Study on China-Sri Lanka Free Trade Agreement

<strong>Study</strong> on China-Sri Lanka Free 

Trade Agreement 

Prepared 

By 

Institute of Policy Studies of Sri Lanka 

For 

The Ceylon Chamber of Commerce 

The National Chamber of Commerce of Sri Lanka 

The National Chamber of Exporters 

The Ceylon National Chamber of Industries 

The International Chamber of Commerce 

Page 1 of 88

Contents 

Page 

1. Executive Summary…………………………………………………………………………………..04 

2. Background to the <strong>Study</strong>……………………………………………………………………………07 

3. Sri Lanka’s Experience with Free Trade Agreements………………………………….10 

4. Salient Features of China’s Existing FTAs……………………………………………………24 

5. Sri Lanka’s Potential Exports to China under Proposed FTA……………………….72 

6. Conclusion………………………………………………………………………………………………….87 

Page 2 of 88

IPS Team of Researchers 

Janaka Wijayasiri, Research Fellow 

Dharshani Premaratne, Research Officer 

Suwendrani Jayaratne, Research Officer 

Nipuni Perera, Research Assistant 

Page 3 of 88

Executive Summary 

Sri Lanka has shown interests in exploring a bilateral trade agreement with China. Both countries 

now have agreed that they would embark on a free trade agreement, which is hoped to open up the 

vast Chinese market to Sri Lanka’s producers, manufacturers and exporters. This would not only 

boost bilateral trade but help reduce Sri Lanka’s heavy reliance on traditional markets in Europe and 

USA. In this regard, it is imperative that the agreement covers a substantial number of tariff lines 

and trade as well as address non-tariff barriers that may hinder export expansion. Considering the 

reservations about adverse effects of a FTA with China, the agreement needs to be prepared 

carefully taking into account asymmetries between the two economies, with a rational negative list 

and a longer phase-out liberalisation schedule. In this context, it is necessary to draw on Sri Lanka’s 

experience from existing FTAs to identify key challenges relating to both tariff and non-tariff barriers 

to trade; highlight the key features of China's existing FTAs with countries/regions to get a sense of 

what a possible FTA with China would look like; and identify Sri Lanka’s existing and potential export 

products to China, which should form part of negotiated trade agreement with China. 

Sri Lanka’s Existing Trade Agreements and Lessons for the FTA with China 

Sri Lanka participates in two regional agreements, the South Asian Free Trade Agreement (SAFTA) 

and the Asia-Pacific Trade Agreement (APTA), and two bilateral agreements, the Indo-Sri Lanka Free 

Trade Agreement (ISFTA), and the Pakistan-Sri Lanka Free Trade Agreement (PSFTA). Some of the 

key lessons from Sri Lanka’s experience with these existing FTAs must be borne in mind when 

negotiating a trade agreement with China. 

• Special and Differential Treatment: Given the asymmetry of economic size, Sri Lanka 

received special and differential treatment under each of the existing Free Trade 

Agreements. For instance, Sri Lanka as a small economy was allowed a longer tariff phaseout 

period, a longer negative list, immediate duty free access for products at the start of the 

agreement, and more favourable rules of origin under SAFTA, ISFTA and PSFTA. 

• Rules of Origin: Rules of origin criteria, which are used to determine country of origin under 

a FTA, have varied among the FTAs in South Asia. SAFTA and ISFTA require a change of tariff 

classification at the 4-digit level, which has been difficult to meet given the substantial 

transformation required. Having the experience with ISFTA, PSFTA negotiations adopted less 

restrictive rules of origin criteria (a change of tariff heading at the HS 6-digit level). In 

negotiating a trade agreement, it is therefore important to relax and simplify the rules of 

origin so that they are easy for traders to understand and to comply with, while ensuring the 

necessary controls are in place to prevent fraud. 

• Negative List: This list contains sensitive products which are exempted from tariff 

concessions under the agreement. The negative list should be prepared in consultation with 

local stakeholders by weighing revenue considerations as well as implications for local 

industries and livelihoods which may be adversely affected by trade liberalisation. However, 

it is important to keep the negative lists to a minimum to ensure that a substantial 

proportion of tariff lines and products are covered under the agreement. 

• Non-tariff Measures: When tariffs are brought down through negotiations, non-tariff 

measures (NTMs) can reduce the use of the agreements if they are not effectively dealt 

with. NTMs should be identified at the onset and addressed along with tariff 

reductions/eliminations. In this regard, there should be binding commitments. 

Page 4 of 88

• Tariff-rate Quotas: Although tariff schedules have been liberalized to a certain extent under 

ILFTA and PSFTA, Sri Lanka’s trade expansion with India and Pakistan has been impeded by 

tariff-rate quotas agreed under the Agreements. 

• Mutual Recognition of Standards: Lack of a Mutual Recognition Agreement (MRA) for 

standards between Sri Lanka and its FTA partners has resulted in various additional 

checks/certifications on the goods at the point of import, even though they have been 

previously tested and certified by the relevant authorities in Sri Lanka. 

• Awareness: Lack of knowledge and awareness among traders of the concessions offered by 

the FTAs has been a key impediment to garnering maximum benefits of existing FTAs. 

• Visas: Traders have highlighted the need to facilitate the visa processes between two 

countries if trade relationships between them are to be enhanced. 

• Institutional Support: The absence of a fixed body to address problems arising when trading 

under the agreement is an impediment to using the FTAs. When problems arise regarding a 

shipment there needs to be a formal body of authority to take up complaints and address 

them quickly. 

• Consultation: Experience with the ISFTA, and attempts to extend the agreement into a 

Comprehensive Economic Partnership Agreement (CEPA), highlights the need for greater 

private-public dialogue in Sri Lanka on trade agreements, on an on-going and regular basis. 

China’s Approach to FTAs with Other Countries 

China has been actively pursuing FTAs with various countries over the past two decades. China has 

concluded FTAs, or entered into negotiations, with almost every major region in the world. By June 

2014, China had become a party to 11 bilateral trade agreements and one regional trade agreement 

- ASEAN , Hong Kong , Macao , Chile , Pakistan , New Zealand , Singapore , Peru , Costa Rica , Taiwan , 

Switzerland and Iceland . 

• Gradual Approach to Trade Liberalization: China has adopted a gradual approach in 

negotiating with trading partners – first, striking an agreement in trade in goods, then 

services and investment, followed by a comprehensive FTA package. China’s FTAs with 

ASEAN, Chile, and Pakistan followed such an approach. In contrast, agreements with New 

Zealand, Singapore, and Peru were more comprehensive in scope at the time of signing. 

• Coverage of tariffs and goods: For most of China’s FTAs partners, the agreements have 

eliminated tariffs and allowed preferential market access to China, to a great extent. For 

example, in its agreements with Chile, Peru and New Zealand, China committed to eliminate 

duties on 94.6% to 97.2% of the tariff lines, which corresponded to 88 - 99.1% of its bilateral 

imports from these trading partners. The only exception to this is the China-Pakistan FTA. 

• China’s Negative Lists: China’s FTAs take into account the sensitiveness of both countries 

and contain Negative Lists, which exclude a number of products from tariff liberalisation. A 

number of vegetable products, animal and vegetable fats and oils, prepared food, chemicals, 

wood products, pulp and paper, and textile categories are protected by China. In almost all 

of the agreements, China has placed pulp and paper in its negative list. Nevertheless, almost 

all of the agreements cover a substantial number of tariff lines and trade. 

• Rules of Origin: They tend to vary from agreement to agreement. Sometimes they are across 

product groups, which add to the complexity of China's import regime. Rules of origin 

criteria for China’s FTAs with ASEAN, Chile, Pakistan, and Singapore are Local Value Addition 

(40% of total content) and Regional Value Content (60% of the value of the product). The 

criteria for Peru, New Zealand and Costa-Rica are Change of Tariff Classification (HS 2-4 digit 

level) and Regional Value Content (40-60% of the value of the product). 

Page 5 of 88

• Services Liberalisation: While the Agreements on Trade in Goods have taken a Negative List 

approach, China’s Trade in Services Agreements have taken a Positive List approach. In 

China’s FTAs with ASEAN, Chile, and Pakistan, the Agreement on Services is a separate 

document and follows the Agreement on Goods, while in the case of other partner countries 

(New Zealand, Peru, Singapore, Costa Rica), the FTA agreement were more comprehensive 

in coverage and included not only trade in goods but also services. 

• Cooperation Beyond Tariffs: Due to their focus on liberalizing markets and facilitating trade, 

agreements between China and other developing countries aimed at reducing tariffs and 

non-tariff barriers to trade. Moreover, China was reluctant to include issues such as 

environment protection, competition policy, and labour standards as part of the FTA 

package. However, China has shown some willingness to broaden its focus and include these 

issues over time. Nonetheless, China has taken a cautionary approach and chosen not to 

include them in the main agreement of the FTA but as stand-alone agreements or MOUs. 

Sri Lanka’s Potential Exports to China under Proposed FTA 

• Sri Lanka has a comparative advantage vis-à-vis the world in 566 products (at HS 6-digit 

level), out of which China does not import 24 products from the world. 

• Of the 542 potential exports to China, Sri Lanka already exports 243 products. The other 299 

products with trade potential to China are currently not exported by Sri Lanka to China but 

are imported by China from rest of the world, presenting new market opportunities for Sri 

Lankan producers, manufacturers and exporters. Appendix 1 lists the 542 potential exports. 

Recommendations 

• When negotiating with China, Sri Lanka should be mindful of the issues it has encountered 

with its existing FTAs. Similar challenges need to be thought out and addressed in an 

agreement with China to ensure Sri Lanka can fully benefit from a FTA with China. 

• Given that China has adopted a flexible and less stringent approach in its FTAs, Sri Lanka 

should make use of this stance to reflect its trade interests. 

• With regard to trade liberalisation programme, it would be best to adopt a gradual 

approach; Sri Lanka should first sign an agreement on trade in goods before dealing with 

services, and other complex issues to build confidence amongst stakeholders in the country. 

• In seeking a trade deal in goods with China, Sri Lanka should obtain special and differential 

treatment given the asymmetries between the two countries (i.e., longer phase-out period.) 

• While bearing in mind the sensitivities of both countries, China’s FTAs have eliminated tariff 

and allowed preferential access to a great extent. Given that China’s negative list appears to 

be based on principle of reciprocity, Sri Lanka needs to decide on the length of its own list. 

• Trade negotiations with China should not only cover products in which Sri Lanka currently 

exports but also has a potential exports to China. 

• Tariff concessions awarded by China should be higher or at least equivalent to the tariff 

reductions granted to other countries by China under its various free trade agreements. 

• China’s rules of origin vary by agreement and products. Sri Lanka should negotiate in line 

with its existing preferential Rules of Origin and adopt rules which are simple and 

achievable. 

• Closer consultation between the government, and other stakeholders in the economy 

including the private sector, and civil society of the country. This can ease exporter-importer 

concerns, and help create broader public awareness of, and confidence in, the opportunities 

and benefits of the agreement. 

Page 6 of 88

1. Background to the study 

While historical and cultural relations between Sri Lanka and China date back many centuries, 

modern day economic and political ties were established with the signing of the historic Sino-Lanka 

Rubber-Rice Pact in 1952 and establishment of formal diplomatic relations in 1957. 1 Over the past 

55 years, very cordial relations have prevailed between the two countries and bilateral economic 

cooperation has developed. During the last few years relations have been elevated to a higher level, 2 

cemented by several visits of President Mahinda Rajapaksa to China. 3 Concurrently China has 

emerged as Sri Lanka’s largest aid donor replacing traditional donors 4 since 2009. 5 China has 

provided financial and technical assistance in the development of the Norochcholai Power Plant, the 

Hambantota Port, Mattala Airport, Colombo-Katunayaka Expressway to name a few important 

infrastructure development projects. 6 

In addition, trade between the two countries has improved. Total trade between the two countries 

has increased steadily over the years; almost doubling between 2005 and 2008. 7 Major exports from 

Sri Lanka to China include: raw coconut, apparel, tea, natural rubber, diamonds & other precious 

stones, titanium ores, rubber tyres, bicycles, etc. China together with Hong Kong together is Sri 

Lanka’s 13th largest market for exports. Sri Lanka’s major imports from China include electrical 

machinery & equipment, boilers & machinery, cotton, iron/steel, man-made fibres, 

knitted/crocheted fabrics, fertilizers, railway locomotives, inorganic chemicals. China has emerged to 

become Sri Lanka’s second largest source of imports after India. 8 

While Sri Lanka’s exports to China have grown over the last 5 years, imports from China have grown 

at a faster rate than exports, resulting in an expanding trade deficit. 9 In 2009, Sri Lanka had a trade 

deficit of US$ 1.499 bn with China. 10 This figure would be much greater if one takes into account Sri 

Lanka’s trade with Hong Kong. 11 In view of widening trade imbalance, the former Chinese Prime 

Minister Wen Jiabao assured Sri Lanka in 2011 that China would increase imports in addition to 

encouraging more Chinese tourists to Sri Lanka. 12 This has provided the impetus for the muchneeded 

bilateral FTA. The 2014 Budget Speech also mentions that Sri Lanka will explore bilateral 

1 Kelegama, S. (2009). China-Sri Lanka Economic Relations: An Overview. Sri Lanka-China Business Forum. 

Colombo & Liyanage, M. (2010, 10 16). Sri Lanka gains as China propsers. Daily News, 6. 

2 Andree, M. (2010, April 3). Formal China-Lanka trade pact needed. Retrieved from www.island.lk 

3 Liyanage, M. (2010, 10 16). Sri Lanka gains as China propsers. Daily News, 6. 

4 Ibid & Daily News. (2010, April 19). Sri Lanka-China relations to a new height: China emerges as Sri Lanka's 

top lender in 2009. 10. 

5 Daily News. (2010, April 19). Sri Lanka-China relations to a new height: China emerges as Sri Lanka's top 

lender in 2009. 10. 



Colombo. 

88 So, C., & Lam, A. (2013, September 16). China eyes Sri Lankan free-trade deal. South China Morning Post. 

Retrieved from www.scmp.com 


Colombo. 



Colombo. 

12 Daily FT. (2011, August 15). China PM assures to boost Sri Lanka's export, tourism. Retrieved from www.ft.lk. 

Page 7 of 88

trade agreements with China in addition to Japan in view of the high trade deficit Sri Lanka runs with 

these countries. 

Currently, Sri Lanka is a party to a number of trade agreements: Indo-Lanka Free Trade Agreement 

(ILFTA), Pakistan-Sri Lanka Free Trade Agreement (PSFTA), South Asia Free Trade Agreement (SAFTA) 

and Asia Pacific Trade Agreement (APTA). These four agreements account for 21 per cent of Sri 

Lanka’s total trade. 13 Under APTA, Sri Lanka receives tariff concessions 14 for over 1858 products 

exported to China. 15 These account for around 50 per cent of total exports to China from Sri Lanka 

(Kelegama, 2009). However, the utilization of these concessions remains low. 16 

Discussions on having a FTA with China was launched when President Mahinda Rajapakske visited 

Beijing in May 2012 during which both countries expressed an interest in upgrading political and 

economic relations. 17 Both countries now have agreed in principle that they would embark on a free 

trade agreement, which is hoped to open up the vast Chinese market to Sri Lanka’s producers and 

manufacturers 18 including the apparel and tea sectors. 19 This would not only boost bilateral trade 20 

but help to reduce Sri Lanka’s dependence on traditional markets in Europe and USA. 21 In this 

regard, it is imperative that the agreement covers a substantial number of tariff lines and trade to 

ensure its utility to exporters as well as address non-tariff barriers that might hinder export 

expansion. There are reservations amongst some sections of the business community about adverse 

effects of a FTA with China; general view is that Chinese imports are far more competitive and could 

have the potential to decimate local industries. 22 Thus the agreement needs to be prepared carefully 

taking into account asymmetrical relationship between the two economies, 23 with a rational 

negative list and a longer phase-out liberalisation schedule to protect local producers and 

manufacturers to allay fears of a China threat. 24 

In this context, it is necessary to undertake an in-depth study as well as for the government engage 

and consult various stakeholders in the country- traders, producers/manufacturers and consumers - 

13 Senewiratne, H. (2013, July 16). China to expedite FTA. Daily News. Retrieved from www.dailynews.lk 


15 Daily FT. (2012, September 27). Sri Lanka wakes up to massive APTA. 


Colombo. 

17 Ali, A. S. (2014, January 23). Feasibility study on Sri Lanka-China FTA due soon; deal signing slated before end 

of 2014. Retrieved from DailyFT: http://www.ft.lk/2014/01/23/feasibility-study-on-sri-lanka-china-fta-duesoon-deal-signing-slated-before-end-of-2014/ 

18 Channel News Asia. (2013, September 17). Sri Lanka, China "to agree free-trade deal soon". Retrieved from 

www.channelnewsasia.com 

19 Koelmeyer, C. (2013, September 22). Chinese FTA evokes mixed reactions. The Nation. Retrieved from 

www.bilaterals.org 

20 Ali, A. S. (2014, January 23). Feasibility study on Sri Lanka-China FTA due soon; deal signing slated before end 

of 2014. Retrieved from DailyFT: http://www.ft.lk/2014/01/23/feasibility-study-on-sri-lanka-china-fta-duesoon-deal-signing-slated-before-end-of-2014/ 



22 Deeptha. (2013, November 4). China, CHOGM and FTA. Daily FT. Retrieved from ww.ft.lk 



24 Deeptha. (2013, November 4). China, CHOGM and FTA. Daily FT. Retrieved from ww.ft.lk 

Page 8 of 88

efore the agreement is finalized, which was pinpointed by the Minister of Industry and Commerce 

of Sri Lanka. 25 For this reason this study: 

1) Examines Sri Lanka’s existing FTAs to identify key stumbling blocks relating to both tariff and 

non-tariff barriers to trade, which should be borne in mind when negotiating a trade 

agreement with China. 

2) Describes salient features of China's existing FTAs with countries/regions (ASEAN, Pakistan, 

Chile, New Zealand, Singapore, Peru, Costa Rica, Iceland, Switzerland). 

3) Identifies products with export potential to China-products of interest to Sri Lanka which 

should form part of trade negotiations with China. 

25 Nation, T. (2013, November 3). Sri Lanka-China FTA not a blindsided rush-Rishad. Retrieved from 

www.nation.lk 

Page 9 of 88

Sri Lanka’s Experience 

With 

Free Trade Agreements 

Page 10 of 88

2.1 Introduction 

While Sri Lanka has been actively engaged in all multilateral trade negotiations and has been 

undertaking trade reforms in keeping with the WTO’s GATT principles, Sri Lanka also has been 

involved in a number of regional trade liberalization initiatives. Sri Lanka participates in two regional 

agreements: the South Asian Free Trade Area (SAFTA) Agreement and the Asia-Pacific Trade 

Agreement (APTA), and two bilateral agreements: the Indo-Sri Lanka Free Trade Agreement (ISFTA), 

and the Pakistan-Sri Lanka Free Trade Agreement (PSFTA). 

To penetrate the South Asian markets Sri Lanka has been moving from regional to bilateral trade 

agreements due to the sluggish progress of SAFTA. Provisions made under the bilateral agreements 

are much more favourable than the provisions provided by SAFTA. Both the bilateral agreements 

have given Sri Lanka greater market access to India and Pakistan. Moreover, they are much more 

favourable than the provisions made under SAFTA. Nevertheless, the trade between Sri Lanka and 

India, and Sri Lanka and Pakistan still occur outside the FTAs due to the restrictions maintained by all 

three countries. Negative list, restrictive rules of origin criteria and NTMs are some of the measures 

that hamper Sri Lanka’s trade with India and Pakistan. Therefore, it is crucial to identify the extent to 

which trade in Sri Lanka is deterred by tariff schedules, rules of origin and NTMs. For this reason, the 

proceeding sections looks at the provisions made under SAFTA, ISFTA and PSFTA and the issues 

faced since the implementation of the respective FTAs. 

