Talk­ing to the Tiger

In­creas­ing trade ties with South Korea, a for­mi­da­ble eco­nomic power, could open many new win­dows for Pak­istan.

Southasia - - CONTENTS - By Mubashir Noor

Pak­istan’s brew­ing Free Trade Agree­ment (FTA) with South Korea is an op­por­tu­nity be­yond the sim­ple im­port and ex­port of goods. It is an op­por­tu­nity to em­brace the story of an un­der­dog that be­comes an eco­nomic tiger. We know that South Korea is a mod­ern marvel, but few un­der­stand the hard­ships of its jour­ney. In 1960, the South Kore­ans made an av­er­age of $79 per year, a fig­ure low even by third world stan­dards. Fast for­ward to 2013, and South Korea’s per capita in­come is close to $26,000. For per­spec­tive, Pak­istan’s fig­ure is a pal­try $1,513. In 1960, South Korea and Pak­istan could be con­sid­ered eco­nomic equals. Now, they are worlds apart.

South Korea’s iconic Pres­i­dent Park Chung-hee had a sim­ple mes­sage for his peo­ple. He re­peated “We must not pass this poverty to the next gen­er­a­tion.” This idea re­mained the bedrock of South Korea’s eco­nomic en­gine for over three decades. Pres­i­dent Park learned early that for­eign aid could not save South Korea. For him, the only path to­wards growth was a strong in­fra­struc­ture built upon highways, fac­to­ries and re­finer­ies. From 1961 to 1989, the South Korean econ­omy grew at an av­er­age of eight per­cent per an­num. This star­tling drive was made pos­si­ble by a com­bi­na­tion of strict fis­cal fo­cus and vi­sion­ary lead­er­ship. Pak­istan, right now, could use both.

On July 8, Pak­istan and South Korea agreed to a fact-find­ing pre-FTA study. In a year’s time, this study will frame the specifics of the ac­tual agree­ment. At the Joint Trade Com­mit­tee’s (JTC) first meet­ing in Seoul, Pak­istan’s Com­merce Min­is­ter Khur­ram Dast­gir and South Korea’s Min­is­ter of Trade Yoon Sangjick signed the study. The roots of this FTA lie in for­mer South Korean Prime Min­is­ter Chung Hong-won’s 2014 trip to Pak­istan. Along with MOUs on trade and energy, Pak­istani P.M Nawaz Sharif pro­posed an FTA to fur­ther bi­lat­eral ties. His coun­ter­part agreed, and the JTC was formed to make this hap­pen.

Pak­istan al­ready has FTA’s with Sri Lanka and Malaysia, and trade deals with Tur­key and Thai­land are in progress. It is a given that ex­ports and For­eign Di­rect In­vest­ment (FDI) drive eco­nomic growth. Un­for­tu­nately, Pak­istan’s role in the global War on Terror has sapped its in­dus­try of vigor, and cre­ated a huge in­fra­struc­ture gap. The State Bank of Pak­istan (SBP) re­ported in March that Pak­istan needs to in­vest ten per­cent of its GDP un­til 2020 to close the Rs.298 bil­lion deficit. How­ever, crip­pling cir­cu­lar debt and aus­ter­ity mea­sures im­posed by the In­ter­na­tional Mon­e­tary Fund (IMF) make this a tough ask with­out for­eign help.

De­spite 11,000 Pak­ista­nis liv­ing in the coun­try, South Korea’s trade with Pak­istan never re­ally took off. In 2014,

the fig­ure stood at $1.17 bil­lion, down al­most 27 per­cent from two years be­fore. These are poor re­turns, es­pe­cially since South Korea’s global trade now tow­ers over $1.1 tril­lion. Dr. Song Jong-hwan, South Korea’s am­bas­sador to Pak­istan, sug­gests dis­tance and se­cu­rity is­sues have played a role. At $140 mil­lion, South Korea’s FDI fig­ure for Pak­istan is sim­i­larly dis­mal. In con­trast, In­dia is home to $2.75 bil­lion in South Korean cap­i­tal. There are also 615 South Korean com­pa­nies work­ing in In­dia com­pared to Pak­istan’s 32. Both coun­tries hope the FTA will turn these stats around.

South Korea’s in­ter­est in Pak­istan is not new. Half a cen­tury ago, in the “Golden Six­ties,” Pres­i­dent Park was fas­ci­nated with Gen­eral Ayub Khan’s eco­nomic pro­gram. Re­port­edly, he tried to copy Ayub’s sec­ond “Five-year Plan” for South Korea. How­ever, by the 1980s, South Korea had be­come a man­u­fac­tur­ing pow­er­house, while Pak­istan was a front­line state in the Cold War. It took Chi­nese Pres­i­dent XI Jin­ping, and his New Silk Road dream, to re­mind South Korea of Pak­istan’s value. China’s “One Belt, One Road” pro­ject aims to re­vive the an­cient trad­ing routes con­nect­ing Eura­sia, and Pak­istan will be a cru­cial part­ner in the process.

