China pact a mixed blessing for
Pakistan By Syed Fazl-e-Haider
QUETTA, Pakistan - A free-trade agreement
(FTA) signed last year between Pakistan and China
came into effect on Sunday, with Islamabad
announcing the first phase of a cut on 4,700
tariffs.
The FTA allows the free movement
of goods and investments between the two countries
in a bid to increase bilateral trade to US$15
billion by 2011. The "services" chapter of the agreement
will
be concluded by the end of this year. The FTA is
Pakistan's first comprehensive treaty with any
country.
Under the treaty, both sides will
scale down customs duties to 0% on 5,104 products
in three years and 0-5% on 3,942 items within five
years. Beijing has already lowered import taxes by
11% on 3,975 categories of goods from Pakistan to
an average tax rate of 8%, beginning July 1.
Pakistan will reduce the duty on 157 items and
China will do the same on 604 items. The bulk of
Pakistan's imports from China are capital goods
which are intended to aid the expansion of
Pakistan's manufacturing base and eventually lead
to increased exports.
The FTA is
considered to be a win-win situation by both
countries. While Pakistan will get access to the
Chinese market, China will sell Pakistan more
goods, ranging from household items to textile
plants and high-technology items as well as
receiving inexpensive raw materials and easy
access to Pakistani ports for exporting Chinese
goods to other countries at reduced freight rates.
China has been focusing on building
strategic transport links between Pakistan's
northern areas and its remote western regions,
including Xinjiang, and the number of road links
between Pakistan and China has risen to eight
after an agreement signed between Islamabad and
Beijing last year. China and Pakistan also opened
four new passenger and cargo road links. Two cargo
routes run from Kashi in southern Xinjiang
autonomous region to Pakistan's ports of Karachi,
Qasim and Gwadar. The passenger lines run from
Kashi and Taxkorgan, also in southern Xinjiang, to
Pakistan's northern city of Gilgit and Sost Pass
respectively.
Islamabad and Beijing also
plan to extend and expand the existing Karakoram
highway, which links Islamabad to Kasghar, via the
Khunjrab Pass. Pakistan believes that the
Preferential Buyers Credit of more than $300
million from China will play a significant role in
the Karakoram Highway (KKH) project, which will
act as a link to strengthen the Sino-Pak trade
relationship. Through the upgrade of KKH, the
western regions of China and the Central Asian
republics will be able not only to access the
Pakistani market, but also to reach out to Middle
East, Africa, South Asia, Europe, etc through
Gwadar Port in southwestern Pakistan. China and
Pakistan are also planning to link the KKH to
Gwadar, Balochistan, through the Chinese-aided
Gwadar-Dalbandin railway, which extends up to
Rawalpindi.
Chinese products have already
penetrated deep into the Pakistani market, where
the private sector is naturally wary of China
because its cheap products have already driven
many local manufacturers out of the domestic
market. Take the example of the Pakistani bicycle
industry, which has virtually collapsed under the
mounting pressure of lower-priced Chinese bikes. A
few years ago, Pakistan was not only making but
also exporting bicycles to Africa, Afghanistan and
Iran. Today most of the Pakistani bicycle
manufacturers have shut down because of increased
production costs, and some former bike makers have
become bulk importers of Chinese two-wheelers.
Some independent economists say an FTA is
beneficial for both signatories because a weaker
country is always given some advantages to protect
its industries from adverse impacts. But in
Pakistan's case the status of China as the
supplier of many of its consumer goods will be
boosted. China will see its export business and
trade surplus further expand as Pakistan has less
to offer it and will be importing even more from
the rising economic giant.
Syed
Fazl-e-Haider (sfazlehaider05@yahoo.com)
is a Quetta-based development analyst in
Pakistan. He is the author of six books,
including The Economic Development of
Balochistan, published in May 2004.
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