2.2 SAPTA/SAFTA 

Sri Lanka is a member of the South Asian Association for Regional Cooperation (SAARC). The seven 

members (Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka) signed the South 

Asia Preferential Trading Agreement (SAPTA) in 1993. The objective of the SAPTA was to promote 

and sustain mutual trade and economic cooperation among the member countries through the 

exchange of trade concessions. Four rounds of trade liberalisation were completed within SAPTA 

covering over 5000 tariff sub-headings 26 . Each round contributed to increased product coverage and 

deeper tariff concessions. However, due to the slow pace of trade liberalization under the SAPTA, 

South Asian Free Trade Area (SAFTA) was signed in 2004 and came into operation in 2006 

superseding SAPTA. SAFTA aimed at further enhancing regional economic integration through 

promotion of preferential trade. However, the pace of liberalization under SAFTA has also been slow 

due to the large size of sensitive lists, prevalence of non-tariff barriers (NTBs), exclusion of services 

and investments, high transaction costs and the political uncertainties between countries, especially 

between India and Pakistan. 27 Intra-regional trade in South Asia was as low as 5 per cent in 2006 at 

the time of SAFTA coming into effect. The much expected growth in intra-regional trade has not 

materialised to date despite the operationalization of the agreement. 28 With the emergence of 

India, the dynamics of regional integration in South Asia also appears to have changed. 29 With India 

26 WTO (2010), “Trade Policy Review – Sri Lanka”, available at 

http://www.wto.org/english/tratop_e/tpr_e/tp337_e.htm 

27 de Mel, D. (2007), “South Asia: Towards a Viable Free Trade Area”, Briefing Paper no. 5, South Asia Watch on 

Trade, Economics and Environment”, Kathmandu, Nepal, available at: 

[http://www.ips.lk/research/sa_t_free_trade/SA_towards_a_free_trade_270508.pdf] 

28 Ibid. 

29 Weerakoon, D. (2010), “SAFTA: Current Status and Prospects” in Promoting Economic Cooperation in South 

Asia: Beyond SAFTA ed. Sadiq Ahmed, Saman Kelegama & Ejaz Ghani, Sage Publications, New Delhi, India. 

Page 11 of 88

looking increasingly to strengthening economic relations with the Asian region through initiatives 

such as Association of Southeast Asian Nations (ASEAN+3), the smaller South Asian nations have 

shown signs of strengthening links with the Indian economy 30 . For this reason, economic integration 

in South Asia has gained momentum, and SAFTA is likely to become marginal in that process. 31 

Trade liberalization under SAFTA: 

SAFTA suffers from significant limitations. For example, it has adopted a cautionary approach to 

trade liberalization within the South Asian region. 32 Under the Agreement, tariffs are lowered to 0-5 

per cent over a 10-year period for least developed countries (LDCs) and seven-year period for non- 

LDCs. 33 In the case of Sri Lanka, tariff phase out period is 8-years under SAFTA. 34 The agreement is 

expected to be fully implemented by 2016. On the other hand, the phase-out periods for bilateral 

FTAs in the region are much shorter than in the case of SAFTA. For example Sri Lanka obtained dutyfree 

access to both Indian and Pakistani markets in three years of implementing the ISFTA and PSFTA 

respectively, except for the products that are included in the negative list. 

Non-Tariff Barriers: 

SAFTA has not been able to tackle the issues related to NTBs effectively. Even though SAFTA requires 

member countries to notify the Committee of Experts of NTBs and para-tariffs, the Committee can 

only make a recommendation on their removal and this recommendation is not a binding 

commitment. 35 As a result, a number of NTMs have been in place among SAFTA members even after 

implementing the SAFTA; for example India has maintained tariff rate quotas on 14 tariff lines at HS 

8-digit level, licences and import restrictions. Moreover, there have been several barriers to trade at 

border points in South Asia due to the lack of mutual recognition of standards among members, 

especially between India, Bangladesh, Bhutan, Nepal and Pakistan. 36 While Pakistan has been 

maintaining technical and safety regulations, Bangladesh has been applying a significant rate of paratariffs 

(industrial development surcharges, supplementary duties etc.). Sri Lanka too has been 

implementing bans on certain imports from South Asia, such as tea and spices, to protect the quality 

of Ceylon tea and spices. 

30 Ibid 

31 Ibid. 

32 Ibid. 







35 Ibid. 

36 Ibid. 

Page 12 of 88

Rules of Origin: 

The rules of origin criteria under SAFTA include a domestic value addition and a change in tariff 

classification. The agreement requires a domestic value addition of 40 per cent for India and 

Pakistan, 35 per cent for Sri Lanka, and 30 per cent for LDCs. 37 At the same time SAFTA requires a 

change of tariff classification at HS 4-digit level. 38 The agreement also allows derogating from the 

General Rule since some products have to undergo substantial transformations. Thus, the 

agreement allows the domestic value addition criteria to be met without changing the tariff 

classification at the 4-digit level and vice versa. 39 Apart from country-specific rules of origin criteria, 

there is cumulative rules of origin requirement, with a minimum aggregate regional content of 50 

per cent. 40 

37 Weerakoon, D. (2010), “SAFTA: Current Status and Prospects” in Promoting Economic Cooperation in South 

Asia: Beyond SAFTA ed. Sadiq Ahmed, Saman Kelegama & Ejaz Ghani, Sage Publications, New Delhi, India. 

38 Ibid. 

39 Ibid. 

40 Ibid. 

Page 13 of 88

2.3 India-Sri Lanka Free Trade Agreement 

The slow progress of SAPTA gave rise to bilateral trading arrangements between countries in South 

Asia. One of the significant bilateral FTAs to emerge in the region was the India-Sri Lanka FTA (ISFTA). 

ISFTA was signed on 28 th December, 1998 with an overall objective of facilitating and enhancing 

trade relations between the two countries in order to broaden economic integration and realize 

potential benefits thereof. 41 It was also an initiative undertaken to renew political confidence 

between Sri Lanka and India. Despite the delays in negotiations owning to domestic concerns, the 

agreement came into force on 1 st March, 2000 and has since continued to be implemented 

according to the schedules that were agreed upon. 42 

Sri Lanka’s trade with India has gradually changed in terms of value and composition after the 

implementation of the ISFTA. Immediately preceding the agreement, in the period 1995-2000, 

average annual exports from Sri Lanka to India were US$39 million (close to 1 per cent of Sri Lanka’s 

overall exports) while average imports from India were US$509 million (close to 10 per cent of Sri 

Lanka’s overall imports). 43 While India was an important source of imports even prior to the FTA, it 

was not a major export market, and in 2000 it ranked 14 th in terms of export destinations of Sri 

Lanka. 44 By 2005, however, Sri Lanka’s exports to India have increased by ten-fold, reaching US$566 

million, compared to 2000. 45 In 2008, India became the fifth largest destination for Sri Lanka’s 

exports, and by 2012 India had become the third largest export destination after the European 

Union (EU) and the United States (US). 46 

The number of products exported by Sri Lanka to India has also increased since the implementation 

of the ISFTA. While in 1999 Sri Lanka exported 505 products to India, by 2005 this had doubled to 

1,062, and by 2012 had further risen to 2,100. 47 In the early years of the FTA there appears to have 

been trade creation, with a number of new, value added products being exported from both 

countries. 48 In 1999, Sri Lanka’s main exports to India included pepper, waste and scrap steel, areca 

nuts, dried fruit, cloves, and waste paper. 49 By 2008, apart from the primary products exported to 

India, several value-added products such as insulated wires and cables, pneumatic tyres, ceramics, 

41 High Commission of India (2013), “Handbook on the India-Sri Lanka Free Trade Agreement”, High 

Commission of India, Colombo, Sri Lanka. 

42 Ibid. 

43 Kelegama, S. (2014), “The India-Sri Lanka Free Trade Agreement and the Proposed Comprehensive Economic 

Partnership Agreement: A Closer Look,” ADBI Working Paper Series, available at: 

[http://www.adbi.org/files/2014.02.06.wp458.india.sri.lanka.free.trade.agreement.pdf] 

44 Ibid. 

45 Ibid. 

46 Ibid. 

47 Kelegama, S & C. Karunaratne (2013), “Experiences of Sri Lanka in the Sri Lanka-India FTA and the Sri Lanka- 

Pakistan FTA,” Background Paper on Regional Value Chains, UNCTAD, available at: 

[http://unctad.org/en/PublicationsLibrary/ecidc2013misc1_bp10.pdf] 







Page 14 of 88

vegetable fats and oils, refined copper products, and furniture were among the top exports to 

India. 50 

However, since the implementation of the ILFTA some unfavourable trends in Sri Lanka’s exports to 

India during 2005–2007 can be observed. The high growth in exports to India was driven mainly by 

two products (copper and Vanaspati - vegetable oil), which accounted for a 49.66 per cent share in 

Sri Lanka’s exports to India. 51 If Vanaspati and copper are excluded from the trade figures, Sri 

Lanka’s exports to India would have increased only by five-fold compared to the ten-fold increase. . 52 

The rise in exports of these items was not due to any distinct comparative advantage on the part of 

Sri Lanka, but rather was due to a short-term tariff arbitrage by Indian manufacturers investing in Sri 

Lanka. Copper exports from Sri Lanka were also subject to much scrutiny from India, based on their 

low domestic value addition, with the Indians arguing that copper exports from Sri Lanka were 

under-invoiced and violated the ROO criteria. 53 Nevertheless exports to India have increased after 

the ILFTA, with over 70 per cent of Sri Lanka’s exports to India coming under the FTA during the 

post-2007 period. This figure increased to 83 per cent by 2011. 54 

Imports from India to Sri Lanka have also escalated at a rapid rate following the implementation of 

the ILFTA. Imports from India amounted to US$600 million in 2000 have increased in six-fold by 

2012, reaching US$3,640 million. 55 Furthermore, India has become Sri Lanka’s main source of 

imports since 1997. Nevertheless, the major cause for the increased imports has been the escalating 

cost of petroleum products in the global markets at the time. Since petroleum imports are in Sri 

Lanka’s negative list, the import of petroleum products from India has not been affected by the 

ILFTA. 56 In fact, the bulk of Indian imports to Sri Lanka (petroleum, vehicles, sugar, cotton, iron and 

steel, and pharmaceutical products) are not subject to reduced tariffs under the Agreement. 57 Over 

70 per cent of Sri Lanka’s imports from India have been from products that are either in the negative 

list or are exempt from MFN duty. 58 

Tariff Rate Quotas: 

To provide Sri Lanka with market access to a certain degree, India has allowed tariff rate quotas for 

major export products from Sri Lanka under the Agreement. Initially, quota utilization has been 

50 Ibid. 




52 Ibid. 

53 IPS (2008), “ International Economic Environment” in State of the Economy, Institute of Policy Studies of Sri 

Lanka, Colombo, Sri Lanka. 







56 Ibid. 


Pakistan FTA,” Background Paper on Regional Value Chains, UINCTAD, available at: 


58 Ibid. 

Page 15 of 88

minimal due to stringent ROO requirements and port restrictions in India. Nevertheless, tea, readymade 

garments, and textiles, which made up 50 per cent exports to India, have improved to a 

certain extent following of the relaxation of ROO and port restrictions in 2007 (Table 2.1). 

Table 2.1: ILFTA Tariff Rate Quotas 

Product Tariff Preference Quota Other Restrictions 

Tea 

Garments (Chapters 61 

& 62) 

Standard duty rate of 

7.5% 

15 million kg annually • Entry allowed only 

to the ports of 

Cochin and Kolkata. 

50% • 8 million pieces per year 

– 6 million of which need 

to have material sourced 

from India to receive 

preferences. 

• 3 million garment pieces 

now enjoy duty-free 

access to India 

• Port restrictions 

were relaxed in 

2007 

- 

Textile (Chapters 51-60 

25% - - 

and 63, except few 

items in Chapters 53-56) 

Source: Table 2, de Mel, Deshal, undated, India – Sri Lanka, Pakistan – Sri Lanka Bilateral Free Trade 

Agreements, Institute of Policy Studies of Sri Lanka. 

Ready-made garments were granted preferential market access of 50 per cent for 8 million pieces 

per year while textiles were granted a preferential margin of 25 per cent with no quantitative 

restrictions. 59 Out of the 8 million pieces, 3 million were required to have Indian fabrics as per the 

ROO. 60 In 2013, the Indian textile usage conditionality was completely removed. 61 

Tariff liberalization under ISFTA: 

India and Sri Lanka have liberalized their tariff schedules gradually since the implementation of the 

ISFTA over different time periods due to the economic asymmetry between the two countries. While 

India had a three-year tariff phase-out period (reduced 50%, 75% and 100% of tariffs by 2003), Sri 

Lanka liberalized its tariff schedule over an eight-year period (reduced 35%, 70% and 100% of tariffs 

by 2008). Under the Agreement, India has allowed duty-free access to 1351 tariff lines and has 

granted a preference margin of 50 per cent for the remaining 2,870 products initially. In turn, Sri 

Lanka has allowed duty-free access to only 319 tariff lines and has granted 50 per cent preference 




60 de Mel, Deshal, undated, “India – Sri Lanka, Pakistan – Sri Lanka Bilateral Free Trade Agreements”, Institute 

of Policy Studies of Sri Lanka. 




Page 16 of 88

margin to 889 products from India initially. Further, India has maintained a smaller negative list with 

429 tariff lines compared to Sri Lanka’s long negative list of 1,220 tariff lines. 

Non-tariff barriers: 

Many Sri Lankan exporters have faced difficulties in entering the Indian market due to the 

prevalence of non-tariff barriers (NTBs) such as state taxes, standard requirements, and 

administrative procedures, which are outside the scope of tariff reduction under the ILFTA. One 

example is state taxes charged by Tamil Nadu, where Sri Lankan exporters are taxed at 21 per cent 

while local products are taxed only at 10.5 per cent on sales. 62 Lack of mutual recognition of 

standards between the two countries is another obstacle exporters encounter, especially perishable 

goods exporters. 

Rules of origin: 

The ILFTA uses a combination of rules of origin requirement: domestic value addition and change in 

tariff classification. While the domestic value addition requirement is 35 per cent of FOB value of the 

product, the final product must adhere to a change in tariff classification to HS 4-digit level. Apart 

from the stringent ROO which are applicable to the tariff rate quota items (i.e, the tariff rate quota 

for garments require 3 out of 8 million pieces of material to be sourced from India), the more 

general case of requiring a change of tariff classification at the HS 4-digit level has been burdensome 

for certain Sri Lankan exports. 63 This rule has had a detrimental effect on Sri Lanka’s blended tea 

exports where a change in tariff classification at the 4-digit level is difficult to achieve even when 

blended with Indian tea. 64 

Unilateral imposition of quotas: 

To avoid disruptions that can cause to the domestic industries, both countries agreed upon 

unilateral quota impositions. Sri Lanka and India entered into negotiations in 2006 to apply a quota 

on Vanaspati exports due to the disruptions caused to the Indian domestic industry. 65 The two 

countries initially agreed to a quota of 250,000 metric tonnes per year and in 2006 India unilaterally 

reduced this quota to 100,000 metric tonnes and channelled all Vanaspati imports from Sri Lanka 

through national procurement agency. 66 After further negotiations the quota was reverted to 

250,000 metric tonnes. Similar issues were faced by exporters of bakery shortening, pepper, and 

copper. 67 These unilateral measures have undermined the confidence in the ILFTA. India has faced 

difficulty in removing these NTMs due to its federal state structure, which puts the pressure on the 

central government to accommodate the concerns of different state governments. 



[http://unctad.org/en/PublicationsLibrary/ecidc2013misc1_bp10.pdf]. 






65 Ibid. 

66 Ibid. 

67 Ibid. 

Page 17 of 88

Having an effective platform to discuss stakeholder issues: 

In the case of the Indo-Sri Lanka FTA, the governments’ efforts to develop it into a Comprehensive 

Economic Partnership Agreement (CEPA) were not successful due to some concerns expressed by 

local groups on the agreement. Broadly they were on, (i) the nature of CEPA itself and (ii) the need 

to address the drawbacks in the FTA first. 68 The critics failed to take into account the special and 

differential treatment accorded to Sri Lanka and the positive list approach where each country can 

choose to make an offer based on their comfort levels and developmental interests. Further, CEPA 

was negotiated with the objective of addressing shortcomings of the FTA which included port 

restrictions, NTBs, ROO and others. 69 Nevertheless, the experience with the Indo-Lanka CEPA 

highlights the need for greater private-public dialogue in Sri Lanka, on an on-going and regular basis. 

Consultations should not be reserved purely to the governments and the commerce and trade 

departments but rather with stakeholders at large. This can ease exporter-importer concerns, 

demonstrate that challenges in the agreements can be addressed in a participatory manner, and 

help create broader public awareness of, and confidence in, the opportunities and benefits of the 

agreements. 




69 Ibid 

Page 18 of 88

2.3 Pakistan-Sri Lanka Free Trade Agreement 

As Pakistan represents Sri Lanka’s second largest trading partner in the SAARC region, Sri Lanka was 

eager to sign a free trade agreement with the nation, particularly after the significant market access 

Sri Lanka received following the FTA signed with India. Accordingly, the Pakistan-Sri Lanka Free Trade 

Agreement (PSFTA) was signed in 2002 and came into implementation in 2005. The Sri Lankan 

experience with the PSFTA also suggests that there was a revival of Sri Lanka’s bilateral trade with 

Pakistan. 

Sri Lanka’s trade with Pakistan has accelerated during 2005-2010 since the PSFTA entered into force 

in 2005. However, trade between the two countries has occurred in areas outside the PSFTA as the 

products that were traded between the two countries have been in the negative lists. Although the 

exports from Sri Lanka to Pakistan have risen from US$ 56 million in 2003 to US$ 36 million in 2007, 

the share of exports has remained the same at 0.7 per cent out of Sri Lanka’s total export. 70 Imports 

from Pakistan to Sri Lanka have accelerated at a faster pace rising from US$ 71 million in 2003 (1 per 

cent of total imports), to US$ 178 million in 2007 (1.6 per cent of total imports). 71 

Imports from Pakistan gave grown significantly since the FTA came into place. The major import item 

from Pakistan is textiles and fabrics, which accounted for 55 per cent of Sri Lanka’s imports from 

Pakistan in 2007. 72 Other items include medicaments, potatoes, rice and dried fish. 73 While textile 

and apparel articles, and medicaments receive MFN duty-free treatment, rice and dried fish fall 

under the negative list and potatoes are imported under a tariff rate quota (TRQ) with the state 

retail firm Co-Operative Wholesale Establishment (CWE) being allocated the quota. 74 

Tariff Liberalization Programme: 

Both Sri Lanka and Pakistan have gradually liberalized their tariff schedules since the PSFTA entered 

into force. Initially Pakistan and Sri Lanka have offered only 206 and 102 tariff lines respectively for 

immediate zero duty. 75 Yet, Pakistan liberalized the remaining products over a three-year period, 

which ended in June 2008, effectively giving Sri Lanka duty free market access to more than 4,500 

products. 76 Sri Lanka has also liberalized its remaining products, excluding those on the negative list, 

over a five-year period that ended in November 2010. 

Negative Lists: 



[http://unctad.org/en/PublicationsLibrary/ecidc2013misc1_bp10.pdf]\ 

71 Ibid. 



73 Ibid. 



75 Abeyratne, S. (2012), “Sri Lanka’s Free Trade Agreements with India and Pakistan: Are They Leading Bilateral 

Trade Beyond Normalcy?”, The Lahore Journal of Economics, Vol. 17, pp. 315-337, available at: 

[http://121.52.153.179/JOURNAL/LJE_Vol_17- 

SE_PDF/13%20Sirimal%20Abeyratne%20ED%20AAC%2001102012.pdf] 

76 Ibid. 

Page 19 of 88

As a result of the PSFTA Sri Lanka has diversified its export basket to Pakistan over time. Pakistan’s 

negative list, which consists of 540 tariff lines, contained many of Sri Lanka’s main exports to 

Pakistan including tea, rubber products, certain ceramics, paper products and several textile and 

garment products. 77 For this reason, a range of new Sri Lankan products have penetrated Pakistan’s 

market: fresh pineapple, sports goods, tamarind with seeds, edible oil, porcelain tableware and 

kitchenware, ceramic tiles, furniture, electrical switches and sockets, herbal cosmetic products, 

plastic articles, paints, glass paintings, leather products, frozen fish, prawns, lobsters, crabs, cut 

flowers and foliage, gems and Jewellery and aquarium fish. 78 Sri Lanka’s negative list also consists of 

697 products with mostly agriculture sector, rubber, products, paper products, footwear, ceramic 

products, many motor vehicles and part, along with several metal products. 79 

Non-tariff barriers: 

Although both the countries maintain a negative list, to provide market access to each other to a 

certain degree, Pakistan and Sri Lanka have allowed tariff rate quotas for major export products 

from both countries (Table 2.2). Tea, apparel, betel and cosmetics were subjected to tariff rate 

quotas for exports from Sri Lanka. Sri Lanka’s exports of these products to Pakistan have further 

improved following a degree of revisions made for tariff rate quotas and margin of preferences in 

2007. 

