MUSHTAQ GHUMMAN

ISLAMABAD: Pakistan and China have reportedly failed to evolve consensus on a methodology to further expand Free Trade Agreement (FTA) after both sides have dissimilar claims of impact on the bilateral trade, well-informed sources in Commerce Ministry told Business Recorder.

This was the crux of the second round of the second phase negotiations of China-Pakistan FTA (CPFTA) held on December6-7, 2016 in Islamabad.

The meeting was co-chaired by Joint Secretary Commerce Taimur Tajamal and Chen Zhiyang Division Director, Ministry of Commerce, China. The head of Chinese delegation expressed his hope to resolve the outstanding issues with mutual consultation and find a way forward to conclude the second phase of CPFTA negotiation at the earliest.

The sources said the Pakistani side made a presentation highlighting the impact of the 1st Phase of CPFTA on bilateral trade. It was highlighted that Chinese exports have benefited immensely from the concessions granted by Pakistan whereas the concessions given to Pakistan were not meaningful and the margin of preference was eroded due to subsequent FTAs signed by China. The Chinese side expressed reservations on the conclusion of the analysis and stressed that the implementation of the 1st phase of CPFTA has a positive impact on bilateral economic and trade relations. However, China took note of the analysis of the Pakistani side and agreed to further examine it.

The Pakistani side referred to the 2nd meeting of 2nd Phase of negotiations wherein it was agreed to take into positive consideration the concerns expressed by Pakistan by re-adjustment and review of FTA through provisions of clause 8 of the CPFTA. However, the Pakistani side later gave up its request for 1st phase adjustments and started negotiations on the tariff reduction modalities (TRM) for 2nd phase as it was agreed in the 4th meeting that: (i) 2nd phase negotiations would be done on less than equal reciprocity principle in favour of Pakistan and; ( ii) 2nd phase request and offer lists would be formulated independent of the first phase tariff liberalization.

The sources said during the 6th meeting it transpired that both sides had different interpretation of the above two principles. The Pakistani side felt that since its concerns won’t be addressed through the Chinese understanding of these principles, it once again requested for readjustment in the 1st phase.

According to sources, the Chinese side explained its understanding towards the interpretation of the two principles proposed by Pakistan and argued that different understanding should not stand in the way of advancing negotiations. The Chinese side insisted to address the concerns of both sides by further liberalizing. Chinese side explained that going into 2nd Phase of CPFTA would further open up the economies and will be beneficial for both countries, for Pakistan in particular. China further explained that it is in the interest of Pakistan to speed up the process of 2nd Phase to enjoy more preferential treatment as China is entering into more FTAs.

In order to resolve the differences and find a mutually acceptable solution China suggested Pakistan may have more categories and longer liberalization period in 2nd Phase TRM in order to reach 90% liberalization level stipulated in the legal text of CPFTA. The Chinese side stated that this idea was only for brainstorming purpose at technical level and has not been approved by line ministries and industries. Pakistan once again reiterated the concerns of its industry on entering into 2nd phase and proposed immediate concessions on 35-40 tariff lines of Pakistan’s prime export interest in line with Article 8 of CPFTA. Both sides agreed to take each other’s proposal to their respective stakeholders and respond during the next meeting.

REGULATORY DUTY OF PAKISTAN : The Chinese side raised the issue of regulatory duty imposed by Pakistan and argued that since it was imposed in violation of Article 9 of CPFTA, hence it should be removed on the Chinese products. The Pakistani side clarified that RD has been imposed on MFN basis, and a comparative advantage given to China remains intact. Moreover, RD is a temporary measure and will be removed as soon as situation improves. RD has already been removed in respect of HS 8517.1210 (Cellular mobile phones) which covers substantial imports from China.

Electronic Data Exchange & Rules of Origin: The Pakistani side stated that they have secured the approval of the Cabinet regarding implementation of EDE between Customs Authorities of both sides and requested for an early signing and operationalization of EDE. The Chinese side conveyed their readiness to implement the MoU by end of December 2016 with certain amendments in the information sharing. The Pakistani side reiterated that information as envisaged in the MoU covering exportation data and certificate of origin may be shared in order to make EDE effective. The Pakistani side further requested the Chinese side to internally resolve the issue to meet the deadline.

With regard to rules of origin, Pakistan informed that the web-based issuance of Certificate of Origin has been put in place which will help real time information sharing between the two sides as soon as EDE was operationalized. The Chinese side suggested that PSR should be taken into discussion in the 2nd phase of CPFTA and the Chinese side will provide a PSR list for Pakistan’s consideration.

SPS and TBT Issues: The Chinese side briefed the meeting on the steps taken by AQSIQ on facilitating importation of mangoes, citrus fruits, and berries from Pakistan. Both sides expressed satisfaction on the progress achieved. Pakistan, however, raised the issue of delay in response from AQSIQ regarding import requirements of rapeseed, and meat products. The Chinese side agreed to take up the matter with the AQSIQ for expediting the outstanding issues.

Services and Investment: The Pakistani side stated that she is consulting stakeholders on China’s request list and will be able to give an initial response before the next meeting. Pakistan also agreed to share its request list with the Chinese side before the next meeting. In order for both sides to reap the maximum benefits of the Services Agreement, the Pakistani side underlined the need for enabling policy cohesion across all sectors in services negotiation and the CPEC, in order to create greater synergy.

The Chinese side said that traditional Chinese medicine was one of the particular areas of interest for China and they were looking for facilitation in the recognition and registration of TCM services in Pakistan. Both sides agreed to explore the possibility to enhance cooperation in the area of Traditional Medicine.

The sources said, both sides agreed that availability of data on trade in services, especially at the bilateral level was a particular concern. They decided to consult domestic authorities and explore ways to collect and maintain meaningful statistics on services trade flows between the two countries.

Both sides also agreed to expand the existing framework in services trade by adding annexes on Transport, IT, and E-Commerce. Both sides further agreed to explore the possibility of adding further annexes such as those on Traditional Medicine. Drafts on Transport and IT will be prepared by Pakistan, while drafts on E-Commerce will be prepared by the Chinese side. Both sides agreed to share the drafts before the next meeting.

Both sides also agreed to explore the possibility of signing Mutual Recognition Agreements (MRAs) in various sectors, such as engineering, construction or education etc. to facilitate services and service suppliers on both sides.

The Chinese side proposed to include concepts of MFN, Ratchet and Standstill in the agreement on the basis of a limited sectoral approach, to bring more predictability and transparency in regimes. Pakistan said the concepts are new, requiring careful and in depth consideration so as not to compromise any existing or future arrangements between Pakistan and China.

The Chinese side pointed out that Crude MDI (Pakistan HS code is 38249091 in the year 2006 and 39093000 in the year 2016) should continue to enjoy zero tariff under CPFTA with the HS code changes by the WCO. The Pakistani side agreed to look into the issue and provide feedback at the earliest.

The Pakistani side highlighted the need to dovetail all projects for cooperation between China and Pakistan including CPEC long term plan and CPFTA for integrating both the economies. In this regard, Pakistan referred to the protocol signed between the two countries in 2009 which provides a legal framework for incentivizing Chinese investment in Special Economic Zones and tariff reduction/elimination on the products manufactured in these zones. Both sides agreed to further hold internal consultations on ways and means to implement the protocol which was an integral part of CPFTA. The two sides also agreed to discuss this issue in detail in the next round of negotiations. The next meeting would be held in March 2017 in Beijing.