US is the largest and technologically speaking the most powerful economy of the world. The country is spread over an area of 9.8 million square kilometers and has a population of about 300 million.
The Pakistan-US relationship is rooted since the Cold War of the 1950s. The US was concerned about Soviet expansion and Pakistan desired to protect itself from Indian threats. This situation brought closer the two countries to sign a mutual defense agreement in May 1954. The other agreements were US-Pakistan Mutual Aid, September 1954, membership of SEATO September 1955 and membership of CENTO. By 1955, Pakistan had joined two regional defense pacts, the South East Asia Treaty Organisation and the Central Treaty Organisation or more commonly known as the Baghdad Pact.
As a result of these agreements Pakistan received about $2 billion in aid during 1953-61, of which 25 per cent was military aid.
Total US economic and military loans and grants to Pakistan, from 1947 to 2005 amount to more than $15 billion. These agreements not only had an economic impact but also gave assurance of security and protection to the newly founded country.
The massive US aid programme has made Pakistan the world’s second-largest recipient of American economic and development assistance. This assistance has played important role in economic development of the country. The ambitious civilian-aid programme intends to bolster support for the US in the volatile and strategically vital nation. But a host of problems on the ground are hampering the initiative.
US aid over the years
US aid has had a strong impact on Pakistan’s agricultural production, helping the country in bringing about a green revolution. Farm water management programmes were also initiated by the USAID to improve irrigation which were later adopted all over Pakistan. The US also contributed $712 million or 31 per cent of all contributions to the Indus basin development project besides playing a leading role in the Mangla and Tarbela dams, which helped Pakistan to produce energy and develop the agricultural sector.
Due to various problems, in the year ended September 30, US spent only about two-thirds of the roughly $1.2 billion appropriated by the Congress. US officials acknowledge difficulties involved in distributing so much money, but say the shift in direction is needed. The goal is to help Pakistani government to improve its capacity in delivering key public services.
Pakistan-US relations have seen many ups and downs, in spite of being “old friends” and allies for decades. Pakistan has paid, and is still paying a very high price for being an old friend, ally and also the major non-Nato ally over the years.
After 9/11, Pakistan became a very important ally of the US.
US sanctions in the wake of Pakistan’s 1998 nuclear tests and 1999 military coup were quickly waived and, in October 2001, large amounts of US aid began flowing into Pakistan.
The table signifies US aid to Pakistan over the years.
Pakistan intends to submit more than 55 projects, including energy projects costing $6.8 billion to USA for financing under the Kerry Lugar Act. USA will extend a $7.5 billion aid package during the period from 2010 to 2014. The energy projects include installation of an additional power plant with a capacity of 300 to 400MW at Kot Addu, installation of combined cycle plant with 350MW, development of power meters project and 7100MW Bunji Hydropower Project.
Out of a total $7.5 billion aid, US will provide $2 billion to promote agriculture in the country and $1 billion as support for permanent solution to Pakistan’s energy crisis.
Around $2 billion would be spent on civil liberties, political rights, voice and accountability, government effectiveness, rule of law and control over corruption.
About $500 million would be spent on immediate post crisis and other humanitarian assistance and $1.5 billion on increased access to quality of education and health services in Pakistan.
Under the Strategic Objectives Grant Agreements (SOGA), USAID and government of Pakistan have already signed six agreements amounting to $478.5 million on September 30, 2009. These programmes included education sector reforms worth $107 million, governance programme worth $32 million, economic growth programme amounting to $124 million, health and population welfare programme worth $50.1 million and FATA development assistance standing at $115.2 million.
On the request of Pakistan, US administration has sympathetically discussed the issue of textile but it was opposed by the powerful textile lobby in the Congress. Another major issue is that of reconstruction opportunity zones or ROZs. Goods produced in these zones can have duty-free access to US markets.
The bill for creating ROZs in Afghanistan and Pakistan’s tribal areas was moved under the Bush administration but still awaits a congressional approval. Crowley, when asked about the ROZs, informed, “We are supportive of the concept of ROZs and continue to have a dialogue with the Congress on that issue.”
