Thursday, October 10, 2024

WHO IS BETTER FOR PAKISTAN, CHINA OR USA

WHO IS BETTER AND MORE BENEFICIARY FOR PAKISTAN,
CHINA OR USA & EUROPE UNION,
IN LIGHT OF ECONOMICAL, STRATEGICAL & DEFENCE?

When analysing which partner

1.    China or
2.    the USA & European Union (EU)

is better or more beneficial for Pakistan in terms of economic, strategic, and defence dimensions, it's important to consider several key factors. Both partnerships offer distinct advantages and challenges, and the answer largely depends on Pakistan’s long-term goals and priorities. Here’s a breakdown of the benefits and challenges of both relationships:

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1. Economic Relations

 

 China:

Ø China-Pakistan Economic Corridor (CPEC):


China’s largest contribution to Pakistan's economy is through CPEC, which is a key component of China’s Belt and Road Initiative (BRI). CPEC is an investment project worth over $60 billion, focused on infrastructure development (roads, ports, and energy).

v Benefits:

1.    Infrastructure development (e.g., Gwadar port, roads, energy projects).

2.    Job creation and industrial growth.

3.    Long-term growth potential through improved connectivity and trade routes.

v Challenges:

1.    Rising concerns over debt dependency: Pakistan’s external debt to China has increased significantly, raising fears about "debt traps."

2.    Domestic political concerns over lack of transparency and the uneven distribution of CPEC benefits.

 


Pakistan-China Trade

Ø Exports to China:

1.    China is one of Pakistan’s top export destinations, though the trade balance is largely in China's favor. Pakistan primarily exports:

2.    Textiles and garments: Cotton yarn and fabrics are some of the key exports.

3.    Leather products.

4.    Agricultural goods: Rice and seafood are also significant exports.

5.    Minerals and ores: Pakistan exports some copper and other minerals to China.

 

  According to recent data (as of 2022-2023), Pakistan’s exports to China were valued at approximately $3 billion. However, this figure is relatively low compared to the imports from China.

 

Ø Imports from China:

1.    China is Pakistan’s largest trading partner when it comes to imports. The major imports include:

2.    Machinery and electronics: Heavy machinery, telecom equipment, and other capital goods make up a large portion.

3.    Chemical products: Including raw materials for Pakistan's pharmaceutical and textile industries.

4.    Iron and steel products.

5.    Electrical appliances and consumer goods.

 

  Imports from China have surpassed $14 billion annually, resulting in a significant trade deficit for Pakistan with China.

 

 Trade Balance with China:

Pakistan’s trade balance with China is heavily skewed towards China, resulting in a trade deficit of about $11 billion. Although CPEC is expected to help boost Pakistan’s export capacity in the future, as of now, the gap remains substantial.

 

 USA & European Union:

Ø Trade Relations: The US and EU are significant trade partners for Pakistan. The EU, in particular, is a key destination for Pakistan’s textile exports. Pakistan benefits from the EU’s Generalized Scheme of Preferences (GSP+) status, which allows duty-free exports of Pakistani goods.

v Benefits:

1.    Access to lucrative Western markets, particularly for textiles, which is crucial for Pakistan’s export revenue.

2.    Support for foreign aid and development programs (USAID, World Bank, and other EU initiatives).

v Challenges:

1.    Declining US aid over time, particularly after the end of US operations in Afghanistan.

2.    Trade with the West may not lead to the same level of investment in infrastructure compared to China’s CPEC projects.

 

Pakistan-USA Trade

 

 Exports to the USA:

1.    The United States is one of the top export destinations for Pakistan, especially in the textile sector. Pakistan exports:

2.    Textiles and garments: Including cotton products, ready-made garments, and bed linen.

3.    Leather products.

4.    Surgical instruments: Pakistan is a leading exporter of surgical instruments to the US.

5.    Basmati rice and other agricultural goods.

 

  Pakistan’s exports to the USA were valued at approximately $5.9 billion in 2022. This makes the US one of Pakistan's largest markets, particularly for textiles.

 

 Imports from the USA:

1.    Pakistan imports a variety of products from the US, including:

2.    Machinery and equipment.

3.    Aircraft and defense-related equipment (historically).

4.    Agricultural products: Including cotton, soybeans, and other crops.

5.    Pharmaceutical products.

 

  Imports from the US amounted to about $2.6 billion in recent years, which makes the trade balance with the US positive for Pakistan, unlike the situation with China.

