When it comes to trade, the products matter as much as the agreements that govern them. Free trade agreements signed by Pakistan have not been the best for the local industry. The FTA with China has had concerns raised by domestic manufacturers across multiple sectors. But the leeway provided in the textile sector to China has proved especially problematic.
If the garments trade is to be bolstered, the FTA needs to recognize the strengths of local producers and ensure parity. The recently issued Pakistan Business Council (PBC) report on the garments sector correctly terms the Pak-China FTA as an unbalanced deal for the domestic industry.
Out of a total 272 tariff lines in the FTA, Pakistan has only been taking advantage of 39 which equals to 14 percent of the total concessions given by China. Add to that the fact, that out of the total products in Pak-China FTA almost 15 percent were not imported by China from any country at all. This shows the level of ingenuity employed by the Chinese trade negotiators in drafting the Pak-China FTA to their advantage.
But the inequitableness does not end here. The PBC report highlights that none of the common products between Pakistan’s exports and China’s imports were under category I, which has zero applicable tariffs or even category II which has only 0-5 percent tariffs for five years. So basically what that means is that 4 out of top 6 textile product exports to Pakistan do not have any concessions at all and are under category V.
These include full length or knee length stockings, socks and other hosiery (HS code 611595), T-shirts singlet and other vests of cotton (HS code 610910) as well as men’s or boy’s shirts of cotton (HS code 610990).
Of course all this would be much less of a pain point if China had not granted ASEAN countries duty free access in Chinese markets while Pakistan has had tariffs imposed on its garment exports to China. As this column has highlighted before and as is mentioned in PBC’s report as well, articles of apparel and clothing accessories (HS codes 61 and 62) both have 7 and 9 percent tariffs imposed by China on Pakistan while ASEAN countries have zero tariffs imposed on them.
Add to this the high cost of production issues faced by Pakistan’s textile export manufacturing base, and the products become even more unfeasible for imports by Chinese companies. The solution lies in doing data driven analysis and identifying key strengths of the local industry to push for category I status in our top value added segments. The negotiation should also focus on removing disparities in the treatment meted out to ASEAN countries and Pakistan, ensuring duty free access for the latter as well.