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National interest: Trade talks, free trade and trade diplomacy

Trade and industry in Pakistan is all but consumed by the ongoing trade negotiations with India. Information flow on such an important development for the country is largely restricted to media reports about how soon and how quickly the bureaucrats and politicians of the two countries can get over with this assignment. Unfortunately, for around 1.5 billion inhabitants of these two free countries the feelings trickling down is that their fate is in the hands of those who understand little about what are trade negotiations about, how are national interests managed for all side and more importantly, what are the building blocks of a successful trading partnership.

Subject of trade negotiations would take volumes and volumes of materials, but one is forced to conclude that at least a basic crash course is required for all those involved, more importantly the common citizens, who will be affected by these developments. Terms like free trade, multilateral trading arrangements, preferential trade, FTA etc should have a common understanding. More importantly, overview of the factors that have created successes stories have to be understood. Rushing in where angels fear to tread may not be a good choice for Pakistan.

Free trade occurs when there are no artificial barriers put in place by governments to restrict the flow of goods and services between trading nations. Unfortunately, in this age of global trade liberalisation there still is no absolute free trade between nations.

After the World Trade talks under WTO hit a stonewall on the issue of subsidies being accorded by the western countries to their agricultural sector, the trade negotiations have now moved to bilateral and unilateral areas. USA, Canada and Mexico free trade agreement in terms of combined purchasing power parity GDP of its members is the largest in the world. NAFTA has led the trend being top trading blocks.

The proposed Canada-U.S. trade agreement had been very controversial and divisive in Canada, and the 1998 Canadian election was fought almost exclusively on that issue. In that election, more Canadians voted for anti-free trade parties (the Liberals and the New Democrats) but the split caused more seats in parliament to be won by the pro-free trade Progressive Conservatives. The agreement was lucky to have seen the light of the day. The winning side had the numerical superiority in the parliament and they easily passed the Canada-US FTA and NAFTA Bills.

Defying the majority view cost the politicians dearly as in the next elections Progressives were creamed in the elections of 1993 when the Liberal Party campaigned on a promise to renegotiate or abrogate NAFTA. The US was forced to act magnanimously and even in face of serious opposition in its own political circles, had to grant major concessions to its trading partner. Non-tariff measures were also put in place to provide safeguards to Canadian businesses and economy. The subsequent success of this agreement for Canada, is largely attributed to successful negotiations by Jean Chrétien, leader of the Liberal Party and the magnanimity shown by the US to ensure success.

We need to define “success” here. Even after such turmoil what Canada achieved was avoiding major setback for its industry in the short run. The only gains were on the agriculture side. Trade in agriculture was not part of the main agreement but was governed by three separate agreements between the trading partners.

A book written by Mel Hurtig published in 2002 called The Vanishing Country charged that since NAFTA’s ratification more than 10,000 Canadian companies had been taken over by foreigners, and that 98 percent of all foreign direct investments in Canada were for foreign take-overs. Mexico, the other trading partner has recorded more manufacturing jobs in its border areas. Factories have moved from the US and cheap labour of Mexico has been employed. Here again there is a debate if this is what was intended from this agreement.

High paid jobs of the US have been eliminated and transferred across the border. For US Asian labour is still cheaper. On the other hand better earnings in Mexico have increased demand for the US meat and highly subsidised corn. Mexico could not fulfil the fast changing consumer demand and as a result the increased cash flow that should have improved infrastructure in Mexico and subsequently improve produce in the country is going back to the US.

Mercosur, a trading block between Argentina, Brazil, Paraguay, Uruguay and Venezuela with Bolivia an acceding member, is one of the success stories in multilateral trade arrangements between trading partners. Interesting statistics of this trading block are that only 16 percent trade is between Mercosur member states. However, trade with EU 20 percent, China 14 percent and the US 11 percent are more significant. Although trade balance of intra-member trade is in favour of Brazil but the Brazil and Argentina accounted for 43 percent of intra-block trade creating a balance and creating a foundation for success.

The Association of Southeast Nations Association or ASEAN Free Trade Area (AFTA) is a multilateral agreement in Asia. With currently ten members that is Brunei, Indonesia, Malaysia, Singapore, Philippines, Thailand, Vietnam, Laos, Cambodia and Myanmar this is essentially a political movement; trading block being a windfall for the member states. The strength of the block is the philosophy of ‘ASEAN Way’ based on the ideals of non-interference, informality, minimal institutionalisation, consultation and consensus, non-use of force and non-confrontation. ASEAN members (especially Singapore) approved of the term ‘ASEAN Way’ to describe a regional method of multilateralism. Success of this multilateral arrangement is the continued emphasis on a unifying focus to refrain from interference in domestic affairs of member states.

