Pakistan, China To Set Up Free Trade Area (fta)

Pakistan, China to set up free trade area (FTA)

INTRODUCTION:China and Pakistan are poised to widen the silk road between them by building a free trade area (FTA). For Pakistanis, it is mainly a "cotton road.'' Currently, 70 per cent of Pakistani exports to China are cotton yarn and cotton fabric. And currently the total exports to China from Pakistan is 39.95% However, the country is also keen to promote its other products ranging from mangoes to footballs. A protocol was signed for the talks on the establishment of an FTA between the two nations, currently with an annual trade volume of around US$2.5 billion. The difference between Chinese and Pakistani goods in bilateral trade is relatively big and the number of their competing goods is relatively small. China’s main shipments to Pakistan include machinery equipment, chemicals, electronics and footwear. Chinese companies already account for an important part of foreign investment in Pakistan. About 500 foreign companies are now operating in Pakistan, 60 of which are Chinese. Many of these companies are operating in the public utilities and infrastructure sectors, such as mining, telecommunication and energy. At present age Pakistan has a lot of resources which has been remained unexploited due to the several factors/reasons and one would be the cost. The price of the finished goods that Pakistan keen to import from China would have cost more to Pakistan in just exploiting its resources or utilizing them. Like a needle will become more costly to the public if Pakistan manufactures it by utilizing its own resources. Pakistan has signed the Bilateral Investment Agreements with China on 12th February 1989.

Pakistan Export Strategy



Vision

Providing Leadership, Direction, Pro and Re-active Facilitation, to an aggressive national drive for maximization of sustainable growth of Pakistan's Foreign Trade.



Preamble

Based on an evaluation of the world demand of goods and services, the Strategy aims to prioritize those where Pakistan has or can achieve a competitive edge, sourced from within or outside Pakistan and facilitate the achievement of the desired levels of profitable exports via a 'demand led' Strategy, as opposed to the previous 'supply led' efforts. The 7-point Strategy is as follows:



Mission Statement

 Whilst retaining undivided focus on increase in share of world imports of Pakistan’s Core Products categories, achieve earliest and maximum Product and Geographic Diversification.  Adoption of the concept of world class Supply Chain management / facilitation for comprehensive dealing with the production efficiencies and on time delivering capabilities (as opposed to just “manufacturing capacity” or “warehousing” or “coordination with PCSIR”.  Active excellence in communication capability both to promote products and services and the overall business image of Pakistan and the understanding / appreciation of the services of the EPB.  Prioritization and focus will govern allocation of available personnel and financial resources for optimizing efficiency.

 Achieve maximum market access to enable exporters to maximum returns of their efforts.  Ensure an export-enabling environment in the country and amongst our Missions abroad.  Manpower trained and incentives to levels appropriate to the commercial and business profile of the organization.



Strategy

Enhance world market shares of the Core Product Categories via 1.1 Increased penetration of our best performing Categories in the top 10 respective countries. 1.2 Selectively increase the top penetration of the Core Product Categories in the Next top 10 countries. Core Categories  Textile Garments  Raw Cotton Yarn (All Types)  Fabrics  Garments  Made Ups (Excluding Towel)  Towels  Art Silk and Synthetic Textiles

Other Core Categories  Rice  Leather / Products  Sports Goods  Carpets and Wool  Surgical Instruments  Petroleum Products

2. Value addition: Pursue enhancement of manufacturing and marketing capabilities and efficiencies with a view to achieve value addition and increased competitive strength for our Core Product Categories.

3. Export Diversification: Pursue with national alignment and focussed resource application, selected Developmental export opportunities where Pakistan currently enjoys, or can achieve, a strong competitive edge. The identified Categories are: Developmental Categories:     

Fisheries. Fruit, Vegetables & Wheat. Marble & Granite. Engineering goods. Healthcare

    

Poultry I.T- Software & Services Gems & Jewelry Chemicals General Services.

4. Geographic Expansion: Pursue in the less explored Geography, exports of our Core Products Categories and Services and any other, but significant opportunities. The geographic areas identified are:

 Africa.  Eastern Europe.  Oceania (Australia/New Zealand).

 

South America. Central Asian Republics.

5. Pakistan's Business Image: It is recognized that all countries have their strengths and weaknesses. Success depends upon efficient capitalization of Strengths and management of Weaknesses to provide an honest and positive business image. It is also recognized that image management has to be professionally achieved for best results.

