PAKISTAN – US FREE TRADE AGREEMENT

This article is an attempt to answer some of the basic questions regarding, free trade agreements. It also focuses on questions, such as, whether developing countries should enter into such free trade agreements? Is it in Pakistan’s interest to sign a free trade agreement with US and what are the consequences of such an agreement? Finally, what step should the Government of Pakistan follow in order to curtail any short term, adverse effects of the free trade agreement?

HISTORY

For thousands of years now, nations have entered into agreements for their mutual benefits. Classical Athens was known for its trading activity as early as 4th Century BC. It was said to have imported grain from Russia, Sicily and Egypt and Salt fish from Spain or the Black Sea. Trade was regulated by local legislations. Similarly Romans too attracted huge international trade. However, unlike classical Athens, Roman Empire entered into commercial treaties with many nations from time to time. Romans used these treaties to resolve disputes between themselves and foreigners.

In the last quarter of a century, globalizations and rapid growth of the world economy has forced the world nations to compromise some of their own interests for the mutual benefit of all. World Trade Organization is an example of such compromise.

WHAT IS A FTA?

In a Bilateral Trade Agreements (hereinafter: BTA), countries liberalize their trade by minimizing artificial barriers and other restrictions e.g. quotas, tariffs and subsidies that countries use for the protection of their own domestic industries. Free Trade Agreements (hereinafter: FTA) are intended to eliminate all these restrictions.

WHY JOIN A FTA ?

Countries enter into FTAs for various reasons. It provides for greater market access through reciprocal exchange of trade concessions and realignment of resources towards more efficient sectors. As tariffs are lifted, more imports enter the country resulting in drop of domestic prices. This drop in prices results in greater consumption of goods. In the end there are more goods, of greater variety and cheaper than under a tariff regime.

Secondly, if a competing country (a country whose exports are same) enters into a FTA with the intended country e.g. US in our example, it runs the risk of being left out and the cost of exclusion is associated with lost trade opportunity which is not very easy to quantify.

Thirdly, Political reasons may also encourage a country to enter into a FTA e.g. strategic alliance or better bargaining position in multilateral negotiations e.g. SAARC or ASEAN.

Lastly, Countries, especially developing countries are more interested to enter into FTA, owing to the relative slow progress of multi-lateral trade organizations, e.g. WTO. The huge size of such organizations and the competing interests of member countries have dampened the momentum of progress. On the other hand, FTA proves to be a much quicker way to open market and greater economic integration.

Increased returns and competition are some of the likely dynamic benefits arising from FTAs. Another consequence of market integration is the access to the larger markets, which makes it possible for producers to attain economies of scale in their output levels. Efficiency gains are thus realized from opening up local markets to external competition and potentially allowing producers to operate at a higher (and more efficient) level of output.

IS IT IN PAKISTAN’S INTEREST TO SIGN A FTA WITH A DEVELOPED COUNTRY LIKE THE US?

A move towards freer trade would certainly favor Pakistan’s industries (e.g. cotton, textiles and apparel, rice, and leather) that are already engaged in exporting to the US. Their access to the existing markets could only be enhanced.

FTA stimulates greater investment. The incentive to invest, for both member-country and foreign investors, depends on current and future trade policies, on the nature and level of uncertainty, and on the general macroeconomic and political environment. FTA with US can underline Pakistan’s commitment to cross-border trade and encourage Foreign Direct Investment (hereinafter: FDI). In other words, this incentive appeals to countries that may wish to ‘broadcast’ or make known to the international community its resolve to pursue a liberal regime.

Secondly, FTA acts as an assurance, whereby US guarantees Pakistan’s continued access to its market. This motive can be especially relevant if future trade restrictions are likely. It may explain why some agreements (BTA/FTA), particularly those involving a large and a small country have the smaller entering on relatively unfavorable terms. The worse terms can be considered as the premium for the insurance against future trade barriers of partners.