European Union (EU) with measures in place such as a representative parliament a common currency and diluted national boundaries represents the most liberal of free trade blocks. With 28 member states it is also the largest. The inspiration of creating a union of European states came from World War II. The founding fathers did not want a repetition of the history. The process started with the Hague Congress in 1948. It was the beginning of the European federal history and the European Movement International was created. European Coal and Steel Community was formed in 1952. It was declared to be the “first step in the federation of Europe”. It aimed at the elimination of possibility of further wars between the member states. The means to achieving this end was by pooling the national heavy industries. Treaty of Room was signed in 1957 by six countries creating European Economic Union (EEC).

It is on the basis of EU experience that we hear the so often heard cliché that “opening of trade between India and Pakistan will guarantee peace between the historic enemies”. How can the proponents of this slogan ignore a glaring fact that till as recent as 1965 India was Pakistan’s largest business partner. Anybody who is interested in studying correlation between trade and conflict between Pakistan and India should study the trade figures. Mr. Tasneem Norani former Secretary Commerce of Pakistan has done an exhaustive study on the subject. The following is an extract from his report:

“Trade is the main ingredient of bilateral relationship between Pakistan and India. At the time of partition of India in 1947, more than 70 percent trade of what became Pakistan was with India and 63 percent of exports of India were to Pakistan. This intense trading relationship, unfortunately, did not last long and subsequent to the first armed conflict in 1948-1949 it plummeted. By 1951, trade was totally in favour of Pakistan which exported US $113 million worth of goods and imported only US $0.08 million from India. The balance of trade remained in favour of Pakistan, barring a couple of years, until the 1965 war. Trade remained suspended for ten (10) years after 1965 war until the bilateral trade Agreement between the two countries was signed in 1975 for a period of three years. The 1975 Agreement was never renewed, so the only time the two countries traded on the basis of a formal agreement came to an end in 1978.”

EU has literacy rate of around 98 percent and 75 percent of its population is urbanised. With per capita income estimate of Euro 35,500, there is very little reason for conflict in this region. With India, perennial irritants as Kashmir issue, Sir Kreek and Sia Chin remaining unadvised and with more and more water of Pakistan’s rivers being diverted each year by India, one cant see trade playing the role of peace maker at the moment.

EU is aiming, and has to a large extent achieved, dilution of boundaries between its members. This is the dream of India that has never accepted the separation of Indo Pak subcontinent. Is it our national objective too?

NAFTA has allowed foreign investment to take over 10,000 of the successful businesses in Canada, are we prepared to have an all Indian industry and commerce in Pakistan?

Imagine a situation where Pakistan’s major trading partner is India. Whatever Industry remains has its supply line from India as procuring raw materials and other inputs at economical rates makes only good business sense. The finished products of our agriculture and industry are flowing to India. India has become a source of supply of cheap medicines and the consumer is having a time of his life driving Indian automobiles. As fate would have it we have a difference of opinion on Indian intervention in Balochistan. India is a major power with seat at the Security Council with the blessings of Pakistani politicians. They use that leverage to close border with us. What will happen to our Industry, our trade and our population who are by that time totally dependent on India. The argument that India’s businesses are equally dependent on Pakistani market, they cannot afford to suspend trade with Pakistan, wont stand. The fact is that we are a small fish for them, as their exports to Pakistan constitute just 0.69 percent of total trade, while imports from Pakistan are just 0.11 percent of their total imports. The exuberance from India and from some other quarters for opening up trade at any cost has roots in some other interests and these are far removed from the national interests of Pakistan and the interests of its consumers. How unfortunate it may be but the fact remains that Indo-Pak is not Mercosur or ASEAN. India is too big for its own good and its overt focus on its “National Interest” at the cost and peril of its neighbours coupled with the religious belief in “AKHAND BHARAT” (India is one) continues to be a threat for the peace of the region. Someone on Pakistan side has to think about the interest of the Pakistani consumer.

A national debate has to ensue on these issues. We should not allow foreign powers to decide our destiny?

William McKinley (later to become President of the United States) stated the stance of the Republican Party (which won every election for President from 1868 until 1912, except the two non-consecutive terms of Grover Cleveland) as thus:

“Under free trade the trader is the master and the producer the slave. Protection is but the law of nature, the law of self-preservation, of self-development, of securing the highest and best destiny of the race of man. [It is said] that protection is immoral…. Why, if protection builds up and elevates 63,000,000 [the U.S. population] of people, the influence of those 63,000,000 of people elevates the rest of the world. We cannot take a step in the pathway of progress without benefiting mankind everywhere. Well, they say, ‘Buy where you can buy the cheapest’…. Of course, that applies to labour as to everything else. Let me give you a maxim that is a thousand times better than that, and it is the protection maxim: ‘Buy where you can pay the easiest.’ And that spot of earth is where labour wins its highest rewards.”

Naveed Baig, "National interest: Trade talks, free trade and trade diplomacy," Business recorder. 2014-03-10.
Keywords: Economics , Economic issues , Economic policy , Economic system , Economic development , Trade , Diplomacy , Mexico , China , Brazil , Pakistan , Canada , AFTA , ASEAN