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FTA won’t help Pakistan much

Pakistan is hoping for a FTA with Vietnam. But Vietnam is Pakistan’s competitor in textile and hence, unlikely to import from Pakistan. Its rice needs are met by domestic production and neighboring Asean countries. Hence, it is highly unlikely that demand will be generated for Pakistan’s top exports through the trade agreement.

Vietnam’s imports in 2016 were worth $200 billion of which Pakistan’s share was just $239 million. While demand for Pakistan’s textile products will be limited, there is potential to export cotton, cotton yarn and fabrics. The trade agreement with Vietnam can easily head in a similar direction to Pakistan’s trade agreements with other countries: imports of expensive value added products and exports of cheap resource-based goods.

The potential to import from Vietnam is far greater, especially with 2016’s auto policy in place. But it seems unlikely that potential gains in cotton exports can offset imports of auto parts and similar goods. The Asean countries have a strong auto sector. Under the auto policy, new investors can import non-localised parts at a duty ten per cent lower than before. Localized parts can be imported at half the previous duty than before by new entrants. The purpose of the auto policy is to increase competition in the local market and push existing players to improve their quality and product. However, it can also have the impact of increasing the import bill as foreign auto parts become cheaper.