Tuesday, March 6, 2012

Should Pakistan Ignore "Washington Consensus" on Free Trade?

East Asian experience has some important lessons for Pakistan as the country embraces the western prescriptions of democracy and free trade. It's particularly important to recall these lessons now in view Pakistan's decision to open unrestricted trade with India whose major industrialists like Tata and Birla have greatly benefited from protectionist policies to scale up and gain experience.

The East Asian nation of South Korea has become a great model of economic success for the developing world. Back in 1960s, its annual per capita income was around $80, less than half of Ghana's at the time. Today, it stands at $30,000, comparable to that of some wealthy European nations. For most of this period, the people of South Korea have ignored the Washington consensus, the western prescription on economy and politics, to achieve this miraculous progress.

In 1960s and 1970s, Korea was led by military ruler General Park Chung-Hee who put in place the policies which helped Koreans realize their great potential. President Park made huge investment in infrastructure, health and education. In addition, South Korean analyst Ha-Joon Chang says that the Korean government "practiced many policies that are now supposed to be bad for economic development: extensive use of selective industrial policy, combining protectionism with export subsidies; tough regulations on foreign direct investment; active, if not particularly extensive, use of state-owned enterprises; lax protection of patents and other intellectual property rights; heavy regulation of both domestic and international finance."

Pakistan, too, was ruled by a military dictator General Ayub Khan in a period labeled by Pakistani economist Dr. Ishrat Husain as "the Golden Sixties". General Ayub Khan pushed central planning with a state-driven national industrial policy. In fact, South Korea sought to emulate Pakistan's development strategy and copied Pakistan's second "Five-Year Plan".

Here's how Dr. Husain recalls Pakistan of 1960s:

"The manufacturing sector expanded by 9 percent annually and various new industries were set up. Agriculture grew at a respectable rate of 4 percent with the introduction of Green Revolution technology. Governance improved with a major expansion in the government’s capacity for policy analysis, design and implementation, as well as the far-reaching process of institution building. The Pakistani polity evolved from what political scientists called a “soft state” to a “developmental” one that had acquired the semblance of political legitimacy. By 1969, Pakistan’s manufactured exports were higher than the exports of Thailand, Malaysia and Indonesia combined. Though speculative, it is possible that, had the economic policies and programs of the Ayub regime continued over the next two decades, Pakistan would have emerged as another miracle economy."

South Korea's Chang has exposed the hypocrisy of the West by explaining that the "G7 was always remarkably reluctant to recommend these (South Korea's) "heterodox" policies and insisted that the "Washington consensus" package of opening up, deregulation and privatization was the right recipe for everyone. When confronted with the Korean case, Washington consensus supporters tried to brush it off as an exception. However, the history of take-offs in most of the G7 countries – especially Britain, the US, Germany, France and Japan – is far closer to the Korean model than is commonly thought. The "unorthodox" policies used by Korea and almost all of today's rich countries need to be seriously considered in any discussion on development options."

Since the great success achieved by South Korea and other Asian Tigers in the latter part of the 20th century, China has become the latest example to have followed the East Asian development model with great results for what is now being dubbed the Asian century. Each of these nations has done it by ignoring the Washington Consensus about democracy, free markets and free trade.

As Pakistan embarks on a new course in trade, it's important for its leadership to recognize the wide gap between the theory and practice of the "Washington Consensus" to effectively safeguard its economy, domestic industries and jobs for Pakistanis to develop and prosper in the 21st century.

Related Links:

Haq's Musings

Ishrat Husain: Structural Reforms in Pakistan's Economy

Pakistan's Bilateral Trade Agreements

Role of Politics in Pakistan Economy

History of Pakistan Economy 1947-2010

Pakistan's Economic Performance 2008-2010

Incompetence Worse Than Corruption in Pakistan

Pakistan's Circular Debt and Load Shedding

US Fears Aid Will Feed Graft in Pakistan

Pakistan Swallows IMF's Bitter Medicine

Shaukat Aziz's Economic Legacy

Pakistan's Energy Crisis

Karachi Tops Mumbai in Stock Performance

India Pakistan Contrasted 2010

Pakistan's Foreign Visitors Pleasantly Surprised

After Partition: India, Pakistan and Bangladesh

The "Poor" Neighbor by William Dalrymple

Pakistan's Modern Infrastructure

Video: Who Says Pakistan Is a Failed State?

India Worse Than Pakistan, Bangladesh on Nutrition

UNDP Reports Pakistan Poverty Declined to 17 Percent

Pakistan's Choice: Talibanization or Globalization

Pakistan's Financial Services Sector

Pakistan's Decade 1999-2009

South Asia Slipping in Human Development

Asia Gains in Top Asian Universities

BSE-Key Statistics

Pakistan's Multi-Billion Dollar IT Industry

India-Pakistan Military Comparison

Food, Clothing and Shelter in India and Pakistan

Pakistan Energy Crisis

IMF-Pakistan Memorandum of Economic and Financial Policies


Anonymous said...

riaz jee

The vision to sacrifice current luxuries for future gains comes from having a visionary like Nehru or Park Chung hee at the top.

Zardari doesn't quite figure in this league.Enjoy Indian products(rebranded with Daewoo or other 'polically correct' names when your in Pakistan next time.)

Just recently Pakistan awarded a major tender for transformers to Pauwell's of Belgium including a manufacturing facility in Pakistan(fine print:Its wholly owned by Indian company Crompton Greaves)

vicks1980 said...

'visionary like Nehru or Park Chung hee at the top.'To compare Nehru to Park Chung Hee is a bit of a joke...Nehru's list of failures is long but the main one is that in his fanatical and blind obsession with a socialist system, he condemned millions of Indians to remain in absolute poverty. It was certainly not about sacrficing 'luxuries for future gain': in Nehronomics, India would have been left in permanent sacrifice. It required the threat of bankruptcy to cleanse India of some of Nehrunomics. It still hasn't been cleansed well enough though, which accounts for the woes that Mr Haq gleefully keeps on parrotting over and over again.

Anonymous said...

Nehru's list of failures is long but the main one is that in his fanatical and blind obsession with a socialist system, he condemned millions of Indians to remain in absolute poverty.

yeah right and our industrial base just dropped out the clear blue sky post 1991 reforms didn't it?

Riaz Haq said...

Here's a BBC story on US challenging India poultry ban in WTO:

The US has dragged India to the World Trade Organization challenging its ban on imports of American poultry.

India has banned shipments of US farm products, including poultry meat and chicken eggs, since 2007 to prevent the spread of avian flu.

US authorities said India had imposed the ban to protect local industry and that it violates global trade rules.

The move comes just days after the US created a new panel to crack down on unfair trade practices by its partners.

Ron Kirk, US Trade Representative, said that India's ban was "clearly a case of disguising trade restrictions by invoking unjustified animal health concerns".

"The United States is the world's leader in agricultural safety and we are confident that the World Trade Organization will confirm that India's ban is unjustified."


Anonymous said...


Unfair trade practices? This from the country with the highest subsidy for its on farm sector.

In any case bring it on!:)

Anonymous said...

South Korea,Taiwan,Japan could get away with blatantly mercantalist trade policies because they were on the frontline against communism and the west had other priotities back then so treated them with kid gloves.

Mercantalism obviously is the best model IF you are allowed to get away with it.The point is people have wisened up and S Korea type modernization is basically impossible in todays enviornment.

Chinese growth is stalling as it is simply too big to export its way to prosperity on a per capita basis the world economy is simply too small for China to be exporting as much as south korea as % of GDP when its income approaches 25,000 USD per capita.

vicks1980 said...

@Anonymous: We don't have much of an industrial base unfortunately. To have stifled private enterprise and invested millions in a handful of heavy industries which kept on producing shoddy goods was among Nehru's crimes. And because of that misplaced zeal for the 'temples of modern India', we ended up neglecting basic infrastructure which is why we continue of have this mass of the illiterate, hungry and poor. What is required today is to throw off the yoke of Nehru and Indira and Rajiv and indeed, that entire dynasty.

Anonymous said...

In the context of the examples that you provide and in my own humble opinion, i fully support the idea of the "east asian development model", so to speak.

This is beginning to make more sense, especially in the indian context. The idea of democracy is proving to be more of a burden than an enabler.

The multitude of voices only creates chaos. Debates and discussion are passed off as an excuse of tangible action.

In the indian context, add to this - the federal structure of governance, vested interests of the regional political parties, and undermining of the authority of the centre - and voila...we have the perfect recipe for policy paralysis.

A regime which practices democracy right down to the letter, I feel, is the answer, but also unlikely. The limitations that regional politics imposes, is fast threatening the Indian growth story and making the double digit growth figures all the more elusive.

Ashmit (India)

Tahir K. said...

Thank you for the input on the question of trade with India, a clear cut recommendation was not visible.

What ever I have learned from various discussions on the TV on this subject, it shows that the Indian goods are reaching Pakistan through a third country where they are exported by India and labelled as Made in Taiwan or Singapore etc, but in the process Pakistan ends up paying 20 to 30% extra to cover profits of two countries, India and the third country, plus significant additional amount for freight etc.

So what is the harm in importing these same items directly from India and save 30%, without increasing India's profit or sale, in this process we will be able to sell some things like cement etc to the large Indian market.

Any comments?

Riaz Haq said...

Tahir: "Thank you for the input on the question of trade with India, a clear cut recommendation was not visible."

I am not against trade with India or anyone else for that matter.

But it's naive to go into it with the orthodoxy of the Washington Consensus that there are only benefits and no downsides for Pakistan.

Rather than being motivated to engage in free trade as a matter of faith, Pakistanis need to learn to play this game of trade artfully to their advantage, as others like East Asians and Europeans have done.

At a minimum, Pakistan should implement MFN trade with India to ensure it's a win-win for the long-term, not a win-lose proposition.

Riaz Haq said...