Thirdly, with an export market perspective, U.S. is already an important market for Pakistani export accounting for nearly one fourth of its total exports. FTA can secure continuous access even if the US decides to raise its tariff levels for other countries. This, in essence, is tantamount to buying guarantees. The recent protectionist move of the US is one of the motives that prompted Pakistan to engage in negotiations for bilateral arrangements. For small developing economies, like Pakistan a FTA will be a guarantee against market closure.

Lastly, Pakistan’s FTA with US would possibly make it a favored low cost supplier and will become more attractive to investors than the other low cost countries that are not party to any BTA. Under these circumstances, developing countries tend to enter into FTAs with larger partners for “fear of being left behind.”

SHORTCOMINGS IN SIGNING A FTA WITH US

It is submitted that one of the most contentious issues is the effect of free trade on the “import competing industries”. The brunt of the adjustment costs arising from the FTA will be shouldered by these industries. There would be little popular support for the FTA if the costs would be far greater than the benefits arising from the improved market access of the current exporters.

Negotiating with larger economies has its downside. Larger economies negotiating a FTA enjoy greater bargaining power and are in a position to successfully extract concessions of all kinds. These concessions are not just trade related but also include non-trade issues. For instance, USA is likely to demand concessions in intellectual property protection or investment guarantees from Pakistan in exchange for market access. Secondly, US has fairly, if not quite, liberalized economies. Consequently, Pakistan may get only small tariff concessions.

The adjustment costs involved during the transition may be quite severe and prolonged. For example, the unemployment costs may be too high for Pakistan especially in the light of very high poverty. At the same time, real life imperfections in the labor or financial markets may impede the resource allocation as proposed by theory. It is the lack of the necessary conditions, as assumed in theory, that may frustrate the desired outcomes of free trade and which ultimately lend capital to the growing view that free trade, though desirable, should be not be pursued as the overriding policy goal.

Ultimately, national interest will be the motivating factor in entering into a FTA. If national interest were defined in terms of the interests of exporters, import-dependent local producers, and the consuming public, then there could be broad public support for an FTA. If viewed from the perspective of job preservation or job creation, there might be opposition. Inasmuch as trade liberalization serves to render import competing domestic industries uncompetitive, resulting unemployment will increase resistance against entering an FTA.

PAKISTAN-UNITED STATES TRADE

The United States is by far Pakistan’s leading export market, accounting for nearly one-quarter of the total export. Pakistan’s primary exports are cotton, textiles and apparel, rice, and leather products. During 2005, total Pakistan’s exports to US were worth $3.25 billion (up 13% over 2004). About two-thirds of this value came from the purchase of cotton apparel and textiles. Pakistan’s imports from US during the same period were worth $1.25 billion (down 31% from 2004), led by fertilizers and cotton fiber. The State Bank of Pakistan reports a steady increase of FDI in the country with a total exceeding $1 billion for the year ending June 2005. More than one-quarter of this amount came from the United States. It is also estimated that total US assistance to Pakistan for the Year 2006 will be $781 million. Nearly half of that will be military assistance ($300 million).

CONCLUSION

If Pakistan’s “imports competing industries” have to survive, there are reforms that the Pakistan government will have to take. These include economic reforms to reduce the cost of business e.g. rationalization and simplification of tax regimes, regulation in the prices of the factors of production e.g. energy, real-estate, communication, transportation, implementation of rule of law, friendly governance and improving quality of workforce (leading to efficiency gains). BTA are undeniably the need of the hour but are we ready for the re-arrangements that ensue immediately after the FTA is a question still unanswered.

