Economic and Trade cooperation with Pakistan
3.1 Economic and Trade Agreements
3.1.1 Participation in bilateral, multilateral and regional economic cooperation
【Preferential Trade Arrangements】
Pakistan was one of the founding members of the General Agreement on Tariffs and Trade (GATT) established in 1947 and the World Trade Organization (WTO) established in 1995; It is one of the member countries of SAARC Free Trade Area.
【Free Trade Agreement】
Apart from China, Pakistan has also signed free trade agreements with Malaysia and Sri Lanka. Preferential trade agreements with Iran, Mauritius and Indonesia; There is a Re-export trade agreement with Afghanistan.
【EU Universal Tariff System】
Pakistan is a beneficiary of EU tariff preferences. In November 2012, the European Commission announced the new GSP scheme, adding Pakistan and other three countries to the third category of GSP. Pakistan has officially received the EU's super-Generalized System of Preferences (GSP+) and can apply for tariff-free treatment in the EU (from January 1, 2014 to December 31, 2023).
3.1.2 Status of Free Trade Agreement (FTA) with other countries
Table 3-1: List of major economic and trade agreements in Pakistan
Category | No. | Title |
Global Trade Agreement | 1 | Pakistan was a founding member of the General Agreement on Tariffs and Trade (GATT), established in 1947, and the World Trade Organization (WTO), established in 1995. |
Regional Free Trade Agreements | 1 | Pakistan - Sri Lanka Free Trade Agreement |
2 | South Asia Free Trade Agreement | |
3 | Economic Cooperation Organization Trade Agreement | |
4 | Pakistan - Malaysia Closer Economic Partnership Agreement | |
5 | The second phase Protocol of the Pakistan-China Free Trade Agreement has officially entered into force on December 1, 2019, and the relevant tariff concession measures have been implemented since January 1, 2020. |
3.2 Foreign Trade
3.2.1 Trade in goods Status
【Trade in Goods】
In fiscal year 2019/20, Pakistan's trade in goods totaled $76.126 billion. Among them, the total export volume was 24.257 billion US dollars, down 2.1% from the previous fiscal year; The total value of imports was US $51.869 billion, down 6.8% from the previous fiscal year. The trade deficit was $27.612 billion, 10.65% smaller than the previous fiscal year.
【Major trading in goods Partners】
In fiscal year 2018/19, Pakistan's top 10 goods trading partners were China, the United Arab Emirates, the United States, Saudi Arabia, Singapore, the United Kingdom, India, Germany, Japan and Indonesia. The top 10 export destinations are the United States, China, the United Kingdom, Germany, Afghanistan, the United Arab Emirates, the Netherlands, Spain, Italy and Bangladesh. The top 10 sources of imports are China, the United Arab Emirates, Singapore, Saudi Arabia, the United States, Qatar, India, Japan, Kuwait and Germany.
【Commodity structure】
Pakistan's main export commodities include textiles, cotton, grains, leather, minerals, etc. Major imported commodities include fossil fuels and mineral oil, natural gas, palm oil, organic chemicals, telecommunications products, iron and steel products, electrical machinery and equipment, vehicles and accessories, plastic products, etc.
3.2.2 Trade in services
In fiscal year 2019/20, Pakistan's trade in services totaled US$16.902 billion. Among them, the total export volume was 5.966 billion US dollars, up by 2% year-on-year; The total volume of imports was US $10.936 billion, down 10.9% year-on-year. The trade deficit was US $4.97 billion, down 22.66% year-on-year. The main export categories are government services, telecommunications, computer and information services, other business services and transport services. The main types of imported services are transportation, tourism and other business services.
3.3 Absorption of foreign capital
According to UNCTAD's “World Investment Report 2020”, in 2015-2019, Pakistan attracted foreign direct investment (FDI) flows of US $1.673 billion, US $2.576 billion, US $2.496 billion, US $1.737 billion and US $2.218 billion respectively. By the end of 2019, Pakistan had received US $34.798 billion in foreign direct investment (FDI) stock. China is the largest source of FDI, followed by the United Kingdom, the United Arab Emirates and Japan.