6. Human Resources and Skill/Technology Support: In alignment with the strategic product, geographic needs and international trading regulations, the skills, training/technical facilities be enhanced amongst all stakeholders especially the exporters, Pakistan's Missions and that Export Promotion Bureau, financial institutions and SMEDA.

7. Supply Chain Management: To develop the on-shore capacity to produce the right quality at internationally competitive prices, based on customer needs, the supply chain needs to be closely examined by our entrepreneurs, in close collaboration with the government; bottlenecks need to be removed and infrastructure strengthened. This would include the use of state-of-art technology and manufacturing process development.

8. Quality. Social and Environment Management: Culture of 'TQM' (Total Quality Management) and 'CI' (Continuous Improvement) needs to be inculcated and embedded in support of Quality, Social and Environmental opportunities. This should aim to achieve world class levels progressively and meet international standards and specifications as a minimum. Appropriate regulatory framework, quality and social management processes such as ISO/SA certifications and a transparent efficient judicial process needs to be in support.

9. Foreign Direct Investment and Finance: Foreign Direct Investment needs to be strongly encouraged to strengthen our exporters management expertise, technological and infrastructural support, competitive edge and market access,. Transparent access to finance will be vital for the desired significant increase in exports. Sufficient access at internationally competitive mark ups would

need to be ensured, especially for the value adding and Developmental Product Categories.

10. Exchange Rate: Careful management of the exchange rate would be required to provide the exporters a level playing field with international competition.

11. Small & Medium Enterprise Development: On a medium term basis, the success of Pakistan's exports must heavily rely on the strength of our Small and Medium size exporters. EPB in alignment with the supply chain management efforts of SMEDA, must help enhance the exporting and marketing capacity of the SMEs (Small Medium Enterprises) inclusive of adequate finance through the relevant financial institution i.e. State Bank, SBFC, RDFC and other DFI's (Development Financial Institution).

[SOURCE; the above strategy and export policy is abstracted from EPB, Export Promotion Bureau]

RESEARCH OBJECTIVES:This research is conducted with an aim to explore the number of goods/products which Pakistan keen to import from China and number of products/goods that Pakistan keen to export to China. What will be the benefits through this FTA Pakistan will get and also the Pakistani importers and exporters? How this trade can affect the economy of Pakistan and how the industries in our country can be benefited.

IMPORTANCE/BENEFITS:The primary objective of this trade is economic links and enhanced commercial interactions, according to Pakistan officials. Through FTA Pakistan hopes to expand co-operation with Chinese private and small- and medium-sized enterprises. But an increasing number of Chinese consumer goods manufacturers are entering the country. White goods maker Haier is already there and so are Shenzhen-based telecommunications firm ZTE, Shanghai-based electronic maker SVA and a number of motorcycle companies from Chongqing. This will have direct and indirect benefits to the economy and the industries of Pakistan and also to the entrepreneurs and exporters and importers to make investments at large and profitable scales. The industrialist can purchase advanced technology equipments at a very low price (example sewing machines etc) which is also beneficial for the economy and for the people of Pakistan purchasing products at the reasonable prices. As mostly Chinese consumer products are thought as disposable products, and due to this reason and nature of the Chinese products, it captures the biggest share of the market of Pakistan. And due to its comfort ability in pricing the peoples of Pakistan are rushing towards the Chinese products. From the industrialist point of view (mainly the textile industrialist), they can purchase advanced equipments and machineries which can save their cost and as

well as their time of manufacturing the product. The industrialists of Pakistan also can have the opportunity to export Pakistani manufactured products of fine quality and in fine quantity.

As the imports and exports increased it gives an opportunity to the traders, exporters and importers to expand their business and also invite new comers to this field. This will create a competition among the exporters and importers which is on the other hand is good for the economy of Pakistan, bringing the foreign currency inside the country in the huge amount. Due to this nature of competition the importers and exporters likely to increase their number of imports and exports. Chinese stationary also becoming very much popular especially among the students and captured almost the major population of Pakistan (especially in Karachi). Chinese ball pen, eraser, pencil, pocket diary, school bags and many more products like these are becoming very popular in the Pakistani market. Due to this reason, the concept has developed in the mind of consumers that the Chinese product is disposable; they can replace it with the other Chinese product.

