Pakistan and China reached an agreement to initiate a process of digital trade data exchange but the later backed out of it. Pakistan’s decision to postpone signing of revised Free Trade Agreement (FTA-II) has now hit its plan to digitally exchange trade data to capture the real value of imports from neighboring country China for augmenting its revenue from import duty. Pakistani authorities believe that by delaying the operationalisation of electronic trade data exchange Beijing is retaliating against Islamabad’s decision to postpone the signing of FTA-II.
The delay in the operationalisation of electronic trade data exchange has undermined the Custom authorities’ plan to stop the understatement of the value of goods imported from China. They think that imports from China are undervalued by at least $ 4 billion which is adversely affecting its revenues. Pakistan’s records shows that imports from China are around $ 10 billion but Chinese publication put the figure at $14 billion a year. At times Chinese exporters did overstate the value of their goods to get higher exports rebate from the government.
The original deadline to make the effective the system of digital trade data exchange operational was April 1, which was extended to April 30. Member Customs of Federal Board of revenue informed the Senate Standing Committee that electronic trade data exchange could not start even on the second deadline set for this purpose. To address the ticklish issue of under-invoicing of imports Pakistan and China reached an agreement to initiate a process of digital trade data exchange. But the agreement is not being honored. This reveals how unreliable trade partner Chinese are?
On the other hand the European Union are cognizant of the financial difficulties of Pakistan and have extended the Generalized Scheme of Preferences (GSP) Plus tariff concession for two year on exports from Pakistan to their market duty free. Pakistan exports to China could not grow because of tariff and non-tariff barriers slapped on them by the government of China.
As an arm-twisting tactics, China is pressing hard for zero duty on 75 percent of import tariff lines. Pakistani stakeholders genuinely put up fierce resistance after the commerce ministry revealed the irrational demand made in the Chinese wish list of its exports to Pakistan. Under the first phase of FTA, Pakistan gave duty concessions on 35 percent of import tariff lines, which led huge influx of Chinese goods and many local industries could not survive. If the demand of zero duty concession on 75 percent import tariff lines is conceded, then Pakistan will become a trading nation instead of moving fast on the path of industrialization.
In addition to under-invoicing and export of goods on dumping price from China, smuggling of a number of Chinese products is another challenge for the economy of Pakistan. The country is losing a staggering a $ 2.63 billion amount of revenue every year due to smuggling of just 11 goods that are making their way through porous border, more alarmingly through containerized cargo with the full support of state machinery. The smuggled items include, high speed diesel, vehicles, auto parts, tyres, mobile phones, television sets, plastic, steel sheets, garments, cigarettes and tea. Pakistan sustained a loss of $1.1 billion due to smuggling of mobile phones alone.
The unfair play in bilateral trade pushed the United States in a trade war with China and has caused a strong wave of protectionism in Europe. The World Trade Organization (WTO) rules allow an importing country to impose countervailing duties on the goods of a country that indulges in under-invoicing and dumping price practices of its exports. Will the government show some spine to exercise this option under the free trade regime of WTO?