3.4 Foreign Aid
3.4.1 Status of assistance received
Pakistan's main sources of assistance are multilateral institutions such as the World Bank (WB) and Asian Development Bank (ADB), as well as countries such as the US, UK, China and Japan. The main way of assistance is concessional loans (accounting for more than 95%), with a small amount of free assistance and technical assistance. According to a report by the Ministry of Economic Affairs, Pakistan received a total of US $7.3 billion in bilateral and multilateral aid in fiscal year 2019-20, including $5.65 billion from multilateral institutions ($2.8 billion from ADB, $1.4 billion from World Bank, $880 million from Islamic Development Bank, $510 million from AIIB) and US $1.65 billion from bilateral donors ($490 million from China and $130 million from the UK).
3.4.2 Aid received during the COVID-19 epidemic
Since the outbreak of COVID-19, Pakistan has received assistance from China, the UK, Singapore, the UAE and Japan. According to the website of the Pakistan Disaster Management Authority (NDMA), as of November 2020, a total of 1,972 ventilators, 257,000 sets of testing reagents, 7.376,000 sets of masks, 346,000 sets of protective clothing, and other medical supplies such as temperature measuring guns and medical gloves had been donated to Pakistan.
3.5 China-Pakistan Economy and Trade
3.5.1 Bilateral Agreements
【Agreement between China and Pakistan】
In January 1963, China and Pakistan signed a trade agreement. Border trade was launched in 1967; In October 1982, the two countries established the China-Pakistan Joint Committee on Economic, Trade, Scientific and Technological Cooperation, which has held 14 meetings since then. In recent years, the two sides have been committed to deepening and expanding economic ties and adopted a series of strategic measures and institutional arrangements, such as the signing of the “Five-Year Development Plan for China-Pakistan Economic and Trade Cooperation” in November 2006, the signing of the “Supplementary Agreement to the Five-year Development Plan for China-Pakistan Economic and Trade Cooperation” in December 2011, and the signing of the “Agreement on the China-Pakistan Free Trade Area” in November 2006. In 2009, China and Pakistan signed the “Agreement on Trade in Services under the China-Pakistan Free Trade Area” to promote common development. On December 1, 2019, the second phase Protocol of the China-Pakistan Free Trade Agreement entered into force and was officially implemented in January 2020. China has reduced and reduced tariffs on advantageous export products such as cotton yarn, leather, garments, aquatic products and nuts, which are of priority concern to Pakistan. Pakistan, on the other hand, will reduce or reduce tariffs on China's competitive export products such as machinery and electricity, furniture, textiles, phosphate fertilizer, glass products, automobile and motorcycle parts.
【Bilateral Investment Protection Treaty signed between China and Pakistan】
In February 1989, China and Pakistan signed the “Bilateral Investment Protection Agreement”.
In November 2006, the “Free Trade Agreement” signed by the two sides also made clear provisions on the protection of bilateral investment.
In October 2008, the two sides signed a “Supplementary Protocol to the Free Trade Agreement”, in which Pakistan granted 12 preferential policies to the China-Pakistan investment zone.
【China, Pakistan sign Agreement on Avoidance of Double Taxation】
China and Pakistan signed a tax agreement in 1989. By the end of 2016, China and Pakistan had signed three protocols, further revising the tax agreement. The tax agreement between China and Pakistan mainly stipulates the avoidance of double taxation and the prevention of transnational tax evasion in the field of income tax.
On 15 November 1989, the two sides signed “the Agreement between the Government of the People's Republic of China and the Government of the Islamic Republic of Pakistan on the Avoidance of Double Taxation on Income and the Prevention of Tax Evasion”.
On 19 June 2000, the two sides signed “the Protocol of Agreement between the Government of the People's Republic of China and the Government of the Islamic Republic of Pakistan on the Avoidance of Double Taxation on Income and the Prevention of Tax Evasion”.
On 17 April 2007, the two sides signed “Protocol II of the Agreement between the Government of the People's Republic of China and the Government of the Islamic Republic of Pakistan on the Avoidance of Double Taxation and the Prevention of Tax Evasion”.
