Relationship Between Pakistan, China and America

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Riaz Ahmed Khamboo Saad Hasan Niazi Kamran Haider BBA 5-C 10/25/2012

Pakistan and America

Pakistan and China

America and China

TABLE OF CONTACTS:

LETTER TO THE TEACHER:

INTRODUCTION:

RELATION BETWEEN THE COUNTIRES OF PAKISTAN, CHINA AND AMERICA:

Pakistan and China:

Pakistan and China has very close historical ties and therefore special focus is needed in enhancing trade and investment between the two nations. Pakistan has a huge potential for foreign investors and government of Pakistan is trying to ensure maximum facilitation through supportive investment policies. Economic trade between Pakistan and China is increasing at a rapid pace and a free trade agreement has recently been signed. Military and technological transactions continue to dominate the economic relationship between the two nations, although in recent years China has pledged to vastly increase their investment in Pakistan's economy and infrastructure. Among other things, China has been helping to develop Pakistan's infrastructure through the building of power plants, roads and communication nodes. Current trade between both countries is at $9 billion. The economic relationship between Pakistan and China is composed primarily of Chinese investment in Pakistani interests. China's increasing economic clout has enabled a wide variety of projects to be sponsored in Pakistan through Chinese credit. Pakistani investment in China is also encouraged and cross-border trade remains fluid. The World Bank had ranked Pakistan number one overall, in South Asia in comparison to other countries including India, Sri Lanka and Bangladesh in ease of doing business.

America and China:

U.S.-Chinese trade relations have always been somewhat uneasy; for many years, Congress used an annual review of China's "Most Favored Nation" trading status to link trade liberalization with Beijing's human rights record. More recently, U.S. leaders have begun to worry about a massive trade imbalance that continues to grow. Protectionists in Washington and Beijing have begun to dig in their heels against the powerful economic forces that are changing their nations, while U.S. calls for China to revalue its currency and crack down on counterfeiting have not made much headway.

Trade Volume: A major factor in China's quick rise has been its vigorous trade activity with the United States. Trade volume between the two nations reached $211.6 billion in 2005, more than eighty times the $2.4 billion exchanged in 1979, the year they established normal trade relations. This has accelerated in recent years; from 2001 to 2005, the volume of U.S.-Chinese trade increased an average of 27.4 percent a year. The United States has become the top destination of Chinese merchandise exports and China is buying up more and more U.S. goods, with U.S. exports to China rising 21.5 percent each of the last four years. In 2005 the United States ran a bilateral trade deficit with China of $202 billion, up from $162 billion the previous year. Senator Charles Schumer (D-NY) said in a statement to press that these figures should be "a red flag to the Congress and to the global economy." Many Americans worry the United States is too dependent upon China for its imports, and blame the deficit for the loss of U.S. manufacturing jobs. Despite public fervor, the trade deficit does not have all economists worried. "I personally don't believe the bilateral trade deficit is dangerous for the United States," says Benn Steil, a CFR senior fellow and director of international economics. This is partly because, while China has a massive trade surplus with the United States, its overall trade surplus is not excessively large. Furthermore, the bilateral deficit doesn't take into account products manufactured in China by U.S. and other foreign companies. CFR Senior Fellow Adam Segal says some of the increase in the trade deficit is because "China has replaced all the Asian producers the United States used to import from." There is some concern the imbalance might not be good for China's economy either. Brookings Fellow Jing Huang told a recent audience that 80 percent of China's GDP is derived from trade, which he cautions is a sign China's economic development is uneven. But Steil says there is no cause for alarm: "That statistic is not that outlandish by international comparison," he says. Another concern is that, with its focus on exports, China has failed to develop a domestic consumption base. This reliance upon outside markets, warns Huang, has created an "investment bubble," leaving China's economy vulnerable in the event of a downturn in its export markets. But

Carnegie Endowment economist Albert Keidel says warnings of an investment bubble are "very loose talk about something that hasn't happened yet." Many experts say U.S.-Chinese trade relations are generally normal and healthy. Brookings Fellow Jeffrey Bader told a February 16 meeting of the Brookings Council that Chinese exports have had some rather positive effects for the United States. Cheaply manufactured goods have kept inflation low, easing the burden on poor and middle-class consumers. Bader also points out that Chinese investment has helped finance U.S. debt, while U.S. investors have generally profited from their ventures in China. Washington Post columnist Sebastian Mallaby wrote in an April 17 op-ed, "American business is in a golden phase right now because its imaginative culture fits the challenges of the post-industrial age. A low-wage economy that crams on science is not going to take that away from us."

