In the grand tapestry of global economics, free trade agreements (FTAs) are stitched in as golden threads, purportedly weaving together nations in a seamless fabric of mutual prosperity. Yet, a closer inspection of Pakistan’s foray into this intricate network reveals a pattern that is less about shared wealth and more about missed opportunities and skewed benefits. The notion that free trade agreements are a panacea for economic challenges is being questioned, especially when examining the disappointing outcomes of Pakistan’s engagements in such agreements.
Take, for instance, the recent Trade and Goods Agreement (TIGA) between Pakistan and Turkey. This agreement, poised to be a cornerstone of bilateral trade, conspicuously left out textile products—Pakistan’s export stronghold. This omission echoed an earlier stance in 2011 when Turkey hiked customs duty on Pakistan’s textiles and denim fabric to a staggering 24% to shield its local industry. This move nearly halved Pakistan’s textile exports to Turkey, plummeting from $2 billion to a mere $1 billion annually.
It’s a stark reminder that in the dance of diplomacy and economics, sometimes, one partner steps on the toes of the other.
The narrative doesn’t pivot much when we look westward to the United States. The Trade and Investment Framework Agreement (TIFA) between Pakistan and the U.S. laid the groundwork. Yet, the anticipated Free Trade Agreement (FTA) remains elusive, tangled in prerequisites like the Bilateral Investment Treaty (BIT). Despite robust trade figures—$9.2 billion in bilateral trade in 2022—Pakistan finds itself in a loop of potential without fruition.
However, it’s the Pakistan-China Free Trade Agreement where the imbalance is most glaring. Phase 1 of this agreement, signed in 2007, turned out to be a lopsided affair, significantly bolstering China’s exports to Pakistan. The trade deficit ballooned, with China’s exports to Pakistan reaching $18 billion against Pakistan’s meager $2 billion exports. Even with Phase 2’s more favorable terms for Pakistan, the trade scales are heavily tipped in China’s favor. Pakistan’s attempts at kindling trade with Iran, Sri Lanka, Malaysia, Indonesia, Uzbekistan, and Mauritius through various FTAs and Preferential Trade Agreements (PTAs) have similarly failed to ignite significant economic advantages.
Except for a slight edge in Sri Lanka, Pakistan’s trade balance with these countries leans towards deficits, underlining a pattern of agreements that seemingly do more harm than good.
Contrasting these experiences with the success stories of regional trade blocs like NAFTA, the EU, ASEAN, and even the troubled waters of SAARC—where Pakistan’s strained relations with India hamper potential trade benefits—paints a vivid picture. These blocs demonstrate that regional cooperation can indeed foster significant economic growth and integration. Pakistan’s own shining beacon, the GSP Plus agreement with the European Union, stands as testimony to the potential benefits of well-negotiated access to large markets, having spurred a considerable increase in Pakistan’s exports to EU countries.
The global landscape is dotted with countries that have mastered the art of export, leading the charge in international trade with diverse products from oil and gas to electronics and pharmaceuticals. This prowess is not merely the result of engaging in free trade agreements. Still, it is underpinned by strategic planning, robust negotiations, and leveraging strengths in a way that Pakistan has struggled to emulate.
The crux of the matter lies not in the concept of free trade itself but in the execution and negotiation of these agreements. Pakistan’s experiences underscore a rush into agreements without adequate groundwork or strategy, often disadvantaging the country. Including textiles in the second phase of the Pakistan-China FTA points to a lesson learned, albeit hard.
It suggests a path forward where Pakistan can negotiate from a position of strength, ensuring its exports have competitive access to foreign markets, and trade agreements foster a reciprocal flow of benefits.
Moreover, the idea of barter agreements, highlighted in Pakistan’s missed opportunities with Iran compared to India’s success, brings an innovative dimension to international trade, especially for countries facing foreign exchange constraints. This approach, alongside a thorough re-evaluation of existing FTAs, could pave the way for more balanced trade relationships that bolster Pakistan’s economic interests.
In the grand scheme, free trade agreements are not inherently useless. However, their value and efficacy are contingent upon the foresight, preparation, and strategic acumen employed in their negotiation. For Pakistan, the journey through the maze of international trade agreements has been a mixed bag of modest wins and stark lessons. The road ahead demands not a rejection of free trade agreements but a recalibration of approach, ensuring that these agreements serve as true catalysts for economic growth rather than mere documents of intent. As Pakistan navigates this complex landscape, the true measure of success will be crafting agreements that not only open doors to foreign markets but also ensure that trade benefits flow both ways.
Ms Saba Kiran is an MS graduate of the Department of Aerospace and Strategic Studies at Air University, Islamabad. She has a background in political science and takes an academic interest in ethnopolitical conflicts, national security, strategic stability, and social conflict analysis.