Obama's Trade Deals Will Help Pakistan

[Riaz Haq]

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

Member Nations of Trade in Services Agreement (TISA)

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

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

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

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

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

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

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

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[Riaz Haq]

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

http://www.voanews.com/content/pakistan-army-chief-visits-russia-to... …

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[Riaz Haq]

TPP can hurt India, Pakisran

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

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

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

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

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

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

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

http://www.fibre2fashion.com/news/textile-news/newsdetails.aspx?new...

[Riaz Haq]

Dailytimes | #Pakistan #exports $5.4bn worth of services in FY16. #trade #services - http://go.shr.lc/2gOAqMf via @Shareaholic

The services sector contributing by 59.2% to Pakistan's gross domestic product (GDP) exported services worth $5.4 billion in fiscal year 2015-16 (FY16), with a deficit of $ 2.9 billion as compared to last fiscal.

The deficit of $ 2.9 billion was 3.8 percent lower than the deficit recorded last year and the State Bank of Pakistan (SBP) attributed this small improvement mainly to a reduction in the freight deficit, which is the largest component in the country's services trade profile, as a result of the big decline in oil prices.

Services exports' share in the economy has gradually increased from 50 percent in FY00 to 59 percent in FY16 .However, past data suggests that services exports have stagnated around this level since FY10.

'The commodity producing sector, which has been growing at a slower pace as compared to services, may not be able to generate sufficient exportable surpluses to meet the country's growing foreign reserves needs', SBP added.

Inflows under government services - primarily Coalition Support Fund (CSF) and other military services - account for more than one-third of the country's total services exports. This is substantially higher than the share of government services of only 2 to 3 percent in the world trade in services. Given the non-economic and one off nature of government services, the high share does not bode well for long-term stability of export receipts. Incidentally, flows under CSF dropped drastically in FY16, the central Bank elaborated.

'The current level of Pakistan's services exports does not reflect the country's true potential. Concerted efforts are needed to facilitate services exports by strengthening the regulatory framework; well-thought liberalisation of trade in services; investment in human resource development (especially in education and training for select services); improving access to finance for service-oriented industries; encouraging the private sector to form services coalitions and enterprise networks; promoting specialization in financial services; and improving data availability', SBP suggested.

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Non-CSF government services exports have recorded a sizable growth over the last two years; if this trend continues, it may cushion any further fall in FX receipts under CSF. The export of commercial services, which is obtained by adjusting overall export of services for government services, has remained almost flat at $ 3.4 billion since FY11.

These were only 1.2 percent of GDP in FY16, which is far below the global average level of 6.0 percent of world GDP. These exports are concentrated in transport, Information Communication Technology (ICT), travel, and business segments. These four (out of 11 major categories) have a combined share of more than 90 percent in overall export of commercial services.

ICT services exports, which continued to increase up to FY13, have stagnated since then.

This stagnation is largely stemming from telecommunication services, as revenues from foreign network operators (for calls that originate from outside Pakistan) are declining. This drop has come about as internet-based messaging and voice services, like Skype, Viber and Whatsapp, have gained tremendous traction locally. However, the negative impact was largely offset by the growing export of computer services. Exports of both software consultation services and of computer software, have maintained an upward trajectory since FY06.