Pakistan faces quandary in trade with China

Pakistan is reportedly in an "if and but" position for the second round of talks on Free Trade Agreement (FTA) with all weather friend China as both Federal Board of Revenue (FBR) and majority of local industry are not supporting enhancement of the trade pact, well informed sources told Business Recorder. Both countries' trade teams are scheduled to meet on 6-7 December 2016 in Islamabad to review performance of existing FTA which is massively in favour of China.
According to sources, the government has not yet decided how to move forward as neither the FBR nor the local industry hit by influx of Chinese commodities is encouraging the negotiators. "What strategy Pakistan should adopt in talks with China next week will be finalised by the end of the current week in an inter-ministerial meeting to tailor future strategy," said an official on condition of anonymity.
There is an impression in the government circles that if Pakistan does not move forward towards the second phase, it would be difficult for Pakistan to remain in Chinese market as China has already diluted most of the concessions given to Pakistan by executing FTAs with other countries.
"If we don't expand FTA then we will be deprived of Chinese market, which is a big market for Pakistani products," the sources added. FBR's position, sources said, is entirely different from Commerce Ministry's and other stakeholders'. FBR maintains that revenue has massively been hit due to FTA which is being covered through imposition of Regulatory Duty (RD).
Trade figures quoted by the two sides differ greatly. As per Pakistan, current total volume of the trade was around $10.1 billion, whereas Chinese side quoted $12 billion. Both sides had agreed that a study may be conducted to find out the reasons for the discrepancy. Pakistan's exports to China have declined to $2.1 billion from 2.34 billion. Pakistan was also facing a revenue loss of Rs 22 billion per annum due to an imbalance in the first phase of the FTA with China signed in 2006. Both countries are negotiating second phase of the FTA but no agreement has been reached so far as China is said to have backed out of its earlier commitment of concessions.
Both countries have already discussed the system testing issues relating to codes of Chinese characters and corresponding units of measurement between China and Pakistan. China agreed to try using CCSID 1208 at the application level suggested by Pakistan to solve the problem. China will provide a co-relationship list of units of measurement to Pakistan. Both sides have also agreed to establish the origin certificate verification and feedback sub-system in respect of information exchange under EODES as Pakistan had expressed concerns about the verification feedback timeframe. Both countries are in agreement that they will exchange units of measurement on the basis of HS Codes.