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 Other Core Categories

 Textile Garments
 Raw Cotton Yarn (All Types)
 Fabrics
 Garments
 Made Ups (Excluding Towel)
 Towels
 Art Silk and Synthetic Textiles
 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.  South America.

 Eastern Europe.  Central Asian Republics.
 Oceania (Australia/New
Zealand).

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
BEVERAGES/JUICES AND TOBACCO LEATHER AND RELATED
PRODUCTS
ANIMAL VEGET/OIL, SEEDS, FATS, COTTON/TEXTILE AND MADE-UP
WAX
PREPARED FOODSTUFF/BAKERY READYMADE/KNITTED
ITEM GARMENTS

MINERAL, ORE, OIL, METAL & COSMETIC/JEWELRY PRODUCTS

PRODUCTS
MACHINERY/PLANT EQUIPMENT HANDICRAFT

TRANSPORT AND ITS PARTS MEDICAL, PHARMACEUTICAL

PRODUCTS
MUSICAL INSTRUMENTS SPORTS/HUNTING/TOYS

OFFICE EQUIPMENT/STATIONERY Electronic Equipments and Devices

HARDWARE(SANITARY/PLUMB/LIGHT HOUSE HOLDS/KITCHENWARE
FIX)
SOAPS, DETERGENTS & TOILETRIES 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 MOBILE PHONES

DVD/MP3 PLAYERS AND VCR ‘s WASHING MACHINES
TELEPHONE SETS 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 Page No.
S.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