ISLAMABAD, Nov 7: Pakistan will sign its first ever comprehensive Free Trade Agreement (FTA) with Malaysia on Thursday which covers trade in goods, services and investment etc., on preferential basis.

The treaty will come into operation from January 1, 2008 with a first phase of reduction in customs duties on both sides’ tradable goods, which will be finally reduced to zero per cent on the specified tariff lines by the year 2012.

A two-member official delegation headed by Joint Secretary Shahid Bashir has left for Kula Lumpur to attend the signing ceremony. As no minister was available, Pakistan’s Ambassador to Malaysia has been empowered to sign the agreement on behalf of Pakistan.

Under the treaty the schedule of concessions has been divided into four tracks. Faster Tracks (FT) suggesting elimination of tariff in two reductions by January 1, 2009 and Normal Tracks (NT) on products in this track would be eliminated by January 2012.

Sensitive Tracks (ST) has been further divided into three sub-tracks where tariff will be reduced to 5 per cent by 2011. In case of Pakistan, however, for certain products, attracting applied MFN tariff of 15 per cent tariff would be reduced to 5 per cent in 2014; where tariff would be reduced to 10 per cent by 2014; where tariff will be reduced to 20 per cent by 2009 or 2011.

Talking to Dawn Secretary Commerce Syed Asif Shah said that in totality Malaysia would scale down tariff to zero per cent on Pakistan’s 78 per cent tariff lines including textile products except garments by the year 2012. While Pakistan would reciprocate the same on 36 per cent tariff lines including palm oil.

He said Pakistan offered to reduce tariff on palm oil by 10 per cent on a margin of preference on January 1, 2008 and further 5 per cent on January 1, 2010. He said that this reduction would result into revenue loss but it would be compensated through increase in palm oil prices.

The withholding tax and sales tax will also rise with increase in the oil price to make up the loss of revenue to the tune of Rs600 million in the first year of reduction in customs duty on palm oil, he added.

He said that the investment chapter was based on the investment treaty of 1995. He said that it would help in facilitating investment in the two countries.

The agreement carries a list of products on which tariff will not be reduce. There is also an exclusive list of products, which would be kept outside the domain of the agreement. These products are mostly related to national security requirements, protection of human health or safety, animal or plant health, environment and for religious reasons.

The criterion to confer origin is that either the goods are wholly produced; or the value-addition is not less than 40 per cent of its contents, or that the goods produced undergo a change of tariff heading on 4-digit HS. Besides, product-specific Rules of Origin were also agreed between the two sides.

Under the FTA, Pakistan has offered market access on services to Malaysia with equity of 60 per cent in mode 3 (commercial presence). In the financial services, the equity limit would be 49 per cent. Compared with our multilateral commitments of Uruguay Round, Pakistan’s offer to Malaysia is WTO plus.

Malaysia in its schedule of commitment for ‘services’ has offered a WTO plus package by opening more sectors and sub-sectors and increasing equity limits for investment in the field of services. The most important concession secured from Malaysia is in the field of, banking, Islamic Banking, insurance and Takaful.

Under the treaty, Malaysia has also allowed 100 per cent equity to Pakistan in these sub-sectors. Malaysia also offers market access for move of natural persons — technical and non-technical labour. There is also a dispute resolution mechanism in the treaty.