Trade and market access under CPEC

In the past few years, the major chunk of Pakistan’s trade deficit with China and the rest of the world has widened

Yasir Masood November 24, 2018
The writer is currently working as deputy director media and publications at the Centre of Excellence-China-Pakistan Economic Corridor. He is a visiting faculty at Quaid-e-Azam University and National Defence University (NDU), Islamabad

PM Imran Khan’s recent visit to China has offered new avenues to extend the scope of China-Pakistan Economic Corridor (CPEC). The corridor is a harbinger of change for Pakistan and no wonder why the government has taken ‘trade and market access’ as one of its priority areas to expand the horizon of CPEC while oozing out the maximum benefit to accentuate Pakistan’s economy through this sector.

The increasing integration of national economies elsewhere in the world in recent time offers a lesson and signifies that CPEC can work as a catalyst especially in trade promotion, expanding markets, regional activity and socioeconomic uplift in Pakistan. CPEC can be termed as a gateway of expanding economic activities and a corridor of prosperity. The wide-range projects in the areas of agriculture, industry and services under CPEC will open a corridor of options for the Pakistani masses. In this regard, following aspects in collaboration with China can serve as the key interventions/steps in promoting trade, increasing market access, raising the standard of living and achieving sustainable inclusive growth in Pakistan.

Trade and market access can be improved by developing a market system, entrepreneurship, value addition, and competitiveness of major traded items coupled with promoting business-to-business linkages between Pakistan and China and major trading partners. Trade diplomacy and effective negotiations and dialogues with member nations and countries are some of the other policy breakthroughs which will enhance the trade and market access of Pakistan. Furthermore, reaping the benefits of increased integration and better connectivity through CPEC — in terms of exploring new markets and more trade destinations especially with other Belt and Road Initiative (BRI) partners and regional countries — would accelerate trade and market access in Pakistan.

Agriculture has a prominent part in the Pakistani economy which contributes about 19% of the GDP and more than 40% in terms of employment of total Pakistan’s labour force. Therefore, the government is rightly focussing to gear up from subsistence agriculture to modern and commercial agriculture. Integration of commercial agriculture will facilitate us for food processing, value-added agriculture products and effective marketing. Moreover, learning from the Chinese agrarian development, Pakistan can extensively use hybrid seeds of the selected variety of a single crop (ie rice, soybean, olives etc), technologically-advanced equipment and provision of key inputs like irrigation water, fertilisers and pesticides. The current government is also aiming to enhance productivity in agriculture through innovative village enterprises, modern scientific technology and cold supply chain, genetic engineering, biotechnology-based seed breeding and drip irrigation/sprinkler etc. Promoting agribusiness internet and IT-based marketing, e-commerce would also modernise Pakistan’s trade and market access by leaps and bounds.

Rashakai Special Economic Zone (SEZ) in particular — along with other prioritised SEZs — will kick-start soon as agreed by both China and Pakistan in the recent visit of PM Imran Khan to China. For a developing economy like Pakistan, the following recommendations would allow us to have a sustained industrialisation — (a) developing and branding SEZs for modern industry; (b) realisation of economies of scale and scope to achieve exportable surplus through establishing business alliances/joint ventures with Chinese and third-party firms/enterprises; (c) synergising and leveraging SEZs to develop complementarity with Small and Medium Enterprises (SMEs) for workable and effective backward and forward linkages.

In the past few years, the major chunk of Pakistan’s trade deficit with China and the rest of the world has widened. Therefore, SEZs under CPEC needs to be developed keeping in view the objective of fast-track industrial growth, export promotion through diversified products and exportable surplus. Furthermore, while developing SEZs, due consideration may also be given to the fact that the exports could be boosted by ensuring value addition in existing exports through manufacturing processes.

It is also pertinent to mention that out of China's total imports which are worth of $1,843 billion in 2017, Pakistan’s share is approximately $1.8 billion (0.098%) despite signing the free trade agreement with China in 2007. Whereas, China’s imports from India constitutes about $16 billion (0.87%). It could be due to the fact that our exports are less competitive, low valued added or we are producing products of having low demand in the Chinese markets. With inputs from Chinese counterparts, the primary reasons for low exports to China need to be unearthed and corrective actions may be taken on priority. China can help mitigate the existing trade deficit by addressing the trade barriers and frictions, including tariff and non-tariff barriers, to create an enabling environment for entrepreneurs to give a boost to the exportable merchandise. Internally, massive reforms are needed in the FBR which is not paddling on a business-friendly environment towards investors. Because of perennial irritants in taxation and exchange rate variations, many investors are not encouraged to invest in Pakistan. In addition, addressing the issues of production, transaction and logistics costs due to the energy crisis and underdeveloped prerequisite physical and human infrastructure will provide the enabling environment for investment promotion in Pakistan.

The Centre of Excellence for CPEC is the first official research portfolio of CPEC that has given a due diligence to undertake research in this specific segment under the policy guidelines of its parent organisations ie the Ministry of Planning, Development and Reform and Pakistan Institute of Developing Economics. Suggestions and frequent policy recommendations from the business councils of Pakistan and China would also help a great deal to further foster the prospects and modernise Pakistan’s trade and market access under the umbrella of CPEC.

Published in The Express Tribune, November 24, 2018.

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