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Beyond CPEC

December 10, 2016


TWO initiatives currently under way provide an example of how Pakistan’s regional integration potential goes far beyond CPEC and needs to be pursued on multiple fronts simultaneously. One includes the talks centring on the renewal of the free trade agreement signed with China in 2007. The other is the move within the government about restarting talks with Iran on the import of natural gas through the pipeline project by seeking a renegotiation of the power purchase agreement (PPA). Both initiatives pull regional integration efforts in different directions, yet both remind us that there are multiple roads to integration, and placing all the emphasis on CPEC alone risks putting too many eggs in one basket.

The FTA with China is in bad need of overhaul. The original agreement of 2007 has had a severely negative impact on domestic industry and flooded the country with Chinese imports, even in agricultural produce. The trade deficit with China reached almost $4bn in 2013, and two years later, in 2015 it jumped to $9.1bn. Now both countries are negotiating the second round of trade liberalisation as envisioned in the original agreement, and whereas the Pakistani side has carried the views of domestic industry to the talks, reports indicate they are having a difficult time getting the Chinese to accept the reservations. The second round envisions the trade liberalisation level to reach 90pc, in terms of tariff reductions, but it is crucial that Pakistan keep the interests of domestic industry in mind when moving forward towards the third round of talks scheduled for March next year. It is important to keep in mind that this is a completely separate issue from CPEC, and the two should not be allowed to mix.

While applying the brakes on the runaway trade liberalisation with China, the government can do more to accelerate similar initiatives with Iran. Trade can begin with natural gas, especially by proceeding in earnest with the construction of the portion of the pipeline that lies within Pakistan. Renegotiating the PPA is fair given the changes in oil pricing, but such talks will appear to be stalling tactics if the hardware to purchase the gas is not being built. In time, the trade relationship with Iran can be expanded considerably to include other hydrocarbon resources as well, and regularise the imports of LPG. It is crucial to keep our focus when talking about regional integration, and not allow the entire project to be boxed under the CPEC label. Pakistan’s potential for regional integration is huge, and there are plenty of neighbours with whom there should be talks. If the present climate makes dialogue with India and Afghanistan difficult, then this is a moment to pursue talks with China and Iran with a view to meeting the needs of domestic industry.

Published in Dawn December 10th, 2016