Vicks: "We don't have much of an industrial base unfortunately. To have stifled private enterprise and invested millions in a handful of heavy industries which kept on producing shoddy goods was among Nehru's crimes"

Regardless of Nehru's many flaws, I would give him credit for laying the foundation of India's eventual economic success by doing the following:

1. Investing in India's higher education sector by establishing the elite IIT system.

2. Supporting & protecting industrialists like Tata & Birla as a strategy to promote heavy manufacturing.

3. Emasculating the powerful landowners to marginalize their power & influence in Indian politics.

Anonymous said...

Chinese Free Trade Imports have led to over Thirty Pakistani Industries having gone up the creek without a paddle. They are closed – wiped out.

Pakistani Industrialists can only take that much. The closures due to Free Trade with India will break the Camel’s back.

Riaz Haq said...

Here's a report about the process South Korea is using to protect its industries before deciding on FTA with China:

South Korea plans to fully consider potential fallout for "sensitive industries" that may be hurt if a free trade agreement (FTA) with China is reached, a senior government policymaker said Friday.

Trade Minister Park Tae-ho said in a meeting with large industrial organizations that the government plans to do all it can to reflect the views of local manufacturers and the farming sector in formal FTA talks with Beijing.

"Every effort will be made to constantly listen to the opinions of farmers, fishermen and businesses that may be affected by market opening," he said.

The official said that with China’s domestic market growing at a robust pace, there is a pressing need to formulate a strategy to capture market share ahead of increased competition, hinting that a FTA will give South Korea an extra advantage.

Related to the stance by the trade minister, Lee Dong-geun, the vice chairman of the Korea Chamber of Commerce and Industry, pointed out that China is already the world’s No. 2 economy and the largest importer of South Korean goods.

"In the medium to long term, a South Korea-China FTA is inevitable," he claimed.

The business group leader, however, stressed that Seoul must try to win concessions from China in certain sectors that are vulnerable such as the farming and industries currently dominated by small and medium enterprises (SMEs). SMEs generally do not have the competitiveness of big conglomerates like Samsung and Hyundai, and could be hit hard if cheaper priced products pour into the country.

At the same time, Lee said negotiators need to get China to open its service and government procurement markets, as well as address non-tariff barriers and other complications, and administrative red tape that have hindered investments.

Other business groups such as the Korea Automobile Manufacturers Association, the Korea Association of Machinery Industry and Korea Federation of Textile Industries concurred on the need for a FTA, yet called for various safeguards.

They called for special safeguards to legitimately stem sudden surges in cheap imports and measures to prevent unfair trade practices such as illegal undercutting of goods prices that can distort the market and hurt local firms.


Anonymous said...

1. Investing in India's higher education sector by establishing the elite IIT system.

2. Supporting & protecting industrialists like Tata & Birla as a strategy to promote heavy manufacturing.

3. Emasculating the powerful landowners to marginalize their power & influence in Indian politics.

POINT 2 AND 3 are because the Industrialists financed the Congress party and the feudals(both indu and Muslim) were pro British.Which is why the congress party broke the back of natural 'traitors' which was agenda #1.Lots of rank and file congress members had personal axes to grind against the feudals.Which is why in most Hindi movies feudals/zamindars are always shown in a bad light.

He did not support the industrialists out of some grand vision but the neessity of financing the congrss party machinery.

His commanding heights theory favoured large public sector companies many of which were a drag on the Indian economy.He explicitly BANNED India Inc from defence due to his fears of a military industrial complex forming and subverting democracy blah blah.He was a bit too much of a thinker you see.

Also absurd situations occured due to his fabian socialist mistrust of private capital.He banned highly competent companies like L&T and Tata from entire sectors like defence and instead reserved these for DRDO's infamously incompetent companies the result is we import massive amounts of arms from western private companies but disallow our own world class corporations for doing the same.

Though that is changing(at last!).The hull of our nuclear submarine is made by L&T and the Combat management system is made by TATA advanced systems.

This is basically their first major defence project and it is on time and under budget!Just imagine the success if they were involved similarly in everything else!

Pradeep said...

According to EIU, Pakistan and to a lesser extent India have hurt their economies directly as a result of the hostile relations and lack of trade.

Since independence, Pakistan's GDP took a hit of 1% per year which roughly means each Pakistani would have been 80% richer than what he is today. India on the other hand suffered a hit of 0.25% per year which indicates average Indian would have been 20% better than today.

Riaz Haq said...

Here's an LA Times Op Ed on US democracy groups working in developing nations:

Now that seven American pro-democracy workers have been allowed to post bail and return to the United States, perhaps we can examine what the U.S. was up to in Egypt using reason instead of patriotic emotion. The Egyptian furor over such seemingly idealistic work may strike us as wild and idiotic, but in fact, the Egyptians have a right to be suspicious. America's attempt to promote democracy around the world through private organizations has unsavory beginnings and a sometimes troubling history.

The program stems from a discredited CIA operation. In the 1950s and '60s, during the Cold War, the CIA set up a group of phony foundations to funnel CIA money to private groups that were either anti-communist or, at least, non-communist. Among the recipients were the AFL-CIO, the National Student Assn. and the magazines Encounter in London and Transition in Africa. Some did not even realize they were operating with CIA subsidies. When the secret operation was exposed in Ramparts magazine and other U.S. publications, there was great embarrassment, and President Lyndon Johnson put a stop to such CIA funding.

But many in Congress felt that the program's problem lay only in its ties to the CIA. Cut those ties and make everything aboveboard, they argued, and the attempt to win hearts and minds to the American way would be useful and benign. In the 1980s, during the Reagan administration, Congress created the National Endowment for Democracy to take the place of the defunct CIA program.

Under the law, the endowment divided its money among four new institutes created to sponsor programs encouraging democracy throughout the world. The four institutes were run by the Republican Party, the Democratic Party, the AFL-CIO and the U.S. Chamber of Commerce, supposedly ensuring the participation of the major American ideologies and interests.


Anonymous said...

At a minimum, Pakistan should implement MFN trade with India to ensure it's a win-win for the long-term, not a win-lose proposition.

nice sounding statement only that Pakistani industry is non competetive vis a vis Tata and the gang who routinely beat European industry in their own back yard for industrial contracts.

What Pakistan should do now is raise high tarriffs on ALL INDUSTRIAL IMPORTS and buy local even abysmal quality stuff like S Korea and India did when the base was being built.

PAkistan is not a small singapore that can live on trade and services without an industrial base the economy will not have any backbone and always be dependant on foreign benefactors.

Alas not very likely.

Anonymous said...

What Pakistan should do now is raise high tarriffs on ALL INDUSTRIAL IMPORTS and buy local even abysmal quality stuff like S Korea and India did when the base was being built.

Amen and Zardari is going to lead Pakistan supported by the wise Pakistani army when he imposes tariffs on imports from 'higher than mountains' friend China!

Good luck!

Anonymous said...


That plus the fact that tax/GDP is about 8% and the country needs IMF/US etc etc funds to survive.

You don't build your own industrial base with someone else's money!

Riaz Haq said...

Anon: "You don't build your own industrial base with someone else's money! "

Most of India's economic boom has been driven by foreign inflows, and their recent drop has cooled Indian economy.

Anonymous said...

A SAARC FTA will resemble NAFTA a lot more than the EU in europe Germany,France,UK are roughly the same size with Italy,Spain about 50% of these thus self balancing.

In S Asia India is 10 times the size of Pakistan and growing 3 times faster.

Also and this is not PC Europeans are all white Christians (look at the way they keep refusing Turkey admission) Is India seriosuly ready to share its economic gains with muslim neighbours? or tie its economic fate with their success or failure?

I think not.Though by the time the FTA with India gets finalized the Chinese would have wiped out Pakistan's light industry anyway so in that way I don't see any extra harm that can be done to PAkistan by India.

Riaz Haq said...

Here's an McClatchy story on Iran-Pakistan trade:

KARACHI, Pakistan -- Iran and Pakistan are negotiating a barter deal in which Pakistan would supply up to 22 million tons of wheat in return for discounted electricity and petroleum products, Pakistani business leaders involved in the talks said.

The proposal is part of a broader trade package being pursued by the neighboring states as Iran scrambles to find new suppliers to replace trading partners scared away by U.S. sanctions that have made it increasingly difficult to trade with Tehran.

While Iran and Pakistan haven't been major trading partners historically, economic ties between the two nations are growing stronger - particularly with the construction of a pipeline to carry Iranian natural gas to energy-starved Pakistan, a project scheduled to be completed by the end of 2014.

The Pakistani government has vowed to go ahead with the pipeline project - despite repeated warnings from Washington that it would violate U.S. sanctions - because its economy has been hamstrung by major shortages in electricity and gas supplies.

Pakistan's enhanced ties with Iran have irked U.S. officials and contributed to tensions between Washington and Islamabad, impeding U.S. efforts to enlist Pakistan's help in finding a peace deal in neighboring Afghanistan.

Iran is locked in a confrontation with the United States and Western powers over its nuclear program, which the West says is aimed at developing a nuclear weapon, while Iran insists it's for peaceful purposes. Since the imposition of harsher U.S. and European sanctions in recent months - aimed at choking off Iran's international oil sales - Iran has offered energy products to Pakistan on increasingly softer terms.

Having completed its section of the natural gas pipeline, Iran has offered Pakistan the $250 million it needs to finance its section. Tehran also has offered to increase oil exports to Pakistan while deferring payment - a favor Pakistan's major suppliers, Saudi Arabia and Kuwait, have declined to grant - and has proposed to pay for Pakistani food exports with discounted electricity and petroleum products.

Zardari is seeking to expand the arrangement to include Turkey, a major Iranian trading partner, as part of a push to build regional trading blocs within Asia.

Much of the envisioned expansion in Pakistani trade with Iran is likely to be conducted as barter, with prices based on dollar-denominated international commodity rates, the business leaders and banker said.

That's because Iran's political troubles would translate to discounted terms for their Pakistani trading partners. The arrangement would be viable for Iran because it plans to use imported Pakistani commodities as raw materials for its manufacturing sector to produce value-added goods, they said.

The Pakistani business leaders said smugglers would cash in on the opportunities generated by U.S. sanctions, whether legitimate businesses did or not.

