Concession by China to help Pakistan get $542m annually

ISLAMABAD: Pakistan has proposed Tariff Reduction Modality (TRM) on 80 percent tariff lines on the date of entry into force of the 2nd phase of China Pakistan Free Trade Agreement (CPFTA) if both sides remain able to strike consensus on finalising the much-awaited agreement, it is learnt.

Islamabad also proposed no reduction on 20 percent tariff lines since the date of entry into force of 2nd phase of CPFTA.

“If Pakistan is granted concession equivalent to Asean in top 20 products of its priority list, Pakistan’s exports to China would be jumped up by $257 million,” official estimates calculated by Pakistani side and available with The News reveals on Tuesday.

Keeping in view second scenario, it is estimated that if Pakistan is granted complete liberalization by China, Islamabad’s exports to China could go up by $542 million on annual basis.

Pakistan and China are scheduled to hold a two-day round of parleys at Beijing from today (Wednesday) for making fresh efforts to finalise revised CPFTA.

“Pakistan has proposed elimination of products’ tariff on 40 percent tariff lines immediately to zero (including MFN zero tariff) on the date of entry into force of the 2nd phase of CPFTA,” a top official confided to The News on Tuesday.

Under the second category, Pakistan has asked for 10 percent tariff lines on elimination of products’ tariff to zero within 5 years since the date of entry into force of the 2nd Phase of CPFTA. In third category, Islamabad has proposed elimination of products’ tariff on 30 percent tariff lines to zero within 5 years starting from 11th Year of entry into force of the 2nd Phase of CPFTA. Islamabad proposed no reduction on 20 percent tariff lines since the date of entry into force of the 2nd phase of CPFTA.

However, China proposed elimination of products tariff on 70 percent lines to zero, elimination of products’ tariff on 10 percent lines to zero within 5 years, elimination of products’ on 10 percent tariff lines to zero within 10 years and no reduction on last and fourth category of 10 percent tariff lines since the date entry into force of the 2nd phase of CPFTA.

The possible cost for Pakistan will be reduction in Regulatory Duty (RD) collection to the tune of around Rs300 million, reset the base year at applied MFN rate in 2017 which is lower than MFN rates in 2006-7, yarn is in category II where FTA rate and MFN rate are both at 5%. If category II is liberalized, 46 tariff lines of yarn will lose protection.

As consequence of CPFTA, Pakistan will increase output in extraction, textiles and processed food while there will be a negative impact on light manufacturing, leather and meat. Rural non-farm workers will see the largest decline in wages.

In the first phase of CPFTA, out of 4492 tariff lines awarded by China to Pakistan under CPFTA, Pakistan has $5 billion exports in only 399 tariff lines.

If we compare the two offers based on minimum tariff awarded to competitors, Pakistan’s offer will be more liberal as 84 percent of itsglobal exports are under concession in China and 43% percent of global exports are at zero duty.

Pakistan’s exports of bed linen, denim, leather & leather apparel, frozen prawns, marble, surgical instruments and football are at 100 % concession in China. However, deeper concessions are to be gained in exports as rice, cotton yarn, garments, leather and pine nuts.