Pakistan, China and America:

1: Tariffs: China and America:

China's commitments will eliminate broad systemic barriers to USA exports, such as limits on who can import goods and distribute them in China as well as barriers such as quotas and licenses that restrict imports of USA products. Tariffs cut to an average of 9.4 per cent overall and 7.1 per cent on USA priority products. China will participate in the Information Technology Agreement (ITA) eliminating all tariffs on products such as computers, telecommunications equipment, semiconductors, computer equipment and other high technology products. In the auto sector, China will cut tariffs from the current 100 per cent or 80 per cent level to 25 per cent by 2007, with the largest cuts in the first years after accession. Auto parts tariffs will be cut to an average of 10 per cent by 2007. Significant cuts will also be made in the wood and paper sectors, going from present levels of 12-18 per cent on wood and 15-25 per cent on paper down to levels generally between 5 and 7.5 per cent. China will also be implementing the vast majority of the chemical harmonization initiative. Under that initiative, tariffs will be at 0, 5.5 and 6.5 per cent for products in each category.

2: Import Quotas: Pakistan and America:

Pakistan imports were worth 3506 Million USD in September of 2011. Historically, from 2003 until 2011, Pakistan Imports averaged 2375.7 Million USD reaching an alltime high of 3979.0 Million USD in June of 2011 and a record low of 918.7 Million USD in February of 2003. Pakistan imports mainly petroleum, petroleum products, machinery, plastics, transportation equipment, edible oils, paper and paperboard, iron and steel and tea. Its major import partners are:

European Union, China, Saudi Arabia, United Arab Emirates and United States. This page includes a chart with historical data for Pakistan Imports.

3: Export Quotas: China and America:

China's government eased its restrictions on rareearth exports for the first time since 2005 in an apparent nod to a trade fight over Beijing's tight global grip on production of the strategically important minerals. But industry executives said the move will do little to shake China's dominance of a market crucial to industries as diverse as oil refining, electric vehicles and ballistic missiles. China's Ministry of Commerce said Wednesday that it will permit 2.7% more volume of rare earth30,996 metric tonsto leave the country this year than it did in 2011. The increase follows a number of tighter limits imposed since 2005 that led to major price surges beginning about two years ago, making some of the elements more valuable than gold. The restrictions raised cries from industries dependent on the minerals. In July, the World Trade Organization accepted a complaint from the U.S., the European Union and Japan, putting pressure on China at a time when it is contending with other trade disputes with the U.S. ranging from cars to solar panels. China contends its export limits are one of a number of efforts spurred by environmental concerns.

"Pressure on China [to loosen export controls] has been quite high," said Frank Tang, an analyst at investment bank North Square Blue Oak. He said China is "now signaling to the wider world not to worry." But industry observers said the move comes as China's rare-earth export limits become less important. Chinese miners haven't come close to exporting as much as permitted during the past two years as manufacturers look to reduce their use of Chinese-produced minerals, leading to sharp price drops. Companies in the U.S., Australia and elsewhere are also ramping up production of the minerals, which aren't rare despite their name but can be complicated to process. Mining operations also take a long time to set up.

BACKGROUND: China unfairly imposes export restraints on rare earths, tungsten, and molybdenum, as well as many intermediate products processed from these raw materials. In all, Chinas export restraints on the materials at issue in this dispute cover more than 100 tariff codes.

4: Currency Devaluation: Pakistan and America:

In early 90s, Pakistani currency were stronger then Indian currency, and as per plan, Pakistani currency was started devaluing in which top Pakistani businessmen were involved and investigation was carried on, this is serious concern for the people of Pakistan that, the employed or self-employed, small business and industries were badly affected and only few hands played with the country. Devaluation of Pakistani rupee against dollar has almost halted economic growth in the country, badly hitting all the important areas of economy from agriculture to industry; manufacturing to import of goods; IT sector to students studying abroad for higher education. The depreciation of rupee against dollar by almost 45 per cent during the last four months has already bogged down the business class, which seems quite perturbed about future prospects. All hopes are pinned on the government to unveil some bailout package to stabilize the economy. The officials said that the government is unable to decrease the fuel and fertilizer prices due to the record devaluation of the currency against dollar despite the drop in prices of these commodities in the international market.

The depreciation of the currency is also multiplying the cost of doing business and badly affecting the industrial, manufacturing and agriculture sectors as Pakistan has to import fertilizers, food items and industrial raw materials. The economic pundits said that the import bill of the country would swell to a considerable extent as what they said the crisis-hit Pakistan was importing a number of necessity goods including food items apart from luxury items at present. "Only the pharmaceutical industry is importing about 90 per cent of the raw material and this alarming depreciation is sharply increasing the input cost," said Shahzeb Akram, vice-chairman Pakistan Industrial and Traders Association Front (PIAF). He further said that the prices of all medicines would shoot up in the country in the days to come as the pharmaceutical industry is importing raw material, the price of which has surged due to devaluation of currency. Khalid Raheel a local businessman said that the depreciation of rupee is also affecting the students studying abroad for higher education. "Six months earlier, I had to pay approximately 62,000 rupees or $1000 as education fee of one semester for my daughter who is a university student in California. Now I had to pay about 85,000 rupees for one semester due to the depreciation of the rupee," he maintained. He also said that the education cost and visa fee for the students who wanted to get education abroad has also surged by 50 per cent due to depreciation of rupee against dollar. "The parents will not be able to send their children abroad for higher education if the fall of rupee continues," he added." The country is already facing severe financial crunch due to increasing trade and budget deficit, balance of payments and global food inflation. Inflation is above 24 per cent in the country while the food inflation is touching record high above 32 per cent. Last Friday, the dollar was traded at little above 86 rupees in the open market. The record devaluation of rupee against dollar caused panic in the business community followed by rumors of country's bankruptcy. The country's economy is still in the grip of fear though the central bank of the country has announced 270 billion rupees rescue plan.

