In Pakistan, there is no dearth of people who believe that integration in global economy through removal of protective tariffs and dismantling of regulatory regimes, meaning free trade and free markets, can create a turnaround in economy. They argue that having integrated with bigger economies such as US and EU through Free Trade Agreements (FTAs) will do us a number of favours. They say, firstly, it will increase foreign direct investment (FDI), secondly, it will ward off fears of isolation through trade diplomacy and, thirdly, it will give a push to exports from agriculture and industrial outputs.

Such perceptions have been promoted by international development policy experts through donors from outside as well as ambitious national policy makers who seek attractive jobs with international financial institutions. However, there is a need to look into the international experience before jumping onto conclusions and start making efforts to sign an FTA with any country.

There is a need to go for a comprehensive evaluation of FTAs which Pakistan has signed with China, Sri Lanka, Malaysia and the ones it is trying to negotiate with other countries and regions such as the US and EU. The figures shown on balance of payment accounts give us a number of reasons to dig deep into the realities of international trade and see how Pakistan can actually use trade and industrial policy instruments to move up the ladder of value chains and global production networks.

Research studies around bilateral and regional trade agreements, specially the ones undertaken by the Third World Network show that there is no conclusive evidence that FTAs cause an increase in foreign direct investment, especially investment for new projects called green field FDI. The dynamics of FDI are much complex, which range from geo-strategic reasons to the availability of locational and cost-reduction advantages. In the case of Pakistan, there seems to be an interesting relationship between change in geostrategic situations and increase in flow of funds alongside regime changes from civil to military.

Most of the FTAs show that agreements carry WTO-plus provisions such as Singapore Issues (i.e., government procurement, investment, and competition) which were dropped from the WTO agenda during the Doha Round. In fact, countries seeking FTA are subjected to full reciprocity and national treatment (no discrimination between local and foreign firm).

One can imagine how a developing country such as Pakistan can compete with firms from the US without getting out of business. In addition, the state is made unable to regulate the investment patterns of foreign firms making much of investment a footloose enterprise. The provisions in the US-FTAs also rob countries of their sovereign right to give preference to local firms which employ local people under government procurement. This has serious implications of countries such as Pakistan which need to generate growth stimulus by government procurement in backward regions such as in Balochistan and Southern Punjab.

A drastic feature of FTAs relate to dispute settlement in which foreign firms can take the state to dispute resolution in international courts of justice sending ‘chill effects’ in the government of less-developed countries.

On exports, there is no conclusive evidence that exports actually increase from less-developed economies to the more-developed ones. There are many reasons for this tendency. Primarily, agricultural commodities are heavily subsidised in the rich regions of EU and the US. Negotiations under FTAs, on removal of such subsidies from agriculture are not possible owing to political factors in big economies. Ultimately, most of the products from less-developed countries cannot compete for increased market access owing to price differentials.

As a result of this, subsidised products from the US and EU enter the markets of less-developed countries which causes decline in prices (consumer welfare?) and people in less-developed countries go out of business. For example, after NAFTA, about 2 million rural jobs in Mexico have gone while serious import surge (in some cases 500 percent) has been witnessed.

After having seen the international experience, it is important that parliamentary oversight is increased in Pakistan. The Standing Committees on trade and commerce, both in the lower and upper houses of the parliament, should pay serious heed to the vision and ideology which officials in ministries are following. Pakistan People’s Party and coalition partners should not fall a prey to the jargon of those neo-liberals who are entrenched in their ranks. They should make concerted efforts to safeguard interests of the people working in farms, industries, and services sector of Pakistan.

The writer is Executive Director of Institute for Development Initiatives, Islamabad www.idi.org.pk

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