While the Pakistan and China bilateral Trade Agreement, signed in 2006, seemed to be quite enthusiastic and ambitious; the ground realities turned out to be quite different.
The FTA resulted in the Pakistani market getting flooded with Chinese goods as the country had extended unwarranted and unintentional clandestine market access to China.
Pakistan’s trade and industry was, and continues to be, adversely affected by the explosion of Chinese goods in the market with special reference to polyesters, textile (made ups and fabrics), table-ware, shoes, chemicals, iron, steel and toys.
Somebody rightly said that there is no free lunch. Pakistan certainly needs to learn lessons from this. The trade balance between Pakistan and China during the last three years reveals some glaring imbalances.
While Pakistan’s multiple attempts to renegotiate the FTA with China were to no avail; for the first time on September 15 — in the eighth meeting of the second phase of negotiations — China agreed to address Pakistan’s major concerns, an occurrence touted by the ministry as a ‘breakthrough’.
Pakistan is now in the process of negotiating Free Trade Agreements with Turkey, Thailand and Korea. The tariff negotiations if not done appropriately, considering the individual needs of the economy and industry, will not only adversely affect the domestic industry, but also its fiscal and developmental position. Article XXVIII bis of GATT 1994 on ‘Tariff Negotiations’ recognises that WTO member countries have to conduct negotiations on the basis of (a) reciprocity, (b) mutually advantageous basis and (c) taking into account the needs of the individual industries.
The Agreement, on one hand, extends the right of consultation to private sector companies producing products to be included in the FTAs and on the other hand places serious responsibilities on the tariff negotiators, in this case Ministry of Commerce.
Somebody rightly said that there is no free lunch. Pakistan certainly needs to learn lessons from this
The National Tariff Commission (NTC) in 2015-16, based on a criterion developed by it, prepared a sensitive list of products which need to be excluded from the FTA with Turkey. A list on similar lines should also be developed in the case of Thailand.
It is reliably learnt that Thailand is insisting that Pakistan should also include auto parts in the FTA, whereas, Turkey is reconsidering the products of its interest to be included in the FTA which, inter alia, include textiles and auto parts.
However, it is still not clear whether the Pakistani negotiators have consulted with trade and industry for preparing a list of products of their interest which they would like to be included in the prospective FTA. The Pakistan Business Council has, however, conducted some good studies on the respective FTA in this regard.
Pakistan’s exports are already dwindling despite the fact that the government has taken a number of measures to enhance them. One of the most serious reasons being that Pakistani products are not only uncompetitive in the international market but in the domestic market as well.
In such a situation what Pakistan has to export to Thailand, Turkey and Korea under the proposed FTA is a big dilemma.
The Pak China FTA, concluded without due diligence and taking into account the above mentioned provisions of GATT / WTO, resulted in a huge trade imbalance between the two countries and also forced many industrial sectors below the peril point causing loss of revenue, deindustrialisation and unemployment in the country.
In view of the implications of the Pak China FTA, the domestic industry needs to be very vigilant and vocal about its level of protection and existence against inclusion of any domestically produced product in any FTA with Thailand, Turkey or Korea.
It may be reiterated that the GATT / WTO prescribes rule and regulations for tariff negotiations and FTA under which it has to be ascertained whether the tariff negotiation is mutually advantageous, reciprocal and concluded after considering the individual needs of the industry amongst other national issues. This requires detailed economic, technical and legal analyses both at the micro as well as macro levels.
The domestic industry should also take up the matter with the concerned departments for excluding their products from the said forthcoming FTA to avoid erosion of meagre effective protection levels currently available to it.
Moreover, the industrial sectors which have already gone below the peril point and are facing closure and bank default should agitate the issues at the concerned quarters as they reserve the economic and legal right both under the GATT / WTO regime and the national law.
Since the FTA are bilateral agreements between two member countries having far reaching multiple economic, fiscal, developmental and strategic affects, the finalisation of an FTA should not be left with any individual ministry, but in fact should be placed before the Parliament for its approval.
The writer is a former chairman of the National Tariff Commission firstname.lastname@example.org
Published in Dawn, The Business and Finance Weekly, September 18th, 2017