The Need for Free Trade with Pakistan

On Politico‘s recent Open Mike I wrote a short article calling for free trade with Pakistan:

The terrible fire at a textile factory in Karachi that took over 200 lives is in many ways Pakistan in a microcosm. The fire was a consequence of ignoring long-term dangers for short-term gains – a situation which, so often, explodes into tragedy.
But it also suggests an opportunity for the United States to work with Pakistan to deliver real improvements to the long-suffering Pakistani people. The United States places heavy tariffs on Pakistani textiles – that nation’s primary export. A free trade agreement would be an elixir to Pakistan’s weak economy.

While the United States has delivered nearly $20 billion in financial aid to Pakistan since 9/11 that aid has had only a limited impact. Much of the aid has gone to the military, doing little to improve the lives of regular Pakistanis and being seen primarily as payment for Pakistani assistance against terrorism. But even if the aid had been delivered efficiently and effectively a few billion per year can have at best only a limited impact in a country the size of Pakistan.

Trade, on the other hand, spurs broader growth and can stimulate investment. Besides creating jobs, if Pakistan’s textile industry is growing then Pakistan has important incentives and resources to revitalize its agriculture and repair its decaying irrigation system so that cotton production can meet industrial demand. These projects would also create jobs and brings resources to rural Pakistan.

Trade agreements often include environmental and regulatory provisions. U.S. aid has not been sufficient to induce Pakistan to improve its governance. But a trade agreement might achieve this. The agreement could require better working conditions along with transparent corporate management and government regulations. Much of Pakistan’s economy occurs “off-the-books” so that income is not taxed and resources are not invested effectively. A vibrant internationally engaged textile industry could help bring more of Pakistan’s underground economy into the legitimate private sector.
There are many hurdles to pursuing free trade with Pakistan. American domestic politics is a significant barrier, as is Pakistan’s own record of nuclear proliferation and support for terrorism. But free trade offers the United States its greatest opportunity to help Pakistan change course. More then any aid package, trade could reach the Pakistani people and unleash the country’s economic potential. It can help focus resources on Pakistan’s decaying physical and social infrastructure before it is too late. A vibrant Pakistan-American trade relationship will also create important constituencies in Pakistan for cooperation with the United States.

The alternative, attempting to induce Pakistan to change its behavior through foreign aid, is seen by Pakistanis as little more then bribery and even discourages Pakistan from taking on its longer-term problems. In effect, for Pakistan terrorism and instability pay. A trade agreement is a chance to forge a new relationship with a strategically important country and hopefully help Pakistan avoid exploding – a tragedy that would dwarf the terrible fire in Karachi.

This is a serious issue, Pakistan’s water infrastructure is in decline. If that happens the country will not be able to feed itself, and is too poor to import it. Worse, as discussed above Pakistan’s primary export is also based on agriculture. A Pakistan unable to afford food could collapse, with many awful consequences including the risk of loose nukes. To hold together, it is easy to imagine Pakistan using threats of instability to extort the international community. Neither of these scenarios is a happy one.

The turn around time on water systems is not fast, if Pakistan is going to change direction, dramatic initiatives are needed now. Free trade is the closest thing the United States has in its arsenal. There are innumerable reasons not to reward Pakistan, but failing to do so could have dire consequences.

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