The development of Special Economic Zones (SEZs) under China-Pakistan Economic Corridor (CPEC) can help minimise billions of dollars import bill with China through local production. The import bill of billions of dollars with China in sectors of electrical machinery and equipment, organic chemicals, fertilizers, plastic and rubber articles, glass and glassware and knitted or crocheted fabrics can be substituted through local production.
Establishment of SEZs under CPEC has become crucial component for fast-track industrial development of Pakistan, a study compiled by CPEC Center of Excellence indicated. The SEZs under CPEC have a huge potential to offer export led growth to Pakistan with product diversification.
Pakistan needs to address the issue of product diversification as it lags behind from its regional competitors in diversified product exports5. Once the SEZs are developed, the efficiency would rely on well-organized services like one-stop shop, better infrastructure, good business environment, reforms for strengthening the business environment and a balance between urban/social development and industrialization in Pakistan.
A study showed that bilateral trends of trade after CPEC, depicted a sharp rise in imports by $8.76 billion from financial year 2013-14 to fiscal year 2017-18, whereas the export volume declined by $1.14 billion during the same period. However, out of $8.76 billion increase in imports, $5.15 billion increase comes from imports of machinery, mechanical appliances, nuclear reactors, electrical machinery and equipment, and Iron and steel.
In policy recommendations, the study suggested that total current account deficit of Pakistan mainly emerged from the trade deficit, whereas the major chunk of the trade deficit developed from trade with China, therefore, SEZs under CPEC needs to be developed keeping in view the objective of fast-track industrial growth, export promotion through diversified products.
Furthermore, while developing SEZs, due consideration may also be given to the fact that the exports could be boosted by ensuring value addition in existing exports through manufacturing processes. It pointed out that the exports of Pakistan are less competitive because of the generous concessional tax rates offered to South East Asian Nations (Asean) by China and proposed that Pakistan must try to attain the same benefits that China is offering to Asean or any other nation having the FTA with China.
Thus by ensuring level playing field, the increase in production of exports quality products through SEZs under CPEC may result in an overall increase in exports, it added.
The rise in trade deficit is mainly due to the soaring trends of imports from China that rose by $14.43 billion from $0.96 billion in FY03 to $15.38 billion in FY17 and meanwhile there is slight increase of $1.25 billion in exports to China from $0.26 billion to $1.51 billion during this period. The bilateral trade deficit has also climbed by $13.18 billion from $0.70 billion to $13.88 billion during this period.