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FTA with China: Pakistan offers to scrap duties on 50% of products

14 January, 2015

ISLAMABAD: As domestic industries are at risk of being wiped out due to dumping of cheap Chinese products, Pakistan has offered to eliminate duties only on half of the total product lines in the second phase of the free trade agreement (FTA) instead of 90% under the original plan.

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Both the countries agreed on four broad principles for implementing the second phase of FTA, which would protect the interest of local industries, said Khurram Dastgir Khan, the Minister of Commerce.

"One of the main principles is that tariff concessions will not be on a reciprocal basis, rather these will be in favour of Pakistan," Khan said.

Firstly, tariff reduction modalities of the second phase will be independent of the first phase, meaning there will be fresh negotiations on all aspects of the agreement.

Secondly, the tariff reduction will not be on a reciprocal basis and China will give more incentives to Pakistan to make up for the adverse impact of the first phase.

Thirdly, both sides offered different timelines for bringing down duties and on the pace of lowering tariff and in Pakistan's case it will be slow.

Lastly, if imports surge beyond a threshold, the two countries can apply trigger mechanisms and impose safeguard duties.

Pakistan offered immediate reduction in duties to zero on 50% of product lines, which was far less than the original plan of lowering the duties on 90% of product lines, said Dr Robina Ather, Additional Secretary of Commerce Ministry.

At present, Chinese exporters were enjoying zero duties on 35% of total product lines, she added.

In comparison, China has offered to immediately slash duties to 70% of product lines. It has also suggested that after five years it will reduce duties on another 10% and the 90% target will be achieved in the next 10 years.

However, Pakistan would lower duties on 90% of product lines in the next 15 to 20 years, she added.

These timeframes will be taken up in the next round of negotiations that will be held in Beijing at the end of March.

Intricacies of FTA

Both the sides are negotiating the FTA afresh after Pakistani industries complained about the 2006 agreement that was highly in favour of China. Negotiations for implementing the second phase were due but fresh principles were agreed to address the concerns of both the countries.

Dastgir said critics of the 2006 agreement believed that the FTA was not in favour of Pakistan, adding Pakistan had conveyed three main concerns to the Chinese team during the third round of negotiations for implementing the second phase.

Free trade access to China could not be sufficiently utilised as Beijing did not reduce duties on products where Pakistani sectors enjoyed a competitive advantage, said the minister.

Secondly, the margin of preference over other countries that Pakistan should have enjoyed effectively came to naught after China signed similar free trade accords with other countries, particularly the Association of Southeast Asian Nations (Asean).

Finally, Pakistan had been persistently sustaining a loss of Rs22 billion on account of tax exemptions granted to imports from China.

Pakistan did not fully exploit the FTA due to the energy crisis and dumping of Chinese products, the minister remarked. Dumping was the main concern of Pakistani industries, particularly of steel products, polyester staple fibre and many other products, he said.

The commerce ministry has been receiving individual complaints about the dumping of Chinese products.

At present, the balance of trade is in favour of China. Against exports worth $2.5 billion, Pakistan imported $7.5 billion worth of products from China.

However, while defending the FTA, the minister said it was beneficial as well as Pakistan's cotton exports, particularly, increased from $329 million in 2006 to $1.3 billion in 2014.


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