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Is China taking over the export industries of Pakistan?

Trade gap between China and Pakistan widens due to non-trade barriers and the country's reliance on China grows dramatically

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Pakistan has been unable to maintain its export interests as the trade gap widens and the country’s reliance on China grows dramatically. In the fiscal year 2022, the country barely managed to achieve an export total of $3 billion versus a staggering $20 billion in imports from China.

The second phase of the China Pakistan Free Trade Agreement (CPFTA) spanning 2019-2024 was finalized between the two countries in early 2019 and entered its implementation phase from January 1, 2020.

Read more: Realizing the full potential of the China-Pakistan free trade agreement

The top-level results indicate that the tariff structure offered to Pakistan under CPFTA2 is a marked improvement over CPFTA1. A disaggregated analysis for Pakistan’s high priority products shows substantial opportunities to expand and diversify exports to China, though there remain a small but significant number of product lines for which Pakistan still does not face competitive access to China, including rice, durum wheat, paper, and paper board articles, as well as medicaments of hormones.

The Trade Development Authority of Pakistan (TDAP) is still unable to identify the areas where renegotiations are required to eliminate barriers to Pakistan’s exports to the neighboring nations.

During a conference on ‘Impact of CP-FTA on Bilateral Trade and Investment,’ TDAP’s Chief Executive Arif Ahmad Khan confirmed that Pakistan posted export figure of $3 billion against $20 billion imports from China in FY-22. He added that 35 percent of our trade deficit is directly linked to Pak-China trade.

The chief executive officer of the TDAP stated that the country has been able to use all tariff lines so far, but non-tariff barriers are causing difficulties in smooth shipments to China.

In addition, he pointed out that some Pakistani goods have standard and quality problems as well. They also have fixed quotas on rice imports, which is a non-tariff barrier. Rice exports cannot be increased under the CP-FTA until the rice quota is increased.

Read more: Pakistan exports more than $225 million rice to China

Amir Siddiqui, an economist at the Applied Economics Research Centre, University of Karachi, told Business Recorder that Pakistan has a narrow product line instead of a diversified one, and services. The country has exported copper worth around $800 million to China in one year. The other items are textile and leather products.

The most concerning aspect, he claims, is our growing reliance on China for raw material imports. FPCCI President Irfan Iqbal Shaikh stated during his conference speech that bilateral commerce has expanded dramatically after the execution of CPFTA-II.

However, Chinese goods have crowded Pakistani marketplaces, forcing many cottage firms to close. The inflow of low-cost Chinese imports may have a negative impact on the domestic manufacturing industry.

Circumstantial evidence implies that low-cost Chinese imports have harmed a number of small-scale industrial units. In the domestic market, the local industry is losing ground.