Trade and Economy

Making Trade Policy Inclusive

A recent report of the Sustainable Development Policy Institute (SDPI) estimates that as many as 58.7 million people in Pakistan are living in multidimensional poverty with 46 per cent of rural population and 18 percent of the urban households falling below the poverty line. Given a large number of poor and vulnerable living in Pakistan, it need not promote trade as an end in itself.

Pakistan's success in the trade sector over the past three and a half decades can be noted from the fact that between 1980-81 and 2011-12, total volume of trade has increased by more than 8 times. On the other hand, gross domestic product (GDP) grew by 7.8 times over the same period. One can work out from these numbers that trade could not generate more employment than the local market. This is the outcome of policies followed by different governments in total disregard to taking concrete measures to bring out poor from abject poverty. Today, the Pakistan economy is the 26th largest economy in the world in terms of purchasing power parity and 44th in terms of nominal GDP. Due to the 6th largest population, the GDP per capita ranking is 140th in the world.

Pakistan ranks at 69th place in the world exports and 58th place in the world imports of merchandisre. Pakistan's share in world merchandise exports is a meagre 0.13 percent and in world merchandise imports is 0.24 percent. Over the past more than three decades, Pakistan's export share in the world remains standstill at 0.13 percent, while imports share has come down somewhat from 0.25 percent. Trade openness ratio has increased from 29.1 percent in 1980-81 to 30.5 percent in 2011-12, but this minor change is due to a backward slide in the GDP and not because trade has made any improvement. Whereas no worthwhile achievement is made by the Pakistan economy at the global level, its domestic performance record is not commendable as well, especially over the past many-many years. This speaks of policy failures. Gains from trade could not be achieved as has been achieved by other economies of the world. Trade is developed in such a manner that it has only benefited those who were engaged in trade business and neither the economy nor the consumers and workers benefited from it. Local industries were insulated from foreign competition in the name of protection to infant domestic industries but it generated hefty profits to industrialists who employed capital-intensive or labour-saving technologies instead of labour-intensive or labour-using technologies.

Within this perspective, there is a need to revisit Pakistan's trade policies by enhancing developmental components and making them inclusive of poor and vulnerable. Trade policies should balance its economic content by also accommodating much developmental needs of the country. Pakistan's current trade policy do mention of intention to involve under empowered and vulnerable groups in trade activities, but ground realities do not show any specific measure that is taken by the government in this context. There is an urgent need to revise trade policies in Pakistan so that the issue of under empowerment, vulnerability and poverty is addressed on war footing. This would alleviate the current fast growing feelings of social injustice and inequality among the masses.

It is worth noting that existing trade policies like past policies treat export promotion and employment generation as competing goals. That is export promoting measures increase exports sharply while employment does not rise at the same pace. Thus, a new trade policy should clearly differentiate these two concepts and clearly distinguish export sectors that will be used for generating employment at a higher pace. There is of course growing need of modern and sophisticated technology and the subsequent increase in demand for skilled labour. It implies that an increase in exports would not necessarily lead to employment generation. However, in our policies we should not totally ignore the export sectors that use labour-intensive and capital-saving technologies. We should also promote niche products and cultural goods where our craftsmen and women have acquired skills; these are the products where vast potential for exports exists in global rich markets.

Given the emergent significance of global value chains (GVC) for the economy, new trade policy should cover measures to foster Pakistan's inclusion into global production processes. This would enhance Pakistan's position to take advantage from the opportunity of global value chain. According to UNCTAD Geneva report of GVC participation rate of the top 25 developing economy exporters, 2010, Pakistan is at the 19th place where as India and Bangladesh both share 24th place. On the regional basis though Pakistan's position is better than others but the ranking speaks of enormous unexploited opportunities in the global markets. Such opportunities can be utilized to benefit the poor.

The trade policy of Pakistan should thus include measures to strengthen regional and global partnership of Pakistan to enhance its position in GVC. Like merchandise export's vast potential exists for the services sector where Pakistan can benefit by developing exportable services on the basis of its large and low cost workforce. Services indeed provide links that build value chains.

Benefit sharing schemes and instruments are now increasingly providing greater return to agriculturalists, artisans and industrial workers, the linkage between international trade and its direct gains to factors of production at the local level was never explicit in the past trade policies. The new trade policy should explicitly focus on benefit sharing methods in order to make them sustainable.

Pakistan has signed many bilateral, regional and multilateral trade agreements. A close study of the current trade policy document reveals that it is prepared in isolation from these agreements. This absence has resulted into less than potential gains for the economy from international trade openness. The new trade policy should therefore assign priority to sectors where market access is granted through bilateral, regional and multilateral agreements.

Foreign Direct Investment (FDI) which is highly desired for the Pakistan's economy, is coming to capital-intensive and import-competing industries, both manufacturing and services. As a result they are not generating job opportunities to the level desired by the growing population. Pakistan needs to align its export policies with FDI policy so as to achieve not only high economic growth but social development, too. Given the state of current trade policy, the government must use its trade policy as a tool to achieve inclusive trade and economic growth. The government should particularly focus on policies to promote export-oriented small and medium industries, which have vast potential to generate productive employment.

The writer is a Professor of Economics at School of Social Sciences and Humanities at NUST, Islamabad. [email protected]стройка дома


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