Trade pact with Uzbekistan should kickstart Pakistan’s linkages with Central Asia, Russia
https://arab.news/5nnfg
Global events over the last few weeks once again underscore the oft-quoted saying, “the only constant in life is change.” The world is seeing tectonic shifts that are likely to have far-reaching diplomatic consequences and will also invariably have a bearing on economic relationships. The resulting alliances and trade flows are likely to shape the formation of new strategic and regional economic blocs.
Michael Hudson, professor of economics at the University of Missouri-Kansas City, recently stated: “For more than a generation the most prominent US diplomats have warned about what they thought would represent the ultimate external threat: an alliance of Russia and China dominating Eurasia. America’s economic sanctions and military confrontation have driven these two countries together, and are driving other countries into their emerging Eurasian orbit.”
Against this background, the signing of the Pakistan-Uzbekistan Preferential Trade Agreement (PTA) takes on a special significance in spite of its deceptively modest scope. Not only will it help boost trade between the two countries as well as that with other Central Asian countries and Afghanistan, but it will also help enable connectivity with Russia. With the emergence of improved security for transit trade through Afghanistan, the PTA is a small but important step in laying the foundations for an economic bloc among Pakistan, Afghanistan and the five Central Asian countries that would also enable trade with Russia.
The PTA eliminates or lowers duties on only 17 goods from either side. Pakistan has secured zero duty on 14 export products to Uzbekistan. On other items such as cutlery and mobile phones, Uzbekistan has agreed to reduce custom duties by 20%. Similarly, Pakistan has agreed to either completely waive off or substantially reduce import duties on 17 items that Uzbekistan has comparative advantage in exporting, such as dried fruits, sugar confectionery, white goods, etc. The concessions are based on the principle of reciprocity and parity with mutual agreement towards minimizing non-tariff barriers and recognizing each other’s standards.
A concerted effort by Pakistan, Russia and Central Asian states can lead to the optimal commercial development of Central Asian and Russian oil and gas resources, and at the same time address the energy needs of over 2.3 billion South Asian and ASEAN consumers.
Javed Hassan
As trade expands between Pakistan and Uzbekistan as well as with Afghanistan and other Central Asian countries, it is hoped that the number of items included in the PTA is considerably expanded. The scope of the Pakistan-Uzbekistan PTA has been kept small presently to minimize disruption and potential backlash from domestic industries, but with expansion of both volume and value of trade the PTA should aim to progress into a free trade agreement along the lines of China-Pakistan Free Trade Agreement (CPFTA).
The PTA is likely to serve as a template for agreements with the other central Asian countries, which will give Pakistan access to the Eurasian Economic Union (EAEU). The union is an integrated single market of 184 million people and a gross domestic product of over $5 trillion. Russia is its largest member.
With severe sanctions being imposed on it by European and North American NATO allies, Russia’s trade with these countries will significantly decline. By placing on hold the Nord Stream 2 gas pipeline operations, Europe has signaled that it plans to reduce its dependence on Russia for its energy requirements. Under these circumstances Russia is likely to look at the Chinese, South Asian and ASEAN markets to sell its hydrocarbon commodities, grains, and other industrial goods.
Pakistan’s location provides a direct connection between Central Asia and South Asia as well as sea lanes to the rest of Asia. Working in conjunction with Afghanistan, Pakistan can offer the Central Asian countries and Russia a comprehensive menu of export options and routes, leading to the development of an interconnected market for oil, gas, minerals, agriculture produce and industrial goods. For Pakistan to take advantage of the vast untapped oil and gas reserves of Central Asia and Siberian Russia, it should seek to be an active stakeholder in the development of pipeline infrastructure, as well as play a leading role in the commercialization of such resources. A concerted effort by Pakistan, Russia and the Central Asian states can lead to the optimal commercial development of Central Asian and Russian oil and gas resources, and at the same time address the energy needs of over 2.3 billion South Asian and ASEAN consumers.
It is important that Pakistan ensures that the infrastructure necessary to facilitate Russian and Central Asian transit trade is in place. The China-Pakistan Economic Corridor (CPEC), often inaccurately described as a bilateral connectivity project, enables Pakistan to position itself as an Asian gateway for more than just China. It has improved Pakistan’s logistics infrastructure and is an important element of regional connectivity strategy. Pakistan is therefore well placed to take advantage of the changing geopolitical scenario, but to do so successfully it will need to carefully navigate the diplomatic sensitivities. It must continue to maintain its longstanding trading links with Europe and the US, while leveraging opportunities arising from the emerging China-Russia Eurasian orbit.
– Javed Hassan has worked in senior executive positions both in the profit and non-profit sector in Pakistan and internationally. He’s an investment banker by training.
Twitter: @javedhassan
