Unlocking the Potential of CPEC Authority: Embracing Global Value Chains and Expanding Exports to Key Trade Markets in Pakistan (Opinion Piece)
The President of Pakistan recently issued ordinances to establish the China-Pakistan Economic Corridor Authority (CPEC Authority) and provide tax concessions to Gwadar Port and its free zone. This move aims to rejuvenate the CPEC project, fostering economic growth in Pakistan while integrating its economy into the global and regional landscape.
The CPEC Authority, alongside the new tax laws, will oversee and implement CPEC projects, ensuring tax and tariff concessions for Gwadar and its free zone. This authority will possess significant autonomy and extensive financial and administrative powers to expedite project completion and eliminate common development hurdles.
Crucially, the authority's main goal is to boost Pakistan's exports and enhance domestic firms' competitiveness, shielding it from protectionist interests.
In tandem with establishing the CPEC Authority and tax incentives, the government recognizes the importance of accelerating Special Economic Zones (SEZs) development and incentivizing small and medium-sized enterprises (SMEs) to expand the industrial base and elevate exports.
Collaboration with China is pivotal in developing SEZs across Pakistan, benefiting from China's extensive experience with over 2,500 SEZs worldwide. The Chinese are expected to support Pakistan's SEZ development.
Pakistan currently has only seven SEZs, which have limited global value chain participation. To address this, Pakistan plans to establish 39 additional SEZs while enhancing existing infrastructure in industrial areas.
High trade and production costs have hindered Pakistan's ability to produce goods that undergo value chain transformations, necessitating reforms to lower trade costs and improve economic conditions for SEZs and SMEs.
The World Bank's World Development Report 2020 underscores the significance of global value chain (GVC) participation, emphasizing that a 1% increase in GVC participation can boost per capita income by over 1%, surpassing the benefits of conventional trade participation.
Regrettably, Pakistan has struggled with GVC participation, with challenges faced by exporters, including difficulties in obtaining concessions for imported intermediates and exposure to automation in developed countries, potentially displacing exporters.
The report also underscores the importance of robust national certification and testing agencies to ensure compliance with international standards, citing the fishing industry's success in overcoming export bans through improved testing services.
The new phase of CPEC can stimulate industrial activity and economic development in Pakistan. It is advisable for the CPEC Authority not only to promote trade and investment with China but also to expand export activities to the European Union and the United States.
Facilitating trade linkages with Chinese firms and increasing exports to other markets can greatly benefit Pakistan, particularly in areas like textile production, where China is a major exporter of essential inputs.
Moreover, the demand for new machinery and appliances in CPEC-related industrialization can boost equipment imports, with China being a prominent exporter in this category.
In essence, Pakistan is poised for another transformative opportunity, but success hinges on prioritizing trade and investment reforms to fully capitalize on its potential.