Basically the US ROZ programme aims to create jobs in Pakistan and Afghanistan by providing duty free access to the US for certain goods made in these approved zones within two countries. Extending duty free treatment to cotton trousers and shirts that account for about two third of Pakistan’s apparel exports to the US.
Main trading partners of the US are Canada with a share of 17.8 per cent, Mexico with a share of 11.3 per cent , China with a share of 11.1 per cent, Japan with a share of 10.4 per cent and Germany holding a share of 5.3 per cent. US is Pakistan’s major export market with a huge share of 25 per cent in exports of the country. Main items of export from Pakistan to US are cotton yarn, woven fabrics, textiles and apparel, rice, leather products, surgical and sports goods. Main items of imports from US are boiler machinery and mechanical appliances, telecom and electrical equipments, wheat and petroleum products.
In 2010, Pakistan was the 52nd largest exporter of goods to the US with an export total at $3.5 billion in 2010, signifying an 11 per cent or $346 million increase from 2009, and up by 247 per cent over the last 16 years.
The five largest export categories in 2010 were as follows:
n Miscellaneous Textile Products ($1.3 billion)
n Knit Apparel ($1.1 billion)
n Woven Apparel ($429 million)
n Cotton and Yarn and Fabric ($127 million)
n Furniture and Bedding ($85 million)
Agricultural products exports from Pakistan totaled at $63 million in 2010 and the leading category was rice with exports of $22 million.
In 2010, Pakistan was the 60th largest goods import market of the US. Goods imported from the US were $1.9 billion, up 17.4 per cent or $282 million from 2009, and up 165 per cent from 1994 (the year prior to Uruguay Round).
Top import categories (2-digit HS) in 2010 were:
n Machinery ($280 million)
n Aircraft ($220 million)
n Arms and Ammunition ($175 million)
n Cotton, Yarn and Fabric ($158 million)
n Iron and Steel Products ($104 million)
Agricultural products imported from US totaled at $352 million. Leading categories also include cotton ($147 million), dairy products ($42 million) and wheat flour ($29 million).
Balance of Trade
During 2001-02, total exports from Pakistan were $2.3 billion that rose to $3.5 billion in 2010. During the same period imports from US were $687 million and rose to $1.9 billion. Pakistan was the 57th largest goods trading partner with $5.4 billion in total trade in 2010. Exports were $3.5 billion, while imports stood at $1.9 billion.
Balance of trade has always remained in favour of Pakistan as shown in the table. Imports from US are rapidly increasing because Pakistan has reduced its import tariff schedules. US trade deficit with Pakistan was $1.6 billion in 2010, a 4.2 per cent increase ($65 million) over 2009.
US foreign direct investment (FDI) in Pakistan, for stock, was $517 million in 2009. Pakistan’s FDI in the United States, for stock, was $45 million in 2009, up 4.7 per cent from 2008. There is no information on Pakistan’s FDI in the United States.
Pak-US Business Council urged the US for duty free import of Pakistani products. Besides, there is also an urgent need to work together to restructure flood affected sectors of Pakistan.
Import would not hurt textile producers of the US but would boost US investment in that sector. Pakistan’s biggest exports to the US are cotton clothing and household goods.
The share of these items in total exports of $3.2 billion was $2.4 billion last year.
Pak-US Business Council Founder Chairman and Saarc Chamber of Commerce and Industry, Pakistan Chapter VP Iftikhar Ali Malik pointed out that Pakistan has already suffered an overall loss of over $3.5 trillion, including $1.6 trillion to its economy, after 9/11, war on terrorism, turmoil in Afghanistan and the catastrophic floods. He said there is a huge scope for US private investors in every industry, especially the agriculture, power and IT sectors.
In this regard, the US Chamber of Commerce can play a pivotal role in promoting bilateral trade relations. Pakistan is an emerging market, rich in opportunities for American investment, while the US is already an important trading partner and free access to the American market can enhance bilateral trade relations manifold.