Tuesday, June 16, 2015

How Will Obama's TPP and TISA Trade Deals Help Pakistan?

US President Barak Obama is pushing legislation to gain fast track authority to negotiate Trans Pacific Partnership (TPP) and Trade in Services Agreement (TISA) as part of his pivot to Asia. TISA faces stiff opposition from Obama's fellow Democrats and organized labor who fear significant loss of American service sector jobs to other TISA member nations. Pakistan is one of the countries that will likely benefit from these trade deals.  President Obama is expected to get the authority he seeks because TPP and TISA are both supported by the pro-business Republicans who now control both houses of  the US Congress.
Member Nations of Trade in Services Agreement (TISA)

Trans Pacific Partnership is crucial for America's Pivot to Asia which is aimed at checking China's rise and maintaining America's continued relevance in Asia. It is part of America's answer to Chinese-led Asian Infrastructure Investment Bank and Silk Road fund to promote Chinese trade with Asia and Europe. China-Pakistan Economic Corridor is the first major piece of this Chinese plan. Pakistan's inclusion in TPP and TISA confirms America's continued interest in maintaining close ties with its old Cold War ally in South Asia.

Trade in Services Agreement is being negotiated among United States, European Union, Australia, Canada, Chile, Hong Kong, Iceland, Israel, Japan, South Korea, Liechtenstein, New Zealand, Norway, Switzerland, Taiwan, Uruguay, Colombia, Costa Rica, Mexico, Panama, Peru, Turkey, Pakistan and Paraguay. These countries make up about two-thirds of the global GDP.

Trade in service is being more and more important with rapid growth in services sector of the world economy. Services now account for nearly two-thirds (64%) of the world GDP with the rest coming from manufacturing (30%) and agriculture (6%). Services account for even higher percentages of GDP in US (80%) and EU (73%).

Service sector is also the largest and fastest growing sector of Pakistan's economy. Services account for nearly 60% of Pakistan's GDP while manufacturing and agriculture each contribute about 20%. It therefore makes sense for Pakistan to join multilateral trade in service deals like TISA.

A key TISA provision likely to benefit Pakistanis is ease of visa restrictions for “Movement of Natural Persons” among member nations which include the United States, the European Union, Japan, South Korea, Australia and Canada. This section discusses commitments by the parties not to place undue burdens on visas and singles out face-to-face interviews as an example of “overly burdensome procedures.” Even before this agreement is in place, there has been a growing ravel from Pakistan to US with 78,000 Pakistanis traveling to the United States on various non-immigrant visas in 2013, the most recent year for which data is available.

Other provisions of TISA would ease outsourcing of a variety of services from America and Europe to Pakistan. These include information technology services, back office services, medical, engineering, legal and accounting services. These outsourced services will help create job opportunities for hundreds of thousands of college grads pouring into the job market every year.

The US-China competition appears to be quite beneficial to Pakistan as both great powers continue to court the country through trade and investment deals. I hope Pakistani leaders will play their cards well to get the maximum help they can to build the country's human resources, infrastructure and economy.

Related Links:

Haq's Musings

Pakistan Third Most Popular Destination For Online Outsourcing

How Will Robots Impact Late Industrializers?

Pakistan Ranks in the Middle For Infrastructure and Logistics in 2014

Pak-China Industrial Corridor

India-Pakistan Economic Comparison 2014

Pakistan's Infrastructure

State Bank Says Pakistan's Official GDP Under-estimated

Pakistan's Growing Middle Class

Pakistan's GDP Grossly Under-estimated; Shares Highly Undervalued

Fast Moving Consumer Goods Sector in Pakistan

3G-4G Roll-out in Pakistan


Akber S. said...

There is GATS, general Agreement on trade in services, of WTO. What is extra benefit of TISA?

Riaz Haq said...

Akber: "There is GATS, general Agreement on trade in services, of WTO. What is extra benefit of TISA?"

TISA deals with services, not material goods, and its benefits are more like NAFTA free trade zone in that sense.

Farooq said...

America has been trying to help us for more than 50 years and see where we are today
it seems they just pick up 100 - 200 people in Pakistan who they help financially and make them millionaires and in return cause Pakistan losses in billions

Riaz Haq said...

Farooq: " America has been trying to help us for more than 50 years and see where we are today"

The biggest responsibility for Pakistan's problems lies with Pakistanis themselves. No one, not even God, can help a people who don't help themselves.

