Trade policy and global realities By Dr Ahmad Manzoor

Pakistan has missed out on its due share of the immense wealth that has been created in the world through globalisation of the past two decades. No serious and sustained efforts have been made to integrate the national economy with the international market and all such initiatives have proved to be short-lived.

A look at any international index of globalisation makes this clear. In the Wall Street Journal and the Heritage Foundation Index, Pakistan is currently ranked 117 out of 179 countries, just below Benin and Gabon. In the Swiss KOF Index of globalization, its ranking is below Zambia, Nigeria and Ghana at 104 out of 156.

In the World Bank’s 2010 Logistic Performance Index (LPI), the ranking is 110 among 155 countries with Customs performance being dismally low at 134. The story is the same with all other indexes; we are well below average.

The situation has been deteriorating during the recent years; witness the fall from a rank of 67 in 2007 to 110 in the World Bank’s 2010 LPI. This contrasts with other regional countries which have improved their rankings considerably such as Bangladesh and even Afghanistan.

International trade has changed, making obsolete yesterday’s trade policy models. It is no longer the best policy to focus on producing finished goods within a geographical boundary and to compete on that basis.

Most of the global trade is now carried on as a part of supply chains and production networks. Pakistan’s share of the global trade has been shrinking over the recent years and the situation can be reversed only if trade policy is adjusted to accord with the changed commercial realities.

Over the last two decades, attempts have been made to open up trade. Two of the most significant ones were in the early 1990s and again between 2001 and 2004. First, import licencing was done away with for most goods and a process of reduction in import duties and non-tariff barriers was put in place.

The 2001-04 attempts were initiated on the behest of the IMF as part of the Fund’s conditions attached to the Poverty Reduction and Growth Facility. During this period, import tariffs and non-tariff barriers were steeply reduced and services sectors particularly financial and Information Technology (IT) were opened up. As a result for a short while, exports started increasing at an average of over 15 per cent annually.

However, like the earlier initiative, this was also short lived.

As soon as the IMF-led programme ended after three years, some of the reforms were reversed. This reversal has intensified over the last two years when tariff rates have repeatedly been raised and other non-tariff barriers put in place. All this happened at a time when the global food, fuel and financial crisis began and the impact on the economy was crippling. As the global economy is recovering, countries that have adopted globalisation are managing their economy well, whereas Pakistan’s economy still seems to be in turmoil.

While the policymakers are drawing up plans for the next financial year, it is time to pause and assess what worked and what did not, which policies led to growth and which lead to stagnation. Unfortunately, there is cause for being pessimistic mainly for the following reasons.

First there is a wrong perception that ours is one of the most open economies. In fact our import tariff profile is comparable only to that of Sub-Saharan Africa and globally our economy is ranked as not free.

Second, there is a general perception that imports are bad for our economic development. What has to be realised is that more imports mean more exports, increased economic activity, higher tax receipts, additional FDI and reduced inflation. In any event, more than 85 per cent of our imports comprise essential goods whose import cannot be restricted.

These include crude oil and petroleum products (30pc), machinery (25pc), chemicals including fertilisers (16pc), food products (10pc) and iron and steel (5pc).

All other items, including manufactured products, constitute less than 15 per cent of our imports. The third major factor is the popular desire for self-reliance and import substitution to which our policies were geared in the 1980s. This concept has lost its appeal even in countries such as India and Brazil, which were its great champions, but our leaders and civil society continue to associate patriotism with import substitution.

The writer is Pakistan’s ex-ambassador to the WTO.

Source: http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/in-paper-magazine/economic-and-business/trade-policy-and-global-realities-640