Table 2.2: PSFTA Tariff Rate Quotas 

Product Pakistan’s No. Sri Lanka’s No. Tariff Rate Quota 

of Tariff Lines of Tariff Lines 

Tea 4 - 10,000 MT 

Apparel 21 - 35% Margin of Preference 

Basmati - 1 Duty Free for 6,000 MT 

Potatoes - 1 Duty Free for 1,200 MT 

Betel 1 20% Margin of Preference 

Cosmetics 11 50% Margin of Preference 

Source, Table 4, de Mel, D., undated, India – Sri Lanka, Pakistan – Sri Lanka Bilateral Free Trade 

Agreements, Institute of Policy Studies of Sri Lanka. 

Rules of origin: 

Stringent rules of origin criteria were one of the setbacks of ISFTA, which was considered while 

negotiating the PSFTA. Having the experience with ISFTA, PSFTA negotiations adopted a less 

restricted rules of origin criteria. The major difference between the rules of origin of the ILFTA and 

PSFTA is the change of tariff classification criteria: the PSFTA adopts a change of tariff heading at HS 

6-digit level, which is more favourable to Sri Lanka, particularly for blended tea. 

2.4 Conclusion 



78 Ibid. 

79 Ibid. 

Page 20 of 88

Sri Lanka has been involved in both regional and bilateral trading arrangements with South Asia. The 

first was South Asia Preferential Trading Arrangement (1995) followed by Indo-Sri Lanka Free Trade 

Agreement (2000), Pakistan-Sri Lanka Free Trade Agreement (2005) and South Asia Free Trade 

Agreement (2006). Sri Lanka has been benefiting more from the ISFTA and PSFTA in the absence of a 

progressive regional trading arrangement. The significance of SAFTA has been threatened by the 

emergence of ISFTA and PSFTA with their favourable provisions compared to SAFTA. Given the 

asymmetry of size of the economies Sri Lanka received special and differential treatment under each 

of the existing FTAs, for instance Sri Lanka was allowed a longer tariff phase-out period than Pakistan 

and India in SAFTA, ISFTA and PSFTA. Drawing from previous FTA experiences following is a summary 

of the above discussion and some of the areas that need attention in the China-Sri Lanka FTA 

negotiations. 

Negative List: 

The existing bilateral agreements (ILFTA and PSFTA) have outdone the regional agreement (SAFTA) 

in South Asia. The provisions made in both bilateral agreements are far more generous than the 

provisions made under SAFTA. While 42 per cent of Sri Lanka’s exports to India are restricted by the 

Indian Negative List in SAFTA, only 3.3 per cent of Sri Lanka’s exports to India fall under the Negative 

List in the ILFTA. 80 Also, 44 per cent of imports from India fall under the Negative List of Sri Lanka in 

the ILFTA, while 54 per cent of India’s imports to Sri Lanka fall under the Negative list in the SAFTA. 81 

Tariff-rate Quotas: 

Although tariff schedules have been liberalized to a certain extent, Sri Lanka’s trade expansion with 

India and Pakistan has been impeded by tariff-rate quotas, restrictive rules of origin criteria and 

other non-tariff barriers. India has maintained tariff-rate quotas for tea, garments and textile while 

Pakistan maintained tariff-rate quotas for tea, garments and betel. Hence bulk of the tea exports 

from Sri Lanka to India and Pakistan have been outside the FTAs. 


Rules of origin criteria have varied among the FTAs in South Asia. SAFTA and ISFTA require a change 

of tariff classification at 4-digit level. 82 This rule has had a detrimental effect on Sri Lanka’s blended 

tea exports where a change in tariff classification at the 4-digit level is difficult to achieve even when 

blended with Indian tea. On the other hand, PSFTA has a more favourable change in tariff 

classification requirement of HS 6-digit. 83 As a consequence, more value-added exports from Sri 

Lanka have received duty-free treatment to access the Pakistani market. Additionally, all three 

agreements have adopted the same domestic value addition criteria; 35 per cent of the FOB value of 

the product. 

MRAs: 



81 Ibid. 

82 Ibid. 

83 Ibid. 

Page 21 of 88

Lack of a Mutual Recognition Agreement (MRA) for standards between Sri Lanka and its FTA partners 

has resulted in various additional checks/ certifications on the goods at the importing country 

although they have been previously tested and certified by the relevant, approved authorities in Sri 

Lanka. Some of the issues faced by traders include intergovernmental non-acceptance of testing 

methods and standards; packaging, labeling and markings; and duplication of health and safety 

checks in India and Sri Lanka. This has resulted in delays and additional costs. MRA between the two 

countries, especially between key agencies such as Standards Institutes and Industrial Technology 

Institutes, can assist in reducing the necessity to carry out additional checks. If the two governments 

can agree on testing/certifying bodies in each country then extra money and time would not have to 

be spent on demands for additional certificates. 

COOs: 

There have also been instances where doubts have been raised by Indian officials on the validity of 

the COOs (sometimes in instances where the detailed cost sheets were produced) or the ISFTA 

certificate was refused citing that the signatures in the certificate are not that of the authorized 

persons. Furthermore, Indian customs /other bodies have also demanded for documents that have 

not been specified in the FTA. 

Awareness: 

Lack of knowledge/awareness among traders of the concessions offered by the FTAs has been a key 

impediment to garner benefits of FTAs. Although a majority of exporters/importers were aware of 

the FTA there are SMEs who lack awareness of specific information on the duty concessions offered 

and the processes attached to acquiring the preference (ROO, tariff rate quotas etc.). 

Institutional support: 

The absence of a fixed body to address problems arising when trading under the agreement is an 

impediment in using the FTAs. When problems arise regarding a shipment (i.e. documentation) 

there is no formal body of authority that takes up the complaints and addresses them quickly. Quick 

response is essential due to high costs of delays and if the cost benefit under the FTA is negated then 

the traders will not be encouraged to export/importer further. In the case of the ISFTA for example, 

Sri Lankan traders pointed out that when there are any mistakes in the import certificate that need 

to be rectified, it has to be done in India since the Indian High Commission in Colombo does not have 

the authority to rectify these corrections and this was identified to be a time consuming activity that 

needs to be changed. Furthermore, customs cooperation on HS code classification is also an 

important measure that needs attention as disagreement on HS classification is often a bottleneck 

for traders. 

Government facilitation (for companies/businesses) is also essential to overcome bureaucratic issues 

in countries with which Sri Lanka has bilateral and regional trading arrangements with, especially 

with regard to investing in the partner country. 

Page 22 of 88

Trade facilitation issues: 

Further, trading procedures need to be laid down to reduce ambiguity on the procedures which can 

lead to complexities and rent seeking. Moreover, although a majority of exporters/importers are 

generally aware of the process that needs to be followed to receive trade concessions, small and 

medium scale businesses require specific information on the concessions offered and the processes 

attached to acquiring the preferences. 

The distance to labs in some countries to carry out the necessary checks creates a substantial delay 

in some instances, with highly perishable goods suffering the most in these instances. In the case of 

India, the requirement to carry out checking/conformity of edible items at the Centre for Food 

Testing and Research Institute (CFTRI) in areas that are situated at a distance from the port in India is 

an impediment, i.e. imports into Chennai are sent to the CFTRI in Mysore (Mysore is about 470 km’s 

away from Chennai) and imports into Mumbai are sent to the CFTRI in Pune. It is also necessary to 

visit departments in different locations and this was seen to be a bottleneck by a few traders. 

Traders have highlighted the necessity of facilitating the visa processes between two countries if 

trade relationships between them are to be developed. Sri Lankan exporters to India for instance 

have stated that getting business visa to India is extremely difficult and have highlighted the need to 

promote businessmen visiting India and to obtain multiple entry visas. 

Page 23 of 88

Salient Features of China's 

Existing FTAs 

Page 24 of 88


China has emerged as a major player in the global economy and considers free trade agreements as 

an important part of its global trading strategy. 84 Immediately after joining the World Trade 

Organization (WTO) in December 2001, China not only reduced trade barriers as a member of the 

multilateral trading system but also adopted a bilateral/regional approach to trade liberalization. 85 

China did not enter into FTAs until then for several reasons: little or no interest in FTAs in the 1970s 

and 1980s; different trade structure of China; resource constraints; and strategic choice. 86 However 

in the mid- 1990s, the situation changed and China started to consider the possibility of entering into 

FTAs, as highlighted in the Ninth Five Year Plan, a blueprint for national economic and social 

development, which was adopted in 1996. 87 According to the Plan: China shall “actively participate 

and develop regional economic cooperation” as well as “strengthen South-South Cooperation, and 

promote and develop the economic and trade cooperation with developing countries.” At the same 

time the Plan calls for China to “actively participate and defend the global multilateral trading 

system, develop both bilateral and multilateral trade, so that they can promote each other and the 

market can be diversified”. Thus China considers regional trade agreements as a complement to the 

multilateral trading system 88 . 

In the words of China’s Ministry of Commerce, FTAs offer “as a new platform to further opening up 

to the outside and speeding up domestic reforms, an effective approach to integrate into global 

economy and strengthen economic cooperation with other economies, as well as particularly an 

important supplement to the multilateral trading system.” 89 Over the past two decades, China has 

been actively pursuing FTAs with various countries towards this end. The geographic distribution of 

China’s FTAs demonstrates a high degree of cross-regional orientation. China has concluded FTAs, or 

entered into negotiations, with almost every major region in the world, including Europe (Iceland, 

Norway, Switzerland), America (Chile, Peru and Costa Rica), Middle East (GCC), Africa (SACU), East 

Asia (Japan, Korea, Hong Kong, and Macau), Southeast Asia (ASEAN and Singapore), South Asia 

(Pakistan and India), and Oceania (New Zealand and Australia). 90 As of June 2014, China is a party to 

eleven bilateral trade agreements and a regional trade agreement. 91 

• China-ASEAN FTA 

• Mainland and Hong Kong Closer Economic and Partnership Arrangement 

• Mainland and Macau Closer Economic and Partnership Arrangement 

• China-Pakistan FTA 

• China-New Zealand FTA 

• China-Singapore FTA 

• China-Chile FTA 

• China-Peru FTA 

84 Zhan, Yunling (2011), People’s Republic of China, in Asia’s Free Trade Agreements: How is Business 

Responding? (ed.) M. Kawai & G. Wignaraja, Edward Elgar Publishing, pp.107-109 

85 Yunling, Z. and Minhui, S. (200?), FTAs in Asia-Pacific: A Chinese Perspective, Available at: 

http://www2.jiia.or.jp/en/pdf/publication/2013-06_005-kokusaimondai.pdf 

86 Gao, H. (2011), “China’s Strategy for Free Trade Agreements: Political Battle in the Name of Trade”, available 

at: [http://www.networkideas.org/networkideas/editorfiles/file/Henry_Gao.pdf] 

87 Ibid 

88 WTO (2012) Trade Policy Review: China, Secretariat Report. Available at: 

http://www.wto.org/english/tratop_e/tpr_e/tp364_e.htm 

89 Ministry of Commerce PRC, China FTA Network, Available at : http://fta.mofcom.gov.cn/english/index.shtml 

90 Ibid 

91 Ibid 

Page 25 of 88

• China-Costa Rica FTA 

• China-Switzerland FTA 

• China-Iceland FTA 

Further, China is in the process of negotiating eight more FTAs: 

• China-GCC (Gulf Cooperation Council) FTA 

• China-Australia FTA 

• China-Norway FTA 

• China-SACU (Southern African Customs Union) 

• China-Korea FTA 

• China-Japan-Korea FTA 

• China-India FTA 

• China-Sri Lanka FTA 

This section will explore the main features of China’s FTAs, focusing on the agreements that have 

been signed and in force at the moment: China-ASEAN FTA, China-Chile FTA, China-New Zealand 

FTA, China-Singapore FTA, China-Pakistan FTA, China-Peru FTA, China-Costa Rica FTA, China- 

Switzerland FTA and China-Iceland FTA. Given that negotiations on Sri Lanka-China FTA are likely to 

begin to in the near future, it is worth while looking at the main features of China’s existing FTAs to 

get an idea of what a possible a FTA with China would look like. The section finds that China has 

adopted a flexible strategy that addresses its own prerogatives as well that of partner 

countries. 92 The variety of forms the agreements demonstrates geographic and development 

diversity of the partner countries. 

92 Zhao, J. & Webster, T. (2011), Taking Stock: China’s First Decade of Free Trade, Available at: 

[https://www.google.lk/url?url=https://www.law.upenn.edu/live/files/140- 

zhaowebster33upajintll652011pdf&rct=j&frm=1&q=&esrc=s&sa=U&ei=5m- 

uU47bLIaIuASHsILgCw&ved=0CBIQFjAA&sig2=WpNHYdEB2u0MHICgkKrizg&usg=AFQjCNFel7ydWu0Q- 

XusQIcuH4_aV9bGfg] 

Page 26 of 88

3.2 China-ASEAN Free Trade Agreement 

China-ASEAN FTA is China’s first initiative, which was proposed by China and supported by ASEAN as 

a group in 2000. A Framework Agreement on Comprehensive Economic Cooperation between 

ASEAN and China was signed in 2002 providing the basis for ASEAN and China to negotiate enabling 

agreements that have led to the creation of the ASEAN-China Free Trade Area (ACFTA) on 1 January 

2010. In essence it was an agreement to agree. The Framework laid down the broad economic aims 

of the China-ASEAN relationship and acknowledges the special status of the LDCs of ASEAN – 

Vietnam, Laos, Cambodia and Myanmar) without imposing binding commitments . The Early Harvest 

Programme was signed in 2004, and this was followed by Agreement on Trade in Goods (2004), 

Agreement on Services (2007), Investment Agreement (2009) . The Agreement on Trade in Services 

aims to liberalize and substantially eliminate discriminatory measures with respect to trade in 

services among in various services sectors. The level of liberalization commitments under this 

Agreement would be considerably higher than the commitments made under the General 

Agreement on Trade in Services (GATS) in the WTO . The Agreement on Investment aims to create a 

favourable environment for the investors and their investments from ASEAN and China. Thus, 

China’s FTA with ASEAN can be best described as a series of agreements making progress 

incrementally rather than a ‘big bang type’ of agreement favoured by developed countries like the 

US, Japan . 

Liberalization of Tariffs and Trade: 

Under the Agreement on Trade in Goods, tariffs were reduced to zero per cent on nearly 8000 

products items or 90 per cent of goods traded between the original 6 ASEAN members (Brunei 

Darussalam, Indonesia, Malaysia, the Philippines, Singapore and Thailand) and China by 2010 . Other 

members of ASEAN (Cambodia, Laos, Myanmar and Vietnam) will follow suit; they have an 

additional five years to reduce their tariffs (2015). 

With the implementation of the ASEAN-China Free Trade Area in 2010, the average tariff rate on 

Chinese goods exported to the ASEAN bloc has fallen to just 0.6 per cent from 12.8 per cent while 

the tariff rate on ASEAN goods exported to China fell from 9.8 per cent to 0.1 per cent . With the 

implementation of the agreement, the ASEAN-China FTA became the largest free trade area in terms 

of population, and third largest in terms of nominal GDP after the European Union and NAFTA. 

Bilateral trade gas rapidly increased from US$40 billion in 2000 to US$362.9 billion in 2011, 

suggesting that both sides have gained from increasingly favourable market access. Bilateral trade is 

further expected to reach US$500 billion by 2015. 

While the Agreement includes provisions on general exceptions and security exceptions but does not 

include a specific list of excluded products. In addition, the agreement allows all parties to list 

sensitive products whose tariffs will be reduced by 2015 for ASEAN-6 and China and 2018 for LDC 

members of ASEAN. 

Page 27 of 88

Table 3.1: Features of the China-ASEAN Free Trade Agreement 

Parties 

Date of Signature 

Date of Entry into 

Force 

Full Implementation 

Transition for full 

implementation 

Members of ASEAN (Brunei, Myanmar, Cambodia, Indonesia, Laos, Malaysia, 

the Philippines, Singapore, Thailand and Viet Nam) and China 

29 November 2004 (Goods) 

14 January 2007 (Services) 

1 January 2005 (Good) 

1 July 2007 (Services) 

2015 for ASEAN 6 countries and 2018 for Cambodia, Myanmar, Laos, Viet 

Nam 

• Tariff reduction and elimination for tariff lines categorized in either the 

Normal Track or the Sensitive Track: 

• Parties committed to reduce and eliminate their tariffs for goods listed 

under the Normal Track 1 from 2005-2010 and Normal Track 2 (not 

exceeding 150 tariff lines) from 2010-2012 as part of flexibility provided. 

• Sensitive Track consists of the Sensitive List and the Highly Sensitive List. 

The timeframe for Sensitive List (400 tariff lines) requires tariffs to be 

reduced to 20% in 2012 and subsequently reduced to 0-5% in 2018. Those 

in the Highly Sensitive List (100 tariff lines), tariffs will be reduced to not 

more than 50% by 2015 for ASEAN-6 and China and 2018 for the newer 

ASEAN members. The list of China’s highly sensitive products include 

some agricultural products, wood products, paper products, etc. 

Negative List • There are no product exclusions. 

Rules of Origin (ROO) 

Requirements 

• Products must be wholly obtained or produced in ASEAN countries. 

• Local Value Addition - 40% of total content. 

• Regional Value Content (RVC) criterion or value of the non-originating 

parts or components used in the manufacture of the products must be no 

more than 60% of the FOB value of the product. 

• The country of origin is defined as the country where the last processing 

operation takes place. 

• 565 products traded between the parties are subject to Product Specific 

Rules, mainly textiles. 

• Goods must meet the direct transport rule. 

Other Provisions • Anti - Dumping: Article 7: As per WTO/GATT 

• Countervailing Duties: Article 7: As per WTO/GATT 

• Safeguards: Article 9: As per WTO/GATT, allows transitional SG for first 5 

years. Article 11: BOP, as per WTO/GATT 

• Standards : Article 7: SPS, TBT, as per WTO/GATT 

• Intellectual Property: Article 7: As per WTO 

• Dispute Settlement: Article 21: The Agreement on Dispute Settlement 

Mechanism 

• Institutional mechanism: Article 16 

• Trade regulations publication and administration (transparency): Article 

4: As per GATTS 

Relevant websites • http://www.mofcom.gov.cn/ 

• http://www.aseansec.org/ 

Sources: http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=8 

http://artnet.unescap.org/APTIAD/viewagreement.aspx?id=CHINA-ASEAN 


Page 28 of 88

Product specific rules pertaining to agriculture products require a change in HS Chapters 1 through 

22 and a change in HS heading for Chapters 17 through 19 while a minimum 50 per cent RVC of the 

FOB value of the product is required from the remaining products. The value of the non-originating 

parts or components used in the manufacture of the products must be no more than 60 per cent of 

the FOB value of the product. The country of origin is defined as the country where the last 

manufacturing operation takes place, or in accordance with product-specific rules. 565 products 

traded between the parties are subject to Product Specific Rules, mainly textiles. Requirements on 

direct consignment must be complied with. 

Other Provisions: 

In order to address the concerns of the domestic industries of both China and ASEAN countries 

regarding issues related to a possible acceleration in imports, the Agreement has included the 

conditions applicable to the use of bilateral safeguard measures. The Agreement specifies that a 

Party may impose a bilateral safeguard measure on a product benefiting from preferential tariff 

treatment under the Agreement if there is an increase in imports in absolute terms or relative to 

domestic production, which constitutes a substantial cause of serious injury or threat thereof to the 

domestic industry of the importing Party producing a like or directly competitive good. 93 Disciplines 

regarding the application of such measures include an investigation by the Party's competent 

authorities prior to its application. In addition to safeguard measures, anti-dumping, countervailing 

duties, SPS and TBT measures, intellectual property, dispute settlement, trade regulations 

publication and administration (transparency) and institutional mechanism are also covered in the 

Agreement. 

