Pakistan and China have signed 38 agreements/MoUs, worth $325 million, to enhance sale of Pakistan’s exports to China. The total value of these agreements has been strategically described as 17 percent of China’s imports from Pakistan to give significance to this paltry amount. Taken in context of the big picture of Pakistan China bilateral trade, this amount is too small to significantly benefit Pakistan’s economy or address the correction of its trade deficit.
China’s economy is 33 times Pakistan’s economy. Pakistan’s imports are 0.1 percent of China’s total exports. Surely, there is room to increase Pakistan’s exports to China more than the meager sum of $325 million in the face of a bilateral trade deficit of $6.2 billion as per SBP’s published statistics.
The products that Pakistan hopes to increase exports to China include seafood, leather marble products, and coarse coppers. Many of the goods within these categories already have 0 tariffs under the Pakistan China FTA, which begs the question as to why their increases in exports require MoUs signed. Especially since Pakistan’s exports to China of each of these goods are so low that there is a lot of potential to increase exports, independent of inking agreements.
Within these categories of goods, Pakistan’s top exports to China are limited to low value items. For example, Pakistan’s exported $33 million worth of leather after tanning to China in FY 17.
On other hand, exports of finished goods of leather to China were $7 million, which accounted for 11 percent of Pakistan’s total exports of articles of leather.
This is symptomatic of Pakistan’s general ailment: concentration on exports of low value goods rather than finished goods. A recent report by SBP “Export Performance of Pakistan: Role of Structural Factors” highlights this issue. It states that Pakistan’s exports comprise mainly of resource-based items such as hide and skins over the past many decades. Consequently, marginal but unsustainable gains in exports receipts are generated either due to favourable international prices or elevated surplus in domestic production.
Such a cycle of exports was beneficial in the past, since then comparable countries like Bangladesh, India and Vietnam have progressed to value added finished goods.
In a study prepared by TDAP and EU, gems, jewellery, leather gloves, rice and readymade garments were identified as products that have the ability to raise Pakistan’s exports at a fast rate.
Pakistan however is still stuck in a rut of export of primary commodities, as amply demonstrated by the signing of these MoUs that come as too little, too late in the day.