Keeping a weather eye on the horizon

Exports – cement gains!

 

“…the game of protectionism can often turn out to be counterproductive and therefore needs to be played out carefully”

 

 

Well, the textile exports figures in January 2017 have finally registered a rise; meagre at about 0.8%, but a rise nevertheless, especially when the trend had been negative for almost 2 years. And a simple inference from this: the government’s textile package just may be working and perhaps it would be the right time to further strengthen it. Meaning, it should announce to take it beyond June 2017 for at least another 2 years, hasten the announced rebates and quickly move to provide the export industry with a level playing field by re-negotiating bad trade deals and providing protection from dumping where necessary. For example, the PTA signed by Pakistan with Indonesia in 2013 has now completed three years of its implementation.

 

At the time of the signing of the PTA, Indonesia’s exports to Pakistan were US $ 936 million, which increased to US $ 1.9 billion in 2015-16. On the other hand, Pakistan’s exports to Indonesia showed a negative growth after the implementation of the PTA as exports dropped to US $ 173 million in 2015 from US $ 273 Million in 2011. The story is more or less the same when we evaluate some other similar trade agreements say with Thailand, Turkey, Afghanistan (transit trade deal), and China.

 

Give a free hand to the modern day big emerging economies and they have the potential, resources and the appetite to completely take over one’s market. Pakistan is learning this the hard way. Still, better late than never, as it looks that both the National Tariff Commission (NTC) and the Ministry of Commerce (MOC) have finally understood this global financial fact and are now for the first time imposing some practical anti-dumping % levels. For example, the lately imposed anti-dumping rates of 6 % – 41 % and average anti-dumping rate on all Chinese steel imports into Pakistan of 40 % shows that in global trade, countries like China, India, Korea etc. are willing to sell/export/dump their surplus production even below their raw material costs. It takes basic accounting sense to make out that Chinese steel companies cannot possibly have a profit margin of 40 % on steel sales and in reality they were simply throwing their excess production into Pakistan while selling their major production (80% of their production capacity) in China at market prices to attain an overall profit.

 

However, the NTC & MOC would do even better by proactively anticipating the likely future glut of textiles and garments from the Xinjiang textile park both in the export related and domestic markets of Pakistan – likely to pose a serious threat to the very future of the Pakistani textile sector. In due course, Chinese textile ware from Xinjiang will be passing through China-Pakistan Economic Corridor (CPEC) to the Middle East and North Africa (MENA) regions via the Gawadar port. Xinjiang – as we know – is investing $2.8 billion in establishing modern textile and garment factories to be completed by 2020, and Xinjiang province alone is expected to produce about 500 million garments per annum.

 

Pakistani markets are already awash with hordes of dumped & cheap Chinese products and chances are that Pakistan would experience a similar influx of textile goods under China’s transit trade from Xinxiang to Gawadar. The time is now to smartly negotiate trade rules under CPEC in order to protect Pakistan’s strategic industrial and economic interests. Transit fee with China and all partnering countries needs to be prudently negotiated as such a fee would not only be a major earning source for paying off the CPEC related debts and other associated costs, but also go a long way in ensuring Pakistan’s manufacturing competitiveness in the long run.

 

However, the game of protectionism can often turn out to be counterproductive and therefore needs to be played out carefully.

 

For example, despite Mr. Trump’s recent histrionics, the reality is that bilateral trade volume of China and the US stands strongly inter-locked. It amounted to $519.6 billion in 2016, 211 times higher than in 1979, and today China and the USA are second-largest trading partners for each other. Also, for the last 7 years, Chinese annual investment into the US economy has surged significantly, reaching its highest level of nearly $42 billion in 2016 – 64 times higher than in 2009. Chinese remain quietly confident that the rhetoric about

Trump’s ‘America First’ policy aside, the Sino-US relations will maintain the momentum of the past 40 years and it will remain ‘business as usual’ between the two due to vast mutual reciprocity on mutual benefits cum interdependence ~ Report released by the Centre for China and Globalisation: Trump’s Coming Era: Challenges, Opportunities and Policy Responses. Likewise, Pakistan also economically needs China and cannot do without it.

 

On a positive note, the future of global trade remains bright. While duly recognising the fears of growing protectionism in developed economies, even the IMF and especially the WTO remain confident that this phenomenon of growing protectionism will pass soon. They expect the global economy to grow by 3.4 percent and the world trade to grow by as much as 3.1 percent in 2017, far better than in 2016. The concern though is that since some long-term structural and fundamental problems to free and fair global trade still remain unresolved, the coming years are going to present some fresh and daunting challenges for smaller developing countries striving to expand their global market share while preserving their home manufacturing and protecting their domestic markets from being flooded with dumped goods from large industrial economies. During this period, Pakistan will not only need to be fearful of such dangers, but its overall trade strategy will also require some deft handling!

Dr Kamal Monnoo

The writer can be contacted at: [email protected]



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