What’s so bad about international trade?
These days a question I am frequently asked is: is international trade really bad for an economy, especially for a country’s insecurity and inequality? My answer to this is no; however, we do need to be careful here as irresponsible trade is indeed bad and not a welcome phenomenon. Successful countries and regions of the world usually have strong economic and trade linkages and as long as the game is fair and win-win for stakeholders, these links and trade per se should be encouraged. In the context of Pakistan, both the country itself and South Asia in general must aim higher, albeit with prudence and equity. And in this, the European Union (EU), Association of South East Asian Nations (ASEAN) and North America are prime examples. We here in South Asia have tried to endeavor on the same route, but typically our ambitions, transparency and the essential element of fair-play have been low and thereby our achievements even lower. The difference has been that, unlike us, the more successful global neighborhoods have moved beyond traditional tariff liberalization and into deeper aspects of regional integration such as: intra-region balancing of trade; common security; equal weight age when it comes to decision making in regional matters (regardless of size); free flow of capital and technology; and most importantly the economic strengthening of all member countries with a goal to achieve economic equality across the region – the EU in this comes across as being the best example as it continuously strives to raise and ultimately harmonize living standards throughout the Euro-Zone despite a significant intra-EU disparity prevalent today.
Here in South Asia even the thought of pursuing economic harmonization seems a long way away – ironically, we still seem to be struggling with the basics. Our region is home to some of the most complex and protective trade regimes in the world. Advertently or in-advertently plenty of non-tariff barriers (NTB) exist in all SAARC member countries rendering a decade old (effective 2006) SAFTA (South Asian Free Trade Agreement) virtually a failure. As mentioned, South Asia still struggles to overcome elementary yet critical issues that relate to for example trade facilitation or the cost of moving goods around – say from factory to port, through customs, and to export destinations. Trade costs here are extremely high in what can be termed as perhaps the least integrated region in the world. The average cost of trade between any two countries in South Asia is 85 percent higher than it is between any two countries in East Asia – a price mark-up that obviously hinders trade and linkages within the region and beyond. If put right and again on a fair basis the potential gains from better trade facilitation and enhanced economic linkages are perceived to be as high as up to 8 percent of South Asia’s collective GDP; nearly double the global average. The solutions do not entail any rocket science. What is required is simply streamlining of NTB that often become unduly restrictive, for example, through very long border clearances for goods on health or standardization grounds. ASEAN countries as we know have done well in this regard, with trade information portals or single windows facilitating electronic document submission that enables smooth clearance of exports and imports.
These national initiatives have been linked through the ASEAN single window, which allows compatibility of national windows using international open communication standards. Even the African Economic Communities group has in fact done quite well on this count. It has developed an online mechanism for reporting, monitoring and eliminating non-tariff barriers to trade, which has helped tremendously in helping to resolve disputes in a transparent setting (tradebarriers.org).
Coming back to healthy trade and efforts to expand national exports, nothing could be more lucrative for an economy and its people. In a study conducted by the Department of Commerce, USA, it estimates that every increase of $1 billion in exports sustains or adds nearly 6,000 jobs in a developed economy and as many as 36,000 jobs (6 times) in a developing economy (say in our case) and that export-related jobs pay on average 18 percent more than jobs focused on domestic market. Sadly, Pakistan as we know has been rapidly losing exports since more than eighteen months now and the government has just failed to come up with a meaningful strategy or vision to resurrect this declining trend.
Planning an export led growth or engineering a winning export strategy requires a holistic approach combined with a will and competence to take difficult & far-reaching decisions. Still some basic redress measures can be embarked upon without too much fuss or the need of any consensus building. For example, Pakistan needs to review its current trade agreements to see to it that we renegotiate them in a way that are transparently enforceable and in essence lift domestic manufacturing, job creation and wages at home. Another essential step is to strengthen our domestic safety net. Not only is this a fiduciary duty of any government, but without first doing this, the bold initiatives we need to take in order to expand our constructive trade and exports will simply not be possible. Finally, we need to have an honest conversation about what Pakistan must do to strengthen its economy. More than 35 percent of Pakistani children today live in poverty. Our state education system, once the envy of the sub-continent, now stands completely destroyed. The tax system is ineffective with major management reforms required in the FBR, infrastructure development suffers from misplaced priorities and human resource or technical skill development programs lack the kind of apprenticeship and credentialing opportunities like the ones that make German Mittelstadt so great. Of course, it is easier to score points and that these initiatives require some diligent doing, but the main point that just cannot be stressed enough and consistently remains relevant is that trade – if done right – offers Pakistan its best chance to not only strengthen its competitiveness but to also achieve a respectable level of sustainable growth.