The China-Pakistan Free Trade Agreement (FTA), signed last year, came into effect on July 1, 2007, with Islamabad announcing the first phase of a cut on 4,700 tariffs.

The FTA allows the free movement of goods and investment between the two countries in a bid to increase bilateral trade to US$ 15 billion by 2011. The “services” chapter of the agreement will be concluded by the end of this year. The FTA is Pakistan’s first comprehensive treaty with any country.

Under the treaty, both sides will scale down customs duties to 0% on 5,104 products in three years, and 0-5% on 3,942 items within five years.

Pakistan will get market access at zero duty on industrial alcohol, cotton fabrics, bed linen and other home textiles, marble and tiles, leather articles, sports goods, mangoes, citrus fruit and other fruits and vegetables, iron and steel products, and engineering goods.

China will also reduce its tariff by 50% on fish and dairy items, frozen orange juice, plastic, leather and rubber products, knitwear, woven garments, etc.

Pakistan will give market access to China mainly for machinery, organic and inorganic chemicals, fruits and vegetables, medicaments, and raw materials for various industries including the engineering sector.
 
While the free trade agreement should benefit both countries, local Pakistani manufacturers are wary of China’s cheap products that have already made inroads into the Pakistani market.

Pakistan’s bicycle industry, for example, has been badly hit by the import of lower-priced Chinese bikes. A few years ago, Pakistan was exporting its bicycles to Africa, Afghanistan and Iran, but today many manufacturers have shut shop or become bulk importers of Chinese two-wheelers.

The two countries have also opened up new transport links. The number of road links has risen to eight, after an agreement signed between Islamabad and Beijing last year. China and Pakistan also opened four new passenger and cargo road links, and there are plans to extend and expand the existing Karakoram highway that links Islamabad to Kasghar, via the Khunjrab Pass.

July 5, 2007