BENEFITS OF PAK-CHINA FREE TRADE AGREEMENT

TARIQ AHMED SAEEDI
(feedback@pgeconomist.com)
Jan 17 - 23, 20
11

Pak-China bilateral trade witnessed a boost following the relaxation given by the Pakistani government in 2005 to Chinese traders in order to increase bilateral trade volumes. The trade agreements signed between the two countries resulted in the momentous surge of Chinese products in Pakistani markets. The bilateral trade volume rose substantially since then, though it is still in favour of China. Pakistan-China trade increased to $4.5 billion in the last financial year (2009/10), according to statistics complied by State Bank of Pakistan (SBP). Exports from Pakistan were recorded at $1.2 billion whereas imports from China stood at $3.3 billion. Major imports from China include electronic items, plastic products, motorcycle spare parts, and what not. Trade analysts believe the bilateral trade potential has yet to be explored as present bilateral trade volume is minimum of what can be reached in future given the political willingness of the two nations to get close.

The two neighbouring countries have a comprehensive free trade agreement to provide mutually beneficial market access to a number of products belonging to each nation. This agreement has not only augured well for the promotion of trade in goods, but it also has resulted in substantial investments in the services sector.

The free trade agreement signed between the commerce ministries of the two countries came into effect in 2007. Under the FTA, Pakistan and China agreed to give tariff concessions and reductions to products imported in the countries. The agreement mandated preferential tariff reduction by 50 per cent by China on fish, dairy sectors, frozen orange juice, plastic products, rubber products, leather products, knitwear, woven garments etc. and zero duty for industrial alcohol, cotton fabrics, bed-linen and home textiles, marble and tiles, leather articles, sports goods, mangoes, citrus fruit and vegetables, iron and steel products, and engineering goods, imported from Pakistan. In return, Pakistan has given market access to Chinese machinery, organic and inorganic chemicals, fruits and vegetables, medicaments, and other raw materials for various industries including engineering sector, intermediary goods for engineering sectors etc.

Complementary to bilateral trade in goods was free trade agreement on services that Pakistan and China also signed to increase joint investments in infrastructure building, information and communication technology, recreational projects, ecotourism, research and developments, and educational facilities in Pakistan. Under the agreement on services, now aspiring businesspersons from Pakistan can be proprietor of many services including distribution, commission agent, wholesale and retail stores and IT and enabled services in China. Pakistan has reciprocated the access to China's 11 sectors and 133 subsectors by permitting investments in its 11 sectors and 107 sub sectors. It was said incentives given to Pakistan by China were not given to any other country, and beyond the provision of world trade organisation (WTO).

Pakistan is an important country for China to maintain its sizzling economic growth since the country is trade and energy corridor and China can have a cost-effective sea-route access to the world from the country's seaports. Especially, China is eager to build link of its western region with the Gwadar's seaport. China lifted its hands off Gwadar port development due to disturbing law and order situation in Balochistan. However, it wants to revive the process of its participation. "The potential of trade and energy corridor is huge and China certainly is going to use this," Director of China Study Center Islamabad, Fazlur Rehman told BBC TV on the eve of Chinese Prime Minister, Wen Jiabao visit to Pakistan in December last year, APP reported. "It is not in the near future but I think in the coming years of time. This [Pakistan] will assume very important route for China. And the security matter is of course a matter of concern but it certainly will not come in the way for such a huge project and security is kind of an issue which can be taken care of," he said.

Wen Jiabao's visit was noteworthy because it showed China's eagerness to strengthen relations with its neighbour; which was evident from the US$20 billion trade and commercial agreements inked in an effect to the excursion between public and private sectors of both the countries. 'Shaping the Future Together Through Thick and Thin' was a notable theme of address Chinese Premier propounded in the parliament. The theme itself is a testimony to the claimed seriousness for strengthening relation. China has made substantial investments in Pakistan, and prefers latter a preferable avenue of investments.

China is emerging on the map of world's economy as a power, and is said to be more competitive than European markets or any other Asian nation. Its economic growth is expected to stay at 9.5 per cent in 2011 and despite global economic uncertainties, it will continue to reap trade surplus in the coming years. China had a trade surplus of $183 billion in 2010. Pakistanís energy resources hold attractions for nations looking for economic-fuelling inputs. China has become net importer of coal and it craves for any other mineral resources to feed its industrial developments. Its coal imports rose to 100 million tons in 2009. Pakistanís yet-to-tapped coal bonanza is anything that can quench hunger of its neighbour. Pakistan can attract Chinese investments in infrastructure building and resources exploration, and to heal up its floods-affected economy. United Nations estimate that the floods oxidized 12 per cent of gross domestic product.

Materialization of recent memorandum of understandings and taking advantage from FTA will enhance the bilateral trade volumes and unearth the underlying potentials recognised too by Chinese Premier. Pakistan has constituted a committee comprising local and Chinese officials to conduct follow-ups on the MoUs signed by both private and public sectors.