Nevertheless it is highlighted that, the benefits of FTA, for Pakistan, go beyond trade. It is submitted that FTA with US will enhance the attractiveness of local region for FDI. Thus to the extent that the employment generated from foreign investments can make up for the losses of the import competing industries that fail to compete. This approach should underscore that in evaluating joining FTA, the impact of investments should be factored in along with the trade issues. Furthermore, the gains will be greater for Pakistan if the FDI that were generated actually stimulate local investment as well. For this reason, the decision to join FTA should be tied up with investment policy reforms. Simply pursuing FTA without facilitating the investment process may not ameliorate the negative effects on employment in the short run.

On the occasion of President Bush’s visit to Pakistan the President said that the United States wants to “build a broad and lasting strategic partnership with the people of Pakistan.” This partnership is to be implemented through a new Strategic Dialogue in seven major issue-areas as found in the March 4 Joint Statement issued by President Bush and Pakistani President Musharraf. The Joint Statement emphasizes shared U.S.-Pakistan interests and calls for a significant expansion of bilateral economic ties. It is submitted that, sustained economic progress will only be ensured by trade agreements and not by aid and loans.


REFERENCES

Looking before leaping into Bilateral FTAs: Issues in Asian Bilateralism by John Lawrence Avila, Michael Lynch and George Manzano.

A brief History of International Commercial Law.

Free Trade Agreements: US Strategies and Priorities. Edited by Jeffrey J. Schott
Global Trends by Martin Khor
CRC Issue Breif for Congress: Updated 6 March 2006.

The Pros and Cons of Pursuing Free-Trade Agreements: A series of issue summaries from the Congressional Budget Office July 31, 2003

Human Rights Council

Human Rights are defined as basic freedoms or privileges to which all human beings are entitled. These rights include right to life, liberty, thought, expression and equality before the law etc. These rights are considered and accepted inalienable, indivisible and interdependent. However, such statements take us away from the realities of the world or rather reduce our perception of the rights as some normative values that are out there, to be “achieved” or accorded to certain human beings.

Unfortunately, this is not the case. Human Rights have a huge dimension to them. To take one example, human rights without development and development without human rights is not possible. Consequently it has been realized that the implementation of human rights cannot be universal. For example espousing universality without, at the same time addressing underlying inequalities, will only exacerbate them and lead to violations of the very concept of universality and the consequent non-fulfillment of human rights.

Human rights are dependent inter alia on the socio-economic and political environment prevailing in a country. Furthermore the cultural and religious backgrounds of every country play an important role in the fulfillment of human rights obligations. The new “subjective implementation” has helped UN Commission for Human Rights (hereinafter: UNCHR) achieve most of its short-term and long-term goals.

Historically speaking, the response of the world to human rights has been reactive rather then proactive. From the oldest, such as the Magna Carta to the contemporary, e.g. The Universal Declaration of Human Rights, the cause of creation of Human Rights instruments have been violations of human rights. The Magna Carta came into existence after King James’s violation of fundamental rights of the people of Britain. The Universal Declaration of Human Rights was a result of gross violations in World War II. A recent example of such behavior is the serious breaches of human rights in Darfur. Concerns were expressed with regard to possible breaches of human rights, yet they were ignored.

UNCHR, the previous UN body responsible for UN’s human rights activities, had a broad mandate of promotion and protection of all human rights, be it, civil, political, economic, social or cultural. However, the UNCHR proved inadequate due to its lack of structural base coupled with scarcity of resources. Due to these factors UNHCR was unable to perform the duties assigned to it.

Consequently, in the “Millennium Declaration” broad outlines were drawn regarding the change in the UN’s Human Rights agenda. The changes included: technical assistance and support for national human rights institutions and their capacity building, crisis response, conflict prevention and a global programme designed to equip UN “inter-agency country teams” to work with member states to improve their human rights promotion and protection systems.

Mr. Kofi Annan, the Secretary-General of the UN, on numerous occasions pointed out the problems persisting in the UN human rights system. He noted its inability to cope with the changed agenda and calling it under “considerable strain”. Furthermore, the General Assembly recognized that the previous system lacked universality and legitimacy. In his statement to the General Assembly in March 2005, Mr. Annan recommended the creation of Human Rights Council (hereinafter: “HRC").

