Pakistan and China are important trade partners and have signed a Free Trade Agreement (FTA) to facilitate mutual trade. As per official data, the volume of trade between these two countries was around $4.1 billion in the year 2006-07 before the signing of FTA. Today, according to Chinese trade ministry, the bilateral trade volume has reached $18.93 billion in 2015, registering an increase of 18.2 per cent over the previous year.

The trade imbalance, however, was around $7.335 billion in 2014 in favour of China as per the records maintained by the Federation of Chambers of Commerce and Industry (FCCI).

Pakistan’s exports did not grow in comparison to imports from China and the FTA mostly helped the latter increase its exports. Resultantly, China for the first time became the largest trading partner of Pakistan during the fiscal year 2014-2015. Besides, since fiscal year 2013-2014, China’s direct investment in Pakistan has been on the top among all the foreign countries for two consecutive years.

Lately, there have been calls about revising the said FTA amid complaints by local industrialists who say that China is dumping its products in the local market. This, they say, results in disrupting the local markets and driving local manufacturers out of the scene due to flooding of cheap imported products. The misuse of FTA with China is another issue highlighted recently by the Federal Board of Revenue (FBR). It has issued an alert, advising the Customs authorities to check the misuse of FTA with China as goods having other origins are being imported under the FTA through manipulation in documents.

By definition, dumping means exporting goods at prices lower than the home-market prices. In dumping, the exporter uses higher home-prices to supplement the reduced revenue from lower export prices. Dumping is legal under the WTO rules unless its injurious effects on the importing country’s producers are established. If injury is established, the rules allow imposition of anti-dumping duty equal to the difference between the exporter’s home-market price and the importer’s Freight on Board (FOB) price. The FOB price is the cost of delivering goods to the port lying nearest to the importer. In order to counter dumping, most nations use tariffs and quotas to protect their domestic industry from the negative effects of "predatory pricing" which may not be the case while dealing with friendly countries.

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Mian Rehman Aziz Chan, Vice President, FPCCI, is of the opinion that dumping by countries like China is harmful for local manufacturers but not as much as the faulty dispute resolution system in place in Pakistan. Citing the example of tiles industry, he says Master Tiles filed a complaint about China dumping wall and floor tiles in Pakistan but it took around six years to establish that this was hurting the local industry. "As the countries that resort to dumping can disrupt the local market within months, one can well imagine the scale of disaster that can take place over these long years," he adds.

He alleges that countries like China with overcapacity in heavy industries and economies of scale can destroy foreign markets with flooding of cheap goods. Once the local manufacturers are thrown out of the race, they can fulfill the demand with larger supply of their goods.

The latest is that National Tariff Commission (NTC) Pakistan has initiated anti-dumping investigations against cheap imports of wall and floor tiles from China and issued a notice under the new anti-dumping laws approved by the parliament in September 2015. It has asked all stakeholders, including importers and local industry, to submit their viewpoint on the issue of dumped imports of tiles by April 4, 2016.

Chan adds that the FPCCI has raised its concern about the massive quantity of finished and semi-finished steel products being dumped by the Chinese traders in the country -- something that is affecting the local industry. But the problem, he says, is that the concerned departments are slow in dealing with an issue that is urgent. He believes friendship between Pakistan and China is of extreme importance but it shall not be at such a high cost. "One cannot let people die of hunger and starve due to joblessness just for the sake of this friendship."

He says the whole world including the European Union (EU) is crying about the adverse impacts of dumping of steel products by China, but the Pakistani government is not yet convinced that this is actually happening. The local manufacturers, he says, are forced to sell their steel products at a cost less than their manufacturing cost. The government is also not realising that steel industry is the backbone of economy and defence, and outsourcing it may be detrimental in case there is war or suspension in supply from abroad, he adds.

Iftikhar Vohra, former president Karachi Chamber of Commerce and Industry (KCCI), says they have recommended to the government to discourage import of finished items from China and reduce the import of semi-finished goods. He says there is a huge trade gap between the two countries and one reason is that Chinese export a high range of items to Pakistan ranging from basic raw materials to high tech items whereas Pakistan’s value-added products are hardly welcomed in the Chinese markets.

Chinese exports to Pakistan include electronics and machinery, iron and steel, chemicals, plastic items and polyester fibre that are mostly value-added and in finished form. On the other hand, Pakistan’s exports to China belong to a limited set of categories, mostly having low value-addition. These exports 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 per cent of exports in 2013 and 55 per cent in 2014 which depicts Pakistan’s extremely high export dependence on a single raw, little value-added item.

Anis-ul-Haq, Secretary All Pakistan Textile Mills Association (APTMA), tells TNS that the protectionist approach of "countries with capacity" is also a form of dumping where the governments bear the risks of businesses. For example, he says, in China the stocks of raw material are state-owned and provided at attractive prices to manufacturers. Similarly, he says, many banks are state-owned that quite frequently write-off the loans secured by the industry. This provides competitive edge and cost benefits to manufacturers in these countries. Flooding of low cost products through smuggling routes is even a bigger a threat.

Naveed Iftikhar, a PhD student in Public Policy at University of Delaware, USA and former Governance Specialist at Pakistan’s Ministry of Finance, urges the government to ensure that construction of CPEC route does not promote unauthorised consumption of Chinese goods, destined for other international markets, in Pakistan. "Vulnerability of our trade and custom transit governance is already known in the form of slippage of Afghan transit goods and under-invoicing from China," he concludes.