"There is already considerable informal trade between the two countries, especially in cheap petroleum products, because of the shared land border," said Zulfikar Thaver, president of the union of small and medium enterprises. "The authorities on both sides privately condone it because it helps redress domestic imbalances in supply and demand."
The proposed trade is too massive to be conducted by road, so Pakistani wheat exports would have to be carried by ship. But freight insurance has become more difficult to obtain because the private clubs of ship owners that tend to provide that insurance are beginning to shy away from Iran-bound cargoes, fearing the impact of further U.S. and European sanctions.

Read more here: http://www.miamiherald.com/2012/03/12/2689971/seeking-new-trade-partners-iran.html

Riaz Haq said...

Here are excerpts of an Express Tribune by Dr. Ishrat Husain on investments & rule-of-law:

Growth rates in Pakistan since 2008 have declined to almost half of the level achieved in the preceding four years. The investment ratio in 2010-11 has been the lowest in the history of Pakistan. Most of the discussion on the stagnation and decline of the economy has rightly focused on fiscal deficits, energy shortages, inflation, and high interest rates. But the relationship between the rule of law and investment and business development is not much talked about in popular discourse. In the absence of a conducive legal environment, uncertainties created by other factors such as political instability, security, law and order, energy, etc., would make matters worse. But a well-functioning judicial system can reassure the investor and act as a countervailing force to these other negative attributes. An investor will part with his financial savings and share his expertise and experience only when he is assured that the firm will make profits. To achieve this, non-discriminatory and impartial application of law, enforcement of contracts, protection of property rights and speedy disposal of cases are necessary.
While we all rightly criticise the informal jirgas, sardari practices and Qazi Courts, the fact remains that we have been unable to extract the essential ingredients of these informal systems and enrich the formal legal systems. The uprising in Malakand Division was inspired by the mullahs who contrasted the speedy and expeditious justice of the Shariah Courts in the days of Wali of Swat, with the established judicial system applied in the area since the merger of Malakand in the province of Khyber-Pakhtunkhwa.
Access to judiciary is limited to only those who can afford good lawyers and pay their enormous fees and expenses. Unequal access to justice is one of the main factors that perpetuates the patronage capacity of politicians and, in turn, leads to poor economic governance. Feudalistic ethos that pervades our governance structure cannot be altered until all citizens are treated equally by law. Today, it is only the rich who can manipulate the system to their advantage.
As one of the leading Pakistani lawyers has so aptly commented that the English model –– on which the Code of Civil Procedures (CPC) 1908 was based –– was discarded even in England, a long time ago. The English model “preferred form over substance on account of this fundamental flaw, litigations continue in Pakistan for decades while lawyers squabble over issues of virtually no consequence. In each litigation there is a lawyer seeking justice for his client and an opposing lawyer who will very successfully prolong and delay the litigation, while liberally drawing upon various dilatory provision of CPC. Knock outs on the basis of hyper-technicalities and the causing of abnormal delays are, in fact, appreciated and considered ‘assets’ and ‘qualities’ of astute lawyers.”


Riaz Haq said...

A recent book "The Growth Map" features Goldman Sachs' Jim O'Neill's personal account of the BRIC phenomenon, how it has evolved, and where those four key nations currently stand after a turbulent decade.

And the book also offers an equally bold prediction about the "Next Eleven" countries: Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey, and Vietnam. These developing nations may not seem exceptional today, but they offer exciting opportunities for investors over the next decade, just as BRIC did before them.


Riaz Haq said...

Here's a Reuters' report on India seeking to mine iron ore in Afghanistan & transport through Pakistan:

India will explore a route through rival Pakistan to transport iron ore from Afghanistan, the head of a consortium involved in the $11 billion project said, hoping that economic benefits will outweigh political hostility.

Despite a spike in tension in Afghanistan and uncertainty over the future once foreign combat forces leave in 2014, India was committed to developing the Hajigak mines and a 6 million tonne steel plant alongside, C. S. Verma, chairman of Steel Authority of India, told Reuters in an interview.

A contract is to be signed in two months in what will be the biggest foreign investment in Afghanistan's resources sector, larger than the $4.4 billion the Chinese are investing in the Aynak copper mine.

Mining work is expected to begin in late 2014 just when Afghan security forces take over security responsibilities and it remains a big concern whether they will be able to tackle a Taliban insurgency at its worst.

For the Indians, the challenge of transporting the ore out of the landlocked country is an additional issue given they have no direct access.

Pakistan is the obvious route and the alternative is a longer way westwards to Iran and then shipping it through the port of Chabahar that India has promoted to reduce Afghanistan's dependence on Pakistan.

But Verma told Reuters that the consortium made up of seven state and private firms was looking to move the ore along Pakistani roads crossing over to India, believing the benefits far outweighed political hostility between the two countries.

"What we have here is a gold mine, more than just an iron mine. I believe this is what everyone else will eventually realise. Ultimately the economic interests of everyone in the region including Pakistan will take precedence".

The Hajigak deposit contains an estimated 1.8 billion tonnes of ore, with an iron concentration of anything between 61 percent to 64 percent. "Where will you find such high grade ore? People have invested in mines elsewhere in the world with much less ferrous content," Verma said.

India, he said, would pursue the Pakistani option both as a way to truck the ore out and a route to build a slurry pipeline. "We are very bullish and believe that over the longer term this will be a productive investment. Not just for us, but others in the region including Pakistan. There are license fees, logistics, etc."..


Riaz Haq said...

Here are excerpts of an Op Ed in The Atlantic titled "The White Savior Industrial Complex"
By Teju Cole:

What Africa needs more pressingly than Kony's indictment is more equitable civil society, more robust democracy, and a fairer system of justice.
1- From Sachs to Kristof to Invisible Children to TED, the fastest growth industry in the US is the White Savior Industrial Complex.

Teju Cole @tejucole

2- The white savior supports brutal policies in the morning, founds charities in the afternoon, and receives awards in the evening.

Teju Cole @tejucole

3- The banality of evil transmutes into the banality of sentimentality. The world is nothing but a problem to be solved by enthusiasm.

Teju Cole @tejucole

4- This world exists simply to satisfy the needs—including, importantly, the sentimental needs—of white people and Oprah.

5- The White Savior Industrial Complex is not about justice. It is about having a big emotional experience that validates privilege.

Teju Cole @tejucole

6- Feverish worry over that awful African warlord. But close to 1.5 million Iraqis died from an American war of choice. Worry about that.

Teju Cole @tejucole

7- I deeply respect American sentimentality, the way one respects a wounded hippo. You must keep an eye on it, for you know it is deadly.

These tweets were retweeted, forwarded, and widely shared by readers. They migrated beyond Twitter to blogs, Tumblr, Facebook, and other sites; I'm told they generated fierce arguments. As the days went by, the tweets were reproduced in their entirety on the websites of the Atlantic and the New York Times, and they showed up on German, Spanish, and Portuguese sites. A friend emailed to tell me that the fourth tweet, which cheekily name-checks Oprah, was mentioned on Fox television.

These sentences of mine, written without much premeditation, had touched a nerve. I heard back from many people who were grateful to have read them. I heard back from many others who were disappointed or furious. Many people, too many to count, called me a racist. One person likened me to the Mau Mau. The Atlantic writer who'd reproduced them, while agreeing with my broader points, described the language in which they were expressed as "resentment."

This weekend, I listened to a radio interview given by the Pulitzer Prize-winning journalist Nicholas Kristof. Kristof is best known for his regular column in the New York Times in which he often gives accounts of his activism or that of other Westerners. When I saw the Kony 2012 video, I found it tonally similar to Kristof's approach, and that was why I mentioned him in the first of my seven tweets.

Those tweets, though unpremeditated, were intentional in their irony and seriousness. I did not write them to score cheap points, much less to hurt anyone's feelings. I believed that a certain kind of language is too infrequently seen in our public discourse. I am a novelist. I traffic in subtleties, and my goal in writing a novel is to leave the reader not knowing what to think. A good novel shouldn't have a point. ....


Riaz Haq said...

Here's a Wall Street Journal report on Gilani-Singh meeting in Seoul:

Mr. Singh met Pakistan Prime Minister Yousuf Raza Gilani briefly on the sidelines of a nuclear summit in Seoul on Tuesday. He told reporters Wednesday that he’d thanked Mr. Gilani for recent trade concessions and offered to make an official visit to Pakistan.

“I had a good meeting with him. I thanked him for the trade concessions that they have announced. He said when are you coming there (Pakistan). So, I said let us do something solid so that we can celebrate,” the Press Trust of India quoted him as saying. Mr Singh also said he told M. Gilani that he would “look into” the Pakistani leader’s request for India to supply power.

The chumminess of this encounter is likely to annoy India’s Pakistan hawks, who see no reason to make gestures toward Pakistan. Islamabad has failed to push ahead with the trials of the seven men it has charged with attacks on Mumbai in 2008 which killed more than 160 people and should be shunned until it does so, they argue.

Mr. Singh has taken a different approach.He invited Mr. Gilani to watch a World Cup cricket match between India and Pakistan a year ago, an act which sparked hopes of cricket diplomacy.

Although no breakthroughs have happened on the big issues that bedevil relations, like over the disputed Himalayan region of Kashmir or what India says is Pakistan’s continued support of militant groups, India and Pakistan have edged forward in recent months on other, smaller issues, like trade.

Last month, Pakistan agreed to normalize trade with India by the end of the year, a move which is part of a strategy to build confidence without yet touching issue like Kashmir.

This is a strategy dear to Mr. Singh’s heart. He’s said in the past that building economic ties with Pakistan is crucial to achieve peace but also to give India access to trade through Central Asia and beyond.

But the focus on trade has angered some in India, who see it as obfuscating the goal of getting Pakistan to crack down on militant groups. In Pakistan, too, there has been some opposition to normalizing trade with India. Mr. Gilani told Mr. Singh getting domestic support for the move was not “entirely easy,” PTI reported.


Riaz Haq said...

