ISLAMABAD, July 24: Pakistan and Sri Lanka finalized on Wednesday a three-year plan to phase out existing duties that would finally culminate into a completely free bilateral trade regime by 2005.

Authentic sources told Dawn that under the phase-out plan, 34 per cent of prevailing duties on the import of each others products would stand eliminated during the current year.

The remaining duties would be done away with at the rate of 33 per cent each during next year and the year after. In this way the free trade agreement (FTA) between the two countries would be fully in place by 2005.

This was agreed to during trade talks between Commerce Minister Abdul Razak Dawood and his Sri Lankan counterpart Ravi Karunahayaki. The two sides are expected to finalize the draft FTA on Thursday for formal signing when President Pervez Musharraf visits Colombo next week.

While Sri Lanka agreed to immediately allow duty free import of Pakistani motorcycles and tractors, Pakistan would enhance tea import quota from 8,000 tons to 16,000 tons at zero duty.

The two sides also agreed to cover services sector under the free trade agreement. While the question of arbitration on bilateral disputes would be dealt with on Thursday, and they would most probably agree on international chamber of commerce. Sri Lanka would put in place three laws relating to anti-dumping, countervailing and safeguards soon after signing of the FTA.

Talking to newsmen after the talks Commerce Minister Abdul Razak Dawood expressed optimism that the agreement would be signed during the visit of the President to Sri Lanka.

He said that two sides were getting closer and real issues came up for discussion during the meeting and were quickly sorted out because of an extremely friendly atmosphere.

He said that technical teams of the two countries were still in session and would finalize detailed tariff structure on Thursday. He said it was the positive attitude and the desire of the two countries to get closer in economic cooperation than that of the past.

The visiting minister Ravi Karunahayaki said that the two sides gave necessary explanations to each other on FTA, which was really beneficial for the two countries. He said that the two sides have covered 99 per cent of the agreement.

He said that he also called on President Pervez Musharraf and discussed with him regional as well as international matters. He agreed that the incumbent Sri Lankan government had inherited a free trade agreement with India that did not have benefits for his country but at the time of its ratification the situation has been changed.

He, however, expressed optimism that the FTA between Pakistan and his country was going to be a win-win situation for the two sides.