Amidst plans of a US troop withdrawal from Afghanistan, Prime Minister Imran Khan was welcomed by President Trump at the White House last month. While Pakistan’s role in negotiating a peace settlement between the US and Afghan Taliban was the top agenda item in discussion between the two leaders, a range of issues such as bilateral trade, the Kashmir conflict and polio eradication were also discussed. As per the statement released by the White House, the US expressed its intention to expand trade ties with Pakistan. President Trump, too, while addressing the press in the Oval office alongside PM Khan, stated (in his signature hyperbolic style) that trade between the two countries could go up 10, or even 20 times.
These are huge numbers and warrant some context. Pakistani exporters sold goods worth $3.8 billion to the US last year, and importers bought American goods valued at about $3 billion in the same year. If bilateral trade is to grow by ten times, as suggested by President Trump, it would mean Pakistan’s exports to the US would rise to $38 billion, which would be $15 billion more than Pakistan’s total exports to the world, currently at about $23 billion. The overly-optimistic numbers quoted by the US President, therefore, have little grounding in reality.
That, however, is not the point. The offer to strengthen the bilateral trade comes at a time when the US has initiated trade wars with several of its major trading partners and is looking for new global suppliers. Countries that have seen increased US tariffs imposed on their exports ever since the Trump administration came into power include China, EU member nations and India; even signatories of the North American Free Trade Agreement and the US’ next door neighbours - Canada and Mexico – are within the crosshairs of the Trump administration. This has not only disrupted global trade patterns but has also led to a reorganization of global value chains. This reorganisation presents a viable opportunity for a small open economy such as Pakistan, which should be strategizing on how to position itself strongly in the emerging global trade order.
The sector that has historically earned the majority of Pakistan’s export revenues, and is thus best positioned to take advantage of the US President’s offer is textile. Currently, about $3 billion of Pakistan’s $3.8 billion worth of exports to the US consist of textile and clothing products. But like most Pakistani businesses, the textile sector has failed to deliver on its long-term commercial targets: according to the Textile Policy of 2014-2019, the sector was tasked with enhancing competitiveness to double total exports from $13 billion to $26 billion. Just last year, textile and related products earned a little over $13 billion in export revenue, showing almost zero progress towards the target of $26 billion.
While it is true that the incumbent PTI government has so far offered little support to textile and other export-oriented businesses, the fact is that these businesses were very well cared for by past governments through the provision of preferential commercial agreements. Numerous export packages, schemes of duty draw backs, relaxations on duties for imported machinery, tax rebates and preferential rates of utilities were extended to them in the hopes of increasing export revenues and minimising balance of payment deficits.
One could very well argue that such preferential treatment backfired and rendered most of these businesses, including those from the textile sector, uncompetitive in comparison to their regional and global counterparts. It is about time that these businesses stop relying on government support and learn to compete on a level-playing field if they are ever going to become a major part of global trade.
While textile has historically been a major contributor to Pakistan’s export earnings as already mentioned, another rising sector in the country worth keeping an eye on is the information and communication technologies (ICT) sector. In recent years, ICT businesses in Pakistan have seen tremendous growth and quickly emerged as a major earner of export revenues. ICT exports crossed the $1 billion mark in 2017, while some industry leaders even estimated the true value of exports in the same year to be around $3 billion. Even as the industry expands, it currently comprises of about 3,000 companies that collectively employ over 250,000 professionals. And these numbers are only growing.
The US, as one of the largest technical markets in the world representing about 30 percent of global IT operations, presents numerous prospects for Pakistan’s ICT businesses as they gradually make their mark on the global stage. Collaboration could take a number of forms, from increased access to capital, setting up of incubation centres for startups, technology and skill transfer programs, to outsourcing of specialised services, ease of entry in either country’s market, and increased trade in software technologies and hardware equipment. With a well-guided strategy from the government, any linkages that Pakistan could establish with the US technology market in the near future would go a long way in establishing Pakistan’s IT businesses at the global stage.
Textile and ICT industries are only two examples out of the numerous industries that could take advantage of the emerging global trade patterns and of any future trade or investment agreement with the US. But these advantages need to be earned. The challenge for Pakistani businesses remains to enhance their capacity and get used to competing with global businesses - without expecting to be spoon-fed by the government.
