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China FTA with Pakistan disproportionately benefits former

Pakistan and China have agreed to amend the bilateral FTA to ensure Pakistani exports get enhanced access to the Chinese market. The FTA has largely been responsible for Pakistan’s growing trade deficit with China. According to UN-run database Comtrade, China accounts for 46 per cent of Pakistan’s total trade deficit. The agreement was signed in 2006 and became operational a year later. Post the FTA, bilateral trade zoomed by 220 per cent from $4.77 billion in 2007 to $15.27bn in 2016.

China’s savvy marketers disproportionately benefitted from this rise. From 2007 to 2016, Pakistan’s exports to China rose by 159pc to $1.59bn while imports from China skyrocketed by 229pc to $13.68bn.

Hence, Pakistan’s trade deficit with China, which was $3.54bn in 2007, went up by 241pc to $12.09bn in 2016. Under trade concessions offered by the two countries, the FTA tariff reduction modality provided for tariff reduction or elimination on the agreed number of products from 2007 to 2012. China here also has been the major beneficiary. As per a 2013 study by the Pakistan Business Council, Pakistan’s concession list covered 59pc of its imports from China, whereas China’s concession list covered only 5pc of imports from Pakistan. China is better placed than Pakistan on almost all key economic parameters.

Pakistan’s top three global export products, home textiles ($3.80 global exports), knitted garments ($2.34bn) and woven garments ($2.25bn), have a marginal presence in the Chinese market: $25.78 million for home textiles, $16m for knitted garments and $20m for woven garments. Pakistan’s export-interest products either face high tariffs in the Chinese market or have suffered preference erosion post China’s FTA with countries in the Association of Southeast Asian Nations (Asean). The tariff for rice is 65 per cent, while average tariff for home textiles, knitted garments and woven garments is 4 per cent, 7 per cent and 9 per cent, respectively.

Asean countries face zero tariffs for home textiles, knitted garments, and woven garments under the FTA, while for rice the applied Chinese tariff is 35 per cent. This places Pakistan’s key products in a relatively disadvantageous position in the Chinese market. Pakistan wants China to accord its export interest-products the same level of preferential treatment enjoyed by imports from Asean.