Exploring Pakistan’s Regional Economic Cooperation Potential. Study Prepared for Asian Development Bank.

Free trade benefits are not well-harnessed despite the WTO because of the regional groupings. Such groupings have, in fact, resulted in a chaos. Pakistan has been a member of the SAARC and the ECO. In both the groups, intra-regional trade accounts for only four percent of total trade. The present study briefly reviews and identifies constraints to intra-regional trade and other modes of economic cooperation in the region. The SAFTA agreement and the possibilities of greater economic cooperation are also examined. Comparative advantage and low trade complementarity are found to be the main impediments to trade. Other obstacles such as limited capacity to generate exportable surpluses, restrictive trade policies, and political problems have also inhibited the growth of intra-regional trade. Higher trade levels can be achieved through intra-industry trade, vertical specialisation, joint export marketing of competing regional export products, deepening trade liberalisation, promoting monetary cooperation, and encouraging joint industrial ventures. It is imperative for the success of SAFTA that the negative list is kept quite small and the countries are prepared for closure of a few industries. Thus the SAFTA has great potential and South Asian countries should accept short-term costs for long-run benefits. Expansion of trade as well as efficiency and improved quality of exports would benefit the countries participating in the regional co-operation effort