Revival of Pakistan-Japan Commercial Links

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Arresting the decline in trade, seeking assistance for mega projects must be a priority

Recently Prime Minister Muhammad Nawaz Sharif said that his government would look forward to greater cooperation with Japan in trade, investment, development, energy capacity-building, health, and education. In socio-economic uplift, health, and education, Japan’s International Cooperation Agency (JICA) plays a significant role in Pakistan.

Trade determines relations between and among nations. Drastic changes have been emerging on Pakistan’s foreign trade. Now Asia has been looming large on Pakistan’s trade. Out of top ten trading partners of Pakistan, seven are Asians namely; China, United Arab Emirates, Saudi Arabia, Kuwait, Malaysia, Afghanistan, and India. Pakistan’s trade with the United States, Europe, and Japan is on the declining side.

Japan used to be an important trading partner of Pakistan until China replaced it. Japan is a significant industrial economy in North East Asia and in many fields it is advanced economy than China and South Korea. Both Pakistan and Japan intend to enhance bilateral trade, which has been hovering around US$ 2 billion annually at the moment.

In an effort to boost economic relations between the two countries, Pakistan allowed Japan to set up a Special Economic Zone and Textile City in Karachi under concessionary package last year.

An Early Harvest Program (EHP), Preferential Trade Agreement (PTA), and Free Trade Agreement (FTA) that Pakistan signed with China would enormously boost bilateral trade. However, in the absence of these trade mechanisms with Japan, bilateral trade is unexpected to increase between them. If Pakistan and Japan did not sign these trade mechanisms with each other soon, their trade would significantly decline.

Other than these reasons, a number of factors have decreased trade between Pakistan and Japan in the past two decades. For instance, the East Asian economic crisis of 1997 added fuel to the already declining trade between the two countries. Economic stagnation and deflation in Japan on the export side was also a contributing factor in the decline of trade between the two countries.

A surge in oil and gas resulted in buying less from Pakistan by Japan. Bilateral trade also depends on Japan’s Official Development Assistance (ODA), whose directions were constantly changed in the past two decades, affecting trade between the two countries.

Japan’s economic sanctions against Pakistan after 1998 forced Japanese companies to decrease their business with Pakistan. Moreover, Pakistani exporters considered Japan’s market difficult to export their goods meeting Japanese specific tastes and high standards.

Bilateral trade was not adjusted between them and confined to traditional items. The rise of China was a significant factor. It was China that swiftly replaced Japan as Pakistan’s largest trading partner. When zero tariffs were offered to China under FTA by Pakistan, it has also virtually affected the share of Japanese exports to Pakistan.

These obstacles notwithstanding, Japan has been quite reluctant to initiate the EHP, PTA, and FTA between the two countries. The trade agreements could benefit both countries. Besides China, Pakistan has already signed the FTA with Malaysia and Sri Lanka. PTAs have been signed with Indonesia, Iran, and Mauritius. Negotiations are already underway to sign PTA with Turkey.

Mega infrastructural projects could boost economic relations between Pakistan and Japan. It has shown keen interest in the Karachi Circular Railway and underground metro projects in Lahore and Karachi. Prime Minister Sharif discussed the KCR project when he met with Japanese Prime Minister Shinzo Abe in New York on the sidelines of the UN General Assembly Session in September last.

JICA is committed to undertake the KCR and might offer US$ 2 billion for the project. Government has decided to revive the KCR in 2004 but could not carry out the project. The present Government seems to be committed to revive the project. As huge oil, diesel, and gas is used in vehicles for daily commutation, the revival of the KCR would greatly save energy.

The KCR was started in 1969 but was scraped following corruption and mismanagement. Under the new plan, the length of the track would be 50 km long along with installation of 23 stations. Over 700,000 daily commuters would take the facility.

Karachi and other major cities need a mass modern transit system. There is no viable public transportation system in Karachi. Moreover, a modern commuter system is needed for Karachi. A poor commuter should get a better transportation facility, which is not provided to him for decades. This would be great step toward urbanization. And pollution would also be decreased.

Proving efficient energy and conservation, modern and economic transportation, and green and healthy environment are the policies of the present government. The Lahore metro bus is a shining manifestation of these policies, built in just 11 months. The implementation of the KCR would be another step toward achieving the goals of these policies. The revival of the KCR with Japanese assistance would also revive Japan’s economic ties with Pakistan.

Tokyo has a rapid and a well-connected mass transportation system. Its railway system is the most efficient in the world. There are around 130 subways lines along with roughly 1000 subway stations. The East Japan Railways Company (JR East) and Shinkansen (Bullet train) and a number of other companies operate the system. The JR alone operates 23 lines in Tokyo. Over 40 million people use modern railway in the Greater Tokyo area daily. Japan has been helping India and Indonesia in developing a modern mass transit system.

Pakistan also needs to learn from the Japanese railway system. The present Government has been committed to carry out a number of mega projects to up-lift the economy. A large number of Japanese companies have been working in Pakistan. Japanese companies could play a greater role in many commercial and economic projects in Pakistan.

Views expressed are of the author and do not necessarily reflect the views of ISS or of the Government of Pakistan.