The first phase of 10-year Pakistan-China Free Trade Agreement (FTA) executed in 2007 failed in achieving the desired results because the Agreement did not take into account the ground realities. Therefore, at present, the exports of Pakistan to China stands at US$2 billion while import from China at US$18 billion, widening Pakistan’s trade deficit with China to US$16 billion, though the purpose of this phase of FTA initiated in 2006 was to increase the exports of both countries. It may also be mentioned here that the benefit ratio between the two countries is simply amazing.
In the first phase, Pakistan gave concessions on 5,686 tariff lines to China; while China gave concessions on 6,418 tariff lines. Chinese exports to Pakistan grew from $4.2 billion to around $12 billion, whereas Pakistan’s exports to the country only moved up marginally from $0.6 billion to $1.6 billion. Pakistan has so far benefited to the tune of 4 percent only while China has derived 64 percent benefit from FTA- phase-I.
Now that both the countries are getting ready to sign the second phase of the FTA, the present government must prepare proposals based on ground realities so that Pakistan is in a position to improve its benefit ratio accordingly. The Research and Policy Department of Pakistan Federation of Chambers of Commerce and Industry (FPCCI) organized a Roundtable recently to discuss the dynamics of second phase of Pakistan-China FTA particularly industry and product specific challenges to stabilize economy of Pakistan with exportable strength.
The Report reveals that Pakistan should import only those items on concession that are not manufactured in Pakistan. The present government must therefore, analyze the import substitution and enhancement of exports strategy. Those commodities that are available at low cost from China should be imported from China but not at the cost of domestic industries, because around 1900 industries are already shut down in Pakistan which needs attention. Moreover, our industries have also shifted to other countries due to incentives and low cost. We need to bring these industries back in Pakistan. Above all at present Pakistan’s export capability is limited to only US$30 billion. So unless and until we work to develop our export capacity such FTAs may not be so beneficial for us.
While analyzing our export strategy to China there is a need to study the import market of China. At present, there are 4000 to 5000 commodities that China is importing from other countries and as such to strike a better deal in the second phase Pakistan must rediscover its export potentialities and prepare itself to be in a position to win a major share of China’s imports. It goes without saying that we need to improve quality of our finished products, develop value addition and infrastructure to meet the demands of the Chinese importers as per their requirement.
In the second phase of Pakistan-China FTA, China wants zero import duties on 6,000 tariff lines instead of the original 2,600. This will be disastrous for Pakistan. Unfortunately, we do not have enough export surplus to ask for similar concessions from China. Pakistan must therefore, enhance its basket of exports of finished goods instead of raw material and semi manufactured goods. The exports of raw marble, gem stones and cotton without value addition will not help us in any way. To improve value addition Pakistan may make agreement of transfer of technology with China. In short we should export value added products rather than sending raw material such as gem, jewellery and cotton, raw marble etc. The time is ripe for going in for value added products for the establishments of Gilgit-Baltistan border will double our trade after CPEC (China-Pakistan Economic Corridor).
Moreover, the most important aspect in this regard is to find out the other hurdles in terms of increasing the volume of exports which include tariff and non-tariff barriers that are faced by the Pakistani exporters in other countries. In this regard Pakistan needs to study or investigate non-tariff barriers and measures that are currently hampering our exports to China.
As we are aware of the changing trade patterns in the world, every trade block is expanding its business horizon, for instance previously Association of Southeast Asian Nations (ASEAN) had 6 countries now it has 10 countries and adopted inward looking policy for trade. Similarly, African countries have their own FTAs with their respective trade blocks. China has also sign FTA with ASEAN block. So there is a need to explore the possibility of Pakistan becoming a member of ASEAN to get some more benefit from China.
So the time has come to get a confirmation from the Chinese Government that Pakistan will only sign second phase of FTA if it gets the same concessions China is offering to ASEAN countries and proportionate share in its import to increase export from Pakistan to China. We must also impose condition in FTA that import from Pakistan should be proportionate to export from China to Pakistan, except the machinery and other equipments which are for development of Pakistan.
We could not reap the benefits of first phase because 60 percent of our exports consist of cotton and textile and China has imposed 3.5 percent tariff on these products. Pakistan ranked 16th on the list of China’s export partners while it stood at 61st position amongst its import partners. According to a report even countries like Kenya are ahead of Pakistan in the exporters’ list of China.
Before going to sign the second phase of Pakistan-China FTA the Pakistan government must revisit the FTA keeping in view the deficiencies and flaws in first Agreement. They must also try to include maximum finished goods/items in the export list on tariff line offered by China to ASEAN countries. On the other hand stakeholders should also be taken on board while framing and finalizing the recommendations on Pakistan-China FTA so as to get their valuable input.