 

 Trade Balance with the USA:

Pakistan enjoys a trade surplus with the United States, as it exports more than it imports, largely due to the strong demand for Pakistani textiles and apparel in the US market. This surplus is approximately $3.3 billion.

 

Pakistan-European Union (EU) Trade

 

 Exports to the EU:

1.    The EU is another major trading partner, especially for textile exports. Pakistan benefits from GSP+ status, which grants Pakistani goods duty-free access to EU markets. Key exports include:

2.    Textiles: Including garments, home textiles, and fabrics.

3.    Leather goods.

4.    Surgical instruments.

5.    Rice and other agricultural products.

 

  Exports to the EU were valued at around $8.4 billion in 2022. Pakistan’s exports to the EU are highly concentrated in the textile sector, but they also include food products and other goods.

 

 Imports from the EU:

1.    Pakistan imports the following from the EU:

2.    Machinery and industrial equipment.

3.    Pharmaceuticals and medical equipment.

4.    Chemicals for various industries, including agriculture and textiles.

5.    Automobiles and related parts.

 

  Imports from the EU were valued at approximately $5.4 billion in recent years, making the trade balance with the EU somewhat favorable but more balanced compared to China.

 

 Trade Balance with the EU:

Pakistan has a trade surplus with the EU, largely driven by textile exports. The surplus stands at around $3 billion, supported by preferential trade arrangements such as GSP+.

 

Impact of GSP+ on Pakistan's Exports

The Generalized Scheme of Preferences Plus (GSP+) is a trade privilege that provides duty-free access to the European Union (EU) market for developing countries like Pakistan. The GSP+ status has had a significant positive impact on Pakistan’s exports to the EU, particularly in key sectors such as textiles and garments, leather goods, and agriculture. Here’s an in-depth look at the effects of GSP+ on Pakistan’s exports and the potential consequences if it were revoked:


1.    Boost to Exports:

o   GSP+ has dramatically increased Pakistan’s exports to the EU since Pakistan gained the status in 2014.

o   Exports to the EU rose by more than 60% since GSP+ status was granted, helping Pakistan access a market of over 500 million consumers.

o   Key export sectors benefiting from GSP+ include:

§  Textiles and garments: Pakistan’s largest export category to the EU, making up over 75% of total exports to the EU.

§  Leather goods: Including footwear, gloves, and other accessories.

§  Agricultural products: Especially rice, fruits, and seafood.

2.    Competitive Edge:

o   GSP+ gives Pakistan an advantage over non-GSP countries, as its goods enter the EU at zero tariffs, compared to the regular customs duties imposed on other countries.

o   This preferential access has made Pakistan’s exports more competitive, especially in the textile sector, which faces tough competition from countries like Bangladesh, India, and Vietnam.

3.    Job Creation:

o   The GSP+ status has helped create millions of jobs, particularly in Pakistan’s textile industry. A large portion of the workforce in this sector is composed of women, making it a critical factor for Pakistan’s economic stability and social development.

4.    Diversification of Export Market:

o   The GSP+ status has allowed Pakistan to reduce its reliance on the US market and diversify its exports to the EU. The EU now accounts for a large percentage of Pakistan’s total exports, with about 30% of Pakistan’s exports going to the EU.


Potential Impact if GSP+ Status is Revoked

If Pakistan’s GSP+ status is revoked, the consequences for its exports to the EU could be significant:

1.    Higher Tariffs:

o   Pakistan’s exports to the EU would face higher tariffs if GSP+ is revoked. Without this status, Pakistani goods would be subject to the EU’s Most Favored Nation (MFN) tariffs, which could be anywhere from 5% to 12% for textiles and even higher for other goods.

o   The textile sector would be particularly hard hit, as textile and garment products are the backbone of Pakistan’s exports to the EU. The increased cost of tariffs could lead to reduced competitiveness and lower demand for Pakistani goods.

2.    Decline in Exports:

o   The removal of tariff advantages would likely result in a sharp decline in exports to the EU. Without GSP+, Pakistan would lose its competitive pricing advantage, and EU importers may turn to other low-cost suppliers like Bangladesh (which also has GSP+ status), India, or Vietnam.

o   Analysts estimate that Pakistan’s textile exports to the EU could fall by up to 30-50%, given the cost-sensitivity of the industry and the competitiveness of other exporters.