Here's an Op Ed in The Nation written by economist and author Dr. Kamal Monnoo:

While there is no denying the fact that Pakistan’s economic health, its global ratings and image per se are all taking a serious dent and, of course the recent (released in February 2012) IMF report on the state of the Pak economy notwithstanding, the reality also is that it has a very resilient and robust side that continues to surprise. A picture that depicts the glass to be at least half full, points to the sectors that are consistently growing and adding value and, more importantly, exposes the huge underlying economic potential which despite poor governance keeps taking the national economic activity to the next level. Amidst great adversities and serious financial challenges, there does exist a silver lining on how the economy has performed over the last 12 months and some of the positives going forward.

On the back of a slowly but surely evolving middle class, there exists a visible consumption boom in the economy where companies are going through a period when domestic sales have never been higher. An exceptionally high percentage of young employable youth is unearthing new dynamics, as these fresh minds strive to create their own opportunities, thereby unleashing a wave of innovative entrepreneurial benefits. For example, the quality and speed at which the Pak urban consumer and service sectors (fashion wear, eateries, home decor, healthcare centres, private education, beauty salons, leisure and entertainment etc) are growing has but a few parallels in the world.

The inflow of foreign exchange remittances by Non-Resident Pakistanis (NRP) has never been stronger and provided its current rate of growth does not stall, the government envisages that the final figure is well on course to touch the $18 billion per annum level. Add to this, the fact that our exports registered $25 billion in 2011 and the possibility that if we can somehow supplement these inflows from NRP remittances and national exports, by re-attracting the presently dried up Direct Foreign Investment, there actually exists a strong case for successfully balancing our current account status - Pakistan as we know (even with the oil prices are high) is an economy that traditionally imports between $35 and $38 billion per annum.

The reserves in the meanwhile have held their ground at around the $17 billion mark and when doing a regional comparative analysis on parity with the US dollar one finds that the Pak rupee has also fared better than most of its neighbours. In fact, against the European currencies, like the Euro and the Sterling, the Pak rupee has gained in value when comparing its parity during the pre- and post-European crisis periods.

Further, according to the latest data released by the FBR, the revenue collection this year is on target and is likely to cross the Rs2,000 billion mark for the first time in history. ...
Large Scale Manufacturing (LSM) has begun to turn the corner by registering a 1.50 percent growth from negative 0.80 percent in 2011, more than 1.50 million motorcycles were sold last year and Automobile Sector’s sales are about 30 percent above from the fiscal year 2004-05 (regarded by auto pundits to be their best year). Companies and banks in general have announced healthier profits with especially the consumer goods companies leading the pack by churning out some unprecedented results. This coupled with the new policy announcement on investment in the shares markets has given a boost to the stock markets with the KSE (Karachi Stock Exchange) Index climbing to near 14,000 points. If the returns can continue to be interesting, such an opportunity is bound to even lure back foreign investment into the Pakistani markets.


Riaz Haq said...

Here are some excerpts of a News interview with Pak industrialist Mian Mansha:

Q. What is your view on trade with India?

Mansha: I have always been a strong proponent of trade with India, which offers a bigger opportunity than China. We have many synergies, which were not exploited due to trade barriers between the two countries. We are keenly awaiting gradual removal of trade barriers between India and Pakistan.

Q: Why so many exhibitors are going to Lifestyle Pakistan Expo in India?

Mansha: Indians exhibited their products at Expo Center Lahore couple of months back. We are going to India to reciprocate and showcase our products in India. We produce one of the finest cotton fabrics for women, which are extremely popular in India. Besides some of our best designers are also exhibiting their cotton-lawn suits.

Q: India has granted MFN status to Pakistan long time back; how do you expect to penetrate Indian market now when you have failed in the past?

Mansha: I am optimistic that after liberalisation of trade from our side India would further open up. The mind set in both countries was changing. We were exporting a small quantity of our brand of lawn to our franchise in India but we were not allowed to establish our outlets, but then it was the same for the Indian businessmen in Pakistan.

Both the sides need to remove the non-tariff barriers to promote free trade. Indian Punjab has not kept pace with the growth in rest of India and they see open trade with Pakistan as the best way to achieve higher growth.

Apart from textiles, we want to open branches of our banks in India, as our banking system has an edge over Indian banks in services and efficiency. Similarly Indians would like to establish offices in Pakistan where they have an edge.

Q: How can free trade between the two countries flourish with several unresolved territorial disputes?

Mansha: I am against making trade hostage to political issues. There are many disputes between the members of European Union, but their leaders do not compromise the welfare of their people by stalling trade till resolution of those disputes.

We should go ahead with a gas pipeline project from Central Asia that carries gas for India. Pakistan would benefit through the service charges it would get for allowing gas passing through its region.

Q: Are you still facing non-tariff barriers in cement exports and how do you view last year’s cotton export ban by India?

Mansha: Cement export to India is allowed by train only and you cannot export large quantities through train as the frequency of trains running between India and Pakistan is very low.

As far as the ban on export of cotton by India last year on confirmed orders was concerned it was not Pakistan specific. This measure though anti trade was applicable on all countries. .


Riaz Haq said...

Here's a WSJ Op Ed by Mike Boskin on India-Pakistan trade:

With their sizable nuclear arsenals and tensions over territory, water and terrorism, India and Pakistan pose staggering risks to South Asia. But they also offer outsize economic potential for their citizens, the region and the world. Leaders in both nations seeking peace, stability and a prosperous future should seize on free trade as the best way to further these goals. The time has come for an India-Pakistan free trade agreement.

Free trade would substantially increase trade and investment flows, incomes and employment, and it would give the citizens of both countries a far greater stake in the other's success. Economists of varying backgrounds agree that free trade is a positive-sum economic activity for all involved. In the seven years following Nafta, trade among the United States, Canada and Mexico tripled and real wages rose in each country.

The International Monetary Fund reports that direct trade between Pakistan and India was a pitifully small $2.7 billion in 2010, just two-thirds of India's trade with far smaller Sri Lanka. Remarkably, Pakistan's exports to Bangladesh are larger than those to India, though Bangladesh's economy is only 6% the size of India's. South Asia doesn't have enough trade.

The tool economists use to analyze bilateral trade, called the "gravity model," suggests trade should be proportional to the states' GDP and inversely proportional to the distance between them (a proxy for transportation costs). India's GDP of over $4 trillion is roughly nine times that of Pakistan's.

Estimates based on gravity models by Amitra Batra of Nehru University and Mohsin Khan of the Peterson Institute suggest that Pakistan-India trade could be at least 20 times larger with a bilateral free trade agreement than it is today. That's a staggering expansion of over $50 billion that would raise real wages in both countries.
The obstacles to such an agreement range from cross-border security concerns to old-fashioned protectionism. The perceived economic vulnerability to free trade of some domestic firms, sectors and regions can be addressed with transition relief such as worker retraining and tariff phase-in periods.

Realistically, it will take several years to negotiate and implement a free trade agreement between India and Pakistan. Even with strong political leadership, negotiating Nafta took four years.

Still, Pakistan President Asif Ali Zardari and Indian Prime Minister Manmohan Singh spoke of the importance of trade in their brief meeting earlier this month in New Delhi. Both men appear to understand that trade liberalization is economically necessary and will diffuse tensions between these two nuclear nations. The next step is to initiate high-level discussions of a free trade agreement.


Riaz Haq said...

Here's a CNN blog post on US pushing economic integration in central and south Asia region:

The United States aims to promote stability in Central Asia by encouraging trade in the region, U.S. Secretary of State Hilary Clinton told CNN.

The American strategy focuses on bolstering north-south trade, linking India and Pakistan via Afghanistan to the former Soviet republics of Central Asia.

“If people are trading with each other, if they are investing in each other's countries, if they are engaged in commerce of all kinds, there develop relationships and, frankly, stakes in peace and security that are desperately needed,” Clinton told CNN’s Jill Dougherty.

“Security yes, we have to work on that, but what is really promising is the economic integration of the entire region,” she added.

But for many countries in the region, economic integration is seen as secondary to security. Instead of borders opening to trade, many are closing. But Clinton cited increased trade between India and Pakistan and across the Pakistan-Afghanistan border as examples of progress.

She added: “There is an important idea of a pipeline that would carry gas from Turkmenistan through Afghanistan and Pakistan into India; all four countries are in support.

“There are roads and bridges being planned that come from Kazakhstan through Uzbekistan into Afghanistan that go through Turkmenistan to the sea. There’s just a lot of ideas.”

And she said trade could help combat extremism in the region. “Some countries would like to build a 20-foot wall because they worry about extremists from other places,” said Clinton. “That’s just not realistic in the 21st century. It’s far better to develop your economy to trade with your neighbours to give your young people jobs. That’s one of the best arguments against extremism.”

Clinton gave Uzbekistan as an example of U.S. investment, where an American automobile manufacturing plant is producing cars for export in the region.

“Each country has unique assets that can be capitalized on but no country alone can maximize their economic potential without opening their borders to more trade and investment,” she said. “So while we work bi-laterally with a lot of these countries to help them, we also continue to preach the idea of economic integration.”

She added: “We do have to put security at the forefront, and the United States has helped every one of these countries with security. But what is security for? It is to enable people to have a better life and one of those is by raising the stand of living and business, investment, and trade can do that.”


Riaz Haq said...

$20 billion India-Pak trade in 3 years, reports Chicago Trib:

Pakistan and India bilateral trade is expected to reach $10 billion during the next three years, a top official said.

The Most Favoured Nation status to India and opening of bank branches by early next year will pave the way for direct trade between the neighbours and reduce the cost of import through third country.

"Bilateral trade may reach $6 billion mark within a year or two as the two nations act fast on easing visa rules, removing non-tariff barriers and reducing the negative list," Tariq Puri, chief executive of Trade Development Authority of Pakistan, told Pakistan and India official bilateral trade stood firm around $2.7 billion and heavily tilted in New Delhi's favour. The MFN status to India by year-end may prove the 'game-changer' that will drastically reduce illicit trade through third countries.

"The exchange of goods through third-country will drastically drop and cut the Pakistan import bill by 20 to 30 per cent because of reduction in import costs," Puri said.

