PAK, CHINA PLAN TO DOUBLE BILATERAL TRADE

SYED FAZL-E-HAIDER
(feedback@pgeconomist.com)

July 26 - Aug 1, 2010

Pakistan has reportedly submitted a wish list of additional 263 items to Beijing that it wants to export to China under the Free Trade Agreement (FTA). The experts believe that the financial impact of these additional items will be around $1.5 billion per annum on exports to China subject to Beijing's acceptance of the proposal. Islamabad has complained that its exports have not been showing growth as per expectation requesting the Chinese to include more Pakistani products in the FTA.

During last two years, the volume of bilateral trade between China and Pakistan has increased to $8 billion and it has largely been in favor of China. Pakistan is China's second largest trading partner in south Asia, while China is Pakistan's second largest source of imports and seventh largest exporting market. During the first 10 months (July-April) of last fiscal year 2009-10 ended on June 30, the country's exports to China limited to one billion dollar while the country imported goods worth $2.628 billion, taking the country's trade deficit to $1.621 billion and giving the biggest trade benefit to China.

China and Pakistan plan to double their bilateral trade within five years to hit $15 billion in 2015. Bilateral trade in the first five months of this year (2010) reached $3.3 billion, up 31 percent.

Chinese Vice Premier Zhang Dejiang, during his visit last month had assured authorities in Islamabad of facilitating export of substantial Pakistani goods, unilaterally, in addition to the goods being traded under the existing FTA, which would help increase the country's exports to China by one billion dollar annually.

The analysts stress the need to revise the Pak-China FTA after signing of FTA deal between China and Asean, as they fear that China-Asean FTA would have negative impact on Pak-China trade, as most of the Asean countries, which are competitors of Pakistan, are now enjoying more tariff concessions under the FTA regime.

Addressing the China-Pakistan Economic Cooperation Forum, held on the sidelines of Pakistani President Asif Ali Zardari's recent visit to China, Chinese Minister of Commerce Chen Deming called on companies of the two countries to give full play to the existing free-trade agreement, expand investment and bilateral trade, reported Xinhua, China's news agency. He reportedly urged the two sides to make full use of bilateral cooperation mechanisms and make them serve the two countries' trade and economic cooperation.

The two countries signed FTA deal in November 2006, which came into effect on July 1 2007. China's investment in the country has expanded from resources, home appliances to communications and finance. Pakistan, though close friend of China, has so far failed to improve its export to China. On the other hand, the country proved an attractive export destination for China despite its weak economic performance.

China has reportedly received a list of additional 263 items mostly from the textile sector, engineering sector, chemical sector, fresh fruits, and vegetables. China did not show any interest in expanding the list of items being covered under the FTA and hinted that it will consider out of the box solution.

Last year, the federal cabinet had directed the commerce ministry to review the FTAs signed so far but the ministry has not reportedly implemented this instruction. The cabinet had restricted the 'independence' of the commerce ministry over new FTAs, observing that the outcome of previous pacts appeared to be in favour of other trading partners instead of local industry.

Though China's global imports have crossed one trillion dollar, yet Pakistan's export to China is still short of one billion dollar mark. Pakistani exporters urge the government to get maximum trade benefits from United States and Europe to bring foreign exchange to the dollar-starved country whose most exports still go to the US and Europe. The US is however reluctant to allow the country immediate market access through duty reduction due to the fear of loss of jobs in the US especially in the US textile sector.

The trade concessions have been granted after the recent visit of Chinese Vice Premier to Pakistan. China has reportedly granted four types of trade concessions to Pakistan unilaterally. Firstly, China would provide duty concessions on tariff lines not covered under Pakistan-China FTA and a list of such products is being finalised in consultation with stakeholders. Secondly, concessions have been offered to Pakistani exporters for participation in trade exhibitions to be held in China. Thirdly, China has also offered that buyers' missions of Chinese state enterprises would visit the south Asian country and place bulk import orders for Pakistani manufactured goods and would form long-term trade relations. Finally, China has also offered training programmes in various industrial categories in Pakistan so that the existing gap in skilled human resource availability is bridged.

The FTA between China and 10-member states of Asean, which covers 1.9 billion people, came into effect on January 1, 2010. This FTA has reduced tariff on 8,771 product categories to zero percent, which cover 90 percent of imported goods. Average tariff rate for Chinese goods exported to Asean countries has decreased from 12.8 percent to 0.6 percent whereas average tariff rate for Asean goods exported to China has decreased from 9.8 percent to 0.1 percent as of January 1, 2010.

As the cost of doing business in Pakistan is comparatively high due to energy shortages and deterioration of security, the products of Asean countries are getting more places due to their lower cost. The analysts believe that if the Pak-China FTA, which is already more favoring the foreign country, is not revised after the China-Asean FTA while demanding more tariff concession and increase in the list of trade item in the foreign country, many of the country's products would lose the important markets in the neighborhood.

Last month, the US delegation held trade discussions with the Pakistani officials in Islamabad. The US has shown its inability to allow the south Asian country immediate market access through any other means except the goods produced within the proposed Reconstruction Opportunity Zones (ROZs).

At present, Pakistan is benefiting exports worth only $200 million through zero duty under US Generalized System of Preferences (GSP) and other products fetch duty ranging between 0.5 percent to 32 percent and import duty worth $350 million annually is being collected by US authorities on Pakistani products being exported to US destinations.