Lost in words

After over half a decade of negotiations, China appears to have agreed to revise the bilateral trade agreement that already has run up a deficit of nearly $5 billion over a 6-month period this fiscal year. Though the second phase of the FTA was supposed to be implemented in 2014, for which negotiations started in 2011, it is only now that China has agreed to make concessions.

Or has it? So far the words related to the trade agreements have been the ambiguous “could”, “expected” and “agreed to make amendments”. None of these words offer concrete evidence that China will improve access to its $1.6 trillion market of which Pakistan’s share was 0.1 percent at $1.6 billion in FY17.

The last gesture to address Pakistan’s FTA grievances was to sign 38 agreements/MoUs worth $325 million to boost Pakistan’s exports to China; an amount that was 4 percent of Pakistan’s nearly 9 billion deficit in FY17. Given that China’s economy is 33 times that of Pakistan and Pakistan’s exports to China are less than 1 percent of China’s imports, surely there is room to do considerably more for their “all-weather” friend. A friend that is crucial to the ambitious OBOR plans for which 91 percent of Gwadar’s revenue has been signed away.

Another point to consider is the wisdom of pegging Pakistan’s tariff concessions to China’s trade agreement with ASEAN countries. Though they are Pakistan’s main competitor for its top exports, they are not the only competitors. For example, India exported more cotton yarn to China than Pakistan did in 2016, yet it faces the same tariff. For unrefined copper, Pakistan’s competitors are African countries such as Zambia and Congo.

Till further details of tweaks to the Pak-China FTA are released, one can only speculate about the impact on Pakistan’s exports. Pakistan needs to get as many trade concessions as it can get – from China or any other trading partner – to bolster its alarming trade deficit and reserves predicament, given the possible necessity to knock on IMF’s door (for more information read “Knocking the IMF again?” published by BR Research on January 17, 2018) . And for that it needs more support than that, which only exists on paper.