Navigating trade disputes

LAHORE: Pakistan has signed a bilateral trade resolution accord on trade issues with several developed economies. However, this accord has not been established with most of its neighbours. Sri Lanka is an exception, but 20 years after signing, it remains non-operational.

The free trade agreement (FTA) with Sri Lanka was signed in 2005 and included a dispute resolution mechanism for commercial entities. Unfortunately, this resolution body has not been operationalized. Several incidents have highlighted that this inaction is harming the interests of Pakistani exporters.

Recent grievances raised by the Rice Exporters Association of Pakistan in a letter to the federal minister of commerce exemplify this issue.

The letter reveals that a leading rice exporter complained about exporting rice to two Sri Lankan companies under the Pakistan-Sri Lanka Free Trade Agreement. The complainant said that initially, clearance was delayed by these companies. Once demurrage charges began to accumulate, the importers started negotiating with the exporters. They pressured the exporting firm to allow the clearance of shipments without payment. After the consignments were released, the importers denied payment to the exporting firm, which includes a total of $91,375. Exporters assert that these are only a few of the reported incidents, underscoring the urgent need to activate the dispute resolution forum between the two countries.

A bilateral dispute resolution accord on trade issues is a formal agreement between two countries to resolve trade-related disputes through predetermined mechanisms, instead of unilaterally imposing trade restrictions or resorting to trade wars.

These accords typically include processes such as mediation, arbitration or consultation to ensure that trade disagreements are resolved amicably and fairly, in compliance with international trade rules or mutually agreed-upon standards.

Disputes are resolved either through a third-party mediator or arbitrator who assists the countries in finding a resolution. Initial discussions or negotiations may also be initiated to clarify the issues at hand. In some cases, both parties agree to resolve disputes in a neutral setting, often using international trade law as a basis. These accords aim to prevent unilateral trade sanctions or other retaliatory measures, which can escalate into larger trade wars.

Pakistan’s bilateral trade dispute resolution accords

Pakistan has established dispute resolution mechanisms as part of its bilateral trade agreements and FTAs. These include agreements with China and Sri Lanka, among others. Pakistan has also signed such accords with Iran, Turkey, the UAE, Indonesia, Afghanistan, Saudi Arabia, and the United States.

Despite being neighbours, Pakistan and India do not have a bilateral dispute resolution mechanism for trade. Their trade relations are frequently disrupted due to political tensions. Although Bangladesh and Pakistan maintain trade relations, a formal dispute resolution accord is lacking. While trade agreements exist with Nepal, a formal bilateral dispute resolution mechanism is not in place. We do not have a formal dispute resolution accord with the Maldives as well.

Without a formal mechanism to resolve disputes, trade flows can be interrupted due to disagreements, resulting in losses for businesses. In the absence of a proper dispute resolution mechanism, countries may resort to retaliatory tariffs or non-tariff barriers, escalating tensions. A lack of clear mechanisms to resolve trade disputes creates uncertainty, making businesses hesitant to invest in trade with the affected country.

The absence of streamlined dispute resolution can lead to prolonged legal battles or negotiations, increasing the cost of trade for businesses and governments. In regions where trade issues intersect with political disputes, such as between Pakistan and India, the absence of trade resolution mechanisms can exacerbate diplomatic tensions, complicating resolution efforts.