Regional Trade: A Tool for Economic Development

Mian Anjum Nisar

Vice President SAARC CCI

Former President FPCCI

In the civilized world, different forms of trade have existed for thousands of years. Whether or not analyzing the trade routes of antiquity or modern times, trade and commerce have played a vital role in business expansion, developing national economies and nation building. In the modern times have witnessed the birth of a global economy and Regional trading blocs provide countries with the ability to exchange goods with member countries with minimal or no tariffs or cumbersome trade regulations countries today engage in some form of global trade.

We witness that over the last three decades, the intensification of regional trade has played a powerful role in economic and political integration. For example, the EU’s original free trade area evolved into a customs union, which later became an economic and monetary union. Almost two thirds of the EU’s trade is conducted between members. Similarly, the North American Free Trade Agreement (NAFTA), which was created 30 years ago to expand trade between the US, Canada, and Mexico, has been a great success. Trade between NAFTA members has grown by over 500 percent. Similarly, since the formation of the ASEAN Free Trade Area in 1992, many ASEAN economies have registered miraculous growth rates and their intra-regional trade is now over 25 percent.

Regional trade has been an important factor in the economic success of many countries. Within most trading blocs, intra-regional trade comprises 40 percent or more of each member country’s individual trade. However, for the regional arrangements of which Pakistan is a member, intra-regional trade accounts for less than 5 per cent. Pakistan’s strategic location is its greatest asset, but it has not leveraged this to its advantage. Although Pakistan was a relatively forward-looking country until the mid-1960s its policies have not been favorable to promoting trade and economic development since then. While other successful developing countries have espoused liberal trade regimes since the 1980s—resorting to protectionism only on a selective basis—Pakistan continues to rely on import substitution policies. Clearly, the country needs to revisit its regional and global trade policies.

The studies and data reflect that until the 1960s, Pakistan was a relatively forward-looking country and its economic activity more integrated with the rest of the world. Its volume of manufactured exports exceeded those of the Philippines, Thailand, Malaysia, and Indonesia combined and many other counties of the world. Today, however, Pakistan’s total exports are only a fraction of the exports of any of these individual countries.

Despite its strategic geographical location, Pakistan has yet to leverage this to its trade advantage. The country straddles a key trade route between the energy-rich countries of western and central Asia and those in South Asia with a high demand for energy. Pakistan’s three seaports i.e. Karachi, Port Qasim, and Gwadar provide the shortest routes linking Afghanistan, China, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan to the rest of the world. At present, however, hardly any transit trade passes through these Pakistani ports despite the fact that all these countries would benefit greatly from lower trade and transportation costs.

Pakistan is a signatory to two very important regional trade agreements  the South Asia Free Trade Agreement (SAFTA) and the Economic Cooperation Organization Trade Agreement (ECOTA). However, both are of little service to Pakistan as any normal trading arrangements with the members of these blocs have yet to be established. The SAFTA was signed in 2006 but unfortunately, Pakistan allowed only a limited number of trade items under its positive list. In March 2012, the country liberalized its trade policies to some extent although many restrictive policies are still in place. After the passing of three decades, the SAFTA has not been fully implemented in Pakistan due to complex relations with neighbouring countries but other SAFTA member countries have integrated their economies and benefitted greatly from this collaboration. Same as the Economic Cooperation Organization Trade Agreement (ECOTA) was signed in 2003, but after passing of many years, it has yet to become fruitful for Pakistan. While other countries in the region have allowed the movement of goods by acceding to the TIR Convention (which works under an international guarantee system and facilitates the movement of trucks and containers), Pakistan has yet to follow suit. Similar setback to Pakistan’s integration with regional trade blocs has been its failure to put into effect the various regional transit agreements to which it is a signatory.

The only operational agreement is the Afghanistan Pakistan Transit and Trade Agreement, but since its implementation in 2011, most of Afghanistan’s transit trade (which was previously routed through Pakistan) has been diverted to Iranian ports because of the complex provisions and procedures outlined in the agreement. This is unfortunate, given that Pakistan’s ports could provide Central Asia the shortest overland route to sea, and there is tremendous export potential among the Central Asian markets.

Major regional trading blocs in the world economy

The regional trade agreements (RTAs) are experiencing unprecedented rapid development in terms of economic growth of the countries. With the increase in the depth of RTA provisions, as an important form of economic and trade relations between countries.