93 "Serious injury" is defined in Article 50 of the Agreement as "a significant overall impairment in the position 

of a domestic industry". 

Page 29 of 88

3.3 China-Chile Free Trade Agreement 

Chile is one of the first South American countries to establish trade and diplomatic relations with 

China. Since setting up diplomatic relations in 1970, bilateral economic relations between Chile and 

China have also grown considerably. 94 China-Chile Free Trade Agreement in goods was signed on 

18 th November 2005, which came into effect on 1 st October 2006. 95 It is the first such agreement 

that China signed with any Latin American country. 96 The agreement is expected to be fully 

implemented by 2015 by which time 97 per cent of the tariff lines will be reduced/eliminated. 97 

The FTA has expanded beyond trade in goods to include trade in service. In April 2008, China and 

Chile signed the Trade in Services Agreement, which came into force in August 2010. 98 While the 

agreement has used a positive list approach for negotiations, the two countries have opened their 

service sectors in all four modes 99 to each other’s markets on the basis of their commitments to the 

WTO. The two countries are also expected to further strengthen exchange and cooperation in such 

areas as SMEs, culture, education, science and technology, and environmental protection. 100 

Chile has reaped economic benefits of the FTA soon after its implementation with the expansion of 

bilateral trade. Chile’s exports to China which represented x per cent of Chile’s total exports at the 

time of signing of the agreement in 2005 increased to 15.5 per cent of Chile's total exports by 2007, 

overtaking the US accounted, which was Chile’s largest export market. In 2012, Chile’s exports to 

China reached US$18 bn compared to its exports to the US, which was US$9.4 bn. 101 China has been 

particularly interested in Chile’s copper industry, which is considered the world's largest copper 

mine. As a result, 80 per cent of the country's exported copper in 2012 was channelled to China, 

totalling US$14 bn. 102 

The Agreement is composed of 14 chapters: Chapter 1: Initial Provisions, Chapter 2: General 

Definitions, Chapter 3: National Treatment and Market Access for Goods, Chapter 4: Rules of Origin, 

Chapter 5: Procedures Related to Rules of Origin, Chapter 6: Trade Remedies, Chapter 7: Sanitary 

and Phytosanitary Measures, Chapter 8: Technical Barriers to Trade, Chapter 9: Transparency, 

Chapter 10: Dispute Settlement, Chapter 11: Administration, Chapter 12: Exceptions, Chapter 13: 

Cooperation and Chapter 14: Final Provisions. The Agreement has eight annexes which contain the 

following: elimination of import customs duties; list of geographical indications; product specific 

rules; certificate of origin; competent governmental authorities of Chile; model of certification and 

94 Barton, J. R. (2009), “The Impact of China’s Global Expansions on Chile” in The Impact of China’s Global 

Economic Expansion on Latin America, Working Paper No. 6, available at: 

[http://www.uea.ac.uk/polopoly_fs/1.116928!ChinaChile%20General%20wp6.pdf] 

95 Ibid. 

96 Taifend, C. (2009), Regional Trade Agreements vs. Multilateral Trading System: A <strong>Study</strong> of Chinese Interests 

and Policy Options, NUPI Working Paper 762, available at:[ 

http://www.nupi.no/content/download/10219/102610/version/5/file/WP-762-Taifeng.pdf] 

97 Ibid 

98 WTO Secretariat, Factual Presentation of Free Trade Agreement Between Chile and China (Goods and 

Services), 2008, available at: [http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=8] 

99 Cross-border supply (Mode 1), Consumption abroad (Mode 2), Commercial presence (Mode 3) and Presence 

of natural persons (Mode 4). 

100 Taifeng, C. (2009), “Regional Trade Agreements vs. Multilateral Trading System: A <strong>Study</strong> of Chinese Interests 

and Policy Options”, NUPI Working Paper 762, available at:[ 

http://www.nupi.no/content/download/10219/102610/version/5/file/WP-762-Taifeng.pdf] 

101 Ibid. 

102 Ibid. 

Page 30 of 88

verification networking system on certificate of origin; rules of procedure of arbitral panel; and 

implementation of modifications approved by the Commission. 

Table 3.2: Features of the China-Chile FTA 

Parties 

China , Chile 

Date of Signature 18 November 2005 (Goods) 

13 April 2008 (Services) 

Date of Entry into 

Force 

1 October 2006 (Goods) 

1 August 2010 (Services) 

Full Implementation 2015 



• For China, 37.5% of tariffs (in terms of tariff lines) are to be eliminated on the day 

the agreement enters into force, and 25.8% are to be eliminated within 10 years. 

• 74.5% of Chile's tariffs are to be eliminated immediately, and other tariffs are to be 

eliminated within 5 and 10 years, respectively. 

Main products • China has excluded 214 products including wood and paper products, edible 

excluded from vegetable oils, tariff-quota products, and iodine from allowing preferential 

liberalization 

treatment. 

• Chile has excluded 152 products including re-treaded tyres. 

Rules of Origin • Products must be wholly obtained or produced in Chile/China or both. 

(ROO) 

• Regional Value Content (RVC) criterion or value of the non-originating parts or 

Requirements 

components used in the manufacture of the products must be no more than 60% 

of the FOB value of the product. 

• Product specific rules: for most agricultural goods, a change of HS Chapter applies 

(for Ch.17-19 a change of heading is required); in 49 HS Chapters, a RVC of 40 

applies (either to the entire chapter, selected headings or sub-headings) 

• De Minimis: 8% of the FOB value of the product. 


Services • Positive list. 

• All modes (cross-border supply, consumption abroad, commercial presence 

abroad, presence of natural persons). 

• Specific chapters on: movement of natural persons. 

• Specific sectors excluded: financial services, national maritime cabotage. 

Other Provisions • Anti - Dumping: Chapter VI; Article 52: Allowed as per WTO/GATT 

• Countervailing Duties: Chapter VI; Article 52: Allowed as per WTO/GATT 

• Safeguards : Chapter VI; Article 44; allowed during the transition period only 

• Standards: Chapter VII: SPS. Chapter VIII: TBT: establish a Committee on SPS and 

TBT 

• Export subsidies eliminated for agricultural products, but no elimination of tariffs. 

• Intellectual Property: Article 10 (Geographic Indications) and Article 111 

(cooperation) - based on TRIPS 

• Dispute Settlement: Chapter X 

• Labour and Environmental Standards: Article 108: Parties shall enhance their 

communication and cooperation on labour, social security and environment 

• Technical cooperation: Chapter VIII; Article 68 

• Institutional mechanism: Chapter XI 

• Trade regulations publication and administration (transparency): Chapter IX; 

Article 73 


• http://www.direcon.gob.cl/ 

Sources: WTO Secretariat, Factual Presentation of Free Trade Agreement Between Chile and China 

(Goods), 2008. http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=8 

http://artnet.unescap.org/APTIAD/viewagreement.aspx?id=CHINA-CHILE 

Page 31 of 88

The Agreement contains no explicit transition period as the tariff elimination on imports of goods for 

both parties is to be completed within a period of ten years (January 2015). Duty reductions take 

place on the date of entry into force of the Agreement and on 1 January of the following years: Chile 

(2006, 2010 and 2015) and China (2006, 2007, 2010 and 2015). 

Liberalization of Tariff Lines: 

Both the countries have gradually eliminated their tariff lines from the date the agreement came 

into force in 2006. As shown in Table 3.3, in the case of Chile, 0.4 per cent of total tariff lines 103 were 

already duty-free on an MFN basis in 2006. Chile has allowed access to further 74.1 per cent of tariff 

lines duty-free for imports from China in 2006. By the end of the transition period in 2015, a further 

23.6 per cent of tariff lines are to be liberalized by Chile, which accounts for 46.2 per cent of imports 

from China for the period 2003-2005. Thus, a total of 98.1 per cent of tariff lines are liberalized 

under the Agreement by Chile, corresponding to 96.9 per cent of imports by value from China for the 

period 2003-2005. 

Table 3.3: Chile’s Tariff elimination commitments under the Agreement and corresponding 

average trade 

Duty phase-out period 

Number 

of lines 

% of total lines 

in Chile's tariff 

schedule 

Value of Chile's imports 

from China (2003-2005) 

in million US$ 

% of Chile's total 

imports from 

China 2003-2005 

MFN duty free (2006) 35 0.4 - - 

2006 5,856 74.1 958.8 50.7 

2010 1,048 13.3 382.7 20.2 

2015 811 10.3 492.1 26.0 

Remain dutiable 152 1.9 58.1 3.1 

Total 7,902 100.0 1,891.8 100.0 

Source: WTO Secretariat, Factual Presentation of Free Trade Agreement Between Chile and China 

(Goods), 2008. 

China has allowed duty-free access to 8.5 per cent of total tariff lines 104 on an MFN basis in 2006 

(Table 3.4). A further 28.8 per cent of tariff lines have become duty-free for imports from Chile in 

2006. By the end of the transition period in 2015, a further 59.9 per cent of tariff lines are to be 

liberalized, accounting for a further 9.3 per cent of imports from Chile for the period 2003-2005. 

Thus, a total of 97.2 per cent of tariff lines were liberalized under the Agreement, corresponding to 

99.1 per cent of imports by value from Chile for the period 2003-2005. 

103 Chile's tariff is composed of 7,902 tariff lines at the HS 8-digit level, of which 7,894 contain ad valorem 

rates; the remaining eight lines are composed of ad valorem and specific duties. 

104 China's tariff is composed of 7,605 tariff lines at the HS 8-digit level, of which 7,556 are subject to 

ad valorem rates. For the 49 lines subject to specific duties, China has provided ad valorem equivalent rates. 

Such lines occur in HS Chapters 2, 5, 37, and 85. 

Page 32 of 88

Table 3.4: China’s Tariff elimination commitments under the Agreement and corresponding 

average trade 

Duty phase-out 

period 

No. of 

tariff 

lines 


in China's tariff 

schedule 

Value of China's imports 

from Chile (2003-2005) 


% of China's total 

imports from 

Chile 2003-2005 

MFN duty free (2006) 647 8.5 1,378.0 38.9 

2006 2,187 28.8 1,800.8 50.9 

2007 1,960 25.8 0.4 0.0 

2010 975 12.8 14.8 0.4 

2015 1,622 21.3 313.4 8.9 


Total 7,605 100.0 3,537.9 100.0 


(Goods), 2008. 

Liberalization of Trade: 

Trade liberalization commitments of both China and Chile have been on the basis of products at the 

HS 8-digit level. As depicted in Table 3.5, out of the 7,902 tariff lines, Chile has allowed duty-free 

access to 35 tariff lines on an MFN basis in 2006. An additional 5,856 lines covering products in all HS 

categories were also liberalized upon entry into force of the Agreement in October 2006. In 2010, an 

additional 1,048 lines were subjected to liberalization. Chile is expected to liberalize 811 more tariff 

lines in 2015. The 152 tariff lines that remain in the negative list include: agricultural products, 

prepared food, minerals, plastics and rubber, textiles, base metals and machinery. Textiles, base 

metals and machinery formed bulk of Chile’s negative lists. 

Table 3.5: Chile’s Tariff Elimination Under the Agreement, by HS Chapter 

HS section and description MFN 

average 

Total 

No. of 

MFN duty 

free 

No. of duty-free lines 

under the Agreement in: 

Remain 

dutiable 

% lines 

2006 2010 2015 

1. Live animals and animal 6.3 567 567 

products 

2. Vegetable products 6.0 397 375 11 3 8 

3. Animal or vegetable 6.0 65 36 29 

fats and oils 

4. Prepared food etc. 6.0 398 378 3 17 

5. Minerals 6.0 191 186 3 2 

6. Chemical and products 6.0 1,190 1,094 50 46 

7. Plastics and rubber 6.0 307 204 42 54 7 

8. Hides and skins 6.0 86 48 38 

9. Wood and articles 6.0 142 84 1 57 

10. Pulp, paper etc. 5.9 235 4 56 20 155 

11. Textile and textile 6.0 1,171 251 531 323 66 

articles 

12. Footwear, headgear 6.0 115 29 86 

13. Articles of stone 6.0 180 44 93 39 4 

14. Precious stones, etc. 6.0 59 58 1 

15. Base metals and 

6.0 657 539 31 56 31 

products 

16. Machinery 6.0 1,266 2 1,209 7 31 17 

17. Transport equipment 5.5 343 29 234 58 22 

Page 33 of 88

18. Precision equipment 6.0 290 286 4 

19. Arms and ammunition 6.0 23 23 

20. Misc. manufactured 6.0 213 148 43 22 

articles 

21. Works of art, etc. 6.0 7 7 

Total 6.0 7,902 35 5,856 1,048 811 152 


(Goods), 2008. 

In return, China has also allowed duty-free access to 647 tariff lines under HS 8-digit level out of the 

total 7,605 tariff lines on an MFN basis in 2006 (Table 3.6). An additional 2,187 tariff lines were 

liberalized upon entry into force of the Agreement (comprising both agricultural and industrial 

products). China maintains a negative list with a total of 214 tariff lines covering vegetable products, 

vegetable and animal fats and oils, prepared food, chemicals, wood products, pulp and paper, and 

textiles, for which tariff are not liberalized under the Agreement. 

Table 3.6: China’s Tariff Elimination Under the Agreement, by HS Chapter 

HS section and description MFN 

average 

Total 

No. of 

MFN 

duty 

No. of duty-free lines under 

the Agreement in: 

% lines free 

2006 2007 2010 2015 

1. Live animals and animal 12.4 368 43 12 55 116 142 

products 

Remain 

dutiable 

2. Vegetable products 14.4 463 54 71 142 85 86 25 

3. Animal or vegetable fats 15.0 53 3 8 12 11 19 

and oils 

4. Prepared food etc. 17.9 279 1 36 40 58 138 6 

5. Minerals 3.7 202 37 119 8 38 

6. Chemical and products 7.0 1,186 9 732 71 65 305 4 

7. Plastics and rubber 9.8 262 1 84 57 26 94 

8. Hides and skins 12.5 108 30 23 42 13 

9. Wood and articles 4.1 160 65 10 27 14 19 25 

10. Pulp, paper etc. 5.4 165 34 3 4 124 

11. Textile and textile 11.6 1,106 233 861 1 11 

articles 


13. Articles of stone 13.6 175 1 26 28 77 43 

14. Precious stones, etc. 10.0 84 32 21 19 12 


7.5 706 4 374 77 78 173 

products 

16. Machinery 8.4 1,376 258 277 274 173 394 

17. Transport equipment 12.8 318 1 81 198 6 32 

18. Precision equipment 10.0 326 43 74 38 108 63 

19. Arms and ammunition 13.0 21 18 3 

20. Misc. manufactured 11.6 178 62 6 66 44 

articles 

21. Works of art, etc. 9.6 9 2 1 4 2 

Total 9.9 7,605 647 2,187 1,960 975 1,622 214 


(Goods), 2008. 


Page 34 of 88

Rules of Origin (ROO) are a critical component of any free trade agreement. Only goods that satisfy 

the specified rules of origin will qualify for preference. There is no single rule of origin methodology. 

A good is considered originating if: it is wholly obtained or produced in Chile or China or both; 

produced in one or both countries using non-originating materials that conform to a regional value 

content not less than 40 per cent except for those listed in Product Specific Rules. Specific Rules call 

for a change of HS heading Level (4-digit) for most agricultural goods while RVC of 50 per cent 

applies for 49 HS chapters (entire chapter, selected headings or subheadings) 


In order to address the concerns of the domestic industries of both China and Chile regarding a 

substantial increase in imports benefiting from preferential tariff treatment, the Agreement includes 

bilateral safeguard measures. In addition to safeguard measures, anti-dumping, countervailing 

duties, SPS and TBT measures, intellectual property, dispute settlement, labour and environmental 

standards, technical cooperation and institutional mechanism are also covered in the Agreement 

Page 35 of 88

3.4 China-New Zealand Free Trade Agreement 

New Zealand was the first developed country to propose FTA negotiations with China. In 2004, China 

and New Zealand have embarked upon negotiations of a comprehensive free trade agreement 

covering goods, services and investment, which would deliver benefits to both economies. However, 

negotiations have been stretched over four years and after concluding their joint feasibility study the 

agreement was signed on 7 th April 2008. 105 The FTA has come into effect on 1 st October 2008 and it 

is expected to be fully implemented by 2019. While the trade in services agreement has used a 

positive list approach for negotiations, the two countries have opened their service sectors in all four 

modes 106 to each other’s markets on the basis of their commitments to the WTO. The Agreement is 

China's first FTA partnered with a member state of the Organization for Economic Cooperation and 

Development (OECD). 107 

FTA was a significant factor in the 20 per cent growth in bilateral two-way merchandise trade in the 

first year following entry into force, and to a doubling of bilateral trade in the past five years. 108 

Benefits arising from the FTA include, inter alia, improved market access, improved customs 

procedures and trade facilitation, increased efficiency, and enhanced transfer of technology and 

skills. China is now New Zealand’s second-largest trading partner overall, as well as second-largest 

source of imports and second-largest destination for exports. 109 New Zealand’s importance as a 

trading partner for China has also grown with New Zealand’s share of China’s total trade rising from 

0.17 per cent in 2007 to 0.21 per cent in 2009. 110 


Definitions, Chapter 3: Trade in Goods, Chapter 4: Rules of Origin and Operational Procedures, 

Chapter 5: Customs Procedures and Cooperation, Chapter 6: Trade Remedies, Chapter 7: Sanitary 

and Phytosanitary Measures, Chapter 8: Technical Barriers to Trade, Chapter 9: Trade in Services, 

Chapter 10: Movement of Natural Persons, Chapter 11: Investment, Chapter 12: Intellectual 

Property Rights, Chapter 13: Transparency, Chapter 14: Cooperation, Chapter 15: Administrative and 

Institutional Provisions, Chapter 16: Dispute Settlement, Chapter 17: Exceptions and Chapter 18: 

Final Provisions. The Agreement has 13 annexes which contain the following: tariff schedules, special 

agriculture safeguard measures, mid-term review mechanism, China’s country-specific tariff quotas 

for wool and wool tops, product specific rules of origin, certificate of origin, declaration of origin, 

schedules of specific commitments on services, sectoral coverage, visa facilitation, expropriation and 

commitments on temporary entry by natural persons. 

Table 3.7: Features of the China-New Zealand FTA 

105 New Zealand Ministry of Foreign Affairs (2010), “The China-New Zealand Free Trade Agreement: Two-Year 

Review Joint Report”, available at: [http://www.chinafta.govt.nz/4-Events-and-press/2-Press-releases/jointreport-feb2011.pdf] 

106 Cross-border supply (Mode 1), Consumption abroad (Mode 2), Commercial presence (Mode 3) and 

Presence of natural persons (Mode 4). 

107 WTO Secretariat, Factual Presentation of Free Trade Agreement Between Chinn and New Zealand (Goods 

and Services), 2010, available at: [http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=8] 

108 Ibid. 

109 New Zealand Ministry of Foreign Affairs (2010), “The China-New Zealand Free Trade Agreement: Two-Year 

Review Joint Report”, available at: [http://www.chinafta.govt.nz/4-Events-and-press/2-Press-releases/jointreport-feb2011.pdf] 

110 Ibid. 

Page 36 of 88

Parties 

China , New Zealand 

Date of signature 7 April 2008 

Entry into force 1 October 2008 




• For China, 96% of tariffs (in terms of tariff lines) are to be eliminated 

gradually within 12 years of implementation, by 2019. 

• For New Zealand, 63.3% of the tariff lines are to be eliminated upon entry 

into force of the agreement. The remaining tariffs are to be progressively 

eliminated in four additional stages between 2012 and 2016: 27.2% of 

them are to be eliminated within 5 years, 1.2% within 6 years, 6.4% within 

7 years, and 1.6% within 9 years 

Negative List • China's negative list includes 223 products; vegetable products, vegetable 

and animal fats and oils, prepared food, chemicals, wood products, pulp 

and paper, and textiles. 

• New Zealand does not maintain a negative list or TRQs. 


Requirements 

• Change in tariff classification criterion - at HS 2-digit, 4-digit or 6-digit level. 

• Products must be wholly obtained or produced in New Zealand, or products 

be produced in New Zealand, using non-originating materials that conform 

to a change in tariff classification. 

