Jang Business & Finance Review | 21 July 2008
Pak-US trade and investment framework agreement has yet to get off the ground
Does Prime Minister Yousuf Reza Gilani intend to take up the TIFA issue, an agreement signed five years ago, during his talks this week with President Bush in Washington ?
By Kaleem Omar
Signed in June 2003 during President Pervez Musharrafís visit to Washington, the Trade and Investment Framework Agreement was aimed at expanding bilateral economic ties, including trade, between Pakistan and the United States and promoting US investment in this country. Five years down the road, however, the agreement is still bogged down in procedural issues mostly of the USís making and has yet to be implemented. Does Prime Minister Yousuf Reza Gilani intend to take up the matter during his talks this week with US President George W. Bush in Washington ?
The need to expand trade ties with the US and get greater access for Pakistani goods to American markets has become all the important given this country’s ballooning trade deficit, which hit $20.7 billion in fiscal 2007-08 — fuelled mainly by soaring oil prices and the rising cost of imported wheat and palm oil.
The United States is the only major country with which Pakistan has a favourable balance of trade. But many Pakistani export goods are still shut out of American markets, or have only limited access to those markets at best. Unlocking those markets was supposed to be one of the main objectives of the stalled Trade and Investment Framework Agreement.
To make matters worse, no progress seems to have been made on implementing the Science and Technology Agreement concluded at the same time as the trade and investment agreement. Nor has there been any progress on implementing a five-year trade capacity-building programme agreed in June 2003 that was to be launched under the auspices of the US Department of Agriculture’s Commercial Law Development Programme. That five-year period has now run out.
Back in June, 2003 then - Finance Minister Shaukat Aziz, who had signed the Trade and Investment Framework Agreement on Pakistan’s behalf, had said that Pakistan hoped the TIFA would eventually lead to a Free Trade Agreement between the two countries. But neither at that time nor in all the years since then has there been any promise from the US side to follow-up on a Free Trade Agreement.
Aziz, who was also present at the October 2003 talks between Bush and then-Prime Minister Mir Zafarullah Khan Jamali in Washington, had said in June that year that Pakistan attached great importance to the TIFA, which, he had said, would mark “a very positive signal to domestic and foreign investors.”
But neither US nor Pakistani officials have ever spelled out just how the TIFA would work, assuming, of course, that the agreement is not already dead and buried. Would it, for example, facilitate greater access for Pakistani textile goods in the US market, or would the possibility of such expanded access be torpedoed by the American textile industry lobby, as happened in the past ?
The failure of the World Trade Organisation global-trade talks in Cancun, Mexico in September 2003, as well as the failure of several subsequent WTO trade conferences aimed at creating a more equitable global trade regime, has made the access issue even more problematic.
The Cancun talks, which were attended by the trade ministers of more than 120 members of the WTO, ended on September 14, 2003 without reaching any agreement on the contentious issue of slashing agricultural subsidies given by rich nations to their farmers. Nor was there any agreement on the equally contentious issue of giving poor nations greater access to rich-country markets.
The subsidies issue and the greater access issue continue to be the main sticking points blocking the creation of an equitable global trade regime.
The history of other trade talks, such as the Uruguay Round in the 1990s, was that interim meetings rarely produce breakthroughs. It took eight years to finish the Uruguay negotiations, and there were so many mid-points that most officials stopped counting. At Cancun, all that negotiators needed to produce was a progress report and an expression of determination to complete the talks next year ... Yet they failed anyway.
In Cancun, big emerging markets like Brazil, India, China and South Africa had led a group of 22 countries, including Pakistan, to demand concessions from the developed nations before granting any of their own. This resistance is likely to last, even if the coalition does not. All of these countries have implemented many financial reforms in the past few decades, and the easiest steps, like cutting tariffs or shoring up financial-regulatory systems, have been taken for the most part. The next ones, such as further opening up to foreign banks, insurance companies, law firms or agribusiness, are much more difficult politically.
It is against this backdrop that the need to accelerate progress on implementing the long-stalled June 2003 Trade and Investment Framework Agreement between Pakistan and the United States needs to be viewed, especially those provisions of the agreement relating to expanding trade between the two countries.
The stated purpose of the agreement is to strengthen and enhance economic, trade and investment cooperation between the two countries. But will it progressively liberalise and promote trade in goods and services as well as create a transparent, liberal and facilitative investment regime ?
Does the agreement provide a framework for exploring new areas and developing appropriate measures for closer economic cooperation between the two countries ? If so, what will be the yardstick by which this closer economic cooperation will be measured ? Will it be measured by an increase in Pakistani exports to the United States or by an increase in US exports to Pakistan ?
Also, will the Trade and Investment Framework Agreement aim at establishing an open and competitive investment regime that facilitates and promotes US investment in Pakistan ? Will it allow the two countries to address their sensitive areas in the goods, services and investment sectors with flexibility to be negotiated and mutually agreed based on the principle of reciprocity and mutual benefits.
To yield meaningful results, the agreement should aim at the establishment of effective trade and investment facilitation measures, including, but not limited to, simplification of customs procedures and development of mutual recognition arrangements.
Expansion of economic cooperation between the two countries should complement the deepening of trade and investment links and the formulation of action plans and programmes aimed at giving concrete shape to the agreed areas of cooperation.
None of these aims can be achieved, however, unless the two countries establish appropriate mechanisms for the purpose of effective implementation of the agreement.