Man gets whatever he strives for; اَنْ لَّیْسَ لِلْاِنْسَانِ اِلاّٰ مَا سَعٰی

Akber S. said...

GATS also deals with service, not goods. U.S. , through TISA, may be negotiating a preferential agreement with Pacific rim countries but not including Pakistan

Riaz Haq said...

Akber: "GATS also deals with service, not goods. U.S. , through TISA, may be negotiating a preferential agreement with Pacific rim countries but not including Pakistan"

GATT was replaced by WTO many years ago. It was signed long before service sectors contribution to GDP became dominant, and well before technology-enabled outsourcing started. Business Process Outsourcing (BPO), for example, is a relatively recent phenomenon. TISA is a much more modern version and, as you can see on the map in my post, it definitely includes Pakistan.

Akber S. said...

GATS. Not GATT. Also, GATT was not replaced by WTO. GATT is part of WTO agreement. So is GATS

Riaz Haq said...

Akber S: "GATS. Not GATT. Also, GATT was not replaced by WTO. GATT is part of WTO agreement. So is GATS."

TISA is a US-led effort being pursued with a subset of WTO membership under GATS Article V.

Let's see if the following answers your question;

The substantive merits of a proposed TiSA would be easy to applaud if the negotiations were being presented for what they are: potentially the largest preferential trade agreement pursued under GATS Article V to date. Based on the limited information that has filtered out of the nascent talks, a number of genuine reservations may be advanced, both procedural and substantive, that the agreement being devised could easily or anytime soon be incorporated into the World Trade Organization (WTO) architecture, let alone replace it.

The advent of TiSA represents a genuine opportunity to further the cause of preferential liberalization in services markets among a coalition of countries representing some two-thirds of the global market. That figure would approach three-fourths of world services trade should China succeed in joining the negotiations. While this remains significantly less than the 90%-95% ratio achieved in recent plurilateral agreements brokered at the WTO in the areas of information technology, basic telecommunications or financial services, it is far from trivial in potential market access terms. - See more at: http://www.tradeforum.org/article/The-trouble-with-TiSA/#sthash.bKSePbQZ.dpuf

Riaz Haq said...

#Pakistan Army Chief Gen Raheel Sharif Visits #Russia to Forge New Ties

http://www.voanews.com/content/pakistan-army-chief-visits-russia-to-forge-new-ties/2825903.html …

This recent thaw between the cold war rivals is a “natural outflow of Russia’s concern about what is going to happen to Afghanistan after the withdrawal of the U.S.,” explained Nandan Unnikrishnan, who has served as Press Trust of India’s bureau chief in Moscow for several years.

If Afghanistan becomes unstable, the spread of militancy and Islamist radicalism is expected to spread to the weak states around it.

“The weak states are not China and Iran,” explains Center for Strategic and International Studies analyst Michael Kofman, who focuses on Russia and has worked on Pakistan.

Most of the Central Asian states around Afghanistan have porous borders, weak governments, and varying degrees of autocracies which makes them prone to instability or ethnic conflict. Militants from some of these states are already present in both Afghanistan and Pakistan.

“Frankly Tajikistan, Turkemenistan, Kyrgyzstan, these are all great targets, and Uzbekistan too,” Kofman said.

This is Russia’s backyard. Russia has a military presence in several of these countries and a large military base in Tajikistan.

Furthermore, there is a sizeable Muslim population inside Russia. So far the country has not faced issues of radicalization and militancy but it is not immune from them, particularly if the neighboring states fall victim to them.

Another reason for Russian overtures toward Pakistan may be to gain leverage with the Afghan Taliban via Islamabad in case the elected Afghan government falls.

“In the minds of Russian security services there is little doubt that Pakistani intelligence services and Pakistani establishment have very strong links with some of the Afghan Taliban,” according to Indian journalist Nandan Unnikrishnan.

Russia’s attempt at redefining its relationship with Pakistan comes at the risk of upsetting India, its traditional ally and largest defense sector customer.

However, Russia has justified this by pointing out that India has also looked to its rival, the United States, for its purchases. In the last few years, the U.S. has surpassed Russia to become India’s largest arms supplier.

Russia may also be looking to Pakistan as an untapped market. Pakistan’s direct defense trade with Russia has been limited, $22 million a few years ago compared to billions of dollars of trade with India.