• Some products must also be conforming to a RVC of 30%, 40%, 45%, or 

50%, or a process requirement. 


• Bilateral cumulation is allowed; cumulation in terms of material between 

the Parties. 

• Tolerance rule - for tariff classification change criterion, non-originating 

materials can represent a maximum of 10% of the FOB value of product. 

• Requirements on direct consignment must be complied with. 

Other Provisions • Anti - Dumping: Article 62 of Chapter 6 on Trade Remedies 

• Countervailing Duties: Article 63 of the Chapter 6 on Trade remedies 

"Neither Party shall introduce or maintain any form of export subsidy on 

any goods destined for the territory of the other Party." 

• Safeguards: Chapter 6 of Chapter 6 on Trade Remedies 

• Standards: Chapter 7 on SPS and Chapter 8 on TBT of the Agreement 

• Customs procedures: Chapter 1 

• Government Procurement: Excluded under Article 105 and Article 137 

• Investment: Chapter 11 

• Intellectual Property: Chapter 12 

• Dispute Settlement: Chapter 16 

• Labour Mobility: Chapter 10 

• Labour and Environment Standards: Memoranda of Understanding on 

Labour Cooperation and the Environment Cooperation Agreement, also in 

Preamble, Chapter 8 (Technical Barriers to Trade), Chapter 14 

(Cooperation), Chapter 17 (Exceptions) 


• http://www.mfat.govt.nz./ 

Sources: WTO Secretariat, Factual Presentation of Free Trade Agreement Between China and New 

Zealand (Goods and Services), 2010 and WTO Secretariat, Trade Policy Review: China, 2012. 

http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=8 

http://artnet.unescap.org/APTIAD/viewagreement.aspx?id=CHINA-NEWZEALAND 

Page 37 of 88


both Parties is to be completed within a period of ten years (2019). Duty reductions take place on 

the date of entry into force of the Agreement and on following years: New Zealand (2008-2011, 

2012, 2013, 2014-2015 and 2016) and China (2008-2011, 2012, 2013-2015, 2016, 2017-2018 and 

2019). 



into force in 2008. As shown in Table 3.8, in the case of New Zealand, 57.6 per cent of total tariff 

lines were already duty-free on an MFN basis, 111 even before the agreement was in force in 2008. 

Upon entry into force, New Zealand has allowed access to further 5.7 per cent of tariff lines dutyfree 

for imports from China in 2008. A total of 63.3 per cent of New Zealand’s tariff lines have 

become duty free accounting 39.2 per cent of imports from China. By the end of implementation in 

2016, 100 per cent of tariff lines that account for all the imports from China will be duty-free. 

Table 3.8: New Zealand’s Tariff elimination commitments under the Agreement and corresponding 

average trade 

Duty phase-out No. of 

period 

lines 


in New Zealand's 

tariff schedule 

Value of New Zealand's 

imports from China 

(2005-2007) 


% of New Zealand's 

total imports from 

China 

2005-2007 

MFN duty free (2008) 4,190 57.6 1,264.8 37.4 

2008-2011 415 5.7 60.5 1.79 

2012 1,967 27.1 1,237.0 36.58 

2013 86 1.2 5.4 0.16 

2014-2015 466 6.4 148.6 4.39 

2016 146 2.0 665.5 19.68 

Total 7,270 100.0 3,381.7 100.0 


Zealand (Goods and Services), 2010. 

China has also allowed duty-free access to 8.4 per cent of total tariff lines on an MFN basis 112 in 

2008 before the entry into force of the agreement (Table 3.9). Upon entry into force, a further 15.7 

per cent of tariff lines have become duty-free for imports from New Zealand in 2008. By the end of 

the transition period in 2018, a further 72.9 per cent of tariff lines are to be liberalized, accounting 

for 39 per cent of imports from New Zealand. Thus, a total of 97.1 per cent of tariff lines will be dutyfree 

under the Agreement, corresponding to 88 per cent of imports by value from New Zealand. 

111 New Zealand's MFN tariff schedule in the year of entry into force of the Agreement (2008) comprised 

7,270 tariff lines at the HS 8-digit level; 99.5% of this tariff is ad valorem, 0.1% relates to lines with specific 

duties; and 0.4% to others. 

112 China's MFN tariff schedule in the year of entry into force of the Agreement (2008) comprised 7,646 tariff 

lines at the HS 8-digit level; 99.4% of this tariff is ad valorem, 0.58% relates to lines with specific duties; and 

0.07% to others. 

Page 38 of 88


average trade 

Duty phase-out period No. of 

lines 



schedule 


from New Zealand 

(2005-2007) 



imports from 

New Zealand 

2005-2007 

MFN duty free (2008) 639 8.4 349.2 25.9 

2008-2011 1,204 15.7 100.9 7.5 

2012 5,100 66.7 414.7 30.8 

2013-2015 437 5.7 1.2 0.1 

2016 32 0.4 70.5 5.2 

2017-2018 7 0.1 38.8 2.9 

2019 4 0.1 210.5 15.6 


Total 7,646 100.0 1,347.7 100.0 




Trade liberalization commitments of both China and New Zealand have been on the basis of 

products at the HS 8-digit level. As shown in Table 3.10, out of the 7,270 tariff lines, New Zealand has 

allowed duty-free access to 4,190 tariff lines on an MFN basis in 2008. An additional 415 lines 

covering products in all HS categories, except pulp and paper, footwear and headgear, precious 

stones, arms and ammunition, and works of art were also liberalized upon entry into force of the 

Agreement in October 2008. The remaining tariffs are to be progressively eliminated in four 

additional stages between 2012 and 2016, when most remaining tariffs are due to be eliminated. 

Table 3.10: New Zealand’s Tariff Elimination Under the Agreement, by HS Chapter 

HS section 

MFN Total MFN 


average No. of 2008 2008- 2012 2013 2014- 2016 

% lines 

2011 

2015 

1. Live animals and animal 

0.8 251 209 23 19 

products 

2. Vegetable products 1.2 300 231 43 26 

3. Animal or vegetable fats and 1.1 58 45 4 9 

oils 

4. Prepared foods etc. 2.6 482 226 75 181 

5. Minerals 0.2 181 172 1 8 

6. Chemicals and chemical 

0.7 941 805 39 91 6 

products 

7. Plastics and rubber 3.2 390 153 31 194 2 7 3 

8. Hides and skins 2.6 102 54 6 29 10 3 


10. Pulp, paper etc. 0.0 228 228 

11. Textiles and textiles articles 4.9 1,059 484 24 9 49 400 93 

12. Footwear, headgear 7.0 106 38 9 43 16 


14. Precious stones, etc. 1.2 68 52 16 

15. Base metals and base metals 2.6 802 397 27 374 4 

products 

16. Machinery 2.8 1,178 513 67 579 3 16 

17. Transport equipment 3.6 233 99 4 105 24 1 

18. Precision equipment 0.9 240 188 10 34 8 

Page 39 of 88

19. Arms and ammunition 1.8 35 21 12 2 

20. Misc. manufactured articles 3.7 178 47 6 120 1 4 


Total 2.5 7,270 4,190 415 1,967 86 466 146 



China has also allowed duty-free access to 639 tariff lines under HS 8-digit level out of the total 7,646 

tariff lines on an MFN basis in 2008 (Table 3.11). An additional 1,204 tariff lines were liberalized 

upon entry into force of the Agreement and a majority of the products include minerals, chemicals, 

textiles, base metals, and machinery. Further 5,100 tariff lines were liberalized in 2012 that mainly 

include chemicals, textiles, and machinery. China maintains a negative list with a total of 223 tariff 

lines covering vegetable products, vegetable and animal fats and oils, prepared food, chemicals, 

wood products, pulp and paper, and textiles. 



MFN 

average 

% 

MFN 

2008 


Total 

No. 

of 

lines 

2008- 

2011 

2012 

2013- 

2015 

2016 

2017- 

2018 

2019 

No. of 

Remain 

dutiable 

Avg. Final 

Tariff 

(Dutiable) 

1. Live animals and 

12.3 377 44 6 284 14 18 7 4 

animal products 

2. Vegetable products 14.5 457 48 36 304 38 6 25 55.8 

3. Animal or vegetable 12.9 53 1 30 3 19 9.3 

fats and oils 

4. Prepared foods etc. 18.0 279 1 41 150 78 3 6 50.0 

5. Minerals 3.7 199 37 116 46 

6. Chemicals and 

6.6 1,189 9 195 967 15 3 50.0 

chemical products 

7. Plastics and rubber 9.5 263 1 6 248 8 

8. Hides and skins 12.3 106 15 86 1 4 

9. Wood and articles 4.3 189 72 31 45 41 6.0 

10. Pulp, paper etc. 5.3 160 35 7 118 6.7 

11. Textiles and textiles 11.6 1,105 195 890 9 11 38.4 

articles 




15. Base metals and base 7.4 714 4 234 464 12 

metals products 

16. Machinery 8.4 1,398 259 187 883 68 1 

17. Transport equipment 12.3 318 1 60 195 62 


19. Arms and 

13.0 21 21 

ammunition 


articles 

21. Works of art, etc. 9.6 9 2 7 

Total 9.8 7,646 639 1,204 5,100 437 32 7 4 223 15.6 



Tariff-Rate Quotas 

Page 40 of 88

One of the quantitative restrictions China maintains is country-specific tariff-rate quotas (TRQ). In 

the case of the FTA with New Zealand, TRQs for nine tariff lines on wool and wool tops were 

maintained, for which it also maintained TRQs in 2009 on an MFN basis. 113 Additionally, China 

maintains TRQs on 36 tariff lines relating to wheat 114 , corn 115 , rice 116 , sugar 117 , fertilizer 118 , and 

cotton 119 . 120 The Parties clarify that quota is in addition to the MFN TRQ quantity for the same 

products. The operation of the TRQs are expected to be transparent and if the New Zealand contact 

point requests, China should provide information on the quantity of TRQs issued. 


Rules of origin criteria as per the Agreement are change in tariff classification, RVC and product 

specific rules for certain sectors. In cases where the regional value content rule is utilized, mostly the 

change in tariff classification is applied provided that there is a qualifying minimum value content of 

30 per cent, 40 per cent, 45 per cent, or 50 per cent of material exported from one Party to another. 

There are four products for which the regional value content rule is applied exclusively. 121 A 

de minimis principle is established whereby a product is considered to be originating if the value of 

all non-originating materials that do not meet the change in tariff classification requirement is no 

more than 10 per cent of the free on board (FOB) value of the products, and the good satisfies all 

other applicable criteria. Furthermore, the agreement also specifies how certain material (packing 

and containers for transportation and retail sale, accessories, spare parts and tools, neutral 

elements, and interchangeable materials) are to be treated when determining their origin. 


In order to address the concerns of the domestic industries of both China and New Zealand 

regarding issues such as excessive flow of cheaper imports, the Agreement has made provisions to 

the use of bilateral safeguard measures. The importing Party may apply a bilateral safeguard, to the 

extent necessary to prevent or remedy the serious injury, and to facilitate adjustment, caused by a 

reduction or elimination of customs duties under the Agreement, if a good benefiting from 

preferential tariff treatment under the Agreement is being imported into the territory of a Party in 

such increased quantities, in absolute terms or relative to domestic production, and under such 

conditions that the imports constitute a cause of serious injury or threat to a domestic industry of 

the importing Party, in accordance with WTO Agreement on Safeguards. 122 In addition to safeguard 

measures, anti-dumping, countervailing duties, SPS and TBT measures, intellectual property, dispute 

settlement, labour and environmental standards, trade facilitation, government procurement, 

technical cooperation and institutional mechanism are also covered in the Agreement. 



114 HS 10011000; 10019010; 10019090; 11010000; 11031100; and 11032010. 

115 HS 10051000; 10059000; 11022000; 11031300; and 11042300. 

116 HS 10061011; 10061019; 10061091; 10061099; 10062010; 10062090; 10063010; 10063090; 10064010; 

10064090; 11029011; 11029019; 11031921; and 11031929. 

117 HS 17011100; 17011200; 17019100; 17019910; 17019920; and 17019990. 

118 HS 31021000; 31052000; and 31053000. 

119 HS 52010000; and 52030000. 



121 HS 320611 (RVC 50%); HS 330112 (RVC 50%); HS 330125 (RVC 30%); and HS 340213 (RVC 40%). 



Page 41 of 88

Page 42 of 88

3.5 China-Singapore Free Trade Agreement 

The first comprehensive bilateral FTA that China has signed with another Asian country is its FTA 

with Singapore, covering trade in goods, trade in services, rules of origin, trade remedies, sanitary 

and Phytosanitary measures, technical barriers to trade, customs procedures, economic cooperation 

and dispute settlement, among others. Currently, China is Singapore's third largest trading partner 

and largest investment destination. The China-Singapore FTA was signed on 23 rd October 2008 and 

has entered into force on 1 st January 2009. The FTA concluded in 2010. 

The tariff lines that are subject to the tariff reduction or elimination programme under this 

Agreement are all the tariff lines covered under the Normal Track, as specified in the Agreement on 

Trade in Goods of the Framework Agreement on Comprehensive Economic Co-operation between 

the ASEAN and the China, which was signed on 29 th November 2004. 123 In the case of Singapore, this 

Agreement shall also include all tariff lines covered under the Sensitive Track, as specified in the 

ASEAN-China Trade in Good Agreement. 

The FTA has provided preferential coverage for about 95 per cent of Singapore’s exports to China, 

with a trade value of more than S$18 billion. More than 85 per cent of Singapore exports to China 

were at zero-tariff upon the Agreement’s entry into force on 1 st January 2009. An additional 10 per 

cent had become duty-free on 1 st January 2010. Key exports that benefit include petrochemicals, 

processed foods, and electronics and electrical products. In addition to individual income tax 

benefits, Singapore has intended to grow its population by another 2 million people, and many of 

these are expected to be wealthy mainland Chinese nationals. 

Corporate benefits include reduction on withholding taxes for a variety of services, including 

chargeable royalties. This, coupled with Singapore’s low corporate and individual income tax rates, is 

one of the reasons Singapore is becoming a corporate regional hub for investments into China and 

Asia. As foreign investors automatically qualify as Singaporean companies when setting up a 

subsidiary there, they can also access Singapore’s own impressive array of international tax treaties, 

which include numerous other FTAs, as well as over 80 bilateral double tax agreements. 124 

The Agreement has 14 chapters: Chapter 1: Initial Provisions, Chapter 2: General Definitions, Chapter 

3: Trade in Goods, Chapter 4: Rules of Origin, Chapter 5: Customs Procedures, Chapter 6: Trade 

Remedies, Chapter 7: Technical Barriers to Trade, Chapter 8: Trade in Services, Chapter 9: 

Movement of Natural Persons, Chapter 10: Investment, Chapter 11: Economic Cooperation, Chapter 

12: Dispute Settlement, Chapter 13: Exceptions and Chapter 14: General and Final Provisions. The 

Agreement has 7 annexes which contain the following: tariff elimination schedules, product specific 

rules, formats of certificate of origin, contact points for TBT and SPS, schedules of specific 

commitments on services, commitments on temporary entry by natural persons and rules and 

procedures for arbitral proceedings. 

123 Available at: [http://www.fta.gov.sg/fta_csfta.asp?hl=27] 

124 Devonshire-Ellis, C (2014), “Understanding China’s Free Trade Agreements”, China Briefing, February 2014, 

available at: [http://www.china-briefing.com/news/2014/02/10/understanding-chinas-free-tradeagreements.html] 

Page 43 of 88

Table 3.12: Features of the China-Singapore FTA 

Parties 

China , Singapore 

Date of Signature 23 October 2008 

Date of Entry into 1 January 2009 

Force 

Full 

2010 

Implementation 

Negative List The tariff lines that are subject to the tariff reduction or elimination will be 

eliminated by 2010. 

Rules of Origin • Products must be wholly obtained or produced in Singapore. 

(ROO) 

• Local Value Addition –40% of total content. 

Requirements • Regional Value Content (RVC) criterion or value of the non-originating parts or 

components used in the manufacture of the products must be no more than 

60% of the FOB value of the product. 



• Product Specific Rules, Process Criterion for Textile and Textile ProductsGoods 

must meet the direct transport rule. 

Experiences (i.e. • Standards: Chapter 7 : TBT and SPS; The Parties shall use international 

NTBs) 

standards; The Parties hereby establish the Joint Working Group on TBT and SPS 

• Anti - Dumping: Chapter 6; Article 40: Allowed as per WTO/GATT 

• Countervailing Duties: Chapter 6; Article 41; Not allowed 

• Safeguards: Chapter 6; Article 43: Allowed within the transition period 


• Investment: Article 84, Chapter 10 

• Competition Policy: Article 69. Chapter 8, Each Party shall ensure that any 

monopoly supplier of a service in its territory does not, in the supply of the 

monopoly service supplier in its territory does not act in a manner inconsistent 

with that Party's specific commitments. 

• Dispute Settlement: Chapter 12 and Annex 7 on Rules and procedures for 

Arbitral proceedings 

• Technical cooperation: Chapter 11 on Economic Cooperation 

• Institutional mechanism: Article 68, Chapter 8: Joint Committee on Recognition 

Co-operation. Article 111 Chapter 14: The Parties shall establish an FTA Joint 

Relevant 

websites 

Committee. 

• http://www.mofcom.gov.cn/ 

• http://www.iesingapore.gov.sg/ 

Sources: http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=8 

http://artnet.unescap.org/APTIAD/viewagreement.aspx?id=CHINA-SINGAPORE 


Rules of origin criteria as per the Agreement are domestic value addition and RVC. While the local 

value addition requirement is 40 per cent of total content the RVC requirement is 60 per cent of the 

FOB value of the product. Product Specific Rules, Process Criterion for Textile and Textile 

ProductsGoods must meet the direct transport rule. 


Singapore and China have also agreed upon not maintaining any quantitative restrictions at any time 

unless otherwise permitted under the WTO disciplines. They have also decided not to adopt or 

maintain any non-tariff measures on the importation of any good of the other market or on the 

Page 44 of 88

exportation of any good destined for the territory of the other market. Furthermore, each market 

shall ensure the transparency of its non-tariff measures. 125 

Singapore and China have agreed to simplify our customs procedures to facilitate Goods trade. The 

key facilitative commitments include Third Party Invoicing, Advance Ruling to provide traders with 

more certainty and enhancement of the application of risk management to facilitate the clearance of 

low risk consignments. 

125 Available at: [http://www.fta.gov.sg/fta_csfta.asp?hl=27] 

Page 45 of 88

3.6 China-Pakistan Free Trade Agreement 

Having been a very close ally of China for a long time, Pakistan was the first South Asian country to 

establish an FTA, for both goods and services, with China. As the first step towards strengthening 

trade links, the two countries have signed an Early Harvest Program (EHP) on 5 th April 2005, which 

has become operational on 1 st January 2006. 126 Within a year on 24 th November 2006, Pakistan and 

China have signed the FTA in goods and finalized the modalities for Stage One, which came into 

effect on 1 st July 2007. 127 The agreement has been fully implemented in 2012. The FTA between 

Pakistan and China was Pakistan's first and China's fourth bilateral FTA notified to the WTO. 128 

Pakistan-China FTA has extended trade relations from trade in goods to trade in service. On 21 st 

February 2009, the two countries have signed the Trade in Services Agreement, which came into 

effect on 10 th October 2009. 129 While the agreement has used a positive list approach for 

negotiations, the two countries have opened their service sectors in all four modes 130 to each other’s 

markets on the basis of their commitments to the WTO. 

Trade between China and Pakistan has seen a growth since the implementation of the FTA. China is 

the one of the largest import sources of Pakistan and its share has increased from 14 to 17 per cent 

during 2003‐2007 period. 131 Even though the exports have grown, 10 per cent growth in exports to 

China was in products that remain outside the scope of the FTA. 132 Many of them are Pakistan’s top 

exports to the world. Although china’s demand for these products is significant, Pakistan exports 

contribute to less than 1 per cent of China’s imports of these products. 133 

A growing increase in Pakistan’s trade imbalance with China was seen after implementing the FTA. 