LIST OF IMPORTING GOODS: A list of some of the products that the Pakistan keen to import is as follows:

Items of Import ANIMALS, BIRDS AND PRODUCTS

CHEMICALS/PLASTIC/FERTILIZER

AGRICULTURAL PRODUCTS

RUBBER, WOOD, PULP, PAPER, BOARD/ARTICLE LEATHER AND RELATED PRODUCTS COTTON/TEXTILE AND MADE-UP

BEVERAGES/JUICES AND TOBACCO ANIMAL VEGET/OIL, SEEDS, FATS, WAX PREPARED FOODSTUFF/BAKERY ITEM

READYMADE/KNITTED GARMENTS

MINERAL, ORE, OIL, METAL & PRODUCTS MACHINERY/PLANT EQUIPMENT

COSMETIC/JEWELRY PRODUCTS

TRANSPORT AND ITS PARTS

MEDICAL, PHARMACEUTICAL PRODUCTS SPORTS/HUNTING/TOYS

MUSICAL INSTRUMENTS OFFICE EQUIPMENT/STATIONERY HARDWARE(SANITARY/PLUMB/LIGHT FIX) SOAPS, DETERGENTS & TOILETRIES

HANDICRAFT

Electronic Equipments and Devices HOUSE HOLDS/KITCHENWARE MISCELLANEOUS PRODUCTS

Where miscellaneous product includes PACKAGING MATERIAL

SECONDHAND CLOTHS

TELECOMMUNICATION APPA/EQPT

WATCHES AND CLOCKS

WATER PROOFING MATERIAL

FOOTWEAR

Where electronic goods includes: TELEVISION SETS DVD/MP3 PLAYERS AND VCR ‘s TELEPHONE SETS

MOBILE PHONES WASHING MACHINES COMPUTERS AND ACCESSORIES

LIST OF EXPORTING GOODS: A list of some of the products that the Pakistan keen to export is as follows:

ITEMS OF EXPORT RICE COTTON YARN COTTON FABRIC LEATHER LEATHER MANF. (EXCL GARMENTS / GLOVES) CHEMICAL & ITS PRODUCTS FISH MARBLE & STONES CUTLERY ENGINEERING GOODS ONYX MANF. FRUITS GEMS & JEWELLERY SPORTS/TOYS HARDWARE (SANITARY) SOAPS, DETERGENTS & TOILETRIES MEDICAL, PHARMACEUTICAL PRODUCTS READYMADE/KNITTED GARMENTS COSMETIC/JEWELRY PRODUCTS

[Source; the above list of items are provided by the KARACHI CHAMBER OF COMMERCE]

Questionnaires:1. Working experience in importing/exporting field. a. Less than 5 years b. More than five years. 2. As a trader what will you prefer to do? a. export goods to China b. import goods from China c. both 3. If you are exporting goods to China, what goods would you prefer to export?

4. If you are importing goods from China, what goods would you prefer to import?

5. How this FTA will affect the trading business in Pakistan. Worst___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ Best

6. Will this help the small traders to expand their business. a) Yes b) No 7. If yes, please rate how much this FTA can support small importers to expand their business. Little support ___ ___ ___ ___ ___ ___ ___ ___ fully support 8. Pakistan is an agriculture base country; and its major export is cotton and rice (which is 70% approx.). Will this FTA help to increase the level of export? a) Yes b) No 9. (This question is related to the above question, i.e. question no. 8). If it helps to increase the level of exports of Pakistan please rate how much. (You are free to choose more than one choice). a) 70 – 75 b) 75 – 80 c) 80 – 85 d) 85 – 90 e) 90 – 95 f) 100% (Note all figures are in percentage) 10. The Chinese products are the cheapest products available in the market. Will this FTA helps in any price reduction in products importing or exporting to China. a) Yes

b) No

11. IF you choose yes, please mention by how much the price could be reduced (please be specific in answering the question) [Note: this question is related to question number 10] _______________________________________________________

12. What do you think, will the FTA give opportunity to new comers to enter in trading business. a) Yes b) No 13. If yes, please rate by how much; ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ 10%

