PAK-CHINA Free Trade Agreement (FTA)

Needs Strategy To Benefit PAKISTAN

Free trade or globalization is a hotly debated phenomenon in the global village of today’s economic system. If the economic prosperity and growth of all the nations of the world could be brought at par with each other by the free flow of goods and services, regardless of borders, under the free trade banner, then it is a scenario for which every one of us should strive for.

Bilateral trading arrangements, although less preferred to multilateral ones, are one of the instruments employed by various countries, both developed and developing, to secure their export markets and to guarantee their trading activities in the future.

Free Trade Agreements (FTAs) are a common type of bilateral arrangement between two or more countries. FTAs facilitate the free flow of trade and investment and bring about closer economic integration between the binding parties by eliminating tariff/restrictions on each other’s commodities. More than 600/o of global trade, at the moment, is being channeled through bilateral and regional trading arrangements. At present, almost 300 such arrangements exist globally.

Pakistan – China FTA is a move in the same direction. With the growing importance of emerging economies in South and East Asia, Asia Pacific and South America, Pakistan is aiming at strengthening its trading relations with the economies of those regions. With the growing importance attached to China as the fourth largest economy of the world as well as an immediate neighbor of Pakistan, it is about time for Pakistan to think about strengthening its economic ties, apart from their already strong strategic and military relations. It was with this enthusiasm and aim in mind that Pakistan laid the foundation for an FTA arrangement with China in July, 2006.

Although Pakistan’s economy is much smaller than that of China’s in terms of GDP, trade, reserves etc., yet the FTA offers a huge potential for Pakistan’s economy. Pakistan can change the trend of its chronic trade deficit with China by utilizing the increased market access given by China. Pakistan can also reduce its overall trade deficit by diverting its exports from traditional destinations to the new one billion consumer base of China; but for that Pakistan has to make its exports more competitive, more diversified and much better in quality. Increased investment flows will enhance the capacity of the existing industries, will help in technology transfer, and generate employment opportunities for the local population, thereby positively contributing to the economy of Pakistan.

In order to get full benefit of free trade agreements with China, Pakistan has to devise a strategy to review and empower its manufacturing sector and recast it according to the market trends in China. Diversification of exports from Pakistan into non-traditional items will help minimize the trade imbalance. According to the current export structure of Pakistan’s economy, it is imperative to analyze the prospective impact of this FTA on Pakistan’s economy. In the initial stages of development, Pakistan should try to expand its industrial base through the expansion in its production of semi-finished and finished products.

Widening trade deficit between Pakistan and China is a big Challenge. During last five years bilateral trade has expanded, but the balance of trade remained in favour of China. The possible reasons could be the lower potential of our export oriented sectors, low quality (not meeting the international standards), severe energy crisis and high cost of production.

Opportunities of joint ventures exist in textile, agro farming, food processing, pharmaceuticals, engineering goods, etc. There is enormous potential in energy sector and Chinese companies should come forward and invest in this sector. China can also help Pakistan in developing and modernizing SMEs sector. More than 11,000 Chinese engineers, technicians and workers are rendering their valuable services in progress and development of Pakistan.

Chinese investment in Pakistan increased manifolds in key sectors including port development, roads, railways, mobile telephones communication technology, hydro and thermal power, mining, electronics, and nuclear energy.

The main items of Pakistan’s imports from China are machinery and parts, iron and steel manufacturers, sugar, chemical materials, chemical elements and medical and pharmaceutical products. The main items of Pakistan’s exports to China are cotton fabrics, cotton yarn, petroleum and its products, fish and its preparations, leather, fruits and vegetables. Unfortunately, the mix of Pakistan’s products exported to China is very narrow. Almost around 80 % of its exports consist of cotton yarn and fabric.

Ambassadors and Consul Generals abroad,are the eyes and ears of Pakistan. Their aggressive efforts to promote Pakistan and marketing of Pakistani products are imperative. Moreover chambers of commerce and selected people from Trade and Commerce should be channelized to conduct Market Research of items that are given duty free access in China and then manufacturing of such items should be enhanced accordingly.

As far as the issue of low profitability is concerned, it is related with various internal matters of the country mainly because Pakistan’s manufacturing sector lacks sophistication and understanding of the Chinese market and to overcome this, Pakistan will have to diversify the basket of exports to China. The Chinese do not eat basmati rice, Pakistan’s main farm export, nor are they interested in importing textiles and garments which are produced with better quality in their own country. Even surgical instruments, sports and leather goods could not penetrate the Chinese market because of local production, making the free trade agreement irrelevant from Pakistan’s point of view.

In order to get maximum benefits from Free Trade Agreement (FTA) between Pakistan and China there is a need to ensure several measures at the part of government, policy makers and trade bodies. Pakistan should ensure quality, efficiency and cost minimization particularly in textile sector. There is a dire need to focus on the manufacturing of nontraditional products because living standards of Chinese has increased and their new generation is more inclined towards innovative and latest trends. Factors that might have hampered the exports also include lack of China-specific trade specialists, lack of preparation and guidance of the business community to explore market under the FTA, language issues and lack of knowledge to exploit the segmentation in Chinese market from low to high value-added products.

Despite all these facts ,while criticizing FTA’s It should not be ignored that Pak-China FTA’s holds significant position for Pakistan in terms of bringing foreign investment, technology, innovation and experts from China because for a developing country like Pakistan it is costly to trade with countries located faraway. Hence Pak-China FTA is a good opportunity for Pakistani exporters.

It is established fact that the peace and political harmony are necessary conditions for economic development. The creation of European Union after World War II and its unprecedented economic growth and development in the recent decades is the role model. It is therefore, would not be wrong to expect that Pak-China FTA can be a foundation stone for regional political harmony, peace and economic co-operation among major players like China, Pakistan, India, Bangladesh, Afghanistan etc.

The extended co-operation among these nations can convert the region to a powerful economic block, leading towards welfare and prosperity of billions of people living in the region, The Pak-China FTA can be an opportunity if all the stakeholders including M/O Commerce, Textile Industry, and exporters make appropriate plans, revisit their priorities, have better co-ordination and remove the hurdles faced by the exporters and importers.