5: Nontariff Barriers: Pakistan and China:

Pakistan is reportedly unhappy with China over nontariff barriers imposed by China on Pakistani exports despite a Free Trade Agreement (FTA), well informed sources told Business Recorder. "We are very concerned over the non-tariff barriers in China because of which our companies are at a distinct disadvantage against products of Chinese companies," the sources added. China and Pakistan concluded the second phase of FTA negotiations on March 11, 2001 held in Islamabad. The prime focus of talks was goods and investment. Pakistan China FTA was signed on

November 24, 2006 during the visit of Chinese President Hu Jintao to Pakistan. The agreement became operational from July 1, 2007. Initially, the agreement covered trade and goods and investment. Thereafter, trade in services was incorporated in the pact on October 10, 2009. According to the FTA, the following Terms of References (ToRs) were the basis for negotiations: (i) To further liberalize, facilitate and promote transparency for trade and investment flows;(ii) to further strengthen economic and technical co-operation in areas of mutual interest to support the objectives of the FTA;(iii) to enhance market access for trade in goods, services and investment; and (iv) to take progress action with consideration of the particular sectorial sensitivities of the parties. On the first day of talks, both teams presented evaluation reports on the implementation of FTA and held discussion on future framework of negotiations whereas on the second day tariff reduction modalities came under discussion. The foreign trade figures compiled by the Federal Bureau of Statistics (FBS), reveal that exports fetched $1.154 billion in 2009-10 against $4.414 billion, depicting a trade deficit of $3.257 billion in favor of China. Trade deficit was about 3 billion dollar in 2006-07 which has now touched $4.414 billion. However, Pakistani exports have also increased from $576 million in 2006-07 to $1.154 billion. Commerce Minister, Makhdoom Amin Fahim who met the Chinese delegation before formal commencement of second round of negotiations, expressed serious concerns over growing trade deficit with China. Pakistan has requested China for enhanced market access of 268 items, co-operation in skill enhancement/capacity building of Pakistani export industry besides facilitation in participation in exhibitions. Pakistani team also urged Chinese team to send a buying mission which according to the commerce ministry will be a positive signal for the exporters. During deliberations, Pakistan team conveyed to the Chinese side that current state of trade affairs is unacceptable and asked for steps to facilitate Pakistani exports in accordance with the FTA. Recently, Chief Executive, TDAP, Tariq Iqbal Puri, acknowledged that China is using non-tariff barriers to block Pakistani exports and Pakistani exporters, in spite of zero duty status, are not able to compete in China. Pakistan has also announced 2010-11 as Exports Year and decided to focus on China as, at present, China is importing raw material from Pakistan and initiatives would be taken to meet China's import demand through value-added products instead of raw materials. Puri argued that an increase in cost of production in China is compelling Chinese producers to quit from the clothing sector, which is creating new export opportunities for Pakistani exporters for those export products where Chinese don't have an edge on Pakistani exporters.

6: Dumping: China and Us:

China filed a World Trade Organization complaint Monday challenging U.S. anti-dumping measures on billions of dollars in goods as trade tensions escalated between the two economic superpowers. The move came as the Obama administration said Monday it was complaining to the WTO that China was illegally subsidizing exports of automobiles and auto parts. President Obama was set to announce the move while campaigning in Ohio, a key battleground in the November election and a state that has a large auto industry. Republican presidential candidate Mitt Romney has criticized Obama for not being tougher on China, which Romney said has been "cheating" on trade rules.

The WTO said China's complaint covered a wide range of products that China exports to the U.S, including kitchen appliances, paper, steel, tires, magnets, chemicals, wood flooring and wind towers. China estimated that the exports were worth about $7.2 billion, the Associated Press reported. The complaint stems from new powers granted to U.S. officials by Congress to impose anti-dumping duties on Chinese goods believed to be exports to the U.S. at a subsidized cost. A spokesman for China's Ministry of Commerce said the new U.S. duties put "Chinese enterprises in an uncertain legal environment, in violation of the relevant rules of the WTO transparency and due process." the AP said. Both the Chinese anti-dumping complaint, as well as the U.S. auto export complaint, request WTO-led consultations between the two countries to resolve the dispute. If there is no resolution after 60 days, the nation filing the complaint can ask that it be adjudicated by a WTO panel. A spokeswoman for the U.S. Trade Representative's Office said it was reviewing China's request for consultations. But she said the law passed by Congress that clarified U.S. trade measures was "fully consistent with U.S. WTO obligations, as are the countervailing duty measures China has identified in its request for consultations."

CONCLUSION: