Pakistan has reportedly refused to finalise negotiations with China on second phase of Free Trade Agreement until Beijing allows export of at least 70 high priority items of Pakistan's interest duty free, well informed sources told Business Recorder. The 8th meeting of 2nd Phase Negotiations of China-Pakistan FTA (CPFTA) is expected to be held next month in Islamabad but so far discussions are deadlocked.
The sources revealed that both sides are engaged in discussions through video link on the proposed draft of CPFTA-II but nothing is final yet. "Pakistan will proceed ahead with China on final round of talks if something substantive is achieved prior to concluding the FTA-II," the sources continued. Pakistan, sources said, has sought some safeguards for local industry, Trade Reduction Modalities (TRMs) and specific mechanism for balance of payment clause.
"The clauses related to safeguards for local industry and balance of payments were not part of FTA-I but both clauses are proposed in FTA-II," the sources maintained. Explaining the benefits of safeguards, the sources said, Pakistan can invoke this clause if imports from China flood our markets and a need to project local industry is felt whereas the clause relating to balance of payment cannot be invoked for any one country.
"We are preparing TRMs for CPFTA-II but so far consensus has not evolved on three or four issues," the sources further added. Commerce Minister was apprised that China-Pakistan trade which was around $4 billion in 2006-07 reached an all time high of $13.77 billion in 2015-16. Pakistan's exports jumped to $1.669 billion in 2015-16 from $575 million in 2006-07. Correspondingly, China's exports to Pakistan increased to $12.1 billion in 2015-16 from $3.5 billion in 2006-7.
China's proposed TRM for the second phase of the CPFTA entails overall tariff elimination on 90 per cent of tariff lines. On 70 per cent tariff lines, duties would be immediately reduced to zero on the date of entry into force of the second phase of CPFTA whereas the remaining 20 per cent tariff lines would be divided into two equal slabs.
There is discrepancy of at least $ 3 billion in trade figures of the two countries due to massive under invoicing which has been discussed on a number of occasions in the Senate Standing Committee on Commerce and Textile. According to the proposal, on the first 10 per cent of these tariff lines, duties would be reduced to zero within five years and on the remaining tariff lines within ten years. The 7th meeting on the negotiations of the second phase of CPFTA was held in Islamabad on December 6-7, 2016. Pakistan once again conveyed its concerns to China on the impact of the 1st phase of the CPFTA.
Both sides are discussing issues relating to the structure of tariff reduction modality, including final elimination level, phase-out periods and response to key items of export interest, etc. Pakistan and China have also discussed Chinese investment (relocation and Greenfield) in Pakistan's export oriented and value added industrial sectors including discussion on amending protocol to the CPFTA. Both countries are also discussing implementation issues relating to Electronic Data Exchange under CPFTA. China is also putting pressure on Pakistan for removal of the recently imposed regulatory duty.
According to sources during the 8th round, dead lock was created several times due to China's rigid stance. The round was not so successful. Pakistan had proposed the immediate reduction of TRMs to 40-45% - 15 percent to be reduced from 3 to 7 years, 20 percent in 5 to 15 years and 20 percent where there would be no change.
For China, 70 percent immediate reduction - 10 percent in 5 years, 10 percent in 10 years and 10 percent where there would be no change. The minutes of 8th round have been finalised after months of written letters and deliberations through video link, sources concluded.
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