Countertrade Red Stars and Mangoes
(This is the ELEVENTH part of a series of weekly articles which will attempt to explore the advantages/disadvantages of Barter/Countertrade as opposed to the liberal policy in vogue in Pakistan).
The Chinese view of Countertrade (CT) should be an important example for our Economic Planners. Here is an example of a socialist economy working its way out of the straitjacket of state enforced ideological constraints. One of the fundamental premises of foreign trade in any such economy is barter — and free trade is seen as an unwarranted liberalisation. China is now drawing hard cash bargains but it is interesting to note that they perceive CT coupled with leasing, as a major vehicle for import financing. This process is being directly supported by the restrictions on foreign exchange.
To a great extent Hong Kong acts as the Asian CT base, with the main performer being China, which has no formal CT regulations, though a department of the Ministry of Foreign Economic Relations and Trade (MOFERT) is believed to be evolving a policy which would coordinate the various ministries which may be organising Counter-purchases, Offset and CT. Even then the Chinese official attitude is cautious and the Bank of China has not accepted evidence and escrow accounting for China in Hong Kong though deals may be accepted through branches of foreign banks in China, i.e. if a branch gambles on risking having blocked funds, should there be any problems.
China is a tested ally of Pakistan, having been called upon for help, material and moral, in dire circumstances, and always found to be a ROCK for Pakistan to lean on. This has been doubly true, both in the military and economic sense.
Pakistan should seriously contemplate having a worthwhile Countertrade Agreement with China to replace the miniscule US $ 15 million each way annual Barter Agreement first signed on July 12, 1985. At the present time, Pakistan imports from China in hard cash approximately US $ 110 million worth of goods and commodities, of which the major items are tea (US $15 million), chemicals (US $19 million), iron and steel manufactures (US $9.5 million) and machinery and equipment (US$ 19.5 million). At the same time Pakistan’s exports to China a total of US $40 million worth of goods and commodities, mainly raw cotton (US$11 million), urea fertiliser (US$ 12 million) and iron and steel products (US$ 12 million).
The present level of two-way trade cannot even begin to underscore the fact that we should have bilateral trade with China as one of the cardinal pivots of our foreign trade plans. An awareness has to be developed that we can utilise China’s great industrial base, which has been openly forthcoming in TRANSFER OF TECHNOLOGY to Pakistan, to great mutual advantage.
The pattern of trade shows that whereas China has much to offer Pakistan, we must plan to acquire those items from China whose level of sophistication matches upto what we presently persist in purchasing on hard cash from Japan and S. Korea, without any hint of reciprocation whatsoever. Japan exports US $650 million worth of goods to Pakistan annually, mainly transport vehicles (US $200 million), machinery (US $190 million), silk, nylon and synthetic fibre (US $65 million), iron and steel products (US$ 50 million). In return Pakistan barely manages to export less than one third (US $190 million), mainly cotton cloth (US $100 million), cotton raw and waste (US$35 million) and fish and fish products (US $20 million). Almost the same pattern and deficit exists for S. Korea, with minor differences in the nature of exports and import items. If the United States of America finds it different to overcome Japan’s hope to do so should be classified as the possibility of a miracle.
The statistics provide very interesting reading and if our Planners can evaluate the proper responses and work closely with their Chinese Counterparts, this can result in great benefit to both China and Pakistan.
While the various details can be worked out between the two sides over more sanguine discussions, the parameters of trade between Pakistan and China should be increased to a Special Trade Agreement (STA) of US $ 1 billion each way.
Many of the goods and commodities presently being supplied by Japan, S. Korea (and Taiwan) can be manufactured and easily supplied by China to Pakistan. At the same time, given China’s excellent track record with Pakistan over the years in economic relations, one can expect TRANSFER OF TECHNOLOGY, and OFFSET programmes, as opposed to the Japanese penchant for giving us assembly lines dependent totally upon Japanese manufacturers till the year 2050. In this manner, we would be giving tremendous support to the Chinese industry which, except for some very sophisticated items can supply a substantial portion of Pakistan’s needs in machinery, transport equipment and silk, nylon and synthetic material.
The catch is that China may not be able to absorb the many products that Pakistan can export, especially since it competes with Pakistan in the principal supplies of raw cotton and textile products. However, one of the things it can do is to make the many MNCs hovering around China with various business propositions pick up China’s Countertrade obligations with Pakistan as a part of the consummation process of the whole deal. Many of the MNCs may not find the Pakistani products appealing, especially since it is being force fed as a reciprocity to their products but an interesting mix may emerge if China and Pakistani planners use their imagination.
In a way some integration has been achieved in the defence industry though the level is still too low to make a substantial economic difference. The Heavy Rebuild Factory and the Kamra Aeronautical Complex are fair examples of this cooperation and speak well of our defence planners and their more fundamental approach to the basic tools of modern soldiering. This integration can easily be extended into areas like transportation, etc. where Pakistan is in the unhappy position of slipping to the ultimate chaos of non-standardisation. A number of like equipment can be made on a complementary basis and the savings on spares alone will make the exercise worthwhile. Even when negotiating with foreign manufacturers, an integrated approach will pay dividends to both the countries in reducing hard cash burdens manifest in long-term supply of machinery and equipment. Pakistan has a lot to learn from the Chinese aptitude of achieving self-reliance quickly.
The aforesaid is more simply said than done — but brotherly nations with the level of friendship that exists between China and Pakistan can sophisticate their demands and supplies to correspond to their economic requirements. It needs innovation and whenever the poverty level is so low as it is in China and Pakistan, any innovation is bound to be at least moderately successful. Planned well, it will cease to be the gamble that some may like to portray it to be. China is a true and trusted friend and we must strive to maximise this relationship by stronger economic ties. CT between China and Pakistan will act as a FORCE MULTIPLIER for both the economies as well as a binding mould, truly reflecting the mutual amicable feelings of the two nations and their people.
The Chinese may well not purchase our mangoes, but they certainly have the economic clout to make the others do so.
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