Thursday, September 21st, 2017
Home »Editorials » Upcoming Beijing moot on CPFTA
It is argued that one of the major downsides of free trade agreements (FTAs) is the prowess of powerful economies to impose their will on smaller and developing economies. It has been observed that a smaller economy makes more concessions, with the larger economy keeping the key set of its trade restrictions in place. This argument constitutes an informed comment on the state of bilateral trade between China and Pakistan, its "all weather" friend but a much smaller economy. The China Pakistan Free Trade Agreement (CPFTA) is therefore skewed in favour of Beijing.

Fully cognizant of China's economic might, India, the largest economy in Asia after China and Japan, has so far resisted, or spurned outright, all offers by Beijing to enter into a free trade agreement with it for economic and strategic reasons. New Delhi also recognizes the fact that it will never be able to compete with Beijing in exports of manufactured goods, although it has a fairly decent industrial base. According to Lee Kwan Yew, the founder of modern Singapore, India believes, and rightly so, that its fast-progressing value-added automobile sector will suffer in case it decides to have an FTA with China, with this sector becoming the first casualty.

Be that as it may, according to a Business Recorder exclusive, Pakistan and China are all set to hold the long-awaited 8th round of CPFTA later this week in Beijing where the Pakistani team led by the government's commerce secretary will try its very best to correct the direction of CPFTA which has not accrued any benefit to Pakistan so far, big or small. A cursory look on China-Pakistan trade figures says it all: Pakistan's exports jumped to $1.7 billion in 2015-16 from $575 million in 2006-07. However, during this period, China's exports to Pakistan almost quadrupled, soaring to $12.1 billion from $3.5 billion.

Although Pakistan-China trade is riddled with tariff complexities, one can always find Islamabad at a disadvantageous position. During the first three years of the implementation of Phase I, as has been reported by this newspaper, both sides reduced tariffs on almost 36 percent of tariff lines to zero percent duty. Phase II was supposed to commence from the sixth year of the agreement's entry into force - ie, by 2013 - and by the end of Phase II both sides would have reduced tariffs on 90 percent tariff lines to zero percent duty. But the progress on the essential agreement has been stymied by different or even contradictory interpretations of the two agreed principles. Pakistan has consistently raised the point that the margin of preference granted to Pakistan under the CPFTA has eroded owing to subsequent FTAs between China and other countries; on the other hand, the margin of preference that Pakistan has granted to China remains intact. China has yet to come up with any plausible response to this key concern of Pakistan.

The Pakistani team is required to do good homework before it lands in the Chinese capital. It must examine its balance sheets in relation to its trade deals with other countries. In the meantime, it is hoped that China will take a generous view of the concerns of its neighbour whose economy is blighted, inter alia, by the war on terrorism, and its growing political instability, lower foreign investment, chronic energy shortages and balance of payment woes that are mainly caused by lower exports and ever-growing imports. No country in the world is better placed to have absolute appreciation of the state of Pakistan's economy than China is. China has found this place for itself not because of some "very special" strategic partnership with Pakistan. The real question is: is Beijing investing $50 billion in Pakistan for the China Pakistan Economic Corridor or for its access to the Arabian Sea through this strategic land route. A favourable Chinese outlook in relation to CPFTA will certainly augur well for CPEC's prospects. In a nutshell, it can be argued that an economically stronger Pakistan will immensely add to China's own economic and military powers.

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