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China set to provide more favorable concessions under FTA

Published on 2nd Mar, Edition 9, 2015

 

Pakistan’s major imports from China are machinery, chemicals, garments and other textile products, construction material, tiles, sanitary wares and crockery. Pakistan enjoys huge export potential to China due to its advantages in agriculture, minerals, chemical, textile and leather products. Besides Pakistan has comparative advantage of oil seeds, fruits, base metals, plastic goods and perfumery etc. A large number of Chinese companies are working in Pakistan in oil and gas, IT and telecom, power generation, engineering, automobiles, infrastructure and mining sector.

Unfortunately, too much of affection and pride in our alliance with China is not working in our interest particularly relating to trade. The increase to the FTA no doubt, has made China the second-largest country destination for Pakistani exports after the United States. FTAs granted by China and even to other ASEAN countries had adversely affected our ability to compete in the Chinese market. The dumping of Chinese products inside Pakistan such as steel products, polyester fibre and chemicals has caused havoc with the local industry.

The failure to widen the base of exports to China has halted the benefits to Pakistan, whereas the massive growth of imports from China has abnormally impacted the domestic manufacturing sector. However, the government is of the opinion that FTA is very much beneficial as well as Pakistan’s cotton exports, particularly, increased from $329 million in 2006 to $1.3 billion in 2014.

Pakistan had been persistently sustaining a loss of Rs22 billion on account of tax exemptions granted to imports from China.

Pakistan did not fully exploit the FTA due to the energy crisis and dumping of Chinese products. Dumping was the main concern of Pakistani industries, particularly of steel products, polyester staple fibre and many other products.

Pakistan’s trade balance deteriorated further following signing of preferential trade agreements with China. The source attributed the trend to ‘ineffective, ill-planned negotiations’. Pakistan’s exports did not grow in comparison to imports from these countries. The preferential trade treaty spoiled the trade imbalance. Pakistan-China volume of trade, which was in the region of $4.1 billion in the year 2006-07.
Pakistan’s exports to China were $0.6 billion in the year 2006-07, while imports stood at $3.5 billion, with a bilateral trade deficit of $2.9 billion. In the middle of 2008, 2009 and towards the end of 2010, each period saw a jump in the value of exports to China, and each period coincided with a spike in the price of cotton. Most of the increases have come about due to periodic inconstancy in the price of cotton rather than a broad basing of our exports to China.

Before signing the free trade agreement (FTA), reached all-time high in 2012-13, amounting to $9.2 billion, reflecting an increase of 124 per cent. Currently Pakistan’s exports to China reached $2.6 billion, while imports jumped to all time high of $6.6 billion, depicting a bilateral trade deficit of $4 billion.
The ongoing review of Pakistan’s Free Trade Agreement with China is being reviewed for possible modifications. The Global economic power shifting towards Asia led by China and Pakistan is getting much importance in economic and political terms. With low fuel price Asia is to benefit more than Europe. Pakistan and China had entered into the second phase of Free Trade Agreement which was signed in 2006.

There is a need from both sides to take maximum benefit of FTA. Free Trade Agreement at present is heavily under utilized by Pakistan. Pakistan is the major looser in FTA as a number of industrial units have been closed down due to entrance of Chinese products.

 

The government has expressed its concern over the inadequate utilization of the facilities provided under the Pakistan-China Free Trade Agreement in which only few sectors have been able to gain the fruits of the favorable tariffs. Pakistan emphasized the importance of broadening its export-base to China by encouraging exports from all the sectors which fall under FTA and sought to enhance facilities and concessions on high value-added products.

Pakistan also expressed its matter over the mixture of margin of preference due to China’s FTAs with other countries, especially the ASEAN countries. It also conveyed concerns of the local industry which have to compete with Chinese products despite a nonstop energy crisis faced by the country. Both sides agreed that the concerns expressed by the two countries will be taken into consideration on a mutual benefit basis by readjustment and review of the FTA.

Both the sides are negotiating the FTA afresh after Pakistani industries complained about the 2006 agreement that was highly in favor of China. Pakistan has offered to eliminate duties only on half of the total product lines in the second phase of the free trade agreement (FTA) instead of 90 percent under the original plan. One of the main principles is that tariff concessions will not be on a reciprocal basis; rather these will be in favor of Pakistan.

In this context we must take a harder line on the FTA and seek seriously to renegotiate on flexible terms of agreement keeping the interest of our domestic manufacturing sector in mind. This is also a reminder that in all our other further dealings with China whether in energy, ports and infrastructure or any other feeling of excitement ought not to come into the picture at all.

Agreeing to massive losses to different sectors in the aftermath of signing Free Trade Agreement (FTA) with China, the Chinese had now agreed to provide more trade concessions to Pakistan during the second phase of FTA. China has offered tariff reduction up to 90 percent tariff line of which 70 percent will be made effective with immediate effect and remaining 20 percent in 10 years. Pakistani side offered Chinese side to provide 50 percent reduction in tariff lines. The timeline for providing concessions to Chinese side will require more than 10 to 15 years. China has promised to undertake investment to the tune of $45 billion in Pakistan but there were certain concerns on trade front in the aftermath of FTA signed between the two countries since 2006.

China has also agreed to decrease limit for opening up Pakistani bank branches from $20 billion to $15 billion. Habib Bank Limited was ready to open up its branch in China while National Bank of Pakistan and United Bank Limited had also shown their interest in this regard.

Apart from the FTA which is not now favorable to China Pakistan should further explore bilateral trade prospects; with frequent exchange of delegations and data based information. Extensive marketing of Pakistani products is crucial. Every Chinese province holds unique dynamics and business trends.

Consulate General of Pakistan in Guangzhou should extend best facilitation to the business community in terms of trade. Leading companies of Pakistan don’t frequently participate in the exhibitions and the participation of small businessmen is exhibition is not on wider scale. The big brands of Pakistan should exhibit in international exhibitions of China.

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