Expanding trade with China
THE Pakistan-China free trade area agreement has come into force from July 1. The first of its kind for Pakistan to have with a major developing country, it is very comprehensive and seeks to promote bilateral trade with many thousands of goods being on concessional tariff and eventually no tariff.
Initially it provides for increasing trade from under five billion dollars to 15 billion dollars by 2011. How far we can benefit from this trade agreement depends on how shrewd and effective is our government and how adventurous and far-sighted are our exporters. The FTA only opens the gate wide. It is for the participants to make the best of that.
The FTA with China has been negotiated in record time. Once the top leadership of China decided to agree to Pakistans proposal for an FTA everything went smooth and climaxed in its signing. There is already in the region a large FTA in the shape of South Asian Free Trade Area (Safta) which is already a year old, but it has made little headway due to political roadblocks. The Saarc summit has tried to remove the political stumbling blocks but not effectively. So the Safta remains an infant with a great promise if India and Pakistan can close their ranks.
But in the case of Pak-China FTA, there are no political or economic hitches. The leaders of both the countries are keen on promoting much larger trade between the neighbours. Pakistan has been trying to negotiate another FTA with a major power the United States but it has made little headway as the initial bilateral investment treaty has not been negotiated. There is a good deal of foot dragging and decisive leadership is needed to clear the decks, although America has little to fear from Pakistans exports.
Meanwhile, the US has at last signed an FTA agreement with South Korea which is the biggest trade agreement signed by it after the Nafta treaty over 15 years ago. The Americans are looking forward to gain by that agreement.
The treaty was opposed strongly by the South Korean labour that feared they may lose jobs following the flood of American goods into the country at concessional rates or on no tariff. But the government stood firm and argued the country would gain from the FTA and prevailed.
Pakistan has issued a notification announcing the first phase of cuts in duty ion import of goods under 4700 tariff lines. China has already lowered import taxes by 11 per cent on 3975 categories of goods from Pakistan to an average tax rate of 8 per cent from July 1. The notification issued by Pakistan has two tables. Table 1 includes fresh items of around 4700 tariff lines for duty reduction from China and table 2 includes 1190 tariff lines which were already availing preferential customs duty under an early harvest programme till January 1, 2008. From that date, these items will be merged into the ambit of the FTA. The service chapter of the agreement is still under negotiation which will end by the end of the year. And that will make this FTA Pakistans first ever comprehensive treaty with any country.
Under the treaty, both sides will reduce customs duty to zero per cent on 5014 products in 3 years, and zero to five per cent on 3942 items within a period of five years after the implementation of the agreement.
Under the agreement Pakistan will further reduce custom duty to zero per cent on 2423 tariff lines and China on 2681 tariff lines in the first three years of the agreement.
Another tariff reduction in the range of zero to five per cent will be completed in five years which would allow reduction on 1338 items by Pakistan and 2604 items by China.
Both the sides agreed that the reduction on margin of preference at 50 per cent would be completed in five years. Pakistan will reduce duty on 157 items and China on 604 items. Pakistan will have to compete in China not only with Chinese goods but also the goods of other countries coming into it through FTA deals. China is to sign an FTA agreement with Australia when President Hu visits that country before the end of the year. China is negotiating such trade deals with many countries.
Meanwhile, the killing of three Chinese nationals near Peshawar this week and the storming of Chinese beauty parlours in Islamabad are bound to anger the people in China. But they know that the Pakistan government and the people as a whole are with China, their traditional friend. It is strange to punish the Chinese if you do not like the Pakistani government.
Meanwhile, following the setback to the Doha round of trade talks, the US is sounding out members of the Asia Pacific Economic Cooperation Organization for FTA agreements. But the power of President Bush for negotiating fast track trade deals has expired. The FTA treaty with South Korea was signed immediately before the fast track authority expired.
Russia has been showing keen interest in not only expanding economic trade and economic cooperation with Pakistan, but also in signing an FTA agreement. When the Russian Consul-General in Karachi visited the federation of chambers of Commerce last week, he stressed the need for an FTA agreement between the two countries. He said since there is an FTA agreement between Russia and India, latters goods are cheap in Russia. While Pakistani goods are expensive, he suggested cooperation between the two countries in the area of oil exploration, gas and steel. He was also interested in bringing gas from Central Asia to Pakistan and India. The Russian interest in Pakistan is also genuine.
Russia is a re-emerging power without the Soviet weightage and it is playing a major role in the oil and gas industry of the world. There is every reason we should have the best of relations with Russia in the manner India has such relations with the US. Signing an FTA agreement is usually a measure taken by countries with surplus production or with surplus reserve capacity. But Pakistan has taken this step and has been approaching almost every country in the world for free trade area deals in the hope of expanding its exports.
But the FTA is a double edged weapon, unless we are prudent and persistent, we may import more than what we export. There is urgency in the country today to increase production, industrial as well as agricultural. The products we produce and exports should be priced competitively and be of better quality. They should be based more on local raw materials and produce value added goods. We should become known as a quality market with splendid products.
That was what Japan did. Following the oil shock of 1973, it decided to export more of its skills and brain power than import millions of tones of cotton in a country with limited land to store it, and produce textiles and compete with all the countries in the world producing textiles. So it moved quickly towards transistors and then to computers while specialising in the automobile industry in a big way. We in Pakistan are exporting the cotton produced in the Punjab and Sindh instead of producing finer varieties of cloth by using our skills. We are to export more of our skills and brain power than the conventional items produced by sweating it out.
Now we are to import three million bales of cotton again from India to meet the demands of the spinning mills which hardly produce any value added items. When we import raw materials from outside, we should be able to put them to good use particularly when oil and gas are imported.
Signing FTA is one part of an economic deal, the other should be to produce enough to feed the FTA partners and benefit by that. Unless the second half of the bargain is effective, signing FTAs will bring small relief.
http://www.dawn.com/2007/07/12/ed.htm#4
