Pakistan offers zero duty on 6,000 items from China

ISLAMABAD: Without sharing the exact draft of proposed second phase of Pak-China Free Trade Agreement (FTA) with major stakeholders, including the FBR, Pakistan has offered zero duty on almost 6,000 tariff lines out of the total 7,000 that might jeopardise many major industries in Pakistan.

The FBR has sternly opposed the revised FTA with China, arguing that Pakistan does not possess exportable surplus so Islamabad’s exports could not get a boost in a big way even if it gets reciprocal incentives from China.

A top official confided to The News on Tuesday that Pakistan and China had agreed for granting tariff reduction on 75 percent tariff line under the proposed revision in the FTA.

When comments were sought from the spokesman of Ministry of Commerce on the proposed draft of China-Pak Free Trade Agreement (CPFTA), he said that it would be inappropriate to disclose details at a time when the two parties were negotiating an agreement. He said that it would be better to discuss this issue when this agreement would be signed by both the parties. He said that it was expected that both sides would sign this revised agreement in the next few weeks period. When the PM will visit China, this agreement is expected to be signed.

Pakistan is going to increase the number of items with zero duty from 2,600 tariff lines to 6,000 tariff lines, which will have a much larger negative impact on the country’s industries. There is clear cut difference between the Ministry of Commerce, FBR and Industries. In the presence of PM Abbasi, the FBR has sternly opposed the revised FTA arguing that it would negatively affect the country’s industries.

However, the Ministry of Commerce took stance that Islamabad made a special request to Beijing to take remedial measures in the wake of eroded exports by granting concession on products so revised FTA could give boost to our exports on immediate basis. The country’s trade deficit increased from $2.9 billion to $12.66 billion over the last decade.

Pakistan’s imports from China increased from 18% to 28% of its global imports. Pakistan’s imports from China are 36% of Pakistan’s non-oil imports while China’s imports from Pakistan are 0.1% of the country’s global imports. Pakistan’s imports from China are greater than 50% of global imports in 44% tariff lines.

China’s exports to Pakistan increased from $4 billion in 2006-07 to $14.56 billion in 2016-17. Pakistan’s exports increased from $0.5 billion to $1.47 billion during the same period. The maximum decline is registered in textiles led by cotton yarn which contributed 59% of decline in total exports. In agriculture sector, oil-cake has registered the maximum decrease and contributed 9% of decline in total exports.

Following increase in investment-led imports Pakistan’s global trade deficit has increased to $30.9 billion in 2016-17. The CPEC and infrastructure investment related balance of payment (BOP) outflows for Pakistan are expected to rise in the next several years, peaking at about $3.5–$4.5 billion by FY-2024/25.

With an investment of $9.5 billion under CPEC in 2016-17, imports increased by $5.51 billion. If imports continue to rise in the same proportion with incoming CPEC investment, it is estimated to increase to $58.7 billion dollars in 2017-18.

“If exports stagnate, the trade deficit would increase from $30.9 billion in 2016-17 to over $40 billion in 2017-18”, said the official. There is urgent requirement for containing a balance of payments crisis which hinged upon strong export recovery to strengthen Pakistan’s external sector position and paving the way for meeting the upcoming requirement of debt payments.

The government, the top official said, had devised a strategy in the light of impact on domestic industry and China have been asked to liberalise to reduce tariff on 75% tariff lines, reduce sensitive list to 10% while retaining and deepening preferences. Pakistan will request for managed trade in sensitive sectors on the pattern of Brazil-Argentina Auto Pact and linking tariff liberalisation with investment of Pakistan Auto Policy 2016-21.