Export potential and FTAs

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Though the government has been trumpeting Free Trade Agreement (FTAs) as a tool to promote Pakistan exports, but businessmen term these agreements as unfavorable for Pakistan. FTAs with China and Thailand are the cases in point. They say that when Pakistan’s inefficiency in exports potential is compared with China and Thailand, such accord prove unfavorable for the country.

Trade potential is an economic concept that allows us to identify the scale and scope of increasing bilateral trade. It seeks to measure the prospective trade that can exist between the two countries, if the trade is completely frictionless between them.

According to Pakistan Business Council’s comprehensive review on the proposed FTA with Thailand,  Pakistan’s export potential is very low, while import potential is very high, which means Pakistan has a potential to buy more from these countries than it is able to sell.

The report says Thailand enjoys a trade surplus of over $1.2 billion with Pakistan. Its exports have been growing, while ours exports are flat.

This report follows our country reports on Africa, Central Asia and Latin America. We will do eight reports on Asia, of which this is the first.

On the other hand, Thailand is ambitious to penetrate the automobile, auto parts etc sectors, which are all nascent industries in Pakistan and need time to build scale being poised against established countries like Thailand.

Thailand being a technologically advanced country exports vehicles, auto-parts, chemicals, and machinery and electrical appliances to Pakistan against imports of fish, paper products, cotton and textile articles.

Similarly, businessmen are wary of FTA with China. Recently, the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) held a nationwide online roundtable conference on Pak-China FTA in an effort to prepare itself for a meeting with Finance Minister Asad Umar.

It was briefed that Pakistani exporters had been struggling to make their presence felt in China because their competitors were enjoying zero-rated tax, which left Pakistani goods uncompetitive.

The exporters of Pakistan mainly lose competitive edge in the case of Association of Southeast Asian Nations (Asean) which has a very strong FTA with China and its products are taxed at a lower rate than Pakistan’s.

Therefore, a huge chunk of Pakistan’s textile exporters has been forced to export raw material to Asean member countries like Vietnam, which exports finished goods to China. Exports through this channel are less costly and competitive in Chinese markets.

The exporters, who export raw material in the form of cotton and yarn, have been criticised for their inability to export finished and value-added goods.

FPCCI Director Research said Pakistan ranked 16th on the list of China’s export partners while it stood at 61st position in its import partners. According to Ahmed, even countries like Kenya are ahead of Pakistan in the exporters’ list.

The above statements show that the business community had great reservations about Pakistan’s FTA with China. It seems that the FTA was struck in haste as business men believe that there’s immense need to revisit it.

Meanwhile, it is said that Pakistan’s imports from China stood at a whopping $18 billion while exports were a meagre $2 billion, which tilted the balance highly in favour of China by a massive $16 billion.

Analysts say that even India had a better FTA with China under an agreement called Bangkok Agreement, which had now evolved into the Asia-Pacific Trade Agreement. Bangladesh, China, India, Laos, Mongolia, South Korea and Sri Lanka are part of this agreement. There seems to be consensus among business gurus that if Pakistan is unable to strike a revised FTA with China similar to that of Asean, then the country should avoid doing free trade with Beijing altogether. It would save domestic industries, the business community members say.

Meanwhile other analysts also agree that trade balance between Pakistan and China is in favour of China which wants to balance it considerably. The Chinese Ambassador to Pakistan Yao Jing has optimistically said that Pakistan can do much more to balance bilateral trade, stressing the need for his country to import more from Pakistan to settle the prevailing imbalance in trade positively.

Chinese Ambassador while talking to media in Islamabad recently said that the trade imbalance is a cause of concern and Beijing is keen to improve this situation by taking all possible measures and cooperation.

He further said China welcomes Pakistan’s participation in Shanghai Expo from November 5 to 10, 2018 as the Guest of Honour country, his country cherishes friendship with Islamabad and this is in line with that spirit, Pakistani businessmen may be allotted stalls free of cost, Beijing encourages its private sector to have more and more interaction with the Pakistani businessmen for bringing desired results in the bilateral trade.

Meanwhile, the potential of the China-Pakistan Economic Corridor continues to be talked up – but the question of how Pakistan can make the most of it remains up for debate. Even in critical reports on CPEC, there are substantive questions that continue to remain unanswered.

The UNDP report states that the Pakistani government has failed to counteract how market flows increase regional disparity. The previous Minister for Planning continued to make bold promises of Pakistan joining the list of richer countries by 2030 but all of this will depend on the direction in which trade flows.