The year 2020 starts with new development in the Pak-China economic relations. The second phase of China Pakistan Free Trade Agreement (CPFTA-II) started off with immediate relief given to Pakistan in the shape of free tariff over 313 items along with 75 % tariff liberalization over the next decade. This will grant preferential status to Pakistani products which include textiles, garments, seafood, meat, leather, chemicals, plastics, and footwear. Besides, FTA will provide a boost to the domestic industry in Pakistan which will eventually save the country from the Balance of Payment crisis in the future.
Pakistan has been suffering to raise its revenue through exports. It is evident from the fact that it has been and still is largely dependent on the bail-out packages from IMF. The trade deficit of Pakistan with China in 2018-19 contributes 34% of the total trade deficit which the country is facing in recent times. Under CPFTA, Pakistan will be given an opportunity to export its products to the world’s largest import market. Under this agreement, Pakistan will be allowed to export its product to the two-trillion dollar Chinese market. It would surely be a game-changer for Pakistan.
The first phase of CPFTA was signed in 2006. After that, Pakistan’s exports to China were increased, but the imports were still on the rise. Therefore, it did not alter the trade-equation much to Pakistan’s benefit. One reason for that was the lacunae in the agreement. Had the agreement negotiated after a well-thought-out process, it would have surely benefited Pakistan. For instance, only one out of top twenty garment exports was placed in cat-1 concession with 0% tariff. Whereas none of Pakistan’s top exports was covered under cat-2, with tariff rates 0-5% in five years. Another major problem for Pakistan was that it had never been able to take full advantage of tariff liberalization already given under the agreement. By 2012, Pakistan’s exports to China were only 6% despite enjoying 0% duty. Furthermore, China at that time also signed a free trade agreement with ASEAN countries, giving them favor over Pakistan which largely affected Pakistan’s economic interests in China.
While history is a lesson to learn, Pakistan can get greater benefit from CPFTA-II. To achieve this, Pakistan ought to increase it’s manufacturing capacity, coupled with enhanced competitiveness, trade facilitation, and information dissemination. Most of these are covered under the umbrella of CPEC. Specialized economic zones (SEZs) will resolve these issues to a much greater extent. Under the circumstances, FTA is a great opportunity for Pakistan to repair its crippled economy which will uplift the living standards of millions in Pakistan.