Pakistan's federal cabinet approved a negative list of 1,209 for India, which will be phased out in three installments by December 31 this year, after the grant of MFN status to India. The MFN status will mean India can export 6,800 items to Pakistan, up from around 2,000 at present. "We started the process to normalise the trade with India last year in April. Both the countries have adopted a well-structured and calibrated approach and made steady progress," he said adding that next secretary-level talks are due to held in Pakistan this month.

"Negotiations to set up bank branches in each other country are underway and we hope further progress on easing visa rules for Pakistani businessmen and removing non-tariff barriers on Pak goods import in India in next meeting."

"It's a step-by-step approach that will benefit both the countries," he added.

He said two countries in April inaugurated a trading post at Attari-Wagah crossing that will help speed-up transportation of goods to either side of the border. It is expected that number of daily trucks crossing the border will sharply go up to four times to 600 from present level of 150.

He said the MFN status to India, setting up of bank branches and easing visa rules will help boost bilateral trade and pave the way for frequent exchange of trade delegations and arrange exhibitions in the two countries.

Pakistan successfully concluded a lifestyle exhibition in New Delhi last month while India attended the similar expo in November. "The exhibition will go a long way in opening of trade opportunities for Pakistan business," he said.

Puri dispelled the impression that Pakistani products will not be able to compete in Indian market. "Pakistani products are competitive and known for its quality. We are competing in international markets in US, Europe and Middle East and can compete the Indian products as well."

"Pakistan achieved $25 billion exports target last year due to enabling environment. This year, we are sustaining the same level despite economic problems in Europe and some other international markets," he said.

Puri, at the investment meeting, also presented a snapshot of Pakistan trade with major regions like NAFTA, Saarc, Asean, EU where tremendous opportunities exists for Pakistani businessmen.


Riaz Haq said...

Here's David Brooks in NY Times on Uncle Sam's role in promoting business & industry:

From the dawn of the republic, the federal government has played a vital role in American economic life. Government promoted industrial development in the 18th century, transportation in the 19th, communications in the 20th and biotechnology today.

But the federal role has historically been sharply limited. The man who initiated that role, Alexander Hamilton, was a nationalist. His primary goal was to enhance national power and eminence, not to make individuals rich or equal.

This version of economic nationalism meant that he and the people who followed in his path — the Whigs, the early Republicans and the early progressives — focused on long-term structural development, not on providing jobs right now. They had their sights on the horizon, building the infrastructure, education and research facilities required for future greatness. This nationalism also led generations of leaders to assume that there is a rough harmony of interests between capital and labor. People in this tradition reject efforts to divide the country between haves and have-nots.

Finally, this nationalism meant that policy emphasized dynamism, and opportunity more than security, equality and comfort. While European governments in the 19th and early 20th centuries focused on protecting producers and workers, the U.S. government focused more on innovation and education.

Because of these priorities, and these restrictions on the federal role, the government could be energetic without ever becoming gigantic. Through the 19th century, the federal government consumed about 4 percent of the national gross domestic product in peacetime. Even through the New Deal, it consumed less than 10 percent.

Meanwhile, America prospered.

But this Hamiltonian approach has been largely abandoned. The abandonment came in three phases. First, the progressive era. The progressives were right to increase regulations to protect workers and consumers. But the late progressives had excessive faith in the power of government planners to rationalize national life. This was antithetical to the Hamiltonian tradition, which was much more skeptical about how much we can know and much more respectful toward the complexity of the world.

Second, the New Deal. Franklin Roosevelt was right to energetically respond to the Depression. But the New Deal’s dictum — that people don’t eat in the long run; they eat every day — was eventually corrosive. Politicians since have paid less attention to long-term structures and more to how many jobs they “create” in a specific month. Americans have been corrupted by the allure of debt, sacrificing future development for the sake of present spending and tax cuts.

Third, the Great Society. Lyndon Johnson was right to use government to do more to protect Americans from the vicissitudes of capitalism. But he made a series of open-ended promises, especially on health care. He tried to bind voters to the Democratic Party with a web of middle-class subsidies.

We’re not going back to the 19th-century governing philosophy of Hamilton, Clay and Lincoln. But that tradition offers guidance. The question is not whether government is inherently good or evil, but what government does.

Does government encourage long-term innovation or leave behind long-term debt for short-term expenditure? Does government nurture an enterprising citizenry, or a secure but less energetic one?

If the U.S. doesn’t modernize its governing institutions, the nation will stagnate. The ghost of Hamilton will be displeased.


Riaz Haq said...

Here's Dambisa Moyo's interview on China's relationship with Africa:

A: There’s nothing wrong about China going around the world making resource deals to support its growing population. What it’s doing makes a lot of sense. Yes, my concern is that other countries will not catch on until it is too late. In a zero-sum world, what will happen if China wins the race for resources? Other countries seem to be asleep while China is making a concerted effort. Some 24 ongoing wars and violent conflicts have their origins in commodities, and this trend is poised to continue. China is befriending what I call “the Axis of the Unloved”—countries and regions such as Africa, Brazil, Colombia, Argentina and parts of Eastern Europe that have been basically ignored by the Western economies. China is the leading trading partner and foreign investor in many of these countries—a very different approach to the West’s largely aid-based model.

Q: The Chinese economic edge in this is that its state capitalism offers advantages that the Western laissez-faire model does not.

A: Favoured Chinese companies have a zero or near-zero cost of capital. State-owned banks provide highly concessional credit lines, in the form of government grants or low-interest loans. Favoured companies also benefit from tax breaks and the preferential allocation of key contracts. Like the US$12-billion credit line extended to Wuhan Iron and Steel, a major steel producer, by the state-owned China Development Bank, for ļ¬nancing “overseas resource base construction.” And of course it helps to have a war chest of over US$3 trillion, while Western economies are struggling with cash constraints.

Q: The Chinese political edge is that it’s famously untroubled by governance issues in the countries it deals with.

A: Well frankly, in practice there is little to distinguish between the commodity counterparts of Western nations and those of China. U.S. and European countries are just as happy as China to strike deals with countries with less than pristine reputations—whether it’s Saudi Arabia, Venezuela or Russia. Two wrongs don’t make a right, but in this narrow sense, it’s unfair to constantly point fingers at China.

Q: So you think that criticism of China on both scores—cheating, so to speak, economically and being too comfortable with dictators politically—is often unfair and wrong?

A: Cheating is one thing, meddling in the markets is a whole other thing. Virtually all governments meddle in the commodities markets. Western governments are particularly egregious in this respect. The United States paid US$6 billion in commodity subsidies in 2010. OECD countries spend a total of US$226 billion on agricultural subsidies yearly. And in the EU, the Common Agricultural Policy sees some 40 billion euros spent on direct farm subsidies. So if meddling in the market is “cheating,” China has a lot of company. And the West has never had much of a problem dealing with despots and dictators if there is a benefit to be gained.
A: I think the reasons are quite clear. China pursues strictly business, symbiotic relationships, trading access to commodities for infrastructure, employment and other economic benefits. Take employment. The construction of the Imboulou Dam in [the Republic of the] Congo in 2010 employed 2,000 locals (compared to 400 Chinese). Survey results indicate that Africans much prefer to deal with the Chinese than with Westerners. In Ivory Coast, Mali, and Kenya, more than 90 per cent of respondents see China’s economic growth as “a good thing.” In Tanzania, 78 per cent agree, but only 36 per cent feel the same way about American influence. The difference is stark. Across the developing world, people want jobs, infrastructure and investment and the Chinese engagement does exactly that. ....


Riaz Haq said...

Here's an Economist mag piece titled "Farewell to Incredible India":

IN A world economy as troubled as today’s, news that India’s growth rate has fallen to 5.3% may not seem important. But the rate is the lowest in seven years, and the sputtering of India’s economic miracle carries social costs that could surpass the pain in the euro zone. The near double-digit pace of growth that India enjoyed in 2004-08, if sustained, promised to lift hundreds of millions of Indians out of poverty—and quickly. Jobs would be created for all the young people who will reach working age in the coming decades, one of the biggest, and potentially scariest, demographic bulges the world has seen.

But now, after a slump in the currency, a drying up of private investment and those GDP figures, the miracle feels like a mirage. Whether India can return to a path of high growth depends on its politicians—and, in the end, its voters. The omens, frankly, are not good.
Is it time for a change at the top? Mr Singh has plainly run out of steam, but there are no appealing candidates to replace him. Mrs Gandhi’s son, Rahul, has been a disappointment. What about a change of government? The opposition BJP is split and has been wildly inconsistent about reform. Its best administrator, Narendra Modi, chief minister of Gujarat, is divisive and authoritarian. If it formed a government tomorrow, the BJP would also have to rely on fickle smaller parties.

Some reformers pray for a financial crisis that will shake the politicians from their stupor, as happened in 1991, allowing Mr Singh to sneak through his changes. Though India’s banks face bad debts, its cloistered financial system, high foreign-exchange reserves and capable central bank mean it is not about to keel over. A short, sharp shock would indeed be useful, but a full-blown crisis should not be wished for, because of the harm that it would do to the poor.

Instead the dreary conclusion is that India’s feeble politics are now ushering in several years of feebler economic growth. Indeed, the politicians’ most complacent belief is that voters will just put up with lower growth—because they supposedly care only about state handouts, the next meal, cricket and religion. But as Indians discover that slower growth means fewer jobs and more poverty, they will become angry. Perhaps that might be no bad thing, if it makes them vote for change.


Riaz Haq said...

Pakistan gets EU trade preference, reports Express Tribune:

The European Parliament’s plan of doing more “for poorer countries” has opened trade gates for three new countries including Pakistan.

The new rules will enable Pakistan, Philippines and Ukraine to apply for zero duty access on their exports to the EU under the “GSP+” incentive scheme, according to a Parliament statement.

“The new EU trade scheme is more predictable and more generous to countries that deserve it,” said British Conservative MEP and Legal Affairs spokesperson, Sajjad Karim. Pakistan will be allowed to apply for zero duty access if they agree to abide by the 27 international conventions in the field of human rights.

