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China Pakistan Frees Trade Agreement Economics Essay

There is a high demand of Chinese goods in Pakistani market. Their familiarity of growth in trade is optimistic due to convenient trade flows and openness measures since 80's, Trade and investment policies are liberal and generally WTO complaint. The pattern has merchandise bias but with high volume of manufactured items. China has become one of the top five import source of Pakistan. Major imports from china are

machinery,

chemicals,

garments and other textile products,

stationary,

construction material (like tiles),

sanitary wares and

Crockery etc.

Machinery and electrical appliances are the major parts of overall exports. Bilateral trade had reached around dollar .the balance is, however, in favor of China due to lesser exports by Pakistan. Efforts are under way for correction of this situation.

Trends of trade are very positive as volume of bilateral trade has improved exponentially during the last nine years. Pakistan enjoys huge export potential to china due to advantages in agriculture, material, chemical, and textile and leather products. Besides, Pakistan has a comparative advantage in oil seeds, fruits, base metal plastic goods and perfumery etc. China has stagnant advantage over Pakistan in transport equipments, machinery, precious instruments chemical product, , stone and pearls, home appliances, plastic articles, precious and semi-precious stones etc. man-made filaments, space crafts and aircrafts provide forceful comparative advantage to China.

China-Pakistan frees Trade Agreement:

China and Pakistan are currently enjoying bilateral trade of 10.6 billion U.S dollars Under the agreement china and Pakistan will begin to reduce or eliminate tariffs' on all products in two phases from July 1, 2007. During phase 1, both sides will reduce the tariffs on 85 percent of the products based on different extents to tariff reduction within five years of the agreement entering into force, and 36 percent of the products will be tariff free within three years. During this phase china will mainly reduce on livestock aquatic products vegetables mineral products and textile, while Pakistan will mainly reduce tariffs on beef and mutton, chemicals and machinery products. Phase 2 starts from the sixth year of the entry into force of the agreement. Both sides will further reduce tariffs on the products on the basis of review of the implementation of the agreement. The aim is to eliminate tariffs on no less than 90 percent of the products, both in terms of tariff lines and trade volume, within a reasonable period of time on the basis of friendly consultation and accommodation of the concerns of both sides.

Pakistan China Trade Tariffs:

Pakistan and china will begin bilateral talks in the second phase of the free agreement (FTA) on March 10, 2011 for enhancing tariff concessions from existing 36 percent to 90 percent, a senior official of the commerce ministry said on March 9, 2011. A two-day dialogue at the first phase of the FTA, the official told the news the second phase of FTA will aim at tariffs concessions of up to 90 percent for the next five years ending in2017.the remaining 10 percent will be included in "no concession list", said the official. Both sides will also chalk out a strategy to convert the region into free trade area by 2017, he added the first installment concession ministry will continue to pursue Chinese authorities for concession on an already forwarded list 286 items, he added china has placed 2,681 tariff lines in category-1, 2,064 tariffs lines in category –II, 604 tariffs lines in category-III and 529 tariff lines in category-IV. The category-V with 1132 tariff lines will have no concession. Pakistan has placed 2,423 tariff lines in category-I, 1338 in category –II, 157 tariff lines in category –III, 1,768 tariff lines in category-IV, 1,025 tariff lines in category-V and 92 tariff lines in category-VI.

China releases 2011 Exports Quotas for Rare metals:

It is reported that China's ministry of commerce has released the 2011 export quotas for a number of rare earth metals and their metal products. As per report, next year export quotas for industrial metal products bauxite light and dead burned magnesium as well as refined tin and tin products have been reduced. Those for silver, tungsten and tungsten products and antimony and antimony products, meanwhile are subjects to year-on-year increases. Export quotas for molybdenum and molybdenum products remain unchanged from last year's level.

The following table show's China's 2011 export quotas for various nonferrous metals.

product

Export quota

change

Tungsten and tungsten products.

15.7

9.7%

Refined tin and tin products

18.9

-10%

Antimony and antimony products

60.3

4.8%

Molybdenum and molybdenum products

25.5

0

Indium and indium products

0.233

0

bauxite

830

-10.7%

silver

5.67

11.1%

Light and dead burned magnesium

1230

-7.5%

China and anti dumping:

Chinese export has led to the imposition of some sort of anti-dumping measures. Often high anti-dumping duties are levied on imports from china by such economies as US, EU and Brazil. The average anti-dumping duties against Chinese imports applied by EU are around41%, ranging from 10% to 102% 35 and that by the US is 54% 36. Anti-dumping Duties from some developing countries tend to be even higher. The level of anti-dumping duty imposed on Chinese export is often significantly higher then that on Imports from other countries.

China's imports:

China's leading import category may have been mechanical and electrical products in 2010, but the largest increased was discovered and registered in imported motor vehicles and chassis, the USD value of which doubled between 2009 and 2010, the of the imported crude oil used to fuel these vehicles rose to USD 135 million in 2010, a 52% increase in 2009.

China made huge gains on its overall trade during 2010 as its major trade partners recovered, albeit sluggishly, from the economic doldrums of 2009. Overall trade with china's top ten partners (see the chart above) increased from US 1.7 trillion in 2009 to USD 2.3 trillion in 2010. Although this represent an increased of USD 600 million, the proportion of these ten countries in china's total trade fell from 80% in 2009 to 78% in 2010. The 2% difference represents an incremental shift by china toward the diversification of its trade partners.

China's exports:

The composition of China's leading exports in 2010 was relatively unchanged from recent years although at a higher overall value. The value of china's exported steel increased by 68% y-o-y in 2010, while 30-plus percentage increases occurred for mechanical and electrical products, high tech goods and computers.

China's General Strategic Foreign Trade Policy:

China will implement the strategy of opening up towards the Indian Ocean and expand trade and economic cooperation with the countries surrounding the Indian Ocean. Yunnan province will speed up construction of the border opening up Pan-Asia Railway and Pan-Asia fiber network, speed up construction of export-oriented base. Ministry of commerce of China has pointed out that in 2011 China will reduce the tariff of 95 per cent of commodities imported from the less developed countries to zero within three years.

INDIA PAKISTAN TRADE RELATION

India and Pakistan decided to examine the feasibility of trading in electricity, petroleum products, cotton seeds and, and reduce non-traffic barriers that are blocking trade between the South Asian countries. Pakistan has also recognized that grant of most-favored nation (MFN) status to India “would help in expansion of bilateral trade.” Both the countries have decided to explore the possibility of inking a “preferential trade agreement” to promote bilateral trade by bringing down import tariffs. Both sides also agreed to remove the non-tariff barriers and all restrictive practices which hamper bilateral trade. India’s official trade negotiators said not granting of MFN status violated the World Trade Organization (WTO) norms and also primarily responsible for delaying the operations of SAARC Free Trade Area.

There are some trade barriers between India and Pakistan which are as follows:

High tariffs

Quality checks

Bureaucratic inertia

Customs valuation

Clearance of goods

Inadequate infrastructure

Excessive red tape: constraints on visas

Goal rather than the long term goals

Sanitary and phyto-sanitary measures 

Technical barriers to trade

 Quotas and import licenses on 600 items 

Aggressive use of safeguard and anti-dumping measures 

Frequent invocation of countervailing duties 

Stringent license requirements from the Bureau of Indian Standards 

Multiple customs clearance requirements 

Non-standard customs valuation methodology 

Stringent and lengthy certification requirements 

Restrictions on rail movement of goods 

Complicated and restrictive visa requirements 

Long dwell times at ports and border points 

Transit restrictions 

Absence of testing labs at the border crossing points 

State Governments' restrictions on use, sale, and consumption of certain goods 

Uncertainty about inter-state movement of goods 

Non-acceptance of letters of Credit issued by Pakistani banks 

PAKISTAN’S EXPORTS TO INDIA DECLINING

Pakistan and India on Wednesday agreed to work jointly to double their bilateral trade from the current 52.7 billion to around 56 billion per annum within three years. However, the trend of trade between the two countries shows that India has successfully increased exports, but Pakistan has not been able to match its performance. According to official data, Pakistan’s exports to India were 30 percent of what India exported to Pakistan in 2009 which fell to 24 percent in 2010 and further shrank to 20 percent in 2011. The bilateral trade is currently at USD 2.6 billion.

NOTE DUMPING OF RS 500 CHALLANGED IN LAHORE HIGH COURT

A petition has been filled in Lahore High Court (LHC) against the central bank’s cancellation of old- design Rs 500 currency notes, seeking to call the decision unlawful. The petitioner, ShamilParacha, submitted that the State Bank Pakistan (SBP) had cancelled the old notes without the permission of the federal government. Paracha said that the government was bearing a hefty annual cost on the printing of currency notes, and that the cost would further increase by printing new Rs 500 bills to replace the cancelled ones. The petitioner further said the cancellation was causing problems to the people who could not deposit their notes to the bank in time and were now angry over the bank’s decision. He contended that the SBP was bound to get permission from the government according to the State Bank Act, 1956. He requested the court to declare the SBP’s notification of cancelling Rs 500 not illegal, or to extend the time limit to exchange old notes with new ones in order to save people from the loss of money.

CURRENCY DEVALUATION IN PAKISTAN

The State Bank of Pakistan has recently devalued the rupee by 3.65% in the relation to the US dollar. It was the seventh (7th) value adjustment since the beginning of the current financial year. Besides attracting exports to overcome the serious crisis of foreign exchange reserve, and to improve current account deficit to stabilize balance of payment position the other factor which might have forced the central bank to resort to one-go devaluation i.e. 3.65 per cent instead of creeping one, could be then existing considerable gap of around Rs.5/-per US dollar ($) between the Kibor market rate and official rate of dollar in Pakistan.

Following factors were largely responsible for devaluation of Pak. Rupees.

India massively devalued its currency

There was a decline in Foreign Exchange Reserves

The trade deficit was inflation

Businessmen often complain of high taxes and ever rising prices of inputs such as electricity and gas to be a few of the major factors in making Pakistani goods uncompetitive in the International market. The policy of exchange rate manipulation so ardently pursued throughout the year, has not paid off and the goal of making exports cheaper and thus more competitive in the world markets.

The fact that our industries are yet heavily reliant on imports of their requirements of capital goods and raw materials whose cots rises as the value of rupee declines, offsetting any pricing advantage expected for exports as a result of devaluation. As import becomes expensive by imposition of additional levies like regulatory duties etc. it also pushes the cost of exportable item since 67 per cent of the national imports are basic industrial requirements which serce as capital goods.

Under the existing circumstances of the country to major change in import/export scenario could be brought only by tariff rate structure or currency adjustment. There is need to bring about basic structural changes in the economy to stimulate exports and substitute exports.

NON-TARIFF BARRIERS:

Though continues to demand the Most Favorite Nation (MFN) status to have enhanced trade with Pakistan; it has not removed the Non-Tariff barriers (NTBs) despite repeated demands by Islamabad. Pakistan which s reluctant to give the MFN status to India, wants first to remove the technical hindrances. Despite enjoying the MFN status given by Delhi, Islamabad has not benefited from the facility due to, what experts claim as non-tariff measures employed by the Indian Government at a multilateral level. The barriers are mostly concerned with the infrastructural issues at port of entry, bureaucratic and administrative mishandling, psychological barriers emanating from our bilateral political issues, via restrictions and surveillance of visitors to India, banking restrictions, investment restrictions and restrictive trade routes, which constitute the real Pakistan specific non – tariff barriers. Currently there is no direct banking arrangement between the two countries. The payment are made either by informal channels or through an international bank using third country banking channels. This increases cost due to additional service charges and longer time consumed on such transactions. There is no warehousing facility on either side of the border. There is no cold storage facility available at the border, even though perishables are very often traded. Trade only takes place between 9:00 am and 3:00 pm, after which the gate are closed.

INDIA PAKISTAN IMPORT QUOTAS:

The progress is bilateral trade talks stalled for nearly three years has been the outcome of fifth round of talks on commercial and economic cooperation between commerce secretaries in April in Islamabad.

