ISLAMABAD: Pakistan and China on Thursday agreed to re-negotiate tariff reduction on tradable goods under the free trade agreement (FTA).

During the third meeting of the second phase of FTA negotiations held in Islamabad from Jan 6 to 8, both countries also agreed to soften up requirements to set up bank branches on reciprocal basis.

Additional Secretary Ministry of Commerce Robina Ather and Deputy Director General of Ministry of Commerce, China, Yao Wenliang led their respective sides.

Pakistan’s bilateral trade deficit with China has ballooned by over 60 per cent despite a free-trade deal struck in 2006 amid assurances that it would help Pakistan boost exports to China.

China posted a massive $3.974 billion trade surplus with Pakistan in 2012-13, an increase of around $1bn from $2.955bn in 2006-07. According to commerce ministry’s data, bilateral trade had doubled to $9.28bn in 2012-13 from $4.10bn in 2006-07, but was highly in Beijing’s favour.

The FTA was implemented from July 1, 2007. The investment part of the agreement was effective from Oct 15, 2008 and services agreement from Oct 10, 2009, respectively.

As per the agreed minutes, both sides have now reached an understanding that the tariff reduction modalities (TRMs) of the second phase of the FTA will be independent of the first phase TRMs.

Both sides offered their respective TRM schedule and it was agreed that offers will be discussed further in the next meeting of the FTA negotiations to be held in Beijing at the end of March.

Pakistan and China also agreed to try their best to narrow down their gap between both TRMs, and to further analyse these offers including the trigger mechanism for special safeguard measures and give their recommendations by mid-February. The negotiations made a great headway in the banking sector as well.

As per the understanding reached between the two countries, asset requirement for establishing a branch would be reduced to $15bn from $20bn, for all Pakistani banks, at the end of the year prior to the submission of the application.

Pakistani banks would be allowed to business in the Chinese currency, yuan (or renminbi), after one year of their business in China.

The limit was previously three years. The requirement for having been profitable for two consecutive years prior to the application is also removed.

Presently, the inward remittance/LC is routed through foreign banks. However, the financial transactions would be routed through the Pakistani banks once they are opened in China. It is expected that a substantial amount of money would move through Pakistani banks which would help boost country’s reserves and GDP.

Beijing’s investments for the Pakistan-China Economic Corridor will also be channelised through these banks.

Both countries also agreed to address issued related to sanitary phytosanitary (SPS) or technical barriers to trade (TBT). In this regard, the names of focal persons and relevant departments would be exchanged by end-January and meeting of an SPS and TBT committee may be held before next FTA meeting.

Chinese side also agreed to consider Pakistani exporters’ concerns regarding the inspection and quarantine process of rapeseed meal and canola seed.

It was noticed that the trade figures quoted by both sides differed greatly. Both sides agreed that a study may be conducted to find out the reasons for this discrepancy and the outcome of the study would be shared by the end of this month.

In evaluating the first phase of FTA, both sides raised concerns regarding insufficient utilisation of concessions, influence to local industry as a result of concessions and misuse of certificate of origin which could be addressed in the second phase.

Published in Dawn, January 9th, 2015

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