The new rules will reduce the number of countries that enjoy preferential access to EU markets from 176 to around 75. It will also reduce the total value of imports that qualify for EU preferences from 60 billion euros in 2009 to about 37.7 billion euros in 2014.

The updated generalised system of preferences (GSP), the Parliament informed, removes tariff preferences, such as reduced or zero duties, for EU imports from countries where per capita income has exceeded US 4,000 for four years. This rule ousted Russia, Brazil and Saudi Arabia from the beneficiaries list and will now have compete on an equal footing with the EU in world markets. Latin American countries Argentina, Brazil and Uruguay remained out of the benefitting list.

The GSP plus scheme will contribute to the promotion of human rights, democracy and freedom of speech in the developing world, added Karim who is also Chairman of the European Parliament Friends of Pakistan Group.

“The European Parliament Friends of Pakistan group has been campaigning to increase the threshold of the GSP+ scheme to allow Pakistan to enjoy more trade with the EU.”

He also dismissed the few MEPs who called for Pakistan not to be included in the trade scheme in a European Parliament debate on Monday.

“The clear long-term strategy is for the EU and Pakistan to cooperate on a wide range of issues including trade, security and policy. The EU-Pakistan Five Year Engagement Plan and the recent successful launch of the first Strategic Dialogue in Islamabad this month with Baroness Ashton is clear evidence of that,” he added.


Hopewins said...

Dr. Haq,

You say: ".....Pakistan, too, was ruled by a military dictator General Ayub Khan in a period labeled by Pakistani economist Dr. Ishrat Husain as "the Golden Sixties". General Ayub Khan pushed central planning with a state-driven national industrial policy. In fact, South Korea sought to emulate Pakistan's development strategy and copied Pakistan's second "Five-Year Plan"........

The reason why Pakistan did not manage to match Korea's *long-term* performance is because Pakistan did not have a plan to boost gross domestic savings. On the other hand, Korea's government correctly used the fast low-ICOR growth of the sixties to actively promote the growth of savings-rates. Korea then channeled the rapidly rising savings into productive heavy industrial investment in the seventies & eighties to generate fast high-ICOR growth. This is how Korea became an a moderately industrialized country by the nineties and has now become a "fully" industrialized one.

The simple fact that we have still not been able to move beyond low-ICOR light industry-- because we just do not have the savings to do so-- is precisely why Pakistan is still a Third World country.

Here is the data from the World Bank. Just look at Korea's performance from 1960-1990 (from 3% savings to 36% savings in 30 years) savings and compare it to ours (going nowhere in particular).


Something to think about.

Thank you.

Hopewins said...

Dr. Haq,

With regard to "By 1969, Pakistan’s manufactured exports were higher than the exports of Thailand, Malaysia and Indonesia combined", here is the PROOF that some of the code-coolies were asking for in the comments section-


Replace Pakistan with Thailand, Indonesia and Malaysia in the URL to get their data.

RESULTS for 1969 are as follows:

Thailand Merchandise exports 1969: 600 Million$
Thailand Manufactures exports (% of merchandise exports) 1969: 4%
Therefore, Thailand Manufactures exports 1969: 24 Million$

Indonesia Merchandise exports 1969: 900 Million$
Indonesia Manufactures exports (% of merchandise exports) 1969: 1.5%
Therefore, Indonesia Manufactures exports 1969: 14 Million$

Malaysia Merchandise exports 1969: 1600 Million$
Malaysia Manufactures exports (% of merchandise exports) 1969: 6%
Therefore, Malaysia Manufactures exports 1969: 96 Million$

Pakistan Merchandise exports 1969: 650 Million$
Pakistan Manufactures exports (% of merchandise exports) 1969: 55%
Therefore, Pakistan Manufactures exports 1969: 357 Million$

Comparing Manufactures Exports 1969:

Thailand + Indonesia + Malaysia = 24+14+96 = 134 Million $
Pakistan = 357 Million $


Pakistan's Export of Manufactures in 1969 was almost 3 times that of Thailand, Indonesia & Malaysis combined!

Thank you.

Hopewins said...

Dr. Haq,

"Pakistan's Export of Manufactures in 1969 was almost 3 times that of Thailand, Indonesia & Malaysis combined!"

But it did not last long....

(1) On a combined basis, they overtook us 1973.
(2) Malaysia, by itself, overtook us in 1974.
(3) Thailand, by itself, overtook us in 1979.
(4) Indonesia, by itself, overtook us in 1983.


And in 2010, the combined export of manufactures of the 3 ASEAN countries was 24 times that our country...


Thank you.


World Bank Database: http://data.worldbank.org/

Hopewins said...

^^^Anon: "You don't build your own industrial base with someone else's money!”

Riaz Haq: "Most of India's economic boom has been driven by foreign inflows, and their recent drop has cooled Indian economy."


Dr. Haq,

Why? Why do you keep doing this? Again and again? Why?

Have we not been through this issue many times before?

A) Relative Importance of Various Sources of Funding for INDIA:

B) Relative Importance of Various Sources of Funding for OUR COUNTRY:

We must face the facts. We must accept the truth. Our denial must now end. Only then can we begin to heal, change and progress.

Thank you.


Dr. Haq,

I agree with you that our country desperately needs more investment. So I thought that we should go over the various potential sources of funds for the sorely-needed investments and see how important each has been to our economy in the past.

Sources of Funding for Investment in Pakistan:

(1) Internal Savings (a.k.a. Gross Domestic Savings)
(2) Remittances
(3) Foreign Aid
(4) Foreign Direct Investment (FDI)
(5) Foreign Portfolio Investment (FPI Equity)

How successfully has Pakistan dealt with these 5 categories of funding in the past?


What is the relative importance (i.e. as per cent of total funds available) of each of these 5 sources?


The same graphs for India are shown below. The graphs clearly show that India's economy is fundamentally different from ours in a structural sense. One key difference immediately visible is that their economy has *always* been driven principally by Internal Savings. All the others (FDI, FPI, Remittances & Aid) are actually relatively less important to their economy.

Specifically, as shown in the graphs, during the Cold war (pre-1992 period) Internal Savings accounted for 91% (on average) of their funding sources for investment, with remittances at 5% and Aid contributing 4%, with negligible FDI & FPI (Soviet-Model Closed Economy).

After the post-Cold-War reforms in 1992, their economy is *still* principally driven by internal savings (now on average 84%), with Remittances now contributing 9%, FDI & FPI together contributing 5.5% and Aid contributing 1.5% (all on average).

India's Sources of Funding for Investment in Current US$:


Relative Importance of Various Sources of Funding for India:


I will let you chew on these graphs as comparative references.

Riaz Haq said...

HWJ: "One key difference immediately visible is that their economy has *always* been driven principally by Internal Savings. All the others (FDI, FPI, Remittances & Aid) are actually relatively less important to their economy."

High internal savings didn't save India from 1991 BOP crisis.

India's rupee-denominated savings didn't amount to a hill of beans....they couldn't be used to buy even an ounce of oil on the world market.

Unlike China and other BRICs, India runs huge trade deficits and external inflows have been crucial to India's economic growth in the last two decades.

Hopewins said...

^^^Riaz Haq Wrote: "High internal savings didn't save India from 1991 BOP crisis.

India's rupee-denominated savings didn't amount to a hill of beans....they couldn't be used to buy even an ounce of oil on the world market.

Unlike China and other BRICs, India runs huge trade deficits and external inflows have been crucial to India's economic growth in the last two decades."


The discussion above was not really about BOP crises.

The discussion was about whether or not we can build our industrial base with foreign money.

And the answer is NO. No chance whatsoever. Zilch.

The ONLY way a country can build its industrial base is with HIGH domestic savings & high domestic investment. There is not a single country in the world which industrialized using foreign savings & investments. None. Zero. There are no "shortcuts" to the goal of industrialization and development.

You might not like to hear this, but it is the truth. You can pout, stamp your feet and throw a tantrum. But, at the end of it all, the truth will still be there completely unchanged. It is almost Quranic.

In any case, since you have raised, for some reason, the BOP issue again, let us look at the case of South Korea (a demonstrated success story):

1) Like India does today, SK ran constant current account deficits from 1960 to 1997 when it was rapidly industrializing.

2) SK has a BOP crisis in 1997 that was identical to India's in 1991.

3) Contrary to popular belief, which you seem to share, these crises were NOT caused by the running of current account deficits per se, nor were they caused by flight of "hot-money". Instead, they were caused by the WAY in which these deficits were financed using short-term debt based on unhedged or inverted balance sheets.

4) The 1991 Indian crisis & the 1997 South Korean crisis were both caused by the fact that short-term external-debt exceeded Forex reserves, therby putting them in a squeeze when their maturing ECBs were not rolled-over. They were NOT caused by capital flight as our 1998, 2001 & 2008 BOP crises were. South-Korea's 1997 & India's 1991 problems were not structural; they were caused by the use of non-optimal financing options.

5) The lesson has been learnt and today's short-term external-debt to Forex-reserves ratios are held <20% by most countries.

6) Note that our repeated BOP crisis since the late nineties (1998, 2001, 2008) were NOT caused by non-optimal financing using unhedged balance sheets. They were fundamentally structural in nature as they were caused by massive capital flight from a capital-poor economy.

These concepts are really basic and not at all hard to understand. If you just take the time to study the subject, you will be able to appreciate the nuances of these discussions quite readily.

TAKE THIS TEST: China runs a massive current account surplus. Do you believe that this is a sign of China's strength?

If you answered YES, you would be in the company of the majority of people. However, you, along with the majority of people, would be WRONG.

Macroeconomically speaking, China's massive current account surplus while it is still a developing country is a sign of its WEAKNESS. And you will see this weakness manifest itself in the next 8-10 years when China's structural problems become public knowledge.

China's massive current account surpluses are a terrible symptom of a fundamental underlying flaw in the structure of its economy. China is heade for very serious trouble.

What are your views?

Thank you.

Hopewins said...

^^^"..High internal savings didn't save India from 1991 BOP crisis.."


Dr. Haq,

Here is an article on India's current (2012) danger of BOP crisis. It says something similar to what you were saying:


Most interesting thing about this article is that it seems to provide a CALCULATOR for the BOP analysis:


I thought you might like to play with it. Might be fun.

I really wish someone would come up with an analysis and a calculator for our BOP situation. But I suppose since our economy is much smaller, these global media people will always be ignoring our situation.

Let me know if you find any interesting scenarios when you play with their India-BOP calculator.

Thank you.

Hopewins said...

^^^HWJ Wrote: "TAKE THIS TEST: China runs a massive current account surplus. Do you believe that this is a sign of China's strength?

If you answered YES, you would be in the company of the majority of people. However, you, along with the majority of people, would be WRONG"


BBC is covering this issue right now.

Here is a bet (2 differing views) between the Economist magazine and Professor Pettis of Peking University:

Here is a interesting comparative chart juxtaposing China in 2012 to Japan in 1989:

What are your views? Which side of the debate do you find more plausible or logically-sound? And why?

Hopewins said...

^^RH: "Washinton Consensus.."

First take a look at the SKETCH with the "Made in India" Road-roller shown in this Express Tribune article:

Now, returning to the issue that I have raised many times:

1) We know that India is a major exporter of many things of which we are major importers. Examples:

(a) Refined petrochemicals (Petrol, Diesel, Aviation Fuel etc):
55 Billion$ exports in FY 12
(b) Engineering goods (Cars, buses, trucks, railway wagons, locomotives, heavy machinery, parts etc):
75 Billion$ exports in FY 12
(c) Pharmaceuticals & related (generics, off-patents, UN-subscribed):
35 Billion$ exports in FY 12

Therefore, there is TREMENDOUS scope for importing these things from India.

2) However, the items of which we are a major exporter are ALSO items that India itself exports. Examples are:

(a) Textiles & Related:
Pakistan Exports- 13 Billion$
India Exports- 23 Billion$
(b) Food & Related:
Pakistan Exports- 4 Billion$
India Exports- 24 Billion$
(c) Leather & Related:
Pakistan Exports- 1 Billion$
India Exports- 4 Billion$

So the scope for exporting these things to India is obviously severely LIMITED.

Under these circumstances, how will free trade really work? What will we export to India, apart from a few fashionable clothes, Shan masalas, Himalayan salt et cetera?

What are your views on this issue? Do you agree with the sketch that shows the "made in India" road-roller approaching our shallow & limited industrial base?

Please explain for the benefit of your readers.

Thank you.

Riaz Haq said...

Here's a Nation news report on India's pervasive non-tariff barriers (NTBs):

India has one of the most restrictive trade regimes in the world, according to the World Trade Organisation (WTO).

Economists and WTO experts, quoting an annual report of the WTO, stated that the Indian government around seven years back initiated 191 safeguard actions compared to just 171 by China, a much larger economy. In fact, this was even higher than the number of actions initiated by the EU, also a much larger economic bloc.

And a new study conducted by the United States Agency for International Development (USAID) has revealed that India stands at the top in South Asian countries on the basis of trade restrictions imposed on neighboring countries, according to criteria set by the World Bank.

Experts pointed out that India is accused of using both tariff and non-tariff barriers to discourage imports from neighboring countries. It is no surprise, then, that trade between India and Pakistan is so skewed right now. The volume of trade is growing, but not in a way that seems to be of any real benefit to Pakistan. In 2006-07, Pakistan exported goods worth $342.9 million to India, against imports of $1.24 billion. In 2010-11, Pakistan’s exports to India had dropped to $264.3 million, while imports from India had surged to $1.74 billion.

Giving an example, sources said that if the MFN status is granted to India without completion of infrastructure at the Wagha border, the prices of goods coming from India, will double due to the choking of trucks and the purpose of cheaper goods supply to people will not be served.

Experts maintained that a level playing field must be created for Pakistan’s textile products relative to Indian products through implementing a uniform tax regime before the MFN status is granted to India.

The negative list lays restrictions on imports of 1,209 items from India, which includes 78 textile and apparel items. Pakistan’s farmers fear that there is not a single agriculture item on the negative list or the sensitive list of Pakistani imports from India, except Tobacco and its different forms.

Insiders claim that phasing out of the negative list or MFN status to India will not have any negative impact on Pakistani agriculture as only one item, i.e. Tobacco will suffer from the grant of MFN status to India.

Pakistan will have to be mindful of the pitfalls of allowing completely unfettered and unhindered imports from a much larger and much more developed economy. The USAID report suggests that Pakistan should actually enhance the sensitive list to protect the local industry and agriculture sector following granting MFN status to India.

This year will see some major shifts, with some local industries having to suck it up and see the end of their life inside the bubble of protectionism. This will bring benefits for the local consumer, who will have access to more choices and cheaper products.

But it will also bring in threats to other industries which do not have the same benefits, or are as developed as their counterparts in India.

For a long time the governments were always lacking political will to grant Most Favoured Nation (MFN) status to India but industrialists, traders and civil society activists continued to advocate increasing trade with India, saying this would be a great way to forge better relations and solidify peace overtures between the two nations.

Currently the trade volume between India and Pakistan is about $2.5 billion and it is expected that this can be enhanced to $8 billion in the next two years.


Riaz Haq said...

Here's ET on policy research training with EU:

The Ministry of Commerce will conduct trade policy research in collaboration with the European Union (EU) for increasing exports and domestic commerce.
A statement issued by the ministry on Friday said that the EU will assist Pakistan in policy research on the initiatives contained in the recently announced three-year Strategic Trade Policy Framework (STPF) 2013-15.
In this regard, a meeting was held of the Public Private Dialogue Steering Committee, established by the Ministry of Commerce to hold public-private dialogue on specific trade policy issues and commission policy research studies.
The meeting also reviewed policy research studies, conducted during 2012, on enhancing export potential in livestock and dairy sectors, enhancing exports to Europe, enhancing competitiveness and export potential for trade with India.


Riaz Haq said...

Here's a book review of "How Asia Works" by Amb Maleeha Lodhi published in The News:

An important new book explains why some countries have become economic tigers in East Asia while others are relative failures or paper tigers. ‘How Asia Works’ by Joe Studwell is a bold and insightful work that is essential reading for anyone interested in understanding the ingredients for economic success in this continent.

It challenges much conventional wisdom in the development debate. Most significantly the book questions key tenets of the so-called Washington consensus, which prescribes free market ‘solutions’ for all economies regardless of their level of development. Studwell establishes that a nation’s development destiny is shaped most decisively by government action and policies. History, writes the author, shows that markets are created, shaped and re-shaped by political power.
At the very outset, Studwell identifies three critical interventions that successful east-Asian countries and China (after 1978) employed to achieve accelerated economic development. The first, “often ignored”, and now “off the political agenda” in developing countries, is land reform. This restructured agriculture into highly labour-intensive household farming. In the early phase of development, with the necessary institutional support, this helped to generate a surplus, create markets and unlock great social mobility.

The second intervention, as countries cannot sustain growth only on agriculture and must transition to the next phase, is to direct entrepreneurs and investment to industrial manufacturing. Manufacturing allows for trade and technology learning. And trade, says the author, is essential for rapid economic development. Studwell then demonstrates – while challenging the champions of free trade – how nurturing and protection, along with instituting “export discipline”, builds the capacity to compete globally. Manufacturing policy is a key determinant of success he says, as an infant industry strategy offers the quickest route to restructuring the economy towards more value-added activities.

Holding that development is quintessentially a political undertaking, the author sees the relationship between the state and private entrepreneurs as a critical variable. History, he writes, teaches that governments should not run everything themselves. But governments have to use their power and the right policy tools to make private entrepreneurs do what industrial development requires.

The third intervention necessary for accelerated development is in the financial sector, aimed at directing capital initially to intensive, small scale agriculture and to manufacturing rather than services. Studwell argues persuasively that it was the close alignment of finance with agriculture and industrial policy objectives that produced north-east Asia’s economic success.

Detailing the role of financial policy, he illustrates how premature bank deregulation exacted a high price in Thailand and Indonesia. China, on the other hand, and other north-east Asian countries resisted that, instead using financial management to serve development needs and an accelerated economic learning process.


Riaz Haq said...

Here's a Deccan Chronicle Op Ed by Kuldip Nayar:

That India is an economic mess is known all over the world. What is not yet public is that the malaise was because of the wrong decisions which president Pranab Mukherejee took when he was Union finance minister from January 2009 to mid-2012 and also when finance minister P Chidambaram was heading the ministry nearly till the end of 2008 and before.

Mukherjee lives in the luxuries of Rashtrapati Bhavan and Chidambaram shields himself behind tall promises he still makes to mend the economy. Both of them are accountable. They should tell why they took the steps which disturbed the rhythm of progress. Because of lack of transparency in the affairs of government, only a handful of people know about the blunders the two committed.

One of the decisions taken by Mukherjee was to impose the Rs 1200 crore tax with retrospective effect on a foreign mobile company. After having lost the case in the Supreme Court on September 8, 2010, the government promulgated an ordinance before amending the Finance Act 2012. The retrospective clause in the act has scared away foreign investment which India badly needs. A bagful of concessions has not brought the Walmart yet to the Indian soil. Foreign investors have withdrawn a large sum of money which they had invested. In a few weeks, as much $ 200 billion has reportedly gone out. The outflow has not stopped yet.

Prime minister Manmohan Singh did not anticipate the repercussions. In fact, after seeing the mess Chidambaram had created in 2008, the prime minister should have taken over the finance ministry himself because of his expertise in economic matters. Unfortunately, his own record as coal minister does not hold promise but the prime minister would have done better in finance. India should have been exporting coal, as it did, instead of importing it. Manmohan Singh may not be personally responsible for the corruption in the allotment of coal blocks. But the bungling runs into thousands of crores of rupees. The full story may not yet come out because some files are missing. The government has admitted this before the Supreme Court.