Pakistan has usually received Russian equipment through China, which is not known for making aircraft engines and often uses Russian engines in its planes.

One of the benefits for Pakistan in trading with Russia will be “to cut out China as the middle man and save a lot of money,” according to Kofman of CSIS, who pointed out that Pakistan’s JF-17 Thunder aircraft, jointly developed with China, and recently in the news for receiving its first foreign order, uses Russian engines.

He also explained that the extent of this defense cooperation will depend on how much money Pakistan can spend.

“Russia, at the end of the day, is not in a position like the United States to subsidize defense deals,’ he said.

However, in a post Ukraine world of increased hostilities between Russia and the West, it is in Russia's interest to show that it is not isolated and has partners willing to do business with it.

Meanwhile, the United States has long encouraged countries in the region to take a greater interest in the stability of Afghanistan and has strongly supported China’s efforts in facilitating peace talks between the Afghan Taliban and the government of Afghanistan.

Many analysts think that at this point the United States is happy to have any actor that can contribute towards stability in Afghanistan, including rivals Russia and China.

Anonymous said...


Riaz Haq said...

Anon: " http://www.wsj.com/articles/south-asia-bets-on-prosperity-1434649303"

Apparently, this guy SADANAND DHUME does not understand the scope and scale of Pak-China Industrial Corrdor, nor has he heard about India's declining trade for the last 6 months:

#Modi's #India’s exports contract for a sixth month, down 20.2% in May - Livemint #MakeInIndia

http://www.livemint.com/Politics/DQcWH6FIUXGnhDpFfLbmFP/Indias-exports-contract-202-in-May-their-sixth-monthly-f.html …

The Indian commerce ministry announced on Tuesday that India’s exports fell 20.2 percent compared with the same month last year (LiveMint, Reuters). This announcement makes May the sixth consecutive month in which exports have fallen and this is the the longest such streak since 2009. The ministry also announced that imports fell by 16.5 percent, bringing the overall trade deficit to a 3 month low. According to the data gathered by Bloomberg, in May, oil imports fell 41 percent to $8.53 billion, non-oil imports fell 2.2 percent to $24.21 billion however gold imports grew 10.5 percent to $2.42 billion. A weakening rupee and an acceleration in inflation indicates maneuverability is decreasing for Reserve Bank of India (RBI) governor Raghuram Rajan to lower interest rates any further. RBI has already cut the interest rates in the country three times this year.

The Indian rupee touched the day’s low soon after the data. The currency has weakened 2.1% over the past three months, the fourth-worst performance among 24 emerging market currencies tracked by Bloomberg. Bloomberg


Anonymous said...

'The Indian commerce ministry announced on Tuesday that India’s exports fell 20.2 percent compared with the same month last year (LiveMint, Reuters).'

This is merchandise exports only India's CAD has also fallen in the past six month.Why?

India's main merchandise exports are petroleum products,gems and jewelry,engineering goods,pharma,textiles and autos.

The fall is almost entirely due to decline in value of crude oil(which means lower prices for petroleum products) and gold(which means lower prices for gold jewelry) which is more than compensated by a much reduced gold and crude oil import bill hence the declining CAD.

Btw S Korean exports are also down by 15% this month as are those of most other countries.

Riaz Haq said...

Anon: "The fall is almost entirely due to decline in value of crude oil(which means lower prices for petroleum products) "

Petroleum products make up about 20% of India's merchandise exports. If you are correct that the entire 20.2% decline is due to petroleum prices, does that mean India's petroleum exports are near zero?


Anonymous said...

Petroleum products value is down by 50%,Gems and Jewelry value is down by around 30-40%.These two account for around 80% of the drop in exports.Excluding these two the decline is about 4% which is more than compensated by decline in crude oil prices.

Indian Crude imports > Indian petroleum exports.

The key thing to look at is the CAD.That has dramatically improved and is now around 1% of GDP well below the safe threshold of 2%.The latest PMI numbers from India are pointing to a manufacturing revival.

Still no room for complacency.

Anonymous said...

Riaz, does Pakistan like India violate the Hague Convention ( on the legalization of documents ) by insisting that all documents originating abroad should be further attested/legalized by Indian Missions abroad and slyly getting the applicants to sign an undertaking that no legal action will be taken against the Indian Mission, concerning the matter, no refund of attestation/legalization charges will be made,and responsibility will fall on the applicant.
This violation of the Hague Convention results in massive headaches seeking to present documentation in India. As you may be aware photocopying is a major industry in India.

