Trade Connectivity

By Economic Advisory Group

Executive Summary

The economic growth of nation states is linked to their ability to exploit connectivity and interdependencies within strong regional blocs. Contemporary trade theories, focusing on internal and external economies of scale, explain the emergence of global value chains, emphasizing the pivotal role played by intra-industry trade. The limited purchasing power of the domestic market is inadequate for the scale advantage required to achieve a high level of productivity in the production of industrial goods. Quite aside from being required by WTO rules, trade liberalization will serve to increase trade flows, bring down tariff and non-tariff barriers, and therefore potentially boost productivity and economic growth across the region. It will unambiguously benefit Pakistani consumers, since product prices fall, and consumer choice increases with reduced trade barriers.

The Economic Advisory Group’s key policy suggestions related to integration with regional and global markets are the following:
Reduce custom and regulatory duties, and replace these with a uniform tariff across all sectors and product categories;
Redesign existing schemes (such as the SBP’s export finance scheme) to incentivize export of new products and/or to new markets;
Focus on being competitive for parts of Global Value Chains (GVCs) for products, rather than for the entire product, and on moving up GVCs;
Strengthen industrial and infrastructure capacity so as to attract efficiency-seeking FDI (which is more geared to boost exports) rather than market-seeking FDI;
Actively engage with regional trading blocs with the aim to either join these or enter into an FTA with them. Potential candidates include RCEP;
Engage with regional countries and work towards signing bilateral FTAs;
Work with national and sub-national trade bodies to help businesses conform to international standards;
Improve infrastructure along the western border and facilitate Central Asian countries to utilize Gwadar port for trade.

Diplomatic initiatives are required to implement the above policy recommendations, backed by the ability to leverage numerous economic opportunities the country affords. We need to take advantage of Pakistan’s unique geostrategic edge to maximize the benefits of globalization. While the country’s location provides opportunities to facilitate trade with surrounding countries by acting as a trade hub, this potential will only be realized by undertaking significant internal reforms. The liberalization of regional and international trade, starting from the present environment of measures implemented to protect allegedly strategic domestic industries and employment, must take place within the structure of various international trade laws and the WTO regime. The General Agreement on Tariffs and Trade (GATT) and the General Agreement on Trade in Services (GATS) are supposed to provide the legal and regulatory framework to give all signatory nations equal market access for their goods and services.