China has shown a significant increase in its share in Pakistan’s imports; 18 to 63 per cent in 

electrical and electronics, 18 to 44 per cent in products of iron and steel, 7 to 45 per cent in manmade 

staple fibres. 134 Post-FTA China has become the second largest source of Pakistan’s imports, 

which accounts for over 25 per cent of total imports excluding petroleum products. 135 


Definitions, Chapter 3: National Treatment and Market Access for Goods, Chapter 4: Rules of Origin, 

Chapter 5: Trade Remedies, Chapter 6: Sanitary and Phytosanitary Measures, Chapter 7: Technical 

Barriers to Trade, Chapter 8: Transparency, Chapter 9: Investments, Chapter 10: Dispute Settlement, 

Chapter 11: Administration and Chapter 12: Final Provisions. The Agreement contains three annexes 

126 Government of Pakistan (2012), “Pakistan-China Free Trade Agreement: Analytical Report on Textile and 

Clothing”, Research, Development and Advisory Cell, Ministry of Textile Industry. 

127 Ibid. 

128 WTO Secretariat, Factual Presentation of Free Trade Agreement Between Pakistan and China (Goods), 2008, 

available at: [http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=8] 

129 Ibid. 

130 Cross-border supply (Mode 1), Consumption abroad (Mode 2), Commercial presence (Mode 3) and 

Presence of natural persons (Mode 4). 

131 Government of Pakistan (2012), “Pakistan-China Free Trade Agreement: Analytical Report on Textile and 

Clothing”, Research, Development and Advisory Cell, Ministry of Textile Industry. 

132 The Pakistan Business Council (2013), “Preliminary study on Pakistan and China trade partnership post 

FTA”, available at: [http://www.pbc.org.pk/assets/pdf/21-Oct_Pakistan_China_Trade_<strong>Study</strong>_2013.pdf] 

133 Ibid. 

134 Ibid. 

135 Ibid. 

Page 46 of 88

with the following: elimination of import customs duties; certificate of origin; and rules of procedure 

of the arbitral panel. 

Table 3.13: Features of the China-Pakistan FTA 

Parties 

China , Pakistan 

Date of signature 24 November 2006 (Goods) 

21 February 2009 ( Services) 

Entry into force 01 July 2007 (Goods) 

10 October 2009 (Services) 


Transition for full China and Pakistan have implemented tariff reductions for all products in two 

implementation stages: 

• First stage: 85% of all tariff lines were reduced at different rates within five 

years of entry into force of the agreement; the tariff on approximately 36% 

of products were reduced to zero within three years of the agreement, and 

on the remainder to 5% or below or by 50% or 20% within five years. 

• All tariff reductions in the first stage were completed on 1 January 2012. 

• Second stage: China and Pakistan have started negotiations. 

Negative List 

• Each Party has progressively eliminated its import customs duties in Negative 

list, margin of preference, by 2012. 

• China and Pakistan have considered reduction/elimination of tariffs on goods 

produced in the China-Pakistan Investment Zones including the Haier-Ruba 

Economic Zone. 

• China’s negative list - 4,936 tariff lines that include products under all HS 

categories. 

• Pakistan’s negative list - 4,394 tariff lines that include products under all HS 


Requirements 

categories. 

• Products must be wholly obtained or produced in Pakistan. 

• Local Value Addition – 40% of total content. 

• Regional Value Content (RVC) criterion or value of the non-originating parts 

or components used in the manufacture of the products must be no more 

than 60% of the FOB value of the product. 




Experiences (i.e. NTBs) • Anti - Dumping: Chapter V; Article 25: Allowed as per WTO/GATT 

• Countervailing Duties: Chapter V; Article 25: Allowed as per WTO/GATT 

• Safeguards: Chapter V; Article 27: Allowed bilateral safeguard measures 

for transition period time 

• Standards: Chapter VI: SPS. Chapter VII: TBT: establish the Joint Committee 

on SPS and TBT 

• Dispute Settlement: Chapter X 

• Competition Policy: Article 7 of Agreement on Trade in Service: Party shall 

ensure the monopoly supplier and its affiliated company does not act in a 

manner inconsistent with the commitments of this agreement. 

• Trade regulations publication and administration (transparency): Chapter 

VIII; Article 43 

• Technical Cooperation: Chapter VII 

• Institutional Mechanism: Chapter XI 


• http://www.commerce.gov.pk/index.asp 

Sources: WTO Secretariat, Factual Presentation of Free Trade Agreement Between Pakistan and China 

(Goods), 2008. 

Page 47 of 88


http://artnet.unescap.org/APTIAD/viewagreement.aspx?id=CHINA-PAKISTAN 


both Parties is to be completed within a period of five years (January 2012). Duty eliminations take 

place on the date of entry into force of the Agreement and on 1 st January of the following years for 

both countries (2007, 2008 and 2010). 136 



into force in 2007. As shown in Table 3.14, In the case of Pakistan, 5.8 per cent of total tariff lines 

were already duty-free on an MFN basis in 2006. 137 A further 7 per cent of tariff lines have become 

duty-free for imports from China in 2007. By the end of the transition period in 2012, a further 23.6 

per cent of tariff lines were liberalized, accounting for 23.4 per cent of imports from China for the 

period 2004-2006. 138 Thus, a total of 36.4 per cent of tariff lines were liberalized under the 

Agreement, corresponding to 44.4 per cent of imports by value from China for the period 2004- 

2006. 

Table 3.14: Pakistan’s Tariff elimination commitments under the Agreement and corresponding 

average trade 


lines 

% of total lines in 

Pakistan's tariff 

schedule 

Value of Pakistan's imports 



% of Pakistan's 

total imports 

from China 2004- 

2006 

MFN duty free (2007) 399 5.8 226.4 11.6 

2007 486 7.0 184.4 9.4 

2008 31 0.4 0.8 0.0 

2010 1,601 23.2 457.0 23.4 

Remain dutiable 4,394 63.6 1,088.3 55.6 

Total 6,911 100.0 1,956.9 100.0 

Source: WTO Secretariat, Factual Presentation of Free Trade Agreement Between Pakistan and China 

(Goods), 2008. 

China has also allowed duty-free access to 8.4 per cent of total tariff lines 139 on an MFN basis in 

2007, before the agreement came into force (Table 3.15). A further 9.4 per cent of tariff lines have 

become duty-free for imports from Chile in 2007. By the end of the transition period in 2012, a 

further 23.6 per cent of tariff lines were liberalized, accounting for a further 23.4 per cent of imports 

from Pakistan for the period 2004-2006. Thus, a total of 36.4 per cent of tariff lines were liberalized 

136 WTO Secretariat, Factual Presentation of Free Trade Agreement Between Pakistan and China (Goods), 2008, 

available at: [http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=8] 

137 Pakistan's tariff is composed of 6,911 tariff lines at the HS 8-digit level, of which 6,867 contain ad valorem 

rates; the remaining 44 lines are subject to specific duties. 

138 2010 is the last year when tariffs are scheduled to be fully liberalized. Further tariff reductions are 

scheduled to take place in 2011 and 2012. 

139 China's tariff is composed of 7,605 tariff lines at the HS 8-digit level, of which 7,556 are subject to 

ad valorem rates. For the 49 lines subject to specific duties, China has provided ad valorem equivalent rates. 

Such lines occur in HS Chapters 2, 5, 37, and 85. 

Page 48 of 88

under the Agreement, corresponding to 44.4 per cent of imports by value from Pakistan for the 

period 2004-2006. 


average trade 

Duty phase-out period No. 

of 

lines 



schedule 


from Pakistan (2004-2006) 



imports from 

Pakistan 2004-2006 

MFN duty free (2007) 640 8.4 28.8 3.7 

2007 720 9.4 117.2 15.0 

2008 59 0.8 0.3 0.0 

2010 1,291 16.9 90.8 11.6 

Remain dutiable 4,936 64.6 544.8 69.7 

Total 7,646 100.0 781.8 100.0 


(Goods), 2008. 


Trade liberalization commitments of both China and Pakistan have been on the basis of products at 

the HS 8-digit level. As presented in Table 3.16, out of the 6,911 tariff lines, Pakistan has allowed 

duty-free access to 399 tariff lines on an MFN basis in 2007. An additional 486 lines, covering 

agricultural products, minerals, chemicals, and machinery, were also liberalized upon entry into 

force of the Agreement in 2007. In 2010, an additional 1,602 tariff lines were subjected to 

liberalization. Nevertheless, 4,394 tariff lines are still subjected to duties covering all HS categories. 

HS section and 

description 

Table 3.16: Pakistan’s Tariff Elimination Under the Agreement, by HS Chapter 

MFN No. MFN No. of duty-free lines Remain 

average of 2007 2007 2008 2010 dutiable 

% lines 

Average 

Final 

Tariff 

(Dutiable) 


11.7 248 24 86 20 118 15.3 


2. Vegetable products 10.9 312 68 21 14 52 157 11.7 

3. Animal or vegetable 11.8 54 3 51 9.9 

fats and oils 

4. Prepared food etc. 24.1 229 12 217 20.6 

5. Minerals 8.2 195 23 46 12 50 64 5.9 

6. Chemical and products 8.3 1,153 51 112 1 551 438 10.0 

7. Plastics and rubber 16.9 300 21 30 249 17.0 

8. Hides and skins 10.2 93 38 17 38 15.0 

9. Wood and articles 12.1 106 34 5 67 12.2 

10. Pulp, paper etc. 16.0 182 28 21 133 17.9 

11. Textile and textile 18.8 921 30 3 888 16.0 

articles 

12. Footwear, headgear 23.2 53 53 11.4 

13. Articles of stone 21.9 191 10 181 16.6 

14. Precious stones, etc. 5.0 60 3 49 8 5.0 


13.7 761 24 200 537 13.6 

products 

16. Machinery 12.8 1,247 46 221 4 338 638 17.6 

17. Transport equipment 33.3 287 1 48 238 38.6 

Page 49 of 88

18. Precision equipment 9.4 274 7 183 84 15.5 

19. Arms and ammunition 20.2 52 52 5.0 

20. Misc. manufactured 20.5 186 1 4 181 11.6 

articles 

21. Works of art, etc. 5.7 7 5 2 7.5 

Total 14.5 6,911 399 486 31 1,601 4,394 16.1 


(Goods), 2008. 


tariff lines on an MFN basis in 2007 (Table 3.17). An additional 720 tariff lines were liberalized upon 

entry into force of the Agreement (comprising both agricultural and industrial products). China 

maintains a negative list with a total of 4,936 tariff lines covering all HS categories, for instance live 

animal, vegetable products, vegetable and animal fats and oils, prepared food, chemicals, plastics 

and rubber, hides and skins, wood products, pulp and paper, textiles, and machinery. 

The tariff concessions given to Pakistan appear impressive but nearly all top performing products, 

including those where Pakistan holds a comparative advantage, China has awarded higher or same 

reduction in tariffs to ASEAN members. 140 By 2011, tariffs under the 100 per cent concession 

category, that constitutes more than 35 per cent of the total products part of the FTA, were reduced 

to 0 per cent for Pakistan. Yet, the average tariff along these products for ASEAN was also 0 per 

cent. 141 This indicates that tariff reductions for Pakistan were not Pakistan specific even along 

products that Pakistan enjoys 100 per cent concessions, but were offered to Pakistan’s competitors 

as well. 

140 The Pakistan Business Council (2013), “Preliminary study on Pakistan and China trade partnership post FTA”, 

available at: [http://www.pbc.org.pk/assets/pdf/21-Oct_Pakistan_China_Trade_<strong>Study</strong>_2013.pdf] 

141 Ibid. 

Page 50 of 88


HS section and MFN No. MFN No. of duty-free lines Remain Average 

description average of 2007 2007 2008 2010 dutiable Final 

% lines 

Tariff 

(Dutiable) 


12.2 377 44 8 325 10.3 



3. Animal or vegetable 12.9 53 2 51 12.9 

fats and oils 

4. Prepared food etc. 18.0 279 1 4 2 38 234 18.0 

5. Minerals 3.7 199 37 64 57 41 5.3 

6. Chemical and products 6.9 1,189 9 75 414 691 6.6 

7. Plastics and rubber 9.6 263 1 21 241 7.1 

8. Hides and skins 12.3 106 3 4 18 81 10.6 

9. Wood and articles 4.3 189 72 30 87 6.1 

10. Pulp, paper etc. 5.3 160 35 125 6.6 

11. Textile and textile 11.6 1,105 437 33 67 568 8.4 

articles 

12. Footwear, headgear 18.4 56 56 13.7 

13. Articles of stone 13.5 184 1 6 10 6 161 9.8 

14. Precious stones, etc. 10.0 84 32 1 13 38 18.4 


7.4 714 4 13 7 251 439 6.6 

products 

16. Machinery 8.4 1,398 260 3 210 925 7.7 

17. Transport equipment 12.3 318 1 65 252 11.7 

18. Precision equipment 10.2 307 31 28 40 208 10.7 

19. Arms and ammunition 13.0 21 21 6.5 

20. Misc. manufactured 11.6 178 62 22 94 17.4 

articles 

21. Works of art, etc. 9.6 9 2 7 7.5 

Total 9.8 7,646 640 720 59 1,291 4,936 9.4 


(Goods), 2008. 


Rules of origin criteria as per the Agreement are domestic value addition and RVC. While the local 

value addition requirement is 40 per cent of total content the RVC requirement is 60 per cent of the 

FOB value of the product. The Agreement also provides a list of minimal, non-qualifying operations 

carried out in the territory of the Parties that do not confer origin. The Agreement underlines that 

products may be transported through third countries as long as they satisfy the conditions specified 

in the Agreement. Additional rules clarify how certain material (packaging materials, accessories, 

spare parts or tools, and indirect materials) are to be treated/valued when determining the origin of 

goods. 


To manage the consequences of increased imports from both countries, the Agreement has set out 




Page 51 of 88


domestic industry of the importing Party producing a like or directly competitive good. 142 Disciplines 


authorities prior to its application; its scope and duration, consultation procedures, and 

compensation. The Parties were anticipated to agree within five years of the entry into force of the 

Agreement to meet to determine whether there is a need to maintain the bilateral safeguard 

mechanism. In addition to safeguard measures, anti-dumping, countervailing duties, SPS and TBT 

measures, dispute settlement, competition policy, technical cooperation and institutional 

mechanism are also covered in the Agreement. 

142 "Serious injury" is defined in Article 50 of the Agreement as "a significant overall impairment in the position 

of a domestic industry". 

Page 52 of 88

3.7 China-Peru Free Trade Agreement 

Bilateral agreement between China and Peru has strategic connotations for each country. In the case 

of China, it is one of the important ways to strengthen its economic and diplomatic relations with 

Latin America. For Peru, it is a critical step to strengthen links with leading world countries like China, 

in order to become a business and productive platform within South America. As the Peruvian 

government has pushed forward with pro-export economic policies and China has sought to tap into 

Peru’s natural resource wealth, the relationship between the two countries has grown over time. To 

strengthen their economic ties, Chine-Peru Free Trade Agreement in goods was signed on 28 th April 

2009, which came into effect on 1 st March 2010. 143 The agreement is expected to be fully 

implemented by 2026. It is China's first comprehensive FTA, covering goods and services, with a 

Latin American member. 

Since the implementation of the FTA, trade between the two nations has gradually accelerated. In 

2009, China was an important trading partner for Peru representing its third largest export market, 

accounting for 15.3 per cent of its total exports, and its second largest source of imports, with 14.9 

per cent of Peru's total imports. 144 China has become Peru's top export market accounting for 17 per 

cent (close to US$8 billion) of its exports in 2012. 145 By way of comparison, the United States fell to 

second place in 2012 accounting for a 13 per cent (US$6 billion) share of Peru's exports. 146 Over the 

same period, China's imports from Peru were valued at US$4.4 billion and were dominated by 

minerals (75.8% of the total). 147 

The Agreement is composed of 17 chapters: Chapter 1: Initial Provisions, Chapter 2: National 

Treatment and Market Access for Goods, Chapter 3: Rules of Origin and Operational Procedures 

Related to Origin, Chapter 4: Customs Procedures and Trade Facilitation, Chapter 5: Trade Remedies, 

Chapter 6: Sanitary and Phytosanitary Measures, Chapter 7: Technical Barriers to Trade, Chapter 8: 

Trade in Services, Chapter 9: Temporary Entry for Business Persons, Chapter 10: Investment, Chapter 

11: Intellectual Property Rights, Chapter 12: Cooperation, Chapter 13: Transparency, Chapter 14: 

Administration of the Agreement, Chapter 15: Dispute Settlement, Chapter 16: Exceptions and 

Chapter 17: Final Provisions. The Agreement has 12 annexes which contain the following: 

elimination of import customs duties; list of geographical indications; product specific rules; 

certificate of origin; competent governmental authorities of Peru; model of certification and 

verification networking system on certificate of origin; rules of procedure of arbitral panel; and 

implementation of modifications approved by the Commission. 

143 WTO Secretariat, Factual Presentation of Free Trade Agreement Between Peru and China (Goods and 

Services), 2010, available at: [http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=8] 

144 Ibid. 

145 Ibid. 

146 Ibid. 

147 Ibid. 

Page 53 of 88

Parties 

Table 3.18: Features of the China-Peru FTA 

China , Peru 


Entry into force 1 March 2010 




• For China, 61.2% of tariff lines are to be eliminated on the day the 

agreement enters into force and a total of 94.6% tariff lines are to be 

eliminated by 2026. 

Negative List 

• 63.5% of Peru’s tariffs are to be eliminated immediately, and 91.9 per cent 

of the tariffs are to be eliminated by 2026. 

• China’s negative list – 422 tariff lines. 


Requirements 

• Peru’s negative list – 592 tariff lines. 

• Products must be wholly obtained or produced in Peru. 

• Change of tariff classification at HS 2, 4, & 6 digit levels. 



more than 40-50% of the FOB value of the product. 



• De Minimis – 10% of the FOB 


Experiences (i.e. NTBs) • Anti - Dumping: Chapter 5; Section C; Article 77: Allowed as per 

WTO/GATT, antidumping investigation is required 

• Countervailing Duties: Chapter 5; Section C; Article 77: Allowed as per 

WTO/GATT, antidumping investigation is required 

• Safeguards: Chapter 5; Section B: Allowed 

• Standards: Chapter 6: SPS. CHAPTER 7:TBT: establish the Committee on 

SPS and TBT, ensure to cooperate in technical consultations 


• Customs valuation: Chapter 2; Section E; Article 14. CHAPTER 4; Article 

55: as per WTO Committee on Customs Valuation. 

• Trade regulations publication and administration 

(transparency): Chapter 4; Article 63 

• Investment : Chapter 10 

• Competition Policy: Chapter 12; Article 159 

• Intellectual Property: Chapter 11 

• Dispute Settlement: Chapter 15 

• Technical cooperation: Chapter 7 

• Institutional mechanism: Chapter 14 


• http://www.mincetur.gob.pe/newweb/ 

Sources: WTO Secretariat, Factual Presentation of Free Trade Agreement Between Peru and China (Goods 

and Services), 2010. 


http://artnet.unescap.org/APTIAD/viewagreement.aspx?id=CHINA-PERU 

Page 54 of 88



into force in 2010. As presented in Table 3.19, In the case of Peru, 53.8 per cent of total tariff lines 

were already duty-free on an MFN basis in 2010. A further 9.6 per cent of tariff lines have become 

duty-free for imports from China in 2010. By 2019, further 26.9 per cent of Peru’s tariff lines are 

expected to liberalized, corresponding to 87.1 per cent of its imports from China in 2007-2009. At 

the end of the implementation in 2026, 91.9 per cent of tariff lines will be liberalized, accounting for 

91 per cent of imports from China. 

Table 3.19: Peru’s Tariff elimination commitments under the Agreement and corresponding 

average trade 


lines 


in Peru's tariff 

schedule 

Value of Peru's imports 



% of Peru's total 

imports from 

China 2007-2009 

MFN duty free (2010) 3,957 53.8 2,024.1 62.9 

2010 709 9.6 33.5 1.0 

2014 941 12.8 386.7 12.0 

2019 1,037 14.1 359.4 11.2 

2021 4 0.1 0.0 0.0 

2024 13 0.2 0.0 0.0 

2025 87 1.2 127.5 4.0 

2026 11 0.1 0.0 0.0 


Total 7,351 100.0 3,219.3 100.0 

Source:WTO Secretariat, Factual Presentation of Free Trade Agreement Between Peru and China (Goods),2010. 

