M Abbas Raza
THE implications of the pandemic COVD-19 will change the entire dynamics and mechanism of the global trade and industry in consideration of various measures taken by respective economies. Governments are already considering to reduce bank interest rates to zero with a moratorium for repayment of principal and interest amount for at least a year. The pre-COVID-19 trends and growth analysis of various economic indicators and sectors will though be of some relevance but soon be chapters of the history and conventional analysis and policies will soon become redundant. Sustaining and enhancing growth will not be possible with old conventional methods. The economy, trade and industry will have to be restructured considering policy interventions by similar other economies. Pakistan’s macro policies will have to be carefully formulated reprioritizing the national economic and social issues.
Henry Kissinger, former Secretary of State, in a statement published in the Wall Street Journal on 3 April 2020, called for a New Post-COVID-19 World Order, stating that “the reality is that the world will never be the same after the Coronavirus,” he further stated that the liberal world order can be put at risk. If adopted, the new world order will have far reaching adverse effects on the trade and industry of developing countries. The first to be hit could be the WTO. The developed countries may resort to the Multi Fiber Agreement which was done away with by the Agreement on Textiles and Clothing. Besides the Special and Differential Treatment available to the developing countries under the WTO will also be hampered. This could be followed by reconsideration of the GSP and FTAs.
The DG, WTO, on 8 April 2020, has stated that “the pandemic is first and foremost a health crisis, however, a major social and economic crisis. Millions of people around the world have already lost jobs and incomes”. He further stated that the global trade could fall by 13% in 2020 and if the pandemic is not brought under control, and governments fail to implement and coordinate effective policy responses, the decline could be more than 32%. The World Bank’s recent report on the Economic Impact of COVID-19 on South Asia while cautioning the respective economies observed that Pakistan’s exports could plunge by 19.7% in the current fiscal year (FY20) as compared to the previous year. The Director IMF, Asia and Pacific Department, on 16 April 2020 stated that “these are highly uncertain and challenging times for the global economy. The Asia-Pacific region is no exception. The impact of the Coronavirus on the region will be severe, across the board, and unprecedented,” and that “this is not a time for business as usual. Asian countries need to use all policy instruments in their toolkits.” He further stated that Asia’s economic growth this year will grind to a halt for the first time in 60 years. The need for an international trade regime and discipline was earlier felt when the world suffered for fifteen years firstly through the first Great Depression and secondly the World War-II. This had a profound effect on the people who lost their life-time savings. Unemployment rose to 30% and there were a few social programmes to cushion the blow. The catastrophe started with the Stock Market Crash of 1929. This brought on a recession which was turned into the depression by governments making the wrong decisions. That was the time when GATT was set-up in 1947.
The IMF in its World Economic Outlook as of 6 April 2020 emphasizes that this crisis will need to be dealt within two phases – a phase of containment and stabilization followed by the recovery phase. In both phases public health and economic policies have crucial roles to play”. IMF’s statement that the “economic policies have crucial roles to play” may involve reconsideration of the international trade regime governed by the WTO, inter alia, including the (a) Tariff Bindings (b) Modification of Schedules, (c) Customs Union and Free Trade Areas, (d) Governmental Assistance to Economic Developments, (e) Agreements on Textiles and Clothing; Sanitary and Phytosanitary Measures; and Technical Barriers to Trade, coupled with amendments in the trade remedy and safeguard measures.
The outlook for Pakistan given by the World Bank in its report on the economic Impact ofCOVID-19 on South Asia, calling it as a new epicentre of COVID-19, paints a very bleak picture for the economy in the coming years. The report, inter alia, highlights and cautions Pakistan on account of contraction in GDP growth, negative export growth till FY21, and elevated fiscal deficit etc. Government’s current efforts to control the social and economic adversities by announcing a few packages on various accounts can only be termed as ad-hoc damage control efforts. It has yet to initiate long-term macro policies to restructure the economy for a sustained economic growth as the economy and the indigenous industry, especially textile and other export-oriented sectors would face unprecedented challenges and threats due to post-COVID-19 measures taken by the developed and competitor economies. At the micro level the challenges faced by the trade and industrial entities are even more complex than being perceived. It has become extremely difficult for them to honour international trade commitments especially where letters of credit have been established but exporters and importers for either getting bankrupt or inability to produce due to non-availability of labour force or the raw material. Same is the case with global trade and industrial entities.
In such unprecedented circumstances economic survival and stability can only be attained by revival of sick and closed industrial units, enabling the units currently operating below the optimal level of their installed capacities, followed by setting up of new industries with a prioritized resource allocation. Anything which can be produced locally, in adequate quality and quantity to meet the national demand should be encouraged restricting the inflow of imported equivalents and reducing the import tariffs on their inputs and raw material. It is only revival of the indigenous industry that will create employment and generate the much-needed government revenues. Apart from the tariff protection the bank interest rates for industrial activities should be reduced to 2% to 3%. However, the National Tariff Commission should, in terms of its functions, ensure that the additional cost to the consumer may not be excessive and the industry is not likely to need the protection or assistance after a reasonable period of time. Besides such protection should be granted to industries in a nationally prioritized manner which are labour intensive or produce high value-added products.
Pakistan should on war footings initiate restructuring its economy by reforming, inter alia, its financial, fiscal, monetary, trade and tariff, textile and agricultural policies. Necessary measures should be taken to make the domestic industry competitive in the world, keeping pace with the global developments, this would, inter alia, require (a) development and diversification of new products and markets keeping in mind the mandatory technical standards, which would now be strictly imposed, (b) rationalization of the tariff and regulatory regime governing the domestic and international trade, (c) revisiting and renegotiation of regional and free trade agreements etc.
—The author is former Chairman National Tariff Commission.
