Pakistan lags behind in boosting exports against its regional competitors, especially India and Bangladesh. that have surpassed us on this front.
Pakistan lags behind in boosting exports against its regional competitors, especially India and Bangladesh. that have surpassed us on this front.
Recently, during a conference arranged by Sustainable Development Policy Institute (SDPI), Dr Pasha categorically said diversifying imports was imperative if Islamabad wanted to pursue the IMF on a frequent basis. He also urged to revise the free trade agreement (FTA) with China without wasting any more time.
Talking to this scribe, Finance Minister Asad Umar said stagnant exports needed to be analysed. Referring to a study by Dr Pasha, the minister said there was a correlation between the exchange rate and trade, and 10 percent devaluation could result in 3.8 percent decline in imports and 8 percent increase in exports. However, the impact would be visible in two years, and till then it was important to analyse why exports were not picking up despite government incentives, he added.
Pakistan’s economic team during PM Imran Khan’s visit to China got market access of $1 billion due to reduced tariff on products, but it was ‘peanuts’ keeping the whopping trade deficit with Beijing in view. The government had claimed the FTA with China would be finalised by 2019, there has been no progress so far.
Also, the preferential trade agreements (PTA) struck in the last two decades have largely not helped Pakistan boost its exports. There are many reasons behind this failure, but the two major reasons are lack of homework before signing PTAs and FTAs, and inability to ensure competitiveness in terms of cost of doing business and generating exportable surplus.
Pak-China Agreement in Goods was signed on November 24, 2006 and implemented from July 1, 2007. The deal had two phases. Under phase-I, Pakistan reduced tariffs to zero on 2,423 tariff lines, whereas China reduced duty to zero on 2,681 tariff lines.
There are 7,550 tariff lines in total, and China provides market access to cotton fabrics, bed linen and other home textiles, marble and other tiles, leather articles, sports goods, mangoes, citrus fruit and other fruits and vegetables, iron and steel products, and engineering goods. China reduced tariff by 50 percent on products, including fish, dairy, frozen orange juice, plastic products, rubber products, leather products, and knitwear and woven garments.
Post FTA, bilateral trade went up from $4.777 billion in 2007/8 to $15.597 billion, with Pakistani exports at $1.463 billion and imports $14.143 billion.
China had signed FTA with Chile, New Zealand, Singapore, Peru, Costa Rica, and ASEAN etc. When ASEAN-China FTA went into effect in 2010, Pakistan registered preference erosion on tariff lines that amounted to 79 percent of its export volume to China, and main tariff lines included cotton yarn, garments, leather, and fish.
China allows New Zealand to import on 94 percent of the tariff lines at zero duty, Malaysia 94 percent, Indonesia 93 percent, Thailand 93 percent, Philippines 93 percent, while to Pakistan, China allows only around 35 percent of the tariff lines at zero duty.
Pakistan could only export on 253 tariff lines, where average export value was $500 or more, which was around 3.3 percent of the 7,550 tariff lines. The country mainly exported raw materials and intermediate products such as cotton yarn, woven fabric, and grey fabric. Value-added products were missing.
Pakistan has proposed Tariff Reduction Modality (TRM) on 80 percent lines on the date of entry into force of the 2nd phase of China-Pakistan FTA, if both sides agree on finalising the much-awaited agreement.
Islamabad also proposed no reduction on 20 percent tariff lines. If Pakistan is granted concession equivalent to ASEAN in top 20 products of its priority list, Pakistan’s exports to China will jump up.
Pakistan has also proposed elimination of tariff on 40 percent tariff lines immediately to zero (including MFN zero tariff) when the 2nd phase comes into force.
Under the second category, Pakistan has asked for zero tariffs within five years on 10 percent of the tariff lines. In the third category, Islamabad has proposed zero duty on 30 percent tariff lines within 5 years starting from the 11th year of the 2nd phase of the FTA.
However, China proposed elimination of tariff on 70 percent lines to zero, on 10 percent lines to zero within 5 years, on 10 percent lines to zero within 10 years, and no reduction on last and fourth category of 10 percent tariff lines once the 2nd phase came into force.
The possible cost for Pakistan will be reduction in regulatory duty collection to the tune of around Rs300 million, reset the base year at applied MFN rate in 2017 which is lower than MFN rates in 2006/7, yarn is in category II where FTA rate and MFN rate are both at five percent. If category II is liberalised, 46 tariff lines of yarn will lose protection.
As a consequence of the China-Pakistan FTA, Pakistan will increase output in extraction, textiles and processed food, while there will be a negative impact on light manufacturing, leather and meat, and rural non-farm workers, who will see the largest decline in wages.
Pakistan has sought unilateral market concessions from China on cotton yarn, rice, nuts, plastic waste, leather, nuts edible fresh or dried, trousers, frozen fish and crabs on immediate basis before embarking on the phase-II of the agreement.
Islamabad had made a special request to Beijing to take remedial measures in the wake of eroded exports by granting concession on products before finalising revised FTA that could boost our exports on immediate basis.
Following increase in investment-led imports, Pakistan’s global trade deficit increased to $38 billion in 2017/18.
There is urgent need to contain a balance of payments crisis, which hinges upon strong export recovery to strengthen Pakistan’s external sector position, and paving the way for meeting the upcoming requirement of debt payments.
Official spokesman and Ministry of Commerce Director General Mohammad Ashraf said that Pakistan should cut its cost of doing business by improving efficiency and competitiveness to achieve its export potential. With recent devaluation, if exporters fail to boost exports, as cost of production had already come down, questions would be raised on competitiveness and efficiency.
The writer is a staff member
