ISLAMABAD – The Shanghai Cooperation Organization was established on June 15, 2001. The organization originally emerged from the Shanghai Five, which was formed in 1996.
Pakistan became a full member of the Shanghai Cooperation Organization on June 9, 2017, during the SCO Summit in Kazakhstan. The question that arises is what Pakistan has gained so far after becoming a member of the Shanghai Cooperation Organization and what initiatives this forum has taken to improve the conditions of the people of the member states.
Trade data shows that Pakistan has gained significant benefits from this multilateral platform. Its participation in the Shanghai Cooperation Organization has enhanced its regional trade and investment potential, enhanced security cooperation, facilitated access to energy and infrastructure projects, and increased its diplomatic influence in Central Asia and beyond.
The SCO has also provided Pakistan with opportunities for economic diversification and the ability to play a central role in enhancing regional connectivity through initiatives such as the China-Pakistan Economic Corridor and the broader Silk Road economic corridors.
More importantly, Pakistan’s participation in the Shanghai Cooperation Organization has contributed to strengthening its geopolitical position by positioning it as a major player in regional cooperation efforts. Being part of the multilateral platform allows Pakistan to play an active role in shaping regional policies and fostering close relations with Central Asia, China and Russia.
The ongoing SCO discussion in Islamabad that ended on Wednesday also provided a positive opportunity for both Pakistan and India to increase interaction, paving the way for relations to return to normal, as the foreign ministers of the two nuclear-armed nations met over lunch and exchanged pleasantries. The Indian Foreign Minister also held a meeting with the Pakistani Prime Minister.
Pakistan’s trade with SCO member states has grown since it became a member in 2017. China remains the dominant trading partner within the SCO, with trade exceeding $27 billion annually.
Trade with Central Asian countries has also increased, as Pakistan aims to strengthen its role as a trade and transit center between Central Asia and global markets.
Bilateral trade between Pakistan and China has witnessed significant growth, especially through the China-Pakistan Economic Corridor and as part of broader initiatives under the Belt and Road Initiative.
According to the Pakistan Ministry of Commerce, trade between Pakistan and China amounted to about $27 billion in 2022. This includes exports from Pakistan to China (such as textiles, agricultural products, minerals) and imports from China (such as machinery, electronics, chemicals, etc.). and industrial goods).
The China-Pakistan Free Trade Agreement, which was signed under the Shanghai Cooperation Organization, has facilitated trade by reducing customs tariffs on goods and increasing bilateral economic activity.
Russia and Pakistan are working to build closer economic relations, especially in the areas of energy, defense and trade. Bilateral trade reached about $1.5 billion in 2022, with major imports from Russia including oil, gas and fertilisers, and exports including textiles and agricultural products.
The two countries are keen to expand economic relations, especially in the areas of energy (oil and gas pipelines) and trade infrastructure.
While India is a fellow member of the Shanghai Cooperation Organization, trade between Pakistan and India is limited due to geopolitical tensions, especially since India revoked Pakistan’s most favored nation status in 2019 and the broader political dispute.
Bilateral trade has declined significantly in recent years due to the tense political environment. In 2018, trade was worth about $2 billion, but fell to a fraction of that due to border tensions and the suspension of trade in 2019.
Political normalization could lead to a significant boost in trade, but this remains dependent on broader political developments.
Trade with Central Asian member states Kazakhstan, Kyrgyzstan, Uzbekistan and Tajikistan, which are also SCO member states, is gradually increasing as Pakistan looks to expand its trade routes to landlocked Central Asia through its position as a regional transit hub.
Trade with Kazakhstan will reach about $450 million in 2022.
Major exports from Pakistan include textiles, rice and agricultural products, while imports from Kazakhstan include oil, gas and minerals. Bilateral trade with Uzbekistan reached nearly $400 million in 2022, with strong potential for growth due to economic reforms and cooperation in the agriculture, textiles and energy sectors.
Trade with Kyrgyzstan and Tajikistan remains relatively small but growing, with exports largely consisting of textiles, agricultural products and consumer goods, and imports focusing on minerals and energy resources.
Central Asia is a priority for Pakistan, and trade is expected to grow with improved roads and railways under initiatives such as the China-Pakistan Economic Corridor and the Tashkent Agreement, which facilitate trade between Central Asia and Pakistan. There have been ongoing discussions about the possibility of establishing a free trade area within the Shanghai Cooperation Organization. This would enhance trade between members by reducing customs barriers and creating a common platform to facilitate the movement of goods, services and investment.
In fact, the Shanghai Cooperation Organization has taken initiatives to promote trade between its member states using local currencies, with the aim of reducing dependence on global currencies such as the US dollar and promoting regional economic integration. One notable initiative is the establishment of the Local Currency Payment Mechanism (LCPM), which allows SCO member states to settle trade transactions in their local currencies rather than relying on international currencies such as the US dollar or euro. This reduces the cost of trading by eliminating currency exchange and transaction fees, and also reduces exposure to fluctuations in the exchange rates of major global currencies.
This initiative helps member states overcome financial sanctions imposed by non-member states, reduce dependence on Western financial systems, and promote regional economic integration. This system is being gradually implemented, and some SCO member states have already begun using local currencies in trade. This is especially important for countries such as China (its currency is the renminbi), Russia (its currency is the ruble), and other countries such as India, Kazakhstan and Pakistan, which have strong regional economic ties.
Some SCO member states have already concluded currency swap agreements, which allow them to trade goods and services directly in their domestic currencies, rather than using third-party currencies. Member states of the Shanghai Cooperation Organization have begun to prioritize bilateral trade agreements that specifically encourage the use of local currencies. For example: A large portion of bilateral trade between China and Pakistan is already conducted in Chinese Yuan (CNY) and Pakistani Rupee (PKR). This is part of Pakistan’s broader initiative to reduce dependence on the US dollar.
Trade between China and Kazakhstan is increasingly settled in yuan and tenge (KZT), strengthening regional economic ties and reducing transaction costs.
China, as the largest economy in the Shanghai Cooperation Organization, has been actively promoting its currency, the yuan (renminbi), for regional trade and investment purposes. The People’s Bank of China (PBoC) has signed currency swap agreements with several member states of the Shanghai Cooperation Organization to encourage the use of the yuan in bilateral trade. This has helped enhance the use of local currencies and reduce dependence on the US dollar in the region. China has been particularly active in Central Asia, where countries such as Kazakhstan, Kyrgyzstan and Uzbekistan have signed agreements to allow trade settlements in the yuan. These agreements enhance economic cooperation and increase financial stability in the region. There has been increasing talk within the SCO to create a regional payments system capable of enabling faster and cheaper transactions in local currencies. This system can be viewed as a regional counterpart to global payment networks such as SWIFT, but will operate primarily within member states of the Shanghai Cooperation Organization.
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Originally published in The News