The MFN status would mean that India would enjoy greater trade facilities than with Pakistan and that too at lower tariff and high import quotas. The products that are likely to benefit the most would textiles, cotton, man-made filaments, vegetables, coffee, tea and spices.

India-Pakistan trade was worth $1.85 billion in 2009-10, of which Indian exports accounted for $1.78 billion. In April-December 2010, bilateral trade is estimated to have jumped to a little over $3 billion with India’s exports at $1.7 billion. It is estimated that if the progress continues, trade volume could triple to $10 billion over the next three years.

INDIA - CHINA FREE TRADE AGREEMENT

Despite the tremendous economic growth of both India and China ,there is no FTA between these two countries. This article analyses the viability o f a FTA in goods between India and China. An analysis based on revealed advantage (RCA) and trade intensity (TI) measures is based to identify product groups, in which India and China stand to gain the most from reduction in tariff levels. Scenario analysis is preformed to estimate the change in bilateral trade ,flows under two different tariffs regimes. The article concludes that, from an Indian perspective, a narrow FTA covering only goods trade will not be beneficial to India.

India and China have come to play an increasingly dominant role in world economic affairs. Both nations have posted aggressive growth rates and amongst other things. China in particular, has gained a large footprint in international trade and investment flows. Today, is the world's largest exporting nation while India's exports have grown.

In the recent past both China and India have been pursuing FTAs with a variety of countries particularly in Asia. However, no progress has been made towards the signing of a FTA between India and China – two of the largest and fastest growing economies of Asia. In fact, India's domestic industry has sounded notes of caution on several occasions over a possible FTA with China. In the context it is important to analyze, and if possible quantify, the potential effects of a FTA with China and India and to identify the specific areas where in, a reduction of trade barriers could result in mutual benefit.

INTERNATIONAL TRADE OF INDIA AND CHINA

International trade of both india and china has witnessed brisk growth in recent years. However, Exhibit 1 shows how China trades as much as 5 times more than what India does. In addition, China has emerged as an exports- driven economy with its growth rate of exports surpassing that of its imports. India's export growth rate is still lagging behind its import growth rates.

India to china

China to world

India to world

28.13004

1044.813

298.3181

Imports

9.783942

1297.963

176.5814

Exports

37.91398

2342.776

474.8995

Total

18.3461

-253.15

121.7367

Deficit

More than 50% of China's exports come from final processing and assembly of intermediate goods imported from its Asian neighbors. On the other hand. India's exports are primarily raw material and labor oriented with items such as mineral fuels and precious stones dominating the export basket.

INDO-CHINA BILATERAL TRADE

India- China trade has a marked imbalance with India importing three times as much as it exports to china. Growth in bilateral trade has been rapid (CAGR of 30% for the period 1996-2008). China's exports to India have been growing at a greater rate than overall Chinese exports as well as overall Indian imports. In other words, China is making inroads in to the Indian market at a much quicker pace than in any of its other export destinations. It is also faster than average exporter to India in grabbing market share in India.

India is just not competitive enough in goods to the extent that even a completely biased FTA fails to make a substantial dent in India's deficit. Apart from differences in manufacturing sector prowess, we identified two other reasons for this. Firstly, China 's tariff rates are already low and a FTA in goods will not significantly boosts exports to China. Secondly, about 45% (in 2008) of India's exports to China fall under the category of " non- agglomerated iron ores and concentrates roasted iron pyrites" on which China already has a tariff rate of zero. In other words, about 45% of India's export to China will remain unaffected by a FTA with China.

India should aim towards building a more diversified trade basket. It should gradually move away from resource and labor intensive goods and move towards more value added product categories. This would require making significant strides in the manufacturing sector. Therefore , a FTA with China should incorporate phased reduction of tariff barriers to give Indian history the time to adjust and improve.

Our results also suggest that India should pursue a broader mandate for negotiations going beyond goods so that India can trade off the concessions made against gains in other areas, for instance, current available services in which India is more competitive than China.

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