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China FTA

Dawn, Pakistan

China FTA


8 January 2015

If any further proof were required that too much emotion in our relationship with Beijing is harmful to our interests, the disclosures from the ongoing review of Pakistan’s Free Trade Agreement with China ought to be sufficient.

The FTA became operational in 2007 and is now being reviewed for possible modifications. On the face of it, the trade data shows that Pakistan has reaped substantial benefit from the agreement, seeing its average monthly exports to China climbed from a range of $40m to $50m at the start of the period to beyond $200m by 2012, with peaks approaching $300m during some months.

One could attribute this increase to the FTA, which it can be argued has made China the second-largest country destination for Pakistani exports after the United States. So far so good.

But a deeper look is revealing. For one, the biggest jumps in monthly export volume have come in times when the price of cotton saw a spike. In the middle of 2008, 2009 and towards the end of 2010, each period saw a jump in the value of exports to China, and each period coincided with a spike in the price of cotton.

The last period carried total exports beyond the $200m per month mark. The data appears to suggest that most of the increases have come about due to cyclical fluctuations in the price of cotton rather than a broad basing of our exports to China.

The commerce ministry is right to point out that the effect of similar FTAs granted by China to other Asean countries has had a negative impact on Pakistan’s ability to compete in the Chinese market, and that the failure to broaden the base of exports to China has stymied the benefits for Pakistan, whereas the massive growth of imports from China has negatively impacted domestic manufacturing.

This is the right time to take up a tougher line on the FTA and seek to renegotiate the terms of agreement keeping the concerns of domestic manufacturing in mind. This is also a reminder that in all our other dealings with China, in energy and infrastructure, emotion ought to be avoided since it tends to cloud judgment.

Caution is needed when devising the terms of Pakistan’s engagement with its northern neighbour, to ensure that we don’t end up bargaining away our own industrial and commercial interests out of blind faith.