Like anything else, Free Trade Agreements have their pros & con’s. Please indulge me to do some objective analysis.
Free Trade is the idea of economies without barriers. When countries drop tariffs, duties, quotas and other government costs and barriers--then we have Free Trade. Expanded trade certainly helps stimulate new investment, and the adoption of more advanced manufacturing technologies which in turn should generate increase in labour productivity and new jobs.
It is very good for the consumers. When goods from outside their country are also available, consumers have more choices of brands, styles and varieties. Imported goods maybe cheaper and of the same or better quality, or may be cheaper but inferior. It is up to the consumers to sort out good from the bad in order to get the best for their buck. Local companies therefore have to work harder to ensure that consumers still buy their produce.
Theoretically speaking, Free Trade should result in the economic growth of the nation. However, is this what usually happens?
The most important thing to remember is that straightforward trade expansion is not an end in itself. Unless accompanied by better jobs and corresponding increase in the disposal income of the workers; increased trade is meaningless.
Trade growth should generate new jobs, raise incomes and stimulate economic development. However the ability to do so depends on the productivity, that is, the value of the output produced by a unit of labour or capital. Productivity on the other hand depends on both the efficiency of the work force and quality of the produce; all of which directly translates into the ability to export goods.
Because of the wage:productivity ratio; economies of scale resulting in cheaper production costs become utmost important and multinational companies have the job done wherever production costs are the lowest. More often than not, countries with less skilled work force are unable to compete with the low-cost imports and in fact lose business and lay off workers aggravating unemployment, crime, and poverty. Hence the general perception that FTA cause unemployment, sadly happens to true in the short term.
Imposing high tariffs on imports will protect domestic industries for a while. But in the long-run, cheap foreign imports will always find a way into the country via smuggling making custom officials filthy rich on the way.
Agricultural based economy is not the answer either. Pakistan’ population is growing at about 2.7% per annum. There is simply not enough land to employ the youth as they come of age and all young men would have no option but to gravitate to the cities. GOP therefore needs to find solution to the growing problem of urbanization as all it does is to create more slums in the cities.
Micro and small enterprises in the rural areas based on local handicraft, livestock & dairy products, furniture, fruit farming & forestry etc., could be some of the avenues. However, the U.S. and the EU would never reduce their agricultural subsidies low enough to enable the emerging agricultural economies compete and it is doubtful if Pakistani farmers can compete with the subsidized food prices prevailing in the European countries. Therefore trade deficit of countries like Pakistan will continue to increase ‘ad ifinitim’ eventually making the country bankrupt,
Let us face it; in a globalised world where travel is common and information readily available, Pakistanis have to bite the bullet and accept short term hardships resulting from FTA, in the meantime improve their labour productivity as well quality of goods to be able to compete in the global village. Alternatively they would be forced to live perpetually as a third world economy.
Finally I would like to add that I am for a liberalized free trade environment, but if the Brexit, Donald Trump & Marine Le Pen are any indication, growing trend in the world is towards isolationism & protectionism.