On 8 December 2016, the two sides signed “Protocol III of the Agreement between the Government of the People's Republic of China and the Government of the Islamic Republic of Pakistan on the Avoidance of Double Taxation on Income and the Prevention of Tax Evasion”. According to the Protocol, interest earned from loans made by relevant Chinese banks and the Silk Road Fund for projects listed in the Agreement on Cooperation in Energy Projects under the China-Pakistan Economic Corridor is exempt from income tax in Pakistan.
【Other relevant protection policies】
In April 2015, China and Pakistan signed and issued the “Joint Statement on the Establishment of All-weather Strategic Cooperative Partnership”. The two sides will further strengthen strategic communication and coordination to safeguard the common interests of the two countries.
【Currency Swap Agreement】
On May 24, 2018, the People's Bank of China and the State Bank of Pakistan renewed the China-Pakistan bilateral Currency swap Agreement with a value of RMB 20 billion/Pakistan Rupees 351 billion. The agreement is valid for three years and can be renewed upon mutual agreement.
3.5.2 Bilateral trade
China is Pakistan's largest trading partner and became its largest source of imports for the first time in fiscal year 2015/16, as well as its second largest export destination. According to Chinese customs statistics, the bilateral trade volume between China and Pakistan in 2020 was 17.49 billion U.S. dollars, down 2.7 percent year-on-year. Among them, China's export volume was 15.367 billion US dollars, down 4.9% year-on-year; The value of China's imports was US $2.123 billion, up 17.5% year-on-year. The trade surplus was US $13.244 billion.
China's main exports to Pakistan include electrical machinery and appliances, boilers, machinery and equipment, steel and its products, chemical fibers, organic chemicals, plastic products, etc. Pakistan's main exports to China include cotton yarn, textiles, grain, mineral sand and other primary products, among which cotton yarn, grain and mineral sand have long been the top three exports to China, accounting for about 60%, 10% and 6% respectively. In recent years, with the expansion of bilateral trade scale, trade disputes are also on the rise. Chinese-funded enterprises should pay great attention to them.
3.5.3 China's investment in Pakistan
According to data released by the Investment Commission of Pakistan, China's direct investment in Pakistan reached US $844 million in the fiscal year 2019/20, making it the largest source of investment in Pakistan. According to China's Ministry of Commerce, in 2020, China's direct investment in Pakistan reached 848 million U.S. dollars. By the end of 2020, China's stock of direct investment in Pakistan was US $4.91 billion.
3.5.4 Contract projects and labor service cooperation
Pakistan is one of the key markets for China's overseas contracted projects. According to the Ministry of Commerce of China, in 2020, the new contract value of Chinese-funded enterprises in Pakistan was 6.37 billion US dollars, down 9.8% year-on-year, and the turnover was 7.32 billion US dollars, down 24.3% year-on-year. A total of 8,830 workers of various kinds were dispatched, and 15,325 were working in Pakistan by the end of the year. Newly signed large-scale projects include the Basha Dam construction project and the 300MW coal-fired power station project at Gwadar Port, which were contracted by Power Construction Corporation of China.
3.5.5 Overseas Economic and trade cooperation zones
【 Economic and Trade Cooperation zone 】
On November 26, 2006, the Haier-Luba Economic Zone, which was unveiled by Chairman Hu Jintao himself, provided a new platform for Chinese -funded enterprises to invest in Pakistan. The district is located in Lahore, the second largest city of Pakistan, this zone is the first "China's Overseas Economic and Trade Cooperation Zone" approved by the Ministry of Commerce of China. It is also the "Pakistan China Special Economic Zone" approved by the Pakistani government and one of the key projects in the five-year plan of China-Pakistan cooperation. The key industries are small household appliances and power generation equipment, automobiles, motorcycles and accessories, chemical industry and packaging and printing industry. By the end of 2020, the park has a production capacity of 2 million electrical appliances and a turnover of about 240 million US dollars. The refrigerator, washing machine, cold cabinet and air -conditioning products ranked first in Pakistan.