Riaz Haq said...

TPP can hurt India, Pakisran

Financial services company India Nivesh has warned that when the Trans Pacific Partnership (TPP) comes into effect, India would be negatively impacted to a major extent; though India would not be the only country at disadvantage. China, Pakistan, Bangladesh, Sri Lanka and other non-members of TPP would also be adversely affected.

The US is in advanced stages of closing the Trans Pacific Partnership (TPP) agreement – one of the largest free trade agreements signed involving 12 countries.

In a report,India Nivesh said the entire supply chain would undergo a major change as Vietnam would enjoy duty free access to one of the largest textile and apparel market i.e. the US. This would render other non-member countries at disadvantage reducing their competitiveness in the global market.

The report said Indian companies can try to work around the TPP by establishing capacities in Vietnam and take benefit from TPP instead. China has already begun investing in Vietnam to benefit from TPP.

This is a huge opportunity for Indian companies as they have various incentives from Indian and Vietnamese governments. To take advantage of yarn forward rule, spinning and weaving capacity would be more beneficial, as garment capacities are in abundance in Vietnam.

With the nearing expiry of Technological Fund Scheme by March 2017, setting up capacities in Vietnam offers an alternative for cost effective expansion. India would be positive on companies establishing their manufacturing capacities in Vietnam especially in spinning and weaving, as they exhibit their foresightedness to take advantage of benefits of TPP.

Currently, companies are evaluating the investment scenario in Vietnam. As per media reports, Aditya Birla group is considering an investment in Vietnam in the weaving and dying segment of the industry. Also, Welspun group is considering an investment in Vietnam, the report said. (SH)


Riaz Haq said...

Abheek Barua & Bidisha Ganguly: Has global trade lost its mojo?

When market economists get caught up in small ups and downs in data releases, they tend to miss the big picture. One major trend that has not received the attention it should is the significant decline in the value of global trade in 2015 for the first time since the global financial crisis. The question to answer then is whether this is a cyclical phenomenon - slow global growth is likely to mean lower imports and exports or a change in trend. The latter would indeed be worrying, as expansion in trade has been an important driver of global productivity gains. To quote noted economist Gavyn Davies, "the expansion of global trade seems to have lost its mojo".

Let's look at some numbers. According to the International Monetary Fund, world exports in goods and services (measured in US dollars) declined by 10.9 per cent while exports of goods alone declined by 12.5 per cent in 2015. The World Trade Organization (WTO) database shows a marked moderation in the annual growth in world trade volumes, which has fallen steadily from 4.2 per cent in the fourth quarter of 2014 to one per cent in the same quarter of 2015.

This decline is somewhat conveniently attributed to three factors: the rise in the US dollar (that makes values in other currencies translate to less in US dollars), the fall in commodity prices and the replacement of outsourcing with domestic production, particularly by firms based in China. A recent report from the think tank Centre for Economic Policy Research ("The Tide Turns? Trade, Protectionism and Slowing Global Growth" by Simon J Evenett and Johannes Fritz), rejects the interpretation that these are the only factors affecting global trade.

According to them, world export volumes are currently two per cent below their peak, breaking the upward trend apparent since the global economy emerged from the crisis in 2010. Global trade is not just slowing down, it is falling, too. And this cannot be explained by either commodity prices or exchange rates. After decomposing the recent fall in trade values, the authors find that while the collapse in commodity trade stands out, trade in other categories including intermediate, capital and consumer goods also stand at 10 to 20 per cent off their peaks in 2014.

Another hypothesis is that the fall in global trade is actually the result of improved efficiency - companies are reconfiguring their supply chains, buying more of local components, keeping their inventories tight. The report takes a step forward and segregates manufactured products into two categories: ones where parts and components are included within the category and others that are essentially final goods. The contraction in trade involving parts and components is substantially less than the decline in final goods trade. This, the authors believe, casts doubt on the importance of supply chain reconfiguration as a critical explanation of the fall in global trade.

Instead, they find that the products whose exports have fallen are the very same products where G-20 countries have imposed trade restrictions since the beginning of 2014. They argue there has been a rise in the worldwide spread of protectionist measures, with a variety of measures being used to protect domestic businesses. In addition to tariff hikes, these include measures such as subsidies and bailouts, localisation requirements as well as measures against import surges.