50%

100%

Conclusion Drawn From the Questionnaires and Interview: By analyzing the results of the questionnaires and the from the interview I have concluded that the Free Trade Area will give the opportunity for the new entrepreneurs to enter the trading market and it also have direct and indirect benefits to the economy and the industries of Pakistan and also to the entrepreneurs and exporters and importers to make investments at large and profitable scales. Such as companies like Haier, Nobel, Viva Mobiles, BenQ Mobiles, Bird Mobiles and many electronics companies manufacturing or importing electronic equipments and devices like DVD player, Home Theater, Televisions, Washing machines, Telephone Sets, Mobile phones and other electronic devices for home use or personal use equipments. As to my questions and interview I have concluded that most of the people are willing to import goods/products from China and reason that I’ve found is that the price and the advanced technology and variety of products they can import at less price than from any other country. The traders are less concerned of exporting goods to China because there is no such variety in products/goods exporting to China. The major export to China is cotton and cotton products, leather goods and rice. There are already big entrepreneurs have set their route of export to this country this is also another reason that people are likely and willingly to import good/products from China. The big exporters are willing to maintain the same product line that is they are exporting cotton, leather goods and rice in a bulk quantity. However leaving the choice for small exporters to export other goods like marbles, jams sports goods, Sanitary wares, fish fresh chilled frozen, fresh fruits, handicrafts, wood furniture, carpet rugs etc. on the other hand the big importers in the market are importing chemicals and raw materials from china and little amount of general goods, while the small importers are importing most of the general goods like from stationary to clothes and electronic devices. They are importing mostly ginger and garlic in huge quantity from China. The Chinese companies are setting up their small offices or contacting the local importers of Pakistan in order to export their local products to Pakistan. The FTA will affect the trading business a much in Pakistan especially in Karachi because to the ports and the small importers and exporters will expand their business to other cities of the country and this FTA will likely to support small importers and exporters to expand their small business. Importing in a huge quantity also helps the price deduction about 10 to 20 percents on the

commodities; in fact the Chinese products are the cheapest one available in the market at present. As the FTA starts, the exporters will likely to increase their major exports such as cotton (raw and goods), leather goods and rice. Currently, 70 percents of Pakistani exports to China are cotton yarn and cotton fabric which will be likely to increase from 75 to 80 percents, which gives the opportunity for the new entrepreneurs to hit the market or enter the market with their export volume and targets. In the end I have found that mostly the entrepreneurs both small and big entrepreneurs are willing to import general goods from China rather than export to China.

Acknowledgement: The help received from all the people is acknowledged, especially who assisted to prepare and collect the questionnaires. Special thanks to all those shipping personnel who replied the questionnaire, granted their precious time for interview and provided their personal observation that contributed significantly in that research. Names I would like to highlight here, who has contributed significantly in this research by guiding me through all the phases and helped editing material obtained through different sources, Mr. Muhammad Suhail A. Khan deputy manager in P&O Containers Pakistan (Pvt.) Ltd and also of Mr. Mudassir Ahmed operation executive in CIM Shipping (Pvt.) Ltd.

Prologue: Karachi due to its geographical and strategic location is known as gateway to Asia. Considered as a safe Harbor since time immemorial, Karachi was a small fishing village in early Nineteenth Century. All kind of sea trade of Pakistan is carried out through Karachi sea ports. Now at present Pakistan’s exports are slightly becoming equal to its imports. Due to the FTA signed between China and Pakistan will helps Pakistan to boost its exports which helps directly or indirectly the economy and as well as the industries of Pakistan. However, there is still a potential in the economy and industries of Pakistan to enhance the current export rate.

Epilogue: The annual export of Pakistan to China is 39.95 percents, which will hope to be increased by some reasonable volume. However, the imports of Chinese goods are greater than export of Pakistani goods and due to the FTA the imports are likely to increase more. The consequences of FTA are, it brings up the reduction in the prices of the general goods and as well as in the machineries and equipments. Another consequence is it will give opportunity to the new and small entrepreneurs to start and expand their business respectively.

Table Of Contents Contents

S.No

Page No.

1.

Acknowledgment

(i)

2.

Prologue

(ii)

3.

Epilogue

(iii)

4.

Table of Contents

(iv)

5.

Introduction

5

6.

Pakistan Export Strategy

6

7.

Research Objectives

11

8.

Importance/Benefits of FTA

11

9.

List of importing goods

13

10.

List of exporting goods

14

11.

Research Questionnaire

15

12.

Conclusion

17

13.

References

19

14.

Tables/Lists of items

20

References: Visits: Karachi Chamber of Commerce P&O Containers Pakistan (Pvt.) Ltd

CIM Shipping (Pvt.) Ltd Web sites referred: http://www.epb.gov.pk http://www.kcc.org http://www.dawn.com

Personnel interviews: 1. Mr. Muhammad Suhail A. Khan; Deputy Manager P&O Containers Pakistan (Pvt.) ltd. 2. Mr. Mudassir Ahmed; Operation Executive, CIM Shipping (Pvt.) Ltd