PAKISTAN and China are set to sign the second phase of the Pakistan-China Free Trade Agreement (FTA); ten rounds of talks have already concluded in Beijing and Islamabad.
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 $12bn, whereas Pakistan’s exports to the country only moved up marginally from $0.6bn to $1.6bn.
Besides the terms of trade under the FTA, several other barriers to trade should be discussed, including sanitary and phytosanitary measures and technical barriers to trade. These were not reviewed before the first phase of the agreement was signed.
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 $12bn, whereas Pakistan’s exports to the country only moved up marginally from $0.6bn to $1.6bn
One hurdle in increasing exports to China is the Association of South East Asian Nations’ (ASEAN) trade agreement, which regulates the FTAs with new countries.
Since Pakistan cannot become a member of the ASEAN, as member nations have reservations about its entry, China cannot grant the same trade favours to Pakistan which it has given to its ASEAN trading partners.
Furthermore, the Asia Pacific Trade Agreement, under which China continues to grant favourable trade terms to Bangladesh and India, is hampering Pakistan’s exports to China.
We did not sign a Mutual Recognition Agreement (MRA) with China, under which harmonisation efforts could have been undertaken. Therefore, our rice, beef, leather and yarn are going to China via Vietnam, Cambodia, Laos and Thailand, and not directly.
Since trade or import safety measures were not undertaken in the first phase of the Pak-China FTA, the Federal Board of Revenue lost more than Rs32 billion due to FTA imports from China.
Moving on to the second phase of FTA negotiations with China. 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’s major export product is cotton and its made ups. We produce around 12-13 million bales of cotton and import two million for high-end value addition for exports.
Another important export item is rice; nearly seven million tonnes of rice are produced and four million tonnes are exported, fetching $2bn. China does not import basmati rice— the variety we produce in surplus. When it comes to leather, China imports more from Thailand and Vietnam than from us.
China is importing marble, chrome and hides from Pakistan and selling finished products worldwide at much higher rates. Thus, we do not have valuable commodities to export to China for the next three to four years, until we achieve high growth rates of cotton and rice.
To narrow the trade deficit with China, one option is to ask it to relocate its labour-intensive industries to Pakistan, as it has done in Vietnam and Cambodia, and export from these set ups.
Secondly, Chinese imports of finished consumer products must be curbed through regulatory duties and quota barriers. They should be persuaded to assemble these products in Pakistan; which will in turn generate employment and taxes, and develop vendor industries. We must provide export rebates or subsidies on items which can enter China but are not doing so owing to ASEAN tariffs.
Finally, Pakistan should be allowed to participate freely in Chinese exhibitions and trade fairs. Pakistani products must be given equal importance in such fairs. This will gradually build the base of our products in China. China ought to entertain these demands as we accommodated theirs in the China-Pakistan Economic Corridor.
Published in Dawn, The Business and Finance Weekly, September 3rd, 2018