Losses prompt Pakistan, China to revisit FTA

KARACHI: Pakistan and China are revisiting their Free Trade Agreement under the name of FTA 2 after a strong demand from Pakistani traders, as Pakistan’s trade deficit increased manifolds and small and medium enterprises were endangered, The News has learnt.
Iftikhar A Vohra, president Karachi Chamber of Commerce and Industry (KCCI) told The News that the ministry of commerce had invited their suggestion, in which they recommended to discourage the import of finished items from China and reduce the import of semi-finished goods. They had no major objections over the import of raw material, he added.
Pakistan’s imports from China have reached to around $10 billion while its exports have a share of no more than $2.5 billion. “Unofficial imports from China reach around $14 billion,” Vohra said. “There are revenue losses to small industry.”
Vohra was of the view that China was a close friend of Pakistan and both countries recently initiated the China-Pak Economic Corridor (CPEC), so Pakistan could not end up its FTA with China, but would be revisiting it.
Although the FTA between the two countries was automatically extended for a couple of years, this time it expired on June 30, 2015 and would be revised, he said.
Federal Commerce Minister Khurram Dastagir Khan, recently in a meeting with journalists in Karachi had said Pakistan was working on a FTA 2 with China, and that they would incorporate suggestions of the business community.
So far, Pakistan has failed in gaining benefit from its two FTAs out of three signed with Sri Lanka, China and Malaysia from 2002 to 2007, which got effective from June ’05, July ’07 and January ’08, respectively.
According to a research report of the KCCI, the FTA with Sri Lanka was the only one in which trade enhancement went in Pakistan’s favour as trade surplus rose by 104 percent in FY05 through FY14, with bilateral trade growing by 71 percent.
However, FTAs with China and Malaysia have ended up in widening the trade deficit. Pakistan’s imports grew rapidly than its exports to its partners.
Bilateral trade with Malaysia increased by 69 percent to $1.5 billion, but trade deficit widened by 48 percent across FY08 to FY14; however, “this can be attributed to heavy imports of palm oil which has consistently formed more than 60 percent of imports from Malaysia till 2013,” said the KCCI report.
Trade with China remained similar like Malaysia’s, where trade deficit widened by 112 percent to $3.33 billion from FTA implementation in FY07 to FY14, whereas bilateral trade grew by 262 percent to $8.7 billion.
Pakistan did not secure either duty free access or high concessions for a significant number of product lines in which it has revealed comparative advantage. Besides, it was not able to have included in the concessionary lists a substantial number of value-added items that Pakistan has export advantage in. This has resulted in Pakistan not being able to export to China in line with its full potential.
There is huge trade gap between the two countries. The Chinese export a high range of items to Pakistan ranging from basic raw materials to high tech items.
Those include electronics and machinery, iron and steel and their articles, chemicals, plastic items and polyester fibre amongst others. Most of these items are highly value-added, in finished form, and have higher dollar values.
Contrary to that, Pakistan’s exports to China belong to a limited set of categories, mostly having low value addition levels which resultantly are of low dollar value. These exports largely include items like cotton yarn, raw fish, leather, marble, fruits, sports goods, rice, raw hides, and vegetables. Of these items, cotton yarn alone accounted for 79 percent of exports in 2013 and 55 percent in 2014 which depicts Pakistan’s extremely high export dependence on a single raw, little value-added item.
Pakistan started to import in bulk quantities many products from China after the FTA was implemented in 2007, which include tires, tiles and ceramics, polyester staple fibre and synthetic yarn, electronic items, industrial chemicals, paper and boards amongst many others. These products found a competitive position in the Pakistan market only after tariffs were reduced on them.
With import of these items, “local industry is being hurt,” said Iftikhar Vohra.
Earlier this week, Chairman National Tariff Commission (NTC), M Abbas Raza, terming the FTA with China as a ‘very serious’ issue, said that FTA with any country should be based on reciprocal business conditions and be mutually advantageous for both the countries, while the individual needs of the industry should also be kept in mind prior to finalising an FTA.