was signed by Brunei, Chile, New Zealand and Singapore in 2005. This was soon followed by Australia, Peru and Vietnam in 2008 and by other member countries in subsequent years.

The official agreement, once released, is expected to face lots of criticism given the absolute secrecy in which the trade pact was negotiated. More than five years in the making, many challenges had to be surmounted.

As usual, agriculture — particularly dairy and sugar — and intellectual property rights were sensitive issues, and powerful sectors like pharmaceuticals and tobacco also figured in. The agreement has to be signed and ratified and this may take up to two years.

But it is likely that the TPP will come into force by 2017 and that it will adversely affect Pakistan unless we prepare for this eventuality. Some sector-specific impacts of the TPP are discussed below.

Textile garments: The most obvious area where Pakistan will be adversely affected is textile garments. Very little of our exports comprise value-added goods, and textile garments are one of them.

The main market for garments is the EU and the US. Initially, Pakistan’s garments were under tremendous pressure in the EU owing to competition from Bangladesh, which was getting market access at 0pc (on account of being a least developed country) as opposed to Pakistan, which was facing a duty of around 9.8pc. However, the granting of the GSP Plus status in 2014 provided Pakistan a level-playing field.

Meanwhile, we already had a level-playing field in the US as it does not provide any preferential access to a country on grounds of its being a least developed country.

But all of this is going to change when the TPP comes into force, as our other major competitors will get lower duty access. A major challenge will come from Vietnam, which is the world’s third-largest textile garment exporter after China and Bangladesh.

The global textile garment trade amounted to $473bn in 2014, roughly in equal parts for woven and knitted textiles. US imports were valued at $83bn. After China, Vietnam was the second-largest exporter to the US, selling over $9.2bn worth of goods to the country. Meanwhile, Pakistan barely managed to export around $1.45bn to the US.

With the reduced duty for Vietnam and other TPP member-states like Malaysia, Peru and Mexico (which is already enjoying some benefit under Nafta), Pakistan will face major challenges in exporting textile products to the US. And similar challenges will emerge in other major TPP markets like Canada, Japan and Australia, further denting Pakistan’s export share.

Rice: Another big challenge to Pakistan will be with regards to rice exports, particularly to Japan, as countries like Australia will get easier and enhanced access to the Japanese market. While the immediate challenge may be daunting owing to a different quality of rice, it could impact Pakistan’s plan to develop the Japonica variety of rice grown in the Swat region, and the TPP members could start trading in short grain rice.

FTA analysis: The 1995 dream that global trade will be done under the WTO’s umbrella and that each member state will be provided a level-playing field without discrimination proved to be an illusion owing to the exemption clause for free trade arrangements (FTAs), which violate the basic concept of most favoured nation.

However, the FTAs and their variants like the TPP are now a reality. Successful trade arrangements have been reached between regions and neighbours. However, regional trade agreements for Pakistan (like Safta) are a non-starter given the state of Pakistan-India relations. Thus, Pakistan ventured into not-too-profitable FTAs with Singapore and China etc.

It is imperative for the relevant ministries and departments to study the impact of global arrangements like the TPP on the country’s economy, and then take remedial measures well in advance.

Published in Dawn, Business & Finance weekly, October 26th , 2015

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