Second Chance

The first China-Pakistan Free Trade Agreement (CPFTA) was not much good news for Pakistan but most problems seem to have been ironed out in CPFTA II.

By Sikander Bizenjo | May 2020

Sweeter than honey, deeper than oceans and higher than the Himalayas – this is the mantra that signifies the bond of Pakistan and China’s association. The official rhetoric in Pakistan terms this relationship as “all weather friendship between iron brothers”. But does this all-weather friendship benefits both of the iron brothers equally?

Both countries rely on each other in times of need, either as a voice in the United Nations Security Council or a helping hand in tumultuous economic conditions. Pakistan has almost always relied on China which too has never let Pakistan down. Similarly, China’s ambitious Belt and Road Initiative depends heavily on the success of CPEC or, in other words, prosperity in Pakistan.

Realizing the potential of mutual economic partnership, both countries signed their first mutual trade agreement, known as China-Pakistan Free Trade Agreement (CPFTA) in 2006. The agreement, which came into effect in July 2007, proved to be instrumental in the bilateral relationship, as China quickly became Pakistan’s largest trading partner. The bilateral trade volume increased from $4.8bn in 2007 to $16.4bn in 2018 – a growth of 242% in little more than a decade. However, this trade volume was highly skewed in favour of China.

Contrary to the heightened hopes put forth by the government, it did not do much good for Pakistan. A total of 350 tariff lines were approved for CPFTA. Out of these, China managed to utilize 57% of its lines; whereas, Pakistan’s meager share of utilization was 5% only. Similarly, imports from China increased from $4.2bn in 2007 to $14.5bn in 2018; a whopping 245 percent increase from 2007. The exports to China have only increased by $1.2bn over the 11 years, from $0.6bn to $1.8bn. To make matters worse, Pakistan’s global exports have shrunk from 16.5% in 2008 to 8.5% in 2019.

In CPFTA, a sizeable chunk of concessions were given to low-valued products. The Pakistan Business Council reports that in 2017, 40% of all exports to China were low-value goods. This, in turn, reduced the overall contribution of Pakistani products for export.

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The writer is a development economist and a member of the World Economic Forum. He tweets @sikanderbizenjo

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