The HRC came into existence by a resolution adopted by the General Assembly resolution 60/251, on 15^th March 2006. The new Council consists of 47 members. The resolution stipulates that each member state is to be elected by a secret ballot in the General Assembly. Furthermore, each member state has to attain absolute majority in the General Assembly in order to get elected. This would possibly allow countries to block individual states with bad human rights record. It gives HRC the legitimacy its predecessor lacked. (One of the complaints about UNCHR was that it had member who were violators of Human Rights).

HRC is a subsidiary body of the General Assembly and therefore has a higher institutional standing as compared to its predecessor. The frequency of meetings has been increased from once a year (usually in spring) to thrice a year with minimum time duration of ten weeks. Furthermore, it will be able to hold emergency sessions whenever needed. The increase in time would allow the Council to focus on relatively more issues then in the past.

The resolution requires the Council to periodically assess the human right record of all member countries, starting with the countries represented in the HRC. This will be done by a “universal and periodic review” mechanism. It will also give recommendation to the General Assembly for further development of International Law on human rights. Another important aspect of the resolution is that it appreciates and promotes non-government organization for their efforts in relation to human rights.

The resolution insists that no country would be able to evade scrutiny and they will not be able to use the membership of the HRC to shield from criticism of rights abuses. In the past, reporting on human rights matters had problems, e.g. the reports were delayed and at times not submitted at all. Furthermore, many times there were duplications. The new system seeks to redress these issues.

According to the resolution, the distribution of the seats is based on the principle of “equitable geography”. There are thirteen member states from Africa and Asian each, eight member states from Latin America and Caribbean, six member states from Eastern Europe and seven member states from Western Europe and Others. This attempts to give proportional representation to all regions especially developing countries. Now more then half of the members are from Asian and African countries.

The resolution emphasizes that it is the responsibility of all the states to act in conformity with the UN Charter and to respect human rights without any discrimination. It stresses on the need for universality, elimination of double standards and any politicization. Furthermore it accentuates the principles of co-operation and genuine dialogue.

For the HRC, the most contentious issue is the lack of enforcement mechanism, a problem that plagued its predecessor as well. This was one of the reasons why U.S. was initially against its creation. Therefore, protection and promotion of human rights will depend on the attitude of member states and the respect of human rights. Positive attitude will only be achieved when a sense of responsibility and importance is developed. It could be said that HRC will, relatively, be in a better position to sound alarms, give guidance to individual member states e.g. technical assistance etc. but its success will inevitably depend on the co-operation of all the member states.

At the end of its First session in June, HRC decided to meet again for a special session and consider the report on violation of human rights in Palestine and other occupied Arab territories by a fact-finding mission. It is to be headed by Mr. John Dugrad. It is note-worthy that Mr. Dugard and his predecessors have been denied access to the Palestine in the past. Whether this time around Israel allows this mission to carry out its task, is still to be seen. However, Israel should be convinced to co-operate through sustained and unified international pressure. Nevertheless, it is a bold step for the Council to take in its first session.

On the other hand some human rights activists have raised concerns about the fact that the Council runs the risks of falling victim to the same confrontation that dampened the progress of its predecessor. It could be argued that the Council should take a more balanced approach, pointing out any violation by both the parties, Palestinians as well as Israelis.

It should be acknowledged that the change is slow and it will take time before the credibility of the Council is firmly established. After that is done, we could expect the Council to move at a more rapid pace for the realization of the objectives set out in the resolution.