3.    Loss of Jobs:

o   A reduction in exports, particularly in labor-intensive sectors like textiles, could lead to significant job losses in Pakistan. The textile industry employs around 40% of Pakistan's industrial labor force, and any disruption in export demand could result in large-scale unemployment.

o   This would disproportionately affect women and rural workers who depend on the textile sector for their livelihoods.

4.    Reduction in Foreign Exchange:

o   The EU is one of Pakistan’s largest export destinations, and a decline in exports would result in a loss of foreign exchange earnings, exacerbating Pakistan’s trade deficit and putting pressure on its balance of payments.

5.    Negative Impact on Investment:

o   The uncertainty around GSP+ status could deter foreign direct investment (FDI) in Pakistan, particularly in export-oriented industries such as textiles, as businesses and investors might be reluctant to invest without the assurance of duty-free access to the EU market.

o   Existing manufacturers may also shift production to other GSP+ countries that offer more stable access to the EU.


Broader Economic and Diplomatic Implications

1.    Pressure on Economic Growth:

o   Given the strong correlation between Pakistan’s export performance and its overall economic growth, the loss of GSP+ could hamper GDP growth, particularly in a country already facing economic challenges like high inflation, external debt, and fiscal deficits.

2.    Diplomatic Repercussions:

o   The GSP+ status is tied to compliance with 27 international conventions related to human rights, labor rights, environmental protection, and good governance. Pakistan’s failure to meet these obligations, particularly regarding human rights and labor standards, could not only lead to the loss of GSP+ but also diplomatic isolation from the EU.

o   The revocation of GSP+ could strain Pakistan-EU relations and reduce the EU's willingness to engage in development aid and broader economic cooperation with Pakistan.


Steps Pakistan Can Take to Retain GSP+ Status

1.    Improve Compliance with International Conventions:

o   To maintain GSP+ status, Pakistan needs to ensure compliance with the 27 international conventions, particularly those related to labor laws, human rights, and environmental protections. This includes improving the conditions for workers, safeguarding press freedom, and implementing reforms to address child labor and gender inequality.

2.    Engage in Diplomatic Dialogue:

o   Pakistan must actively engage with the EU to address any concerns related to its GSP+ compliance. This can involve working closely with EU monitors and engaging in proactive diplomacy to showcase efforts in improving governance and rights-related issues.

3.    Diversify Export Markets:

o   In case of future risks related to GSP+ or other trade privileges, Pakistan should focus on diversifying its export markets, exploring new trade opportunities with China, Africa, Middle Eastern countries, and ASEAN nations.

o   Furthermore, Pakistan should look to diversify its export basket, expanding beyond textiles to high-value products such as technology, engineering, and agricultural value-added goods.


The GSP+ status has been immensely beneficial for Pakistan, particularly in boosting its textile exports to the European Union. If GSP+ status were revoked, it would lead to higher tariffs, a significant decline in exports, job losses, and a negative impact on Pakistan’s economy, especially in the textile sector.

To avoid these consequences, Pakistan must continue compliance efforts with international standards and engage diplomatically with the EU. In parallel, diversifying export markets and industries can help reduce over-reliance on the GSP+ arrangement in the future.

 

Comparison of Trade Relations:

 

| Partner      | Exports from Pakistan | Imports to Pakistan | Trade Balance |

|------------------|---------------------------|-------------------------|----------------|

| China                 | $3 billion                | $14 billion              | -$11 billion (deficit) |

| USA                    | $5.9 billion              | $2.6 billion             | +$3.3 billion (surplus) |

| European Union| $8.4 billion              | $5.4 billion             | +$3 billion (surplus) |

 

 Summary and Conclusion:

 

a.    China: Pakistan’s trade with China is highly import-dependent, leading to a significant trade deficit. While China is a key economic and strategic partner, Pakistan imports far more than it exports, and this trade imbalance remains a challenge. However, China’s investments through CPEC offer long-term growth potential.

 

b.   USA and EU: In contrast, Pakistan enjoys a trade surplus with both the USA and the EU, primarily driven by the strong demand for textiles. The US and EU provide Pakistan with key markets for exports and grant preferential trade access, especially in the case of the EU’s GSP+ scheme. This helps stabilize Pakistan’s trade accounts.

 

 Conclusion:

Ø China is crucial for Pakistan in terms of investment, infrastructure, and strategic alliances, but the trade deficit with China is a significant challenge.

