The free trade agreement (FTA) between Pakistan and China has revealed trade figures that are tilted in favor of China. Although the severity of the trade surplus signifies this direction, the criticism of the FTA based on the trade balance itself is unjustified. The lack of capabilities of Pakistani exporters to take advantage of better access into the Chinese markets is a major concern which must change if Pakistan is to seek economic diplomacy. Pakistan not only primarily produces finished goods destined to the Western markets but has exporters that lack the ability to integrate into the value chains led by Chinese producers. For instance, there is negligible exports from Pakistan of intermediate goods and raw materials as well as of parts and accessories demanded by Chinese producers.
Pakistan concluded the FTA with China in 2006, which went into force in 2007. It was later amended in order to boost exports from Pakistan in selected products. China offered immediate tariff elimination on more than 313 tariff lines. The tariff lines include food, textile, leather products and machinery and equipment. Although, a wide variety of products are included, the Pakistani exporters will only benefit if they can competitively supply to the Chinese market.
Data from ITC’s Trademap.org shows exports to China rose from a meagre two percent in 2003 to 5.7 percent in 2009. It continued to increase, peaking at 10.6 percent in 2012. Based on the limited capabilities of exporters, the FTA with China did witness a rise in the value of exports and the share of exports to China. It is successful in this regard. It then reported a slight downturn, reducing to seven percent in 2017. The share has recovered since then and was reported at 8.6 percent in 2019.
More than 50 percent of the exports from Pakistan to China were for cotton yarn between 2009 and 2017. This declined to 36 percent in 2019. Rice and copper exports have gained prominence since 2018, as the two lines started to diverge.
In essence, the exports from Pakistan to China are dominated by a single product. It is only in recent years that Pakistan has diversified towards other products such as copper and rice. The FTA played an important role in enhancing diplomatic relationship between Pakistan and China as it led to further cooperation under the CPEC platform. China has also been crucial partner in foreign diplomacy. The FTA is a facilitation tool and its impact on enhancing overall relations between Pakistan and China cannot be discounted. The capabilities of Pakistani businesses must be enhanced to take advantage of easier access into the Chinese market.
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