DEMOCRACY: NOT A UTOPIAN IDEA I must suggest that democracy has at times been over rated. It has proven successful but not perfect. It eventually depends upon the few (the so called elected) to be responsible and answerable. No doubt prima feci the option to choose for one self seems to be a very good one, however democracy in a state where people don’t know what is “best” for them doesn’t hold much ground. Let me explain. For example recent success of Hammas in local elections in Palestine. Or consider a population where there are lets say 70 % population under 18. (North West African countries do have such population ratio) Thus a huge portion of the society is underrepresented I think that also answers the failure of democracy and success of dictatorship in those countries. Let’s consider another scenario where well over half the population is illiterate. You can not expect an uneducated person to understand political ideologies, philosophy he would be too busy making his own ends meet, improving his own life or both, taking care of his family than to worry about politics and understand the importance of his voting rite . So under such circumstances e.g. emotional public speakers successfully mislead public.
It is suggested that Rule of Law is more important then the form of government. It could be argued that a responsible government be it authoritarian would be more helpful for the people of the land. One could clearly see that then interest of the West in particular the USA's policy to impose democracy to the Muslim world is entirely motivated by self interest. Further more the policy of USA can (will) have serious repercussion as the democracy might lead to exact opposite results (then to what USA and the West want) namely a conservative and for that matter anti- west government. One could give the exmple of Palestine with its anti Israel policies.
Ok, then lets consider a model, “let those who have shown by their success to be superior minded decide what’s best for others until the population comes to a position where it can truly understand the importance of democracy and its position”.(This is what happened in UK, until early 20th century only 3% of the society were eligible to vote( the higher class ??), society was moving UK had been a great power they had tremendous economic growth and the political system was developing and gradually with the increase in public awareness and education this percentage increased and now generally every citizen above 18 is entitled to vote.) Now it might not be an Ideal solution. Nothing in reality can be perfect but these observations lead me to the fact that democracy though a “beautiful thing” is not entirely flawless. Success of political system does not depend upon the perfection in its ideology but manner in which it is implemented and the way it is run. A political system be it democracy, depends on the people which it will govern and how they adapt to it and accept it.

When I see this forum I see a young, energetic, exuberant and irascible (short tempered) youth willing to do something, to make a change though I fear mostly astray...Any way I want put a discussion on the table: I can say this with the support of Facts that Pakistan inherited “Army” and “Feudalism” where as India inherited a “Bourgeoisie” (upper middle class) which wanted development and a democratic country.What do you all think?

Here is what I have to say When the British came to the shores of the region now called India they came across a majority of people wanting businesses to flourish and economic growth that’s why at the time of partition almost all the industry was in India where as ninety percent of the army of British Empire from sub-continent was from the areas later associated to be Pakistan.

What we came to call democracy was (and is) not democracy, It is an eye wash and reality is that feudalism has been there all along. In Pakistan people have been and are elected for what they are , where they are , what their cast is as rather then to what they have done and what they promise to do for the people who elect them. If you think, a person elected but not answerable to the people would be least keen to do welfare acts for his/her people and one who knows that he has a “vote bank” who will vote him in any event would be interested in only accumulating wealth and doing what interests him. Any way I am not a pessimist and I believe that with the increase in public awareness (e.g. through education) this will change. One could argue that Parliament thus never fulfilled its role but I guess there are improvements as well. For the first time our Prime Minister is a technocrat. These are small changes and hopefully we will have more humanism (a society (a place) where people are known for what they do and not what they are) When we didn’t have 'democracy' we had military dictatorship. What else can I say, words speak volumes, what ever that goes to the government most of it is either remunerated to the army or the debt. I think we made an enemy out of a bad neighbor. Instead of getting into negotiations our first instinct was to fight for our rights. Not arguing that it was the right thing to do or not it didn’t work out did it? On the other hand India. They had democracy through out, though I do not proclaim that it was the best infect it had flaws it had corruption but it was and is a democracy what ever “the elected” did there was and always is the ultimate check of electorate which was proven by the defeat of BJP in the last election.

I hope that what I wrote was informative for some but I sincerely hope that there is disagreement so that I get to learn from the disagreement.ABOUT MEI am a student of Law (University of London) and also doing my graduation in Political Science and Journalism