FTA with China: a loss-making deal for Pakistan

[SabzShaheen]

LAHORE:

The Free Trade Agreement (FTA) between Pakistan and China has had a significant impact on the amount of trade between the two countries. This has prompted a shift from higher productivity to lower productivity in firms, which is far from optimal in the context of Pakistan’s growth strategy.


The relationship between the two countries has a long history and over the last few decades this relationship has been accompanied by significant economic interactions, which include the 2006 Free Trade Agreement (FTA) between Pakistan and China as well as the China-Pakistan Economic Corridor (CPEC).

‘CPEC changing country’s destiny’

According to study conducted by the Lahore School of Economics, Pakistani tariffs on Chinese goods have negatively affected productivity in those sectors that have become more vulnerable to Chinese imports. At the same time, there has been a significant decrease in the value added and value added per worker in those sectors.

Owing to low tariffs on Chinese imports, a reduction has also been seen in the number of firms and the level of employment in these sectors.

The researchers also found that lower Chinese tariffs on Pakistani goods have negatively affected productivity in those sectors that could have potentially benefited from higher access to the Chinese markets.

As a result, there has been a significant decrease in the value-added in those sectors as compared to others. The sectors that benefit from lower Chinese tariffs, have witnessed a significant increase in the level of employment as well as in the total Pakistani exports to China.

The researchers further said that in the context of results drawn on the impact of Chinese tariff concessions to Pakistani exports, it is critical that Pakistan gain the same level of tariff concessions from China as received by the ASEAN countries.

“Only with equal access will Pakistani manufacturers have a chance to move out of the cycle of low productivity firms producing and exporting low value-added goods to China and into higher productivity firms producing and exporting higher value-added goods to China.”

The researchers concluded that since there is a very central industrial cooperation component to CPEC, it is critical that Chinese industrial initiatives yield the maximum economic benefits for local stakeholders in Pakistan.

Read the full article at https://tribune.com.pk/story/1491159/fta-china-loss-making-deal-pakistan/

 

[hussain0216]

Increase tariffs and support local industry, it is far too corrupt, based upon out dated work methods

The world is changing snd Pakistan needs to change we cant stop this and providing too much protection to uncompetitive industries only hurts us in the long run

 

[Clutch]

Pakistani industry is very uncompetitive open trade and CPEC will weed out the inefficient

 

[Ghostwhowalks]

The question is that once the inefficient are weeded out, will they be replaced by more efficient domestic companies or international (Chinese) companies. That will truly decide the long term future of Pakistan.

 

[Samlee]

The Flawed FTA Was Negotiated By Humayun Akhtar Khan.When This Man Was Commerce Minister EU Put Anti Dumping Duty On Our Bed Linen Banned Our Fisheries As Did Kuwaitis.This Was His Performance.

Yet He Tries To Present Himself As An Economic Expert

 

[Counterpunch]

Increase tariffs and support local industry, it is far too corrupt, based upon out dated work methods

The world is changing snd Pakistan needs to change we cant stop this and providing too much protection to uncompetitive industries only hurts us in the long run

From what I have learnt Chinese have got some kind of exemptions on the shipping containers duties and tolls. This would have been substantial in itself. If that is true, then it does not look very good

 

[KediKesenFare3]

As much as I understand Pakistan's tight partnership with China, this particular FTA was a disaster for the Pakistani industry. That's a fact.

I mean, just ask yourself one question:
Do you think that Chinese would have done the same thing if they were in your place?

The answer is no.

 

[CriticalThought]

Free Trade Agreements make sense between two equally developed economies which can mutually benefit from products made in each. In Pakistan's case, we need to first look at new export oriented industries that are planned under CPEC. If these generate enough exports, the balance sheet will be good. But even then, these will be Chinese owned companies where Pakistanis are laborers.

In order to support own industry, countries usually go through a period of protectionism, and once own industry is mature, they open up. All of this requires very careful planning and execution, for which we need competent government.

 

[dray / Rain Man]

If I write about 'economic colonization' now, Pakistanis will protest. So it's better to wait for the realization to sink in slowly.

 

[war&peace]

A balanced approach is needed

 

[SabzShaheen]

If I write about 'economic colonization' now, Pakistanis will protest. So it's better to wait for the realization to sink in slowly.

I've been worried about these kinds of developments for a while since I have pretty much no confidence in the Pakistani leadership to stand up for Pakistan's interests instead of their own. This just adds to my fears and makes me less hopeful for our future.

 

[Zibago]

Its a double edged sword we have to concentrate on our strength i.e agriculture

 

[dray / Rain Man]

I've been worried about these kinds of developments for a while since I have pretty much no confidence in the Pakistani leadership to stand up for Pakistan's interests instead of their own. This just adds to my fears and makes me less hopeful for our future.

Even if Pakistan gets good leaders, it would still be difficult situation against Chinese business onslaught:

1. Chinese industries enjoy both 'economies of scale' and technological advantage against Pakistani industries, even if you bridge the technological gap, bridging economies of scale will remain a distant dream realistically, you do not have that kind of domestic or export market.

2. China gives huge subsidies to its businesses in several layers just to keep them operational and generate employment, I suspect in many cases Chinese industries don't even recover its manufacturing costs. Pakistan cannot afford that, hence Pakistani businesses cannot sell so cheap, eventually they will have to shut down and vanish.

3. It is very difficult for any country to protect its domestic industry against chinese dumping even with tariff and non-tariff barriers, and without these barriers the case is hopeless, and Pakistan is giving a free run to them. There is no choice either, Pakistan is now dependent upon China in so many ways, economically, politically, militarily. But China is not reciprocating the favours, that puts the Pakistani businesses to further disadvantage.

4. Pakistan cannot do hard bargain with china with such a huge loan on its head, where volume of chinese transit will be the only credible source of revenue to repay the loan. Moreover, transit fees, loan repayment, even export/import between pakistan and china will happen only through chinese currency, and china controls its valuation, making the situation even more difficult for pakistan.

 

[SabzShaheen]

Even if Pakistan gets good leaders, it would still be difficult situation against Chinese business onslaught:

1. Chinese industries enjoy both 'economies of scale' and technological advantage against Pakistani industries, even if you bridge the technological gap, bridging economies of scale will remain a distant dream realistically, you do not have that kind of domestic or export market.

2. China gives huge subsidies to its businesses in several layers just to keep them operational and generate employment, I suspect in many cases Chinese industries don't even recover its manufacturing costs. Pakistan cannot afford that, hence Pakistani businesses cannot sell so cheap, eventually they will have to shut down and vanish.

3. It is very difficult for any country to protect its domestic industry against chinese dumping even with tariff and non-tariff barriers, and without these barriers the case is hopeless, and Pakistan is giving a free run to them. There is no choice either, Pakistan is now dependent upon China in so many ways, economically, politically, militarily. But China is not reciprocating the favours, that puts the Pakistani businesses to further disadvantage.

4. Pakistan cannot do hard bargain with china with such a huge loan on its head, where volume of chinese transit will be the only credible source of revenue to repay the loan. Moreover, transit fees, loan repayment, even export/import between pakistan and china will happen only through chinese currency, and china controls its valuation, making the situation even more difficult for pakistan.

Thank you for your detailed response. I apologise but I am not knowledgeable enough to fuel the discussion with my own counter-arguments; hopefully, someone else can offer some.

 

[MultaniGuy]

Every country has it's strengths and weaknesses.

We should focus on manufacturing and industry.