China has also allowed duty-free access to 8.4 per cent of total tariff lines on an MFN basis in 2010, 

before the agreement came into force, which accounted for 77 per cent of imports from Peru (Table 

3.20). Upon entry into force of the Agreement, a further 52.8 per cent of tariff lines have become 

duty-free for imports from Peru in 2010. In 2019, an additional 32.6 per cent of the tariffs are to be 

liberalized. By the end of the transition period in 2026, a total of 94.6 per cent of tariff lines will be 

liberalized, accounting for 99.1 per cent of imports from Peru. 


average trade 


period 

No. of 

lines 



schedule 


from Peru (2007-2009) 



imports from 

Peru 2007-2009 

MFN duty free (2010) 649 8.4 3,409.8 77.0 

2010 4,098 52.8 148.2 3.3 

2014 908 11.7 16.5 0.4 

2016 2 0.0 699.3 15.8 

2017 14 0.2 36.2 0.8 

2019 1,604 20.7 62.1 1.4 

2021 24 0.3 12.7 0.3 

2024 12 0.2 0.0 0.0 

2025 5 0.1 4.5 0.1 

2026 20 0.3 0.0 0.0 


Total 7,758 100.0 4,427.1 100.0 

Source:WTO Secretariat, Factual Presentation of Free Trade Agreement Between Peru and China (Goods),2010. 


Page 55 of 88

Trade liberalization commitments of both China and Peru have been by product categories. As 

presented in Table 3.21, out of the 7,351 tariff lines, Peru has already allowed duty-free access to 

3,957 tariff lines on an MFN basis in 2010. An additional 709 tariff lines, for all product categories 

except plastics, footwear and headgear, transport equipment and arms and ammunition, were also 

liberalized upon entry into force of the Agreement in 2010. After ten years of implementation, a 

further 1,978 lines are to be liberalized, which mainly include chemical products, textiles and 

machinery. Almost all (531) of the 592 lines that remain dutiable at the end of the implementation 

period fall under HS section 11 (textiles). 

Table 3.21: Peru’s Tariff Elimination Under the Agreement, by HS Chapter 

MFN No. 


avg of 

% lines 



MFN 

2010 

2010 

2014 

2019 

2021 

2024 

2025 

2026 

Remain 

dutiable 

Avg. Final 

Tariff 

(Dutiable) 

% 

1. Live animals and 3.7 305 192 42 28 21 2 12 8 


2. Vegetable products 6.7 384 121 227 24 9 1 2 

3. Animal or vegetable 3.9 64 36 16 9 3 

fats and oils 

4. Prepared foods etc. 5.9 297 109 65 83 37 1 1 1 

5. Minerals 2.9 202 138 1 60 3 


3.0 1,465 970 132 125 237 1 9.0 


7. Plastics and rubber 3.4 312 195 13 94 1 9 9.0 

8. Hides and skins 8.0 79 9 12 28 25 2 3 9.0 


10. Pulp, paper etc. 5.6 246 93 12 97 41 3 9.0 

11. Textiles and textiles 14.1 966 63 17 90 201 64 531 15.8 

articles 

12. Footwear, headgear 13.4 56 27 4 25 17.0 

13. Articles of stone 3.5 174 106 21 35 7 5 9.0 


15. Base metals and base 2.5 700 505 17 39 126 1 12 9.0 


16. Machinery 1.7 1,195 991 10 133 53 6 2 9.0 

17. Transport equipment 1.8 226 181 8 37 

18. Precision equipment 3.6 290 175 66 45 3 1 

19. Arms and ammunition 9.0 69 63 6 

20. Misc. manufactured 7.1 150 31 15 73 29 1 1 9.0 

articles 


Total 5.0 7,351 3,957 709 941 1,037 4 13 87 11 592 15.5 

Source: WTO Secretariat, Factual Presentation of Free Trade Agreement Between Peru and China 

(Goods), 2010. 



upon entry into force of the Agreement, comprising mainly of chemicals and chemical products, and 

machinery and base metals. In 2019 a further 2,528 tariff lines are to be liberalized. Nonetheless, 

China maintains a negative list with a total of 422 tariff lines covering all HS categories, except 

footwear and headgear, precious stones, arms and ammunition and miscellaneous manufactured 

Page 56 of 88

articles. In 2026, the overall average tariff on dutiable lines will be 16.8 per cent with the highest 

rate for vegetables (49 per cent). 




MFN No. 


avg of 

% lines 

MFN 

2010 

2010 

2014 

2016 

2017 

2019 

2021 

2024 

2025 

2026 

Remain 

dutiable 

Avg. Final 

Tariff 

(Dutiable) 

% 

1. Live animals and 12.3 377 44 61 79 4 160 4 8 13 4 10.0 


2. Vegetable products 14.4 466 49 113 107 1 3 149 13 1 30 49.0 

3. Animal or vegetable 12.9 53 12 3 1 13 24 11.9 

fats and oils 

4. Prepared foods etc. 17.9 282 1 52 17 1 5 157 7 4 6 32 27.8 

5. Minerals 3.7 199 37 150 1 6 5 7.0 

6. Chemicals and chemical 7.0 1,206 9 1,045 32 1 93 4 22 16.0 

products 


8. Hides and skins 12.3 106 40 19 37 10 11.0 


10. Pulp, paper etc. 5.3 160 35 7 118 6.7 

11. Textiles and textiles 11.5 1,118 557 250 278 33 17.8 

articles 

12. Footwear, headgear 17.6 62 18 3 41 



15. Base metals and base 7.4 727 4 575 65 78 1 4 2.0 


16. Machinery 8.4 1,433 268 783 126 236 20 24.4 

17. Transport equipment 12.3 319 1 199 31 33 55 24.7 

18. Precision equipment 10.1 318 31 149 40 94 4 20.0 


20. Misc. manufactured 11.6 178 62 4 29 83 

articles 

21. Works of art, etc. 9.6 9 2 1 4 2 

Total 9.8 7,758 649 4,098 908 2 14 1,604 24 12 5 20 422 16.8 

Source: WTO Secretariat, Factual Presentation of Free Trade Agreement Between Peru and China 

(Goods), 2010. 


Rules of origin criteria as per the Agreement are change of tariff classification and RVC. While the 

change of tariff classification requirement should not exceed 10 per cent of the FOB value of the 

product, RVC requirement is 40-50 per cent of the FOB value of the product. Tolerance rule for tariff 

classification change criterion is also applied; non-originating materials can represent a maximum of 

10 per cent of the value of product (pursuant to regional value content). Requirements on direct 

transport rule must also be complied with. 

Page 57 of 88







domestic industry of the importing Party producing a like or directly competitive good. Disciplines 



compensation. The Parties were anticipated to agree within five years of the entry into force of the 

Agreement to meet to determine whether there is a need to maintain the bilateral safeguard 

mechanism. In addition to safeguard measures, anti-dumping, countervailing duties, SPS and TBT 

measures, customs procedures, customs valuation, competition policy, intellectual property and 

trade regulations publications and administration also covered in the Agreement. 

Page 58 of 88

3.8 China-Costa Rica Free Trade Agreement 

In June 2007, China and Costa Rica established diplomatic relations later extending them to 

economic relations. As a result, China-Costa Rica Free Trade Agreement in goods was signed on 8 th 

April 2010, which came into effect on 1 st August 2011. The agreement is expected to be fully 

implemented by 2025. China is the second largest trading partner of Costa Rica. In recent years, 

bilateral trade between the two countries has grown rapidly 

In service trade, 45 service sectors and sub-sectors of Costa Rica, including telecommunication 

services, commercial services, construction, real estate, distribution, education, environment, 

computers and tourism services, and 7 service sectors and sub-sectors of China, including computer 

services, real estate, market research, translation and interpretation and sport, will further open to 

each other, based on their respective commitments to WTO. The two countries have also agreed to 

deepen people to people exchanges as China has pledged to continue to provide personnel training 

for Costa Ricans, while the Costa Rica has promised to simplify visa procedures for Chinese tourists. 

The Agreement is composed of 16 chapters: Chapter 1: Initial Provisions, Chapter 2: Definition of 

General Application, Chapter 3: National Treatment and Market Access for Goods, Chapter 4: Rules 

of Origin and Related Operational Procedures, Chapter 5: Customs Procedures, Chapter 6: Sanitary 

and Phytosanitary Measures, Chapter 7: Technical Barriers to Trade, Chapter 8: Trade Remedies, 

Chapter 9: Investment, Trade in Services and Temporary Entry for Business Persons, Chapter 10: 

Intellectual Property Rights, Chapter 11: Cooperation, Promotion and Enhancement of Trade 

Relations, Chapter 12: Transparency, Chapter 13: Administration of the Agreement, Chapter: Dispute 

Settlement, Chapter 15: Exceptions and Chapter 16: Final Provisions. The Agreement has 13 annexes 

that contain the following: national treatment and import and export restrictions, elimination of 

tariff; geographical indications; product specific rules; certificate of origin; contact points for sanitary 

and phytosanitary matters; contact point for technical barriers to trade; schedules of specific 

commitments; working group on temporary entry of business persons; the free trade Commission; 

implementation of modifications approved by the free trade Commission; and free trade agreement 

coordinators. 

Page 59 of 88

Parties 

Table 3.23: Features of the China-Costa Rica FTA 

China , Costa Rica 


Entry into force 1 August 2011 




Negative List/Positive 

list 


Requirements 

• For China, 65.7% of tariffs lines are to be eliminated on the day the 

agreement enters into force, and 28.4% are to be eliminated in 2015. 

• 63% of Costa Rica's tariffs are to be eliminated immediately in 2011, and 

other tariffs are to be eliminated in 2015, 2020 and 2025, respectively. By 

2025, 91% of tariffs are to be eliminated. 

• China’s Negative List – 259 tariff lines 

• Costa Rica’s Negative List – 591 tariff lines 

• Change of tariff classification–Change in Tariff Classification 2 digit or 4 

digit. 



more than 40-60% of the FOB value of the product. 

• De Minimis – 10% of the FOB 

Experiences (i.e. NTBs) 

• Anti - Dumping : Chapter 8; Section C: Allowed as per WTO/GATT, with 

anti-dumping investigation 

• Countervailing Duties : Chapter 8; Section C: Allowed as per WTO/GATT 

• Safeguards : Chapter 8;Section B; Article 79: Allowed during the transition 

period only 

• Standards: Chapter 6: SPS. Chapter 7: TBT: The Parties hereby establish a 

Committee on SPS and TBT 

• Customs procedures : Chapter 5 

• Trade regulations publication and administration 

(transparency): Chapter 5; Article 48. Chapter 12;Article 129 

• E-Commerce / Paperless trade: Chapter 5; Article 50 

• Government Procurement : Article 91, Under Chapter 9 Investment, 

Trade in Services and Temporary Entry of Business Persons 

• Investment : Article 89, refer to the Agreement on the Promotion and 

Protection of Investments between the two government in forced 2007 

• Competition Policy : Article 126, cooperation only 

• Intellectual Property : Chapter 10 

• Dispute Settlement: Chapter 14 and Article 107 under Chapter 9 

• Labour and Environmental Standards : Article 159 under Chapter 15 

Exceptions 

• Technical cooperation : Article 66 

• Institutional mechanism : Chapter 3; Section G. 


• http://www.comex.go.cr/Paginas/inicio.aspx/ 

Sources: WTO Secretariat, Factual Presentation of Free Trade Agreement Between China and Costa Rica 

(Goods and Services), 2013. 


http://artnet.unescap.org/APTIAD/viewagreement.aspx?id=CHINA-COSTARICA 


Page 60 of 88


into force in 2011. As presented in Table 3.24, In the case of Costa Rica, 2.2 per cent of total tariff 

lines were already duty-free on an MFN basis in 2011. A further 60.8 per cent of tariff lines have 

become duty-free for imports from China in 2011, upon entry into force of the Agreement. By 2020, 

88.5 per cent of Costa Rica’s tariff lines are expected to liberalize. At the end of the implementation 

in 2025, 91 per cent of tariff lines will be liberalized, which will account for about 85.1 per cent of 

imports from China. 

Table 3.24: Costa Rica’s Tariff elimination commitments under the Agreement and corresponding 

average trade 


period 

No. 

of 

lines 


in Costa Rica 

tariff schedule 

Value of Costa Rica's 


(2008-2010) in million US$ 

% of Costa Rica's total 


2008-2010 

MFN duty free (2011) 142 2.2 104 12.1 

2011 3,989 60.8 377 43.7 

2015 264 4.0 25 2.9 

2020 1,411 21.5 202 23.4 

2025 167 2.5 26 3.1 

Remain dutiable 591 9.0 128 14.9 

Total 6,564 100.0 863 100.0 

Source: WTO Secretariat, Factual Presentation of Free Trade Agreement Between China and Costa Rica 


China has also allowed duty-free access to 9 per cent of total tariff lines on an MFN basis in 2011, 

before the agreement came into force, which accounted for 98.1 per cent of imports from Cost Rica 

(Table 3.25). Upon entry into force of the Agreement, a further 56.7 per cent of tariff lines have 

become duty-free for imports from Costa Rica in 2011. In 2015, an additional 28.4 per cent of the 

tariffs are to be liberalized. By the end of the transition period in 2025, a total of 99.6 per cent of 

tariff lines will be liberalized, accounting for 100 per cent of imports from Costa Rica. 


average trade 


period 

No. 

of 

lines 



schedule 


from Costa Rica 

(2008-2010) in million US$ 


imports from Costa Rica 

2008-2010 

MFN duty free (2011) 705 9.0 2,622.4 98.1 

2011 4,463 56.7 17.3 0.6 

2015 2,231 28.4 23.1 0.9 

2020 139 1.8 9.9 0.4 

2025 71 0.9 1.4 0.1 


Total 7,868 100.0 2,674.6 100.0 



Page 61 of 88


Trade liberalization commitments of both China and Costa Rica have been by product categories. As 

presented in Table 3.26, out of the 7,351 tariff lines, Peru has already allowed duty-free access to 

3,957 tariff lines on an MFN basis in 2010. An additional 709 tariff lines, for all product categories 

except plastics, footwear and headgear, transport equipment and arms and ammunition, were also 

liberalized upon entry into force of the Agreement in 2010. After ten years of implementation, a 

further 1,978 lines are to be liberalized, which mainly include chemical products, textiles and 

machinery. Almost all (531) of the 592 lines that remain dutiable at the end of the implementation 

period fall under HS section 11 (textiles). 

Table 3.26: Costa Rica’s Tariff Elimination Under the Agreement, by HS Chapter 


MFN 

average 

No. of 

lines 

MFN 

dutyfree 


the Agreement 

No. of 

lines 

Avg. Final 

Tariff 

% 

2011 2015 2020 2025 remaining (Dutiable) 

(2012) 

dutiable % 

1. Live animals and 20.6 299 132 10 78 3 76 38.9 



3. Animal or vegetable 8.9 54 8 7 6 33 10.7 

fats and oils 

4. Prepared foods etc. 14.0 274 87 23 47 10 107 20.0 

5. Minerals 3.6 178 11 140 1 22 4 


2.8 961 1 819 7 92 15 27 13.8 



8. Hides and skins 8.8 108 33 53 22 

9. Wood and articles 8.9 138 25 3 34 67 9 8.0 

10. Pulp, paper etc. 5.6 294 149 109 13 23 12.2 

11. Textiles and textiles 9.9 920 459 12 416 33 13.7 

articles 

12. Footwear, headgear 12.6 64 15 7 35 7 15.0 

13. Articles of stone 6.9 176 87 2 58 29 11.2 

14. Precious stones, etc. 7.5 54 54 

15. Base metals and 3.9 696 470 1 118 19 88 11.2 

base metals products 

16. Machinery 2.8 974 118 767 11 55 23 9.7 



19. Arms and 

12.9 21 21 

ammunition 

20. Misc. manufactured 10.9 162 32 12 105 3 10 12.7 

articles 

21. Works of art, etc. 8.2 9 4 5 

Total 6.8 6564 142 3989 264 1411 167 591 16.8 





upon entry into force of the Agreement, comprising mainly of chemicals and chemical products, and 

machinery and base metals. In 2019 a further 2,528 tariff lines are to be liberalized. Nonetheless, 

Page 62 of 88

China maintains a negative list with a total of 422 tariff lines covering all HS categories, except 

footwear and headgear, precious stones, arms and ammunition and miscellaneous manufactured 

articles. In 2026, the overall average tariff on dutiable lines will be 16.8 per cent with the highest 

rate for vegetables (49 per cent). 



MFN 

avg 

No. 

of 

MFN 

dutyfree 


the Agreement 

No. of 

lines 

Avg. Final 

Tariff 

% lines 

2011 2015 2020 2025 remaining (Dutiable) 

(2011) 

dutiable % 

1. Live animals and animal 12.0 377 51 68 145 81 32 

products 

2. Vegetable products 14.4 467 49 126 226 3 35 28 51.7 

3. Animal or vegetable fats 13.1 54 14 21 19 9.3 

and oils 

4. Prepared foods etc. 18.0 285 1 76 184 1 4 19 34.5 

5. Minerals 3.7 200 37 160 3 

6. Chemicals and chemical 6.3 1221 46 1116 56 3 50.0 

products 

7. Plastics and rubber 9.4 269 1 221 47 

8. Hides and skins 12.3 106 19 33 54 


10. Pulp, paper etc. 5.3 160 35 7 118 6.7 

11. Textiles and textiles 11.5 1128 626 491 11 38.4 

articles 


13. Articles of stone 13.5 186 1 62 123 

14. Precious stones, etc. 10.0 84 32 25 27 

15. Base metals and base 7.4 737 4 613 120 


16. Machinery 8.2 1448 278 865 295 10 27.0 


18. Precision equipment 10.1 322 31 154 136 1 5.0 



articles 

21. Works of art, etc. 9.6 9 2 1 6 

Total 9.7 7868 705 4463 2231 139 71 259 16.5 




The Agreement underlines the rules of origin criteria as change of tariff classification and RVC. While 

the change of tariff classification requirement is at HS 2-digit or 4-digit level, RVC requirement is 40- 

60 per cent of the FOB value of the product. Tolerance rule for tariff classification change criterion is 

also applied; non-originating materials can represent a maximum of 10 per cent of the value of 

product (pursuant to regional value content). Requirements on direct transport rule must also be 

complied with. For a few products in some HS chapters, an RVC may be used instead of, or in 

addition to, a change in tariff classification. These are HS chapters 41 (RVC of not less than 35 per 

cent), chapters 44 (50 per cent or 60 per cent), chapters 84 (45 per cent), chapters 85 (40 per cent), 

chapters 87 (40 per cent or 50 per cent), chapters 90 (50 per cent), and chapters 94 (60 per cent). 

Page 63 of 88

For a number of products considered as waste or scrap, such as cotton, wool, glass, iron, cotton and 

aluminium, the rule is that such products shall be derived from either processing operations 

conducted in the territory of China or Costa Rica and fit only for the recovery for the raw materials, 

or used goods collected in the territory of China or Costa Rica, provided that such goods are fit only 

for the recovery of raw materials. 







domestic industry of the importing Party producing a like or directly competitive good. Disciplines 



compensation. The two countries have also agreed to make provisions on areas such as antidumping, 

countervailing duties, standards, customs procedures, intellectual property rights, dispute 

settlement, competition policy, technical cooperation and institutional mechanism. 

Page 64 of 88

3.9 China-Switzerland Free Trade Agreement 

Having concluded nine rounds of negotiations and various inter-sessional meetings from April 2011 

to May 2013, the China-Switzerland Free Trade Agreement was signed on 6 th July 2013 and the FTA 

will be coming into force on 1 st July 2014. China is Switzerland’s third largest trading partner after 

the EU and the US and Switzerland has only a limited internal market and is therefore heavily 

dependent on foreign trade. 148149 Under the terms of the agreement, up to 99.7 per cent of Chinese 

exports to Switzerland would be exempted from tariffs, while approximately 84.2 per cent of Swiss 

exports to China would also achieve zero-duty access. 150 In addition to the potential financial gains 

for both sides as a result of this agreement, the FTA also represents an important step for Chinese 

economic diplomacy in Europe, highlighting Beijing’s commitment to deepening its trade ties with 

the continent. 151 Nonetheless, there had been criticism coming from NGOs and lefties parties of 

Switzerland about the FTA with China demanding for renegotiation, with explicit provisions on 

human rights and labour protection to be included in the text of the treaty. 