According to CBI as many as 157 files are missing. The missing files reportedly have some letters and noting on the allotment of coal blocks. The prime minister cannot absolve himself of the responsibility that he was not the custodian of the files. He was in charge of the coal portfolio. A top CBI official, who is probing into the scandal, has said that there may be a need to ‘examine’ the prime minister, who was in charge of the ministry from 2006 to 2009. Could the prime minister have connived at what the ministry had been doing because his personal integrity is beyond reproach?


Riaz Haq said...

Excerpts of a piece by Nobel Laureate Joseph Stiglitz:

Foreign investment is not one of the three main pillars of the Washington Consensus,but it is a key part of the new globalization. According to the Washington Consensus, growth occurs through liberalization, "freeing up"markets. Privatization, liberalization, and macrostability are supposed to create a climate to attract investment, including from abroad. This investment creates growth. Foreign business brings with it technical expertise and access to foreign markets, creating new employment possibilities. Foreign companies also have access to sources of finance, especially important in those developing countries where local financial institutions are weak. Foreign direct investment has played an important role in many—but not all—of the most successful development stories in countries such as Singapore and Malaysia and even China.
Having said this, there are some real downsides. When foreign businesses come in they often destroy local competitors, quashing the ambitions of the small businessmen who had hoped to develop homegrown industry. There are many examples of this. Soft drinks manufacturers around the world have been overwhelmed by the entrance of Coca-Cola and Pepsi into their home markets.Local ice cream manufacturers find they are unable to compete with Unilevers ice cream products.
Perhaps of greatest concern has been the role of governments, including the American government, in pushing nations to live up to agreements that were vastly unfair to the developing countries, and often signed by corrupt governments in those countries. In Indonesia, at the 1994 meeting of leaders of APEC (Asia-Pacific Economic Cooperation) held at Jakarta, President Clinton encouraged American firms to come into Indonesia. Many did so, and often at highly favorable terms (with suggestions of corruption "greasing" the wheels—to the disadvantage of the people of Indonesia). The World Bank similarly encouraged private power deals there and in other countries, such as Pakistan. These contracts entailed provisions where the government was committed to purchasing large quantities of electricity at very high prices (the so-called take or pay clauses). The private sector got the profits; the government bore the risk. That was bad enough. But when the corrupt governments were overthrown (Mohammed Suharto, in Indonesia in 1998, Nawaz Sharif in Pakistan in 1999), the U.S. government put pressure on the governments to fulfill the contract, rather than default or at least renegotiate the terms of the contract. There is, in fact, a long history of "unfair" contracts, which Western governments have used their muscle to enforce.
The international financial institutions tended to ignore the problems I have outlined. Instead,the IMF's prescription for job creation—when it focused on that issue—was simple: Eliminate government intervention (in the form of oppressive regulation), reduce taxes, get inflation as low as possible, and invite foreign entrepreneurs in. In a sense, even here policy reflected the colonial mentality described in the previous chapter: of course, the developing countries would have to rely on foreigners for entrepreneurship. Never mind the remarkable successes of Korea and Japan, in which foreign investment played no role. In many cases,as in Singapore, China, and Malaysia, which kept the abuses of foreign investment in check, merit played a critical role, not so much for the capital(which, given the high savings rate, was not really needed) or even for the entrepreneurship, but for the access to markets and new technology that it brought along.


Anonymous said...

Pakistan is currently contemplating to grant non-discriminatory nation status (equivalent to MFN status) to India in its bilateral trade. It is hoped that reciprocal gestures by India will lead to the shortening of its SAFTA Sensitive List and give access to Pakistani agricultural and textile products, while simultaneously relaxing its non-tariff barriers that are applied more strictly on imports from Pakistan.

Presently, Pakistan maintains a Negative List with respect to imports from India. This list includes 1,209 tariff lines. Despite this restriction, Indian exports to Pakistan were $2.06 billion compared to only $542 million exported by Pakistan to India in FY13. Therefore, India enjoys a large trade surplus of $1.52 billion with respect to Pakistan.

Major Indian exports to Pakistan include cotton, oil cakes, vegetables, synthetic yarn, fabrics and chemicals. The share of agricultural exports to Pakistan was 55 percent. There have also been years like FY11 when Pakistan imported $337 million worth of sugar from India. On the other hand, Pakistans major exports to India in FY13 included minerals, dates, cement, chemicals and petroleum products. The share of agricultural items to India was only 21 percent.

There has been a dramatic reversal in the pattern of trade between India and Pakistan. At the time of partition, Pakistans exports to India primarily comprised of agricultural products like cotton and wheat. Now, India is the major exporter of Pakistan of agricultural commodities like cotton, vegetables, sugar, animal and poultry feed, etc.

What explains the fundamental change in relative comparative advantage in agriculture between the two countries? The view strongly put forward by the Farmers Associations of Pakistan is that this is primarily due to two factors.

First, India subsidizes its agriculture much more than Pakistan, thereby making it artificially competitive. Second, Pakistan provides little or no protection to its farmers though import tariffs.

Lets examine the validity of these two explanations below.

On the subsidy issue, the latest information, as of FY12, is that India subsidised fertiliser use (all types) to the tune of $15,171 million. Other subsidies went to irrigation ($6,303 million), electricity consumption by farmers ($7,326 million) and to other inputs like seed, tractors, crop insurance, etc ($8,832 million). The total agricultural subsidy bill for India in FY12 is estimated at $37,362 million, equivalent to 2.2 percent of the GDP.

The corresponding estimates for subsidies in Pakistan in FY12 are $356 million on fertiliser (net of the GST on the input). Other subsidies are for irrigation ($193 million), electricity and others ($342 million). The total subsidy aggregates to $897 million, which is 0.4 percent of the GDP. Therefore, controlling for the size of the economy, Indian subsidies to agriculture are over five times as much as of Pakistan. Consequently, yields are somewhat higher by 10 to 27 percent in many crops.

The second explanation is also valid. Pakistans imports of cotton, tomatoes and onions are all importable duty free from any source, including India. This is primarily due to strong trading and industrial lobbies in the country. The cost of production of different crops in India is about 10 to 15 percent lower on average than in Pakistan; mainly due to substantially larger subsidies.

Clearly, if a level playing field is to be provided to Pakistani farmers, then there is a strong case for introduction of a minimum MFN duty on agricultural products of 10 to 15 percent.

In addition, Pakistan must emphasise to India that the trade imbalance has been magnified by the fact that many of its potential exports to India, of agricultural products and textiles especially, are in Indias Sensitive List of SAFTA. Also, both countries must ensure that all non-tariff barriers are not applied in a discriminatory manner towards each other.


Riaz Haq said...

Excerpt of Wall Street Journal interview with President of Yamaha Motors in Japan:

WSJ: What about in South Asia?
Mr. Yanagi: We want to expand business in Pakistan and Bangladesh as soon as possible. We had a production venture in Pakistan but we dissolved it five years ago. We are now planning to begin local production again, on our own this time.

In Bangladesh, we import motorcycles from our plant in India on a small scale, but we are studying now the best way of running operations because of rising tariff barrier there.


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.


Riaz Haq said...

#Modi, in #Davos2018 , Praises #Globalization Without Noting #India’s #Trade Barriers. #ModiAtDavos #China #tariffs


“Forces of protectionism are raising their heads against globalization,” Mr. Modi said during a speech to the World Economic Forum here. “Their intention is not only to avoid globalization, but they also want to reverse its natural flow.”

Notably missing from the speech was any mention of recent moves by Mr. Modi’s own government to restrict imports into India as part of a broad industrial policy meant to force foreign companies to increase manufacturing operations in the country. In essence, he is pursuing a protectionist agenda, at odds with the mantra of globalization.

Mr. Modi’s speech reflects the tenor of the times. As President Trump pushes an “America First” strategy, global leaders are lining up to position themselves as a counterpoint, even if there is sometimes a disconnect between the rhetoric and the reality.

In Davos last year, President Xi Jinping of China positioned himself as a champion of economic globalization in a rebuke to Mr. Trump, who, as president-elect at the time, was threatening to impose steep tariffs. Yet China has long bent the rules of commerce to fit it own needs.

Mr. Modi is following a similar path in India, as he looks to nurture growth in his sprawling economy and to create jobs.

Last month, India’s government imposed stiff tariffs on imports of cellphones, video cameras and televisions. The move put heavy pressure on Apple, which ships most of the iPhones it sells in India from China, to do more manufacturing in India.

Mr. Modi’s government is also considering a recommendation by India’s Directorate General of Safeguards, Customs and Central Excise that the country impose 70 percent tariffs on imported solar panels. Such a move would appear to conflict with Mr. Modi’s call here for international action on climate change. Introducing such stiff tariffs could well encourage the production of more solar panels in India, but it could also make solar power far more expensive for Indian consumers and, in turn, hurt the fight against climate change.

At 70 percent, the tariffs that India is considering on imported solar panels would be more than double those that the Trump administration said on Monday it would impose on such panels. Mr. Modi did not indicate in his speech what his government might decide on the issue.


A ranking of countries on pollution and ecosystem protection released here on Tuesday showed India falling to 177 out of 180, down from 156 two years ago. By comparison, China was No. 120 on the list, which was compiled by Yale’s Center for Environmental Law and Policy.

“They are driving economic growth, but not paying attention to what I would call the parallel challenge of sustainable development: avoiding environmental degradation,” Daniel Esty, the center’s director, said of India.

As in the United States, industrial policies in India meant to foster domestic manufacturing can collide with a push by environmentalists and clean-energy electric utilities for solar panels, even imported ones, to be deployed as widely and as cheaply as possible. Among the other people attending Mr. Modi’s speech was Sumant Sinha, chairman and chief executive of ReNew Power Ventures, a company based on the outskirts of New Delhi that builds clean energy projects.

Devendra Fadnavis, the chief minister of Maharashtra, the vast Indian state that includes Mumbai and big manufacturing cities like Pune, also attended Mr. Modi’s speech. He said that he saw growing interest among companies from outside India to manufacture in the country. Foxconn, the giant Taiwanese manufacturer that produces the bulk of Apple’s consumer electronics, is in negotiations with Maharashtra officials to set up a large factory there.