Like China, tech-savvy South Korea wants cheap ac­cess to re­source-rich Cen­tral Asia. It has also re­al­ized that trade part­ner­ships are para­mount to sus­tain growth. In June, China and South Korea signed an FTA that Pres­i­dent Jin­ping called a “mon­u­men­tal event.” Even in fluid fi­nan­cial times, South Korea ex­pects to add one per­cent to its GDP over ten years, thanks to the sheer scale of trade. For China, this was par­tone of a grander, tri­lat­eral agree­ment in­volv­ing Ja­pan. Mean­while, the South Korean FTA slots neatly into Pak­istan’s “Look east” pol­icy for eco­nomic re­vival. Any part­ner­ships that en­able the CPEC will make its econ­omy more ro­bust.

There are also spe­cific ex­ports that the FTA will help with. Zakaria Us­man, for­mer pres­i­dent of the Fed­er­a­tion of Pak­istan Cham­bers of Com­merce and In­dus­try (FPCCI), out­lined these on a trade trip to Seoul in Au­gust 2014. He said then, “We need to lower tar­iffs on Pak­istani man­goes. There are many tar­iffs on Pak­istani fruits and veg­eta­bles that give us a disad­van­tage, com­pared to other coun­tries like In­dia.” Another key talk­ing point was salt used for in­dus­try and de­ic­ing roads. Pak­istan pro­vides only five per­cent of South Korea’s re­quire­ment right now, but this fig­ure could jump to 40 per­cent with an FTA.

At last year’s sum­mit in Is­lam­abad, Nawaz Sharif high­lighted the energy sec­tor as most ripe for South Korean in­vest­ment. New hy­dropower projects (HPPs) shep­herded by South Korean com­pa­nies are al­ready un­der­way. The 84 MW New Bong HPP came online in 2013, while the Pa­trind and Gulpur HPP’s are near­ing com­ple­tion. Agrotech­nol­ogy is another av­enue for co­op­er­a­tion. Pak­istan is an agrar­ian econ­omy, and South Korea has proven ex­per­tise in smart farm­ing. In the 1970s, its state-spon­sored “Green Revo­lu­tion” gave the coun­try food se­cu­rity through re­search on new rice va­ri­eties called “tongil.” The Korea Pro­ject on In­ter­na­tional Agri­cul­ture (KOPIA) has since helped many poor coun­tries in Africa and Asia reap higher crop yields.

Iron­i­cally, Pak­istan’s war-rav­aged econ­omy has an un­fore­seen pos­i­tive for re­gional in­vestors like South Korea. At $118 per worker, Pak­istan has the low­est cost of la­bor for coun­tries with ac­cept­able in­fra­struc­ture and skills. The rupee’s de­val­u­a­tion as a re­sult of IMF dik­tats has also raised Pak­istan’s at­trac­tive­ness. For the last two decades, China has been the go-to coun­try for cheap man­u­fac­tur­ing, but that is chang­ing. Its min­i­mum wage grew by al­most 17 per­cent in 2014, to the new high of $500. With fur­ther hikes ex­pected in the fol­low­ing years, a fair num­ber of for­eign com­pa­nies are plan­ning to leave China.

China’s pro­cliv­ity to co-opt in­vestor tech­nol­ogy has also be­come a prob­lem for coun­tries like South Korea. To date, six of its top ex­port sec­tors have been over­taken by China in this fash­ion. In the smart­phone busi­ness, for ex­am­ple, Huawei and Len­ovo have now pipped the com­bined mar­ket share of star South Korean brands Sam­sung and LG. If the se­cu­rity sit­u­a­tion im­proves, Pak­istan, along with the Philip­pines and Thai­land, could be­come new hotspots for for­eign firms flee­ing China.

With Pak­istan’s as­cen­sion to the Shang­hai Co­op­er­a­tion Or­ga­ni­za­tion (SCO), its case as the “Cen­tral Asian con­nec­tion” for East Asia is strength­ened. Pak­istan’s Gwadar port will be the mar­itime gate­way link­ing to China’s new Silk Road through the CPEC. Sar­taj Aziz, the coun­try’s na­tional se­cu­rity ad­vi­sor, be­lieves Asia is mov­ing “from geo-strat­egy to geo-eco­nom­ics.” In such times, the Pak- South Korea FTA will be a bless­ing. Pak­istan needs in­ter­con­ti­nen­tal con­nec­tiv­ity not just for trade, but also to shake off its im­age as a ji­hadist bee­hive. The writer is a free­lance colum­nist and au­dio engi­neer.

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