While addressing the meeting of Islamabad Chambers of Commerce and Industry, Advisor to the Prime Minister on Commerce Abdul Razzak Daud admitted that the free trade agreements (FTAs) with China and Malaysia and preferential trade agreement (PTA) with Indonesia had not been beneficial for the domestic industrial sector. He said these agreements shall be reviewed, disclosing that a revised FTA with China shall be signed by June 2019.
The terms of FTA with China Phase-1 were loaded against the national interest as no duty free access was ensured for the exports from Pakistan. On the other hand, zero duty concession was granted to China on 35 percent on import tariff lines. During the last few months of the previous PML-N government, China was pressing hard for zero duty concession on 75 percent import tariff lines which would have converted Pakistan into a trading nation instead of producing and exporting one. The import duty concessions on 35 percent tariff lines flooded the local markets with goods on dumping price and many Pakistani industries producing identical goods could not survive. Pakistan’s exports to China could not grow because of tariff and non-tariff barriers. The deficit in balance of trade with China is $12 billion plus.
China retaliated to Pakistan’s decision to postpone the signing of FTA-II in May this year. It delayed the implementation of the agreement for the digital trade data exchange which was meant to capture the real value of imports from the neighbouring country China. Pakistani authorities believed that imports from China were undervalued by at least $ 4 billion. Pakistan’s record showed that imports from China were worth $ 10 billion but Chinese publication put the figure at $ 14 billion. At times Chinese exporters did overstate the value of exports to get higher rebate from their government.
In addition to under-invoicing and export of goods on dumping price, smuggling of a number of Chinese products is another challenge for the economy of Pakistan. The country is losing a staggering amount $ n2.63 billion of revenue every year due to smuggling of 11 goods that are making their way to the domestic market through porous border, more alarmingly through containerized cargo with the full support of state machinery. The smuggled goods include auto parts, tyres, mobile phones, television sets, plastic, steel sheets, cigarettes and tea. Pakistan sustained a loss of $1.1 billion due to smuggling of mobile phones alone.
Pakistan signed PTA with Indonesia in 2012 which became operationalised in 2013. The situation turned horrible since its implementation in 2013. Indonesia exports to Pakistan increased from $1.2 billion in 2012 to $2.2 billion in 2016-17, while Pakistan’s exports to Indonesia declined from $196 million to 137 million. Pakistan’s major exports to Indonesia include textile, clothing, rice, vegetables and citrus fruits, whereas its major import item is palm oil.
Pakistan’s trade imbalance with Indonesia is its own fault. It has been unable to get access to the Indonesian market to increase its exports like textiles, food grains, fruits and vegetables in which it has an edge over other countries in terms of price and quality. The main problem is with government’s policies and its exporters. According to Waheed Ahmad, Vice President Lahore Chamber of commerce and industry(LCCI), it is our fault if we are unable to increase our exports to Indonesia, which is a fast growing economy whose trade is increasing with almost all countries.
Pakistan’s problem is that it is not ready to explore far eastern markets. Unless our exporters go for innovations and branding, the situation is not going to improve. Moreover, high potential items had been left out of PTA between Pakistan and Indonesia, which include three plastic items with trade potential of $140 million and 16 cotton items with trade potential of $500 hundred million. Inclusion of these export items would have significantly brought down the deficit in the balance of trade with Indonesia.
FTA with Malaysia came into effect in 2008. In 2014 Pakistan’s exports to Malaysia were worth $234 million which fell to $186 million and $152 million in the next two years. In contrast, Pakistan’s imports from Malaysia increased from $911 million to $945 million. The LCCI president had noted that balance of trade has always been in favour of Malaysia and said though the trade gap has been narrowing consistently yet imports from Malaysia were six times higher than exports. There is a huge potential of exporting Pakistani rice, fresh fruits like citrus, mango, apples, peach, pear and apricot. In review of FTAs with China and Malaysia and PTA with Indonesia national interest needs to be secured, which was ignored by the previous governments.