Trade policy and global realities

By Dr Manzoor Ahmad
Published in Daily Dawn of Monday, 26 Apr, 2010

Pakistan has missed out on its due share of the immense wealth
that has been created in the world through globalization 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 globalization 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 licensing 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 globalization
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 realized 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 fertilizers (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.