Sustainable Development Policy Institute

Trade and Environment

• Introduction
• Current Projects
• Earlier Projects
• Contact

Introduction

Export led growth has been the mantra of developing nations struggling to obtain some independence and sovereignty for their economies. However, development at the expense of the environment will destroy any chances of sustainable development and long term stability for the future of Pakistan and South Asia. In an effort to achieve SD within the global marketplace, interaction and negotiation with the countries of the North must take place on various levels. These interactions, much of the time unilateral, have both positive and negative effects. In order for Pakistan to gain any benefit from global trade and environmental development, South Asia as a whole along with the rest of developing world must stand for the removal of the environmental linkages from the global trade regime. However, the developing world needs to realize that environmental issues will not disappear from the global trade system and must make efforts to improve the environmental friendliness of their sovereign industries in order to assure access to Northern markets.

Current Projects

Key Projects
In the context of trade and sustainable development, we are working on a number of research projects and are also engaged as coordinators and focal points of regional and global projects.

1. The Trade Knowledge Network
We are currently South Asian focal points for the International Institute for Sustainable Development (IISD) led Trade Knowledge Network (TKN). As part of our responsibilities, we have managed to formulate a group of three South Asian partners who have collaborated with us on TKN research. SDPI hosts the TKN South Asia website which has all the latest information on the network as well as on trade and sustainable development news from the region.

Foreign Investment Contracts and Sustainable Development
We are involved in a global project dealing with Foreign Investment Contracts and their concern with sustainable development. One often gets to read press reports that portray the substantial increase in FDI in the country as one of the major achievements of the present government. However, what we focus on is the little known, and much ignored aspect of what goes on behind the scenes in negotiating the investment deals and their potential impact on SD concerns.

While we are yet to embark on a detailed project, the scooping work that we conducted for Pakistan suggests that sustainable development concerns are completely ignored in the quest to attract investors at any cost. In the case of the Kirthar National Park controversy, where the government awarded an oil exploration concession to Shell-Premier, national legislation was circumvented and finally altered to allow the deal to go through. There is absolutely no transparency in either the negotiation of the FICs in Pakistan or the arbitration of disputes, which often are referred to international arbitration. In order to incorporate SD concerns, reforms must be introduced at four levels: the contract negotiation process, the terms of the contract themselves, the dispute resolution mechanism, and alignments between the policy environment in which the investment deals are sealed and sustainable development.

2. Trade Integration, Conflict, and Peace Building
We are involved in a two-year project on Regional Trade Integration, Violent Conflict, and Peace Building as a global coordinator. This research undertaking seeks to investigate the link between regional trading arrangements and conflict among or within states member of a particular Regional Trading Arrangement (RTA). We examine the case of SAARC, SAFTA, and SAPTA in South Asia.

This project is extremely pertinent in the context of the current impetus for peace between Pakistan and India, and South Asia as a whole. The Pakistan-India peace process is seeking to follow the trade theory model, where enhanced economic interdependence could lead to conflict mitigation. We investigate whether RTAs in South Asia could produce such positive spin-offs.

Our findings suggest an absence of any trade-conflict causality in South Asia. In other words, RTAs do not seem to have had any positive influence in reducing or subsiding conflict in South Asia. On the other hand, a reverse causality, where political tensions and conflict between states have hindered trade ties is apparent in almost every relationship.

Having taken the necessity of forming a robust regional trading block as a given, we end up with a pessimistic outlook towards trade and peace building in South Asia. Our findings suggest that lack of progress on the regional front has led South Asian countries to search for alternate bilateral, sub-regional, and extra regional alliances. India has taken the lead in these developments by forging FTAs and sub-regional groupings in South Asia.

Interestingly, Pakistan is the only country in South Asia that is not part of any sub-regional grouping. During the course of our research, it became clear to us that unless political tensions, especially between Pakistan and India subside (and this is not likely through the RTA route), the likelihood of regional integration in South Asia will remain bleak. This would imply that South Asian states would continue looking outside the region, thus de-emphasizing regionalism further. Any positive by-product through a trade-conflict causality then is unlikely to bear dividends in South Asia.

3. Foreign Investment Contracts and Sustainable Development funded by the International Institute for Environment and Development (IIED).

4. GHG Assessment

5. Ethanol Study

6. SDC Monitoring, Evaluating, Reporting and Verifying (MERV) Project.

Earlier Projects

1. Pakistan-India Informal Trade
We have recently completed the first comprehensive study of Pakistan-India informal trade, which was solicited by the Ministry of Commerce (commissioned by the World Bank). The study was conducted in the backdrop of the ongoing initiatives aimed at Pakistan-India trade liberalization. Before this, mere conjectures of Pakistan-India informal trade had been floating around and approximated the trade’s value to be between USD 0.5-1 billion. While these estimates were based on virtually no empirical evidence, during the course of our study we conducted an extensive primary information collection exercise in Pakistan and Dubai. A total of 178 responses were recorded.

Our findings suggest an estimated value of USD 545 million (2005) for total informal trade between Pakistan and India. Total informal exports from Pakistan to India are around US$ 10.4 million and informal imports are US$ 534.5 million. The balance of informal trade, as for the formal trade, is overwhelmingly in India’s favor. Informal trade between the two countries is conducted through as many as eleven routes. Contrary to the existing perception, smuggling, and not quasi-legal trade through third ports constitutes majority of the trade. The greatest volume of trade is carried out via Afghanistan. Other major routes are situated over land across the Sind Border and via sea from Mumbai to Karachi via Dubai.

We found the mechanism for conducting informal trade to be well established with the involvement of a number of actors, both official as well as private. Rent-seeking is of course a routine procedure in informal trade. It is also worthy to note that while the Government would ideally want to convert illegal trade to formal exchange under a liberalized environment, trade policies need to consider the socio-economic consequences of disrupting practices in smuggling-prone areas which are both historically entrenched and generate employment. Complementary polices which provide alternative livelihoods and establish social and physical infrastructure are key to trade liberalization with India.

We concluded that the likelihood of diverting informal trade to legal channels is low under an MFN regime, as existing tariffs are likely to more than offset the net transaction costs on the circuitous but important informal trade routes. In fact, if tariffs remain - even at lower levels - the more proximate and legal direct routes may trigger additional informal trade. Revenue generation for the government in this scenario is also not likely to be significant. On the other hand, free trade, a la SAFTA, is likely to yield higher trade gains. However, it would also constitute a threat to local industries, especially, cosmetics and drugs and medicines, and the engineering industry. The comparative prices in cosmetics and drugs and medicines are highly indicative and suggest that tariff reductions may need to be staggered.

2. Introducing the Concept of Integrated Assessment of Trade Policies
SDPI organized the UNEP-sponsored workshop on “Introducing the Concept of Integrated Assessment of Trade Policies” from May 15-16, 2006 in Islamabad, Pakistan. The idea was to introduce the concept of integrated assessment to relevant stakeholders in Pakistan. Prior to the workshop, there was practically no awareness of the utility of integrated assessments, and certainly no capacity to conduct such assessments for trade policies. Apart from the aim of raising awareness about the integrated assessment tool, SDPI was interested in soliciting feedback and suggestions from the workshop participants on the potential for bringing the concept of integrated assessment into mainstream policymaking. The workshop report is given below:

View Report 3.14 mb

Contact

Please contact Dr Shaheen Rafi Khan (shaheen@sdpi.org) for further details on this program.