4th Review of the China Pakistan Free Trade Agreement (CPFTA) & Recommendations for Phase II Negotiations

The China Pakistan Free Trade Agreement (CPFTA) was signed between the governments of Pakistan and China in November 2006. Phase I of the CPFTA became operational in July 2007 and originally covered the period 2007 – 2012. Under Phase I, Pakistan offered tariff concessions on 6,711 items to China. On the other hand, China offered tariff concessions on 6,418 items to Pakistan.

The purpose of this report is to caution the Pakistani negotiators against repeating the mistakes made in Phase I negotiations of the CPFTA as they negotiate Phase II of the CPFTA. The report also identifies sectors in which Pakistan should ask for comparable if not better terms than those that China has given to countries with which it has signed FTAs post signing of the CPFTA.

Pakistan’s trade deficit with China has grown from $4.1 Bn in 2012 to $12.1 Bn in 2016, accounting for roughly half of Pakistan’s total trade deficit! Pakistan in 2016 managed to utilize only 4% of the tariff line on which concessions were offered under the CPFTA. China, on the other hand, utilized 60% of the tariff line concessions.

What is however more alarming is the mismatch between what China says has been exported to Pakistan and what Pakistan reports as having been imported from China. In 2016 this gap was $3.5 Bn, clearly showing that massive under-invoicing is taking place in imports from China. The missing imports of $3.5 Bn translated into lost revenues to the Government of Pakistan of Rs.256 Bn in 2016 alone!

Pakistan's Imports from China

The report also identifies a list of 25 products which have the potential to increase Pakistan’s exports to China by $3.3 Bn if Pakistan gets the required tariff concessions.

The report takes a closer look at the Belt and Road Initiative (BRI), spearheaded by China, along with its aims for regional development. China-Pakistan Economic Corridor is an integral part of the BRI, connecting China to the Arabian Sea, and Pakistan to China and the Central Asian Republics.  The proposed investment under CPEC is currently at $62 Bn but is expected to rise to $100 Bn by 2030; the major part of the current investments is directed towards the energy sector.

The report also contains a review of the strategies employed by China to develop its textile industry as well as the recent role of E-Commerce and R&D in accelerating growth in the said industry. The report concludes by reviewing the policies being implemented by China to develop its Western regions

The PBC is a private sector not-for- profit advocacy platform set up in 2005 by 14 (now 70) of Pakistan’s largest businesses. PBC’s research based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk