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Thursday, February 15, 2024

To Win from CPEC: We must revise our trade policies…

Saud Bin Ahsen|

With globalization, trade volumes increased and dynamics of international trade also changed. Integration in global supply chain became crucial; more so for the developing countries. In international trade, the trend of regional integration is on the rise. There is a growing realisation amongst nations that regional connectivity facilitates participation in global value chains and leads to economic growth and development.

Scope of transit routes today

Delays and a high cost of transportation and logistics quality were identified as impediments to trade

The concept of physical internet emerged; the ability to connect with the world through the network of infrastructure and quality logistics was the determinant of the economic development of countries and expansion in global trade. Delays and a high cost of transportation and logistics quality were identified as impediments to trade. To introduce efficiencies in trade and transportation of goods and to benefit both Landlocked Developing Countries (LLDCs) and the transit States, the concept of transit trade corridors and cluster arrangements evolved which entailed comprehensive negotiations among partner countries on the scopes of transit, integrated transit and transport & logistics systems.

Transport, trade and economic corridors are designed to foster economic growth spread across the regions along the corridor. These are generally developed along areas with latent growth potential which largely remains untapped due to lack of connective infrastructure and regulatory framework to manage trade flows. Thus, Transit corridors provide trade facilitation through time and cost efficient transportation & logistics services. For effective regional connectivity, efficient transport infrastructure, quality and cost effective logistics services coupled with trade facilitation measures to leverage trade flows are required enabling countries to integrate into the global supply chain.

Read more: China & Pakistan: Evolution of a Strategic Relationship that created CPEC

Pakistan’s Potential to become a Regional Trade Hub

Pakistan has traditionally looked towards the West (US & EU) as target export markets whereas most of the imports come from China and the Middle East. Barring China, Afghanistan and now India, trade within the region is marginal.

Pakistan has the potential to become regional transit trade hub but the country has not been able to capitalise on the economic potential of its geo-strategic location. Pakistan has not succeeded in increasing its trade volumes through regional integration despite the fact that it has a strategically important location. Pakistan’s northwestern region has the potential to become a regional transit hub. Pakistan’s ports provide Western China, Afghanistan and Central Asian Republics with the shortest trade routes to the Arabian Sea and the Persian Gulf.

There is a crucial need to analyse the impediments that deter Pakistan from creating regional connectivity to leverage the true potential of its economic geography. Primarily, there is not a well-designed regional trade policy. Pakistan has traditionally looked towards the West (US & EU) as target export markets whereas most of the imports come from China and the Middle East. Barring China, Afghanistan and now India, trade within the region is marginal.

Regional trade with Central Asian Republics (CARs) is much below its potential. Logically, trade linkages and connectivity develops where trade interests converge. It is rightly apprehended in case of CPEC that transit trade corridors would be reduced to only transport corridors used by China and CARs for having access to global markets for their products and economic benefits would not trickle down to the manufacturing sector of Pakistan.

Read more: Electric Cars in Pakistan! The Perks of CPEC

Pakistan’s Trade Regulatory Body: How Efficient is it?

Dependence on any foreign source of financing is not the best option for the independence of a sovereign state.

Transit trade corridors entail cluster based trade arrangements within the framework of bilateral and multilateral cooperation agreements. Working out the legal and functional modalities is a technical task where the sovereign interests of the nation need to be safeguarded. Our trade institutions’ capacity to negotiate, regulate and govern complex transit trade systems is questionable. Unless a comprehensive regulatory framework is developed, trade cannot take place in a predictable and transparent manner.

Likewise, the financial constraint is a major bottleneck in carrying out massive infrastructure projects as fiscal space is constrained. Multi-stakeholder model as per good practices is not encouraged. Requisite policy measures have not been introduced to harness domestic investment. Similarly, no incentives have been provided to expatriate Pakistanis to encourage them to channel their savings to the domestic market and invest in local projects.

Read more: Will CPEC force China to trust Pakistani Politicians?

For financing, Pakistan is heavily dependent on China. CPEC projects are mainly financed by Chinese investment. However, dependence on any foreign source of financing is not the best option for the independence of a sovereign state. Investment portfolio in relation to the development of trade and economic corridors has to diversify.

Furthermore, to attract private sector’s investment and participation, both domestic and foreign, business friendly and competitive market environment is essential whereas Pakistan is ranking low on World Bank’s Ease of Doing Business Index. Fragmented policies and lack of coordination amongst various departments engaged in development and management of transit trade corridors is a severe impediment in the way to streamline procedures and attract investment.

CPEC’s Success is Conditional on Pakistan’s Internal & External Stability

Political and security dimensions of transit trade projects cannot be undermined. The northern region of Pakistan has remained volatile since the 1980s. Unpredictable security at Pak-Afghan border is a potential threat for infrastructure and trade initiatives in the region.

India has political as well as economic stakes and ambitions in the region viz Afghanistan and CARs which also has a nexus with India’s Kashmir policy. The decision to acquire a military outpost in Tajikistan is also in the backdrop of India’s perceived threat perception of military escalation by Pakistan. CARs have tremendous commercial and economic opportunities for expansion of foreign business of Indian companies. With CPEC, the region is increasingly becoming a centre of power game of major regional and global political and economic forces.

Read more: Indian fears: Is Russia joining Pakistan-China in CPEC?


In this regard, Regional trade policies may be revisited. Commercial linkage development within the region may be made a trade policy priority and product specific strategies may be designed to promote regional trade. Economic corridors and cluster-based economic projects may be developed along the transit trade corridors which are connected with transportation nodes. The share of parts and components in local production for exports may be enhanced. Agro based sector’s growth along the corridors may be planned so that agriculture sector and rural population also benefits from efficient transport networks.

Infrastructure projects may be developed on multi-stakeholders basis; including both public and private sector; besides national, international players may also be encouraged to participate. The plan to develop Land Port Authority is a good example of multi-stakeholder collaboration approach. To improve efficiency and reduce the cost of transportation along the transit trade corridors, reforms of logistics sector is very essential.

National Transport Policy may be finalised & implemented immediately. The truckers’ market should be regulated and the long awaited Trucking Policy may be finalised immediately. The Transporters’ segment may be brought within the documented framework of an economy so that there is transparency in their practices. End to end automation to handle trade and transit trade processes is the solution.

Investment may be made in IT infrastructure and systems so that physical controls are gradually replaced with e-controls. Procedures may be simplified; repeat checks, duplication of documentation and additional financial burden due to multiple guarantees may be avoided by following the international best practices.

Saud Bin Ahsen is Post-Grad student of Public Administration at Institute of Administrative Sciences (IAS), University of the Punjab, Lahore and associated with a Think Tank Institute. He is interested in Comparative Public Administration, Post-Colonial Literature, and South Asian Politics. He can be reached at saudzafar5@gmail.com