The Covid-19 related global lockdowns have massively disrupted the international shipping industry, adversely affecting global supply chains. A dire shortage of shipping containers in some countries matched by an oversupply in others has created bottlenecks worldwide. Resultantly, costs of freight have skyrocketed, in some cases forcing importers to cancel certain orders.
Freight rates have gone up by two to four times and in some cases as much as eight to 10 times. Cargo to China used to cost $400-$500. Now it costs $4,000; to the US it now costs $4,000-5,000 from the previous $2,500. Freight charges from Far East and China have swelled to $2,500 per 20ft container from $500. Charges from China and other countries for the same have risen to $3,200-3,400 from $700-800.
Containers from Far East and China used to arrive in Pakistan in 19-24 days, but are now facing a delay of seven to 15 days. Due to congestion at international ports and supply chain issues, the automobile industry is facing a delay of 15-21 days in getting raw material, parts and accessories for local assembly of vehicles. Coal imports have been impacted by port congestion, whereas cement exporters have been hit by the shortage of containers.
But this kind of disruption in supply chains the world over, however, is not likely to impact trade within regional blocs like the ASEAN group. And now that five more countries of the region (Australia, China, Japan, New Zealand, and South Korea) have joined under the Regional Comprehensive Economic Partnership (RCEP), cornering what seems to be 30% of the world trade in a bloc of countries comprising 30% of the world population, it is estimated that the global GDP would increase by $186 billion despite the global pandemic.
Indeed, RCEP is set to change the geo-economic and geopolitical map of the world. And the future of the international order will be decided in Asia as the Partnership is expected to improve relations among its member-states by creating economic interdependence with companies investing in each other’s countries. The agreement is intended to reduce tariffs and red tape and includes unified rules of origin throughout the bloc which may facilitate international supply chains and trade within the region.
With CPEC, a flagship project of the Chinese Belt and Road Initiative, RCEP presents a great opportunity to Pakistan for strengthening and broadening economic linkages in the larger Asia-Pacific region. This is also in line with the broad market diversification strategy of Pakistan which is targeted to reduce its export dependence on EU and US.
In case Pakistan stayed out of RCEP, exporters would find it difficult to sell their products to member countries. Therefore, Pakistan should continue to speed up unilateral product and factor market liberalisation for better integration into the global economy. The time is said to be right to revive Pakistan’s ‘Vision East Asia’. Meanwhile, Washington is helping by launching a fund to encourage investments in the South and Central Asian region from Afghanistan, Pakistan and Uzbekistan.
The RCEP covers 20 chapters spread over 520 pages providing for, among other things, tariff reductions (sometimes not particularly ambitious and with very long transition periods), cutting red tape, a simpler framework for intellectual property rights and investments, harmonisation of standards and guidelines on rules of origin. As a result, internal Asian value and supply chains and production in the region are likely to be strengthened. RCEP has therefore been welcomed by companies in the region. India pulled out of the agreement in 2019, over concerns about cheap Chinese goods entering the country and was a notable absentee during the virtual signing. It can join at a later date if it chooses.
China and the US are, meanwhile, caught in a decades-long systemic competition for political, economic and military dominance, and supply routes, resources, artificial intelligence and technological hegemony in the 21st century. That has consequences for Asia and the rest of the world.