Pakistan, China may restart talks on FTA-II in July

Dialogue was stalled some months back as Beijing backed

out of giving unilateral tariff concessions regime

ISLAMABAD: Following a refusal by Beijing to extend the one-sided tariff concessions, the Nawaz government is trying to persuade the Chinese authorities to resume the stalled talks on the second phase of free trade agreement (FTA-II) and hoping that the dialogue process would be reinitiated sometime in July or August, a senior official at Ministry of Petroleum and Natural Resources told The News.

Beijing has already refused to extend the one-sided tariff concessions in FTA-II owing to which the talks were stalled some months back.

Earlier, China had assured the Pakistani authorities concerned that it would extend the unilateral tariff concessions regime to Pakistan under FTA-II to balance the trade under FTA-I which is heavily tilted towards China.

The Chinese authorities, however, backed out from their earlier stance and instead asked Pakistan to further liberalise its tariff regime by up to 90 per cent.

This had really irked the authorities in Islamabad as Pakistan in the first phase of FTA had reduced the tariff on 35 per cent items to zero per cent. Now, Beijing wants Pakistan to further liberalise its tariff regime by up to 90 per cent.

The imports from China stand at $9 billion while Pakistan’s exports to China are around $2 billion. Commerce Minister Khurram Dastgir confirmed the development, saying the talks on FTA-II had been stalled as China had backed out from extending the unilateral concessions on Pakistan’s exports. “We are now in the process in making contacts with the Chinese counterparts to reinitiate the talks.”

Earlier, both countries had developed an understanding that Pakistan would not give tariff concessions on Chinese products, but Beijing would do so.

The understanding, the minister said, was basically reached to compensate Pakistan which was suffering in the wake the trade balance that had been heavily in favour of China. But when the talks for FTA-II initiated under the spirit of the understanding developed between the two states, the Chinese side backed out from giving unilateral concessions.

“Now, we have asked the top leadership of our country to sensitise the Chinese counterpart to make some progress on the stalled talks on FTA-II,” the minister said.

However, sources claim that as domestic industries are at risk of being wiped out due to the 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 FTA instead of 90 per cent under the original plan.

More interestingly, Beijing has expressed its annoyance over the regulatory duty on Chinese products, saying this initiative is tantamount to violating the FTA. It has requested Pakistan to erase the duty, as revealed in the minutes of sixth meeting of second phase of FTA talks held in Beijing.

Pakistan, however, clarified in the said meeting that the regulatory duty had been imposed on MFN basis, arguing that the comparative advantage still existed for Chinese imports vis-à-vis others.

The Pakistan authorities involved in the talks tried to satisfy Chinese counterparts, saying the regulatory duty was no more in respect of HS 85,171,210 covering the 80 per cent of total import value from China during the fiscal year 2014-15 for 255 tariff lines taken up by the Chinese side.

They also argued that the regulatory duty imposed was not a violation of Article-9 of the FTA and agreed to provide further legal information regarding to address Chinese concerns.

However, both sides are satisfied by the progress made by the Customs departments to the two countries on establishing Electronic Data Exchange System and vowed to make the system operational on July 1.

The minutes also reveal that Pakistan and China have also developed the differences on the tariff reduction modality. Based on the thorough data analysis and extensive consultations with stakeholders, the exclusion percentage of the Pakistani products has to be 20 per cent of the total tariff lines.

  However, China refused to subscribe to the version and insisted that the exclusion percentage of tariff lines should be no more than 10 per cent as per the consensus reached by the two sides in the Phase-I of FTA.