Ø The USA and EU offer more immediate benefits in terms of trade surpluses, market access, and stable exports, particularly in the textile sector.

 

For Pakistan’s long-term economic health, maintaining strong ties with both China (for investment) and the USA/EU (for export growth and trade surpluses) is key to balancing these relationships effectively.

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2. Strategic Relations

 

 China:

Ø Strategic Alliance: China and Pakistan have a long-standing, time-tested relationship. China has been a reliable strategic partner for Pakistan, particularly in countering India's influence.

v Benefits:

1.    China is a consistent supporter of Pakistan in the United Nations and other international forums, especially regarding issues like Kashmir and India.

2.    Collaboration on defense technology, including the joint production of the JF-17 Thunder fighter jet and other military hardware.

v Challenges:

1.    While strategically aligned, China often prioritizes its own national interests, and Pakistan has limited leverage in influencing Chinese decisions.

2.    China’s growing ties with India and economic investments in other South Asian countries can sometimes dilute its exclusive support to Pakistan.

 

 USA & EU:

Ø Security Cooperation: Historically, Pakistan and the US have had close military ties, especially during the Cold War and the War on Terror. However, these relations have seen ups and downs.

v Benefits:

1.    Defense aid: The US has provided significant military and defense aid to Pakistan over the years.

2.    NATO and strategic cooperation during the war in Afghanistan allowed Pakistan to leverage its geopolitical importance for defense funding and support.

v Challenges:

1.    Deterioration of trust: After years of reliance, Pakistan-US relations have soured at times, particularly over concerns related to terrorism, Afghanistan, and nuclear policy.

2.    The US has increasingly turned toward India as a strategic partner in Asia to counter China, which can complicate the US-Pakistan relationship.

 

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 3. Defense Relations

 

 China:

Ø Defense Technology: China is Pakistan's largest supplier of military equipment. The two countries share a robust defense relationship, including the joint development of the JF-17 fighter jet and the supply of advanced military technology.

v Benefits:

1.    Steady supply of military equipment, including drones, submarines, and aircraft.

2.    China has provided strategic assistance to Pakistan's nuclear program in the past.

3.    Close military collaboration through regular joint exercises and defense projects.

v Challenges:

1.    Dependency on Chinese defense systems might limit Pakistan’s diversification of its defense portfolio.

 

 USA & EU:

Ø Military Aid and Training: In the past, Pakistan has received significant military aid from the US, including F-16 fighter jets, helicopters, and other military assets.

v Benefits:

1.    The US has provided Pakistan with advanced military technology, including the F-16 fighter jet program.

2.    Pakistan has historically received military training and intelligence cooperation from Western countries.

v Challenges:

1.    Suspensions of military aid: In recent years, US military aid has been suspended or cut due to concerns over Pakistan’s handling of terrorism and regional security.

2.    Western political pressure on issues related to democracy, governance, and terrorism.

 

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 4. Overall Strategic and Diplomatic Support

 

 China:

Ø China is generally seen as a more consistent and reliable ally to Pakistan on the international stage. It has supported Pakistan on issues like Kashmir and India, and has often shielded Pakistan from pressure in international forums, such as the Financial Action Task Force (FATF).

 

 USA & EU:

Ø While the US and EU are important, their relationship with Pakistan is less predictable. The US-Pakistan alliance often depends on short-term strategic interests (such as Afghanistan), and Washington’s pivot to India for strategic reasons has complicated ties with Islamabad.

 

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 Conclusion: China or USA & EU?

 

a.    Economically, China’s investment through CPEC is unmatched in terms of infrastructure development, but it comes with potential risks related to debt. On the other hand, the USA and the EU offer access to large export markets, especially for Pakistan's textile industry.

 

b.   Strategically, China is a long-term ally that shares Pakistan’s concerns about India, offering more reliable support on defense and regional issues. However, the US and EU remain important for balancing Pakistan’s international relations, as they provide alternative diplomatic and economic avenues.

 

c.    Defense-wise, while China offers a robust partnership in military development, Pakistan’s previous military cooperation with the US provided access to advanced technology and training.

 

In summary, China is the more reliable, consistent, and long-term partner for Pakistan, especially in terms of strategic and defense support, while the USA and EU are crucial for trade, market access, and diplomatic diversity. Ideally, Pakistan benefits most from balancing relationships between both China and Western partners, ensuring that it can leverage its geopolitical position effectively.