Over the past decade, the South Asian region has seen countries such as Bangladesh, Sri Lanka and Vietnam increase their global share of trade through cautious government policy, coupled with the spirit to innovate and compete at the international stage. If Pakistan is to make the most of any bilateral trade enhancement offers, of which there will be plenty in the changing global economy, its policy makers and businesses must look past short-term aims of increasing exports, towards the long-term and sustained goal of enhancing competitiveness.
The author is an economist
These are huge numbers and warrant some context. Pakistani exporters sold goods worth $3.8 billion to the US last year, and importers bought American goods valued at about $3 billion in the same year. If bilateral trade is to grow by ten times, as suggested by President Trump, it would mean Pakistan’s exports to the US would rise to $38 billion, which would be $15 billion more than Pakistan’s total exports to the world, currently at about $23 billion. The overly-optimistic numbers quoted by the US President, therefore, have little grounding in reality.
That, however, is not the point. The offer to strengthen the bilateral trade comes at a time when the US has initiated trade wars with several of its major trading partners and is looking for new global suppliers. Countries that have seen increased US tariffs imposed on their exports ever since the Trump administration came into power include China, EU member nations and India; even signatories of the North American Free Trade Agreement and the US’ next door neighbours - Canada and Mexico – are within the crosshairs of the Trump administration. This has not only disrupted global trade patterns but has also led to a reorganization of global value chains. This reorganisation presents a viable opportunity for a small open economy such as Pakistan, which should be strategizing on how to position itself strongly in the emerging global trade order.
The sector that has historically earned the majority of Pakistan’s export revenues, and is thus best positioned to take advantage of the US President’s offer is textile. Currently, about $3 billion of Pakistan’s $3.8 billion worth of exports to the US consist of textile and clothing products. But like most Pakistani businesses, the textile sector has failed to deliver on its long-term commercial targets: according to the Textile Policy of 2014-2019, the sector was tasked with enhancing competitiveness to double total exports from $13 billion to $26 billion. Just last year, textile and related products earned a little over $13 billion in export revenue, showing almost zero progress towards the target of $26 billion.
While it is true that the incumbent PTI government has so far offered little support to textile and other export-oriented businesses, the fact is that these businesses were very well cared for by past governments through the provision of preferential commercial agreements. Numerous export packages, schemes of duty draw backs, relaxations on duties for imported machinery, tax rebates and preferential rates of utilities were extended to them in the hopes of increasing export revenues and minimising balance of payment deficits.
One could very well argue that such preferential treatment backfired and rendered most of these businesses, including those from the textile sector, uncompetitive in comparison to their regional and global counterparts. It is about time that these businesses stop relying on government support and learn to compete on a level-playing field if they are ever going to become a major part of global trade.
While textile has historically been a major contributor to Pakistan’s export earnings as already mentioned, another rising sector in the country worth keeping an eye on is the information and communication technologies (ICT) sector. In recent years, ICT businesses in Pakistan have seen tremendous growth and quickly emerged as a major earner of export revenues. ICT exports crossed the $1 billion mark in 2017, while some industry leaders even estimated the true value of exports in the same year to be around $3 billion. Even as the industry expands, it currently comprises of about 3,000 companies that collectively employ over 250,000 professionals. And these numbers are only growing.
The US, as one of the largest technical markets in the world representing about 30 percent of global IT operations, presents numerous prospects for Pakistan’s ICT businesses as they gradually make their mark on the global stage. Collaboration could take a number of forms, from increased access to capital, setting up of incubation centres for startups, technology and skill transfer programs, to outsourcing of specialised services, ease of entry in either country’s market, and increased trade in software technologies and hardware equipment. With a well-guided strategy from the government, any linkages that Pakistan could establish with the US technology market in the near future would go a long way in establishing Pakistan’s IT businesses at the global stage.
Textile and ICT industries are only two examples out of the numerous industries that could take advantage of the emerging global trade patterns and of any future trade or investment agreement with the US. But these advantages need to be earned. The challenge for Pakistani businesses remains to enhance their capacity and get used to competing with global businesses - without expecting to be spoon-fed by the government.
Over the past decade, the South Asian region has seen countries such as Bangladesh, Sri Lanka and Vietnam increase their global share of trade through cautious government policy, coupled with the spirit to innovate and compete at the international stage. If Pakistan is to make the most of any bilateral trade enhancement offers, of which there will be plenty in the changing global economy, its policy makers and businesses must look past short-term aims of increasing exports, towards the long-term and sustained goal of enhancing competitiveness.
The author is an economist