The Agreement is composed of 16 chapters: Chapter 1: General Provisions, Chapter 2: Trade in 

Goods, Chapter 3: Rules of Origin and Implementation Procedures, Chapter 4: Customs Procedures 

and Trade Facilitation, Chapter 5: Trade Remedies, Chapter 6: Technical Barriers to Trade, Chapter 7: 

Sanitary and Phytosanitary Measures, Chapter 8: Trade in Services, Chapter 9: Investment 

Promotion, Chapter 10: Competition, Chapter 11: Protection of Intellectual Property Rights, Chapter 

12: Environmental Issues, Chapter 13: Economic and Technical Cooperation, Chapter 14: Institutional 

Provisions, Chapter 15: Dispute Settlement and Chapter 16: Final Provisions. The Agreement has 11 

annexes that contain the following: national treatment and import and export restrictions, 

elimination of tariff; geographical indications; product specific rules; certificate of origin; contact 

points for sanitary and Phytosanitary matters; contact point for technical barriers to trade; schedules 

of specific commitments; working group on temporary entry of business persons; the free trade 

Commission; implementation of modifications approved by the free trade Commission; and free 

trade agreement coordinators. 

148 Lanteigne, M. (2014), “The Sino-Swiss Free Trade Agreement”, CSS Analyses in Security Policy, available at: 

[http://www.css.ethz.ch/publications/pdfs/CSSAnalyses147-EN.pdf] 

149 Ibid. 

150 Ibid. 

151 Ibid. 

Page 65 of 88

3.10 China-Iceland Free Trade Agreement 

The Iceland-China FTA is a comprehensive agreement as envisioned at the beginning of the 

negotiation, covering a wide range of issues like trade in goods, rules of origin, trade facilitation, 

intellectual property rights, trade in services, investment, competition, cooperation, institutional 

provisions and dispute settlement. Both countries have also made more commitments than they 

made to WTO on trade in services. 152 The first round of Iceland-China Free Trade negotiation was 

held in Beijing in April 2007. 153 The six-year Iceland-China FTA negotiations were formally concluded 

by signing the agreement in April 2013 and will come into effect 1 st July 2014. 154 The agreement 

covers trade in goods, services and investment. This FTA can be regarded as a guiding light for 

China´s on-going and future FTA negotiations with European countries. The FTA is expected to 

provide zero tariffs to all industrial products from China, which account for 99 per cent of the total 

exports of China to Iceland at present. 155 At the same time, China is also expected to implement zero 

tariffs to Icelandic products under 7,830 tariff lines, accounting for 82 per cent of current exports of 

Iceland to China. 156 Furthermore, tariffs on a small number of products shall be liberalized after a 

transitional period of 5 or 10 years. 157 

The Agreement is composed of 12 chapters: Chapter 1: General Provisions, Chapter 2: Trade in 

Goods, Chapter 3: Rules of Origin, Chapter 4: Customs Procedures and Trade Facilitation, Chapter 5: 

Competition, Chapter 6: Intellectual Property Rights, Chapter 7: Trade in Services, Chapter 8: 

Investment, Chapter 9: Cooperation, Chapter 10: Institutional Provisions, Chapter 11: Dispute 

Settlement and Chapter 12: Final Provisions. The Agreement has 9 annexes that contain the 

following: tariff schedule, competent authorities and contact points on SPS, competent authorities 

and contact points on TBT, product specific rules of origin, certificate of origin, declaration of origin, 

schedules of specific commitments in services, movement of natural persons supplying services; and 

rules of procedure of the arbitration panel. 

152 Jonsson, O. D., I Hannibalsson & L Yang (2013), “A bilateral free trade agreement between China and 

Iceland”, available at: [http://skemman.is/stream/get/1946/16786/39049/3/OrnDJonsson_VID.pdf] 

153 Ibid. 

154 Skjaldarson, S. (2014), “The Iceland-China Free Trade Agreement: A Milestone for Strengthening Good 

Relations Between Iceland and China,” available at: [http://www.chinatoday.com.cn/english/society/2014- 

05/05/content_617157.htm] 

155 Jonsson, O. D., I Hannibalsson & L Yang (2013), “A bilateral free trade agreement between China and 

Iceland”, available at: [http://skemman.is/stream/get/1946/16786/39049/3/OrnDJonsson_VID.pdf] 

156 Ibid. 

157 Ibid. 

Page 66 of 88

3.11 Conclusion 

China’s shift in trade policy from multilateralism to bilateral/regional arrangements took place in the 

late 1990s, following its accession to the WTO. Though China was a latecomer to regional trade 

agreements, China has become an active participant 158 and is a party to eleven bilateral trade 

agreements and a regional trade agreement: ASEAN (2004), Hong Kong (2004), Macao (2004), Chile 

(2006), Pakistan (2007), New Zealand (2008), Singapore (2008), Peru (2009), Costa Rica (2010), 

Taiwan (2010), Switzerland (2014) and Iceland (2014). While its earliest agreements were signed 

with neighbours (Hong Kong, Macau, ASEAN and Asia Pacific Trade Agreement), China has since 

moved beyond the region in search of FTA partners. 159 The structure of the agreements has 

changed – they have become deeper over time and more recent agreements include service 

liberalisation commitments. 160 

When negotiating with China Sri Lanka should be mindful of the challenges that were encountered 

with the existing FTAs that Sri Lanka has signed. These include issues related to tariff liberalization 

programme, ROO, NTBs including MRAs and TRQs, Institutional support, Awareness of agreements 

and Consultation with stakeholders. These need to be properly addressed to ensure that Sri Lanka 

utilize the agreement and benefit from it. 

Gradual trade liberalization: Generally speaking China has adopted a gradual stance in negotiating 

with trading partners, striking an agreement on trade in goods, then services and investment, 

followed by a comprehensive FTA package. 161 The ASEAN-China FTA, China-Chile FTA and China- 

Pakistan FTA were adopted gradually. Both China-ASEAN FTA and China-Pakistan FTA were preceded 

by an Early Harvest Programme, which was based on tariff reductions, after which further 

negotiations on goods, services and investment took place. 162 For example, the liberalization of 

trade in goods with Pakistan was started with the signing of the Agreement on Early Harvest 

Programme in April 2005, the Agreement on Trade in Services was signed fours later in February 

2009. 163 Similarly, the Agreement on trade in goods with ASEAN was signed in November 2004 while 

the agreement on services was signed in January 2007. In contrast, China-New Zealand and, China- 

Singapore and China-Peru FTAs were more comprehensive in scope at the time of signing, including 

special provisions for labour and environment, etc. 164 It would be best for Sri Lanka to adopt a 

gradual approach, which China has accommodated in its FTAs with other countries. Therefore Sri 

Lanka should first sign the agreement on trade in goods before investments, services and other 

complex issues are dealt with to build confidence amongst stakeholders. 

Trade liberalization programme: This varied across the FTAs, from 2 years in the case of Singapore to 

17 years in the case of Peru while LDC partners of ASEAN were given special and differential 

treatment comply; for example, Cambodia, Myanmar, Laos, Vietnam were given additional years to 

158 WTO (2012) Trade Policy Review: China, Secretariat Report. 

159 Ibid 

160 Ibid 

161 Gao, H. (2011), “China’s Strategy for Free Trade Agreements: Political Battle in the Name of Trade” 

162 Zhang, Y. Economic and Social Impact of Liberalization: A <strong>Study</strong> on Early Harvest Program under China- 

ASEAN FTA, Beijing: Social Sciences Academic Press 

163 Gao, H. (2011), “China’s Strategy for Free Trade Agreements: Political Battle in the Name of Trade”. 

164 Zhao, J. & Webster, T. (2011), Taking Stock: China’s First Decade of Free Trade. 

Page 67 of 88

liberalise trade with China compared to ASEAN-6 partners. In seeking a trade deal in goods with 

China Sri Lanka should also ensure to obtain special and differential treatment given the 

asymmetries between Sri Lanka and China. For example, LDCs members of ASEAN have obtained a 

longer tariff liberalization period with China compared to other members. At the same time a 

prolonged tariff liberalization period could lead to erosion of preferences as China has already signed 

11 FTAs and in the process of negotiating 7 other FTAs. 

Coverage of trade: In general, the agreements have a relatively high tariff line and bilateral import 

coverage. For example, in its agreements with Chile, Peru and New Zealand, China commits to 

eliminate duties on 94.6 per cent to 97.2 per cent of the tariff lines, which corresponds to 88-99.1 

per cent of its bilateral imports from these trading partners. 165 However, tariffs and trade under FTA 

with Pakistan has not been liberalized to a substantial level even after its full implementation in 

2012; duties on 35.4 per cent will be eliminated, corresponding to 44.4 per cent of China’s imports 

from Pakistan. Pakistan too has committed to relatively low levels of tariff elimination in the 

agreement. In negotiating tariff concessions with China, Sri Lanka needs to include not only existing 

but also the potential exports to China and needs to ensure for these existing and potential exports 

that tariffs are reduced or eliminated to the same extent as those offered to China’s other FTA 

partners. 

Negative Lists: China’s FTAs take into account the sensitiveness of both countries and contain 

Negative Lists, which exclude a number of products from tariff liberalisation. Except with Singapore, 

China maintains a negative list with all the other FTA members to protect its domestic industries. 

Among others a number of vegetable products, animal and vegetable fats and oils, prepared food, 

chemicals, wood products, pulp and paper, and textile categories are protected by China (Table 

3.28). In almost all of the agreements, China has placed a large number of pulp and paper in its 

negative list. Almost all of the agreements cover a substantial number of tariff lines and trade, with 

the exception of FTA with Pakistan. A considerable number of products are placed in China’s 

negative list with Pakistan (4,936 out of 7646 tariff lines). Similarly, Pakistan maintains a large 

Negative List (4394 out of 6911 tariff lines). There are no products exclusions in the FTA with ASEAN 

members. Nevertheless, ASEAN and China maintain a Sensitive List (SL) and a Highly Sensitive List 

(HSL) for which tariffs are lowered incrementally between 2012 and 2018. However, China’s 

negative list has been based on principles of reciprocity. Thus Sri Lanka needs to decide on how long 

or short its negative list is going to be with China. 

165 WTO (2012) Trade Policy Review: China, Secretariat Report. 

Page 68 of 88

HS section and description 

Table 3.28: China’s Products in the Sensitive List 

Remain Dutiable Upon Full Implementation of the FTA 

Chile New Pakistan Peru Costa Singapore 

Zealand 

Rica 

1. Live animals and animal 

325 4 

products 

2. Vegetable products 25 25 291 30 28 30 

3. Animal or vegetable fats 19 19 51 24 19 11 

and oils 

4. Prepared food etc. 6 6 234 32 19 22 

5. Minerals 41 5 5 

6. Chemical and products 4 3 691 22 3 30 

7. Plastics and rubber 241 17 9 

8. Hides and skins 81 10 

9. Wood and articles 25 41 87 44 50 57 

10. Pulp, paper etc. 124 118 125 118 118 6.7 

11. Textile and textile articles 11 11 568 33 11 20.5 

12. Footwear, headgear 56 

13. Articles of stone 161 

14. Precious stones, etc. 38 

15. Base metals and products 439 4 2 

16. Machinery 925 20 10 27 

17. Transport equipment 252 55 87 

18. Precision equipment 208 4 1 

19. Arms and ammunition 21 

20. Misc. manufactured 

94 3 

articles 

21. Works of art, etc. 7 

Total 214 223 4,936 422 259 425 

Source: WTO Secretariat, Factual Presentation of Free Trade Agreement, between various countries. 


Preferential rules of origin: Rules of origin, which are used to determine the country of origin of a 

product in preferential trade agreements, tend to vary from agreement to agreement. Sometimes 

they across product groups, which add to the complexity of China's import regime. The primary 

criteria of Rules of Origin under the various FTAs are: wholly obtained and substantial 

transformation criteria. 166 Substantial transformation criteria include change in tariff classification 

criterion, regional value content criterion, manufacturing process criterion, or combination of the 

criteria mentioned above. China’s FTAs with ASEAN, Chile, Pakistan, Singapore mainly use the 

regional value content criterion, while China’s FTAs with New Zealand, Peru and Costa Rica mainly 

use the change in tariff classification criterion, supplemented by the regional value content and the 

manufacturing process criteria. Regarding the substantial transformation criteria adopted under 

166 N.A. (2010) Joint Feasibility <strong>Study</strong> on a China-Switzerland Free Trade Agreement, available at: 

http://www.google.lk/url?url=http://www.seco.admin.ch/themen/00513/00515/01330/05166/index.html%3F 

lang%3Dde%26download%3DNHzLpZeg7t,lnp6I0NTU042l2Z6ln1acy4Zn4Z2qZpnO2Yuq2Z6gpJCFen58gWym16 

2epYbg2c_JjKbNoKSn6A--&rct=j&frm=1&q=&esrc=s&sa=U&ei=o6mzU_- 

THJO0uASXsIG4Cw&ved=0CBIQFjAA&usg=AFQjCNHflmhl-Vziijevwh6PAmANV513zg 

Page 69 of 88

various China’s FTAs, a product specific rules of origin list had been set out for products to be 

granted originating status. Besides, the imported goods must meet the direct transport rule to apply 

for preferential rules of origin. Thus Sri Lanka can negotiate in line with its existing preferential ROOs 

similar to those adopted by the PSFTA. 

Services: While the Trade in Goods Agreements have taken a negative list approach, China’s Trade 

in Services Agreements have taken a positive list approach in line with WTOs General Agreement on 

Trade in Services (GATS). Interestingly, China FTAs with ASEAN, Chile and Pakistan, the Agreement 

on Services is separate document and followed the Agreement on Goods while in the case of 

partner countries (New Zealand, Peru, Singapore, Costa Rica), the FTA agreement was more 

comprehensive in coverage and include not only trade in goods but also services liberalisation. All 

the services agreements have covered all four modes, namely Cross-border supply (Mode1), 

Consumption Abroad (Mode2), Commercial Presence (Mode3) and Presence of Natural Persons 

(Mode4). While all the services agreements have a specific chapter on Movement of Natural 

Persons, specific sector commitments have been made in the FTAs with the following partner 

country: Air services liberalization in FTAs with Pakistan, New Zealand, Peru and Costa Rica; Financial 

services liberalization in FTAs with Chile, Costa Rica and Peru; national maritime cabotage 

liberalization in FTAs with Chile, Pakistan and Costa Rica. 

Singapore offers corporate benefits include reduction on withholding taxes for a variety of services, 

including chargeable royalties under the agreement on services. This, coupled with Singapore’s low 

corporate and individual income tax rates, is one of the reasons Singapore is becoming a corporate 

regional hub for investments into China and Asia. As foreign investors automatically qualify as 

Singaporean companies when setting up a subsidiary there, they can also access Singapore’s own 

impressive array of international tax treaties, which include numerous other FTAs, as well as over 80 

bilateral double tax agreements. Therefore, if Sri Lanka is attempting to position itself as a regional 

hub for investors then the benefits that Sri Lanka can offer has to be either equal or impressive than 

that of Singapore’s. This could also have good synergies with Sri Lanka’s commercial hub regulations 

which enables entreport trade, logistical/ warehousing activity for regional distribution as well. 

Other issues: Due to their focus on liberalizing markets and facilitation trade, agreements between 

China and other developing countries focused on reducing tariffs and non-tariff barriers to trade. 

Moreover, China was reluctant to include issues such as environment protection, competition policy 

and labour standard as part of the FTA package. 167 However, China has shown some willingness to 

broaden its focus and include other these issues over time. For example, China’s agreements with 

developed countries such as New Zealand and Singapore in 2008 incorporate other issues including 

intellectual property rights, trade facilitation, labour standards, and competition policy. 168 

Nonetheless, China has taken a cautionary approach and chosen not to include them in the main 

agreement of the FTA but as stand-alone agreements or MOUs. 169 China has recently taken a more 

comprehensive approach to FTAs with the agreements with Iceland and Switzerland signed in 

167 Gao, H. (2011), “China’s Strategy for Free Trade Agreements: Political Battle in the Name of Trade”, 

available at: [http://www.networkideas.org/networkideas/editorfiles/file/Henry_Gao.pdf] 

168 Zhan, Yunling (2011), People’s Republic of China, in Asia’s Free Trade Agreements: How is Business 

Responding? (ed.) M. Kawai & G. Wignaraja, Edward Elgar Publishing, pp.107-109. 

169 Gao, H. (2011), “China’s Strategy for Free Trade Agreements: Political Battle in the Name of Trade”, 

available at: [http://www.networkideas.org/networkideas/editorfiles/file/Henry_Gao.pdf] 

Page 70 of 88

2013. 170 China is now demonstrating a greater willingness to engage in deeper level of liberalization 

of trade, shifting from the previous strategy of focusing on trade in goods to a broader focus on 

issues beyond goods. However, Chine’s FTAs are not as comprehensive in terms of coverage and 

depth compared to other countries/groups like the US, Japan and the EU. 171 As demonstrated in Sri 

Lanka’s experience with FTAs, reducing tariffs is only part of the story in accessing markets abroad. 

In this regard NTBs need to be identified and dealt with in order to ensure that they are not 

unnecessarily restrictive and anti-competitive. 

In conclusion, what can be said regarding the salient features of China’s FTAs is none of the 

Agreements follow one template/model but they are tailored to partner country’s’ preferences. The 

FTAs differ widely from one agreement to another unlike the US practice. The US has a standard 

model as well as enhancements to that model to which it more or less adheres in negotiating 

FTAs. 172 In comparison, China is less stringent and more flexible; each agreement is a product or 

collaboration between China and partner countries. According to Zhao and Webster (2011: p.99), 

the ‘greatest defining feature of Chinese FTAs is their malleability’, which serves China’s interest as 

well those of Sri Lanka. More importantly such an approach stands to quell the China Threat, which 

is afflicts businesses around the world including those in Sri Lanka. 

170 Pan, X. (2014), China’s FTA Strategy, The Diplomat, Available at: http://thediplomat.com/2014/06/chinasfta-strategy/ 

171 Ibid 

172 Zhao, J. & Webster, T. (2011), Taking Stock: China’s First Decade of Free Trade, 

Page 71 of 88

Sri Lanka’s Potential Exports 

to China under Proposed 

FTA 

Page 72 of 88


Over the past 55 years Sri Lanka’s bilateral economic relations with China has expanded under very 

cordial relations established between the two countries. According to trade statistics, bilateral trade 

has seen a notable expansion. Total trade between the two countries has doubled between 2009 

and 2012 from US$ 1.1bn to US$ 2.6 bn. China is now Sri Lanka’s second largest trading partner as 

well as the second largest source of imports (after India). In 2012, China accounted for 14 per cent of 

the total imports of Sri Lanka but is less prominent as an export market for Sri Lanka. It ranked as the 

16 th largest export destination and accounted for only 1.2 per cent of total exports from Sri Lanka in 

2012. Nevertheless, the importance of China as an export destination seems to be on the rise given 

that exports to China have been growing vigorously over the years, recording an annual growth of 27 

per cent annually during 2008-2012. 

There lies potential for Sri Lanka to expand trade with China given the sheer size of the Chinese 

market and its share of world trade. In 2012, China has imported US$ 1,818 bn from the world 

(accounting for 10 per cent of world imports) and exported US$ 2,048 bn (11 per cent of world 

exports). Therefore, this section intends to identify Sri Lanka’s Top exports to China and calculate the 

Revealed Comparative Advantage (RCA) to capture the potential list of exports from Sri Lanka to 

China. 

4.2 Sri Lanka’s Current Export Categories/Products to China 

In 2012, Sri Lanka exported US$ 121 mn worth of goods to China, of which textiles accounted for 

nearly 41 per cent of Sri Lanka’s exports to China (Table 4.1). Plastics/rubbers, vegetable products 

and mineral products each accounted for around 13 per cent of total exports to China and were 

other significant export categories to China. These four categories together accounted for 81 per 

cent of Sri Lanka’s total exports to China in 2012. 

Table 4.1: Sri Lanka’s Exports to China, 2012 

Product Category 

Sri Lanka's Exports Percentage of Sri Lanka’s 

to China (US$ 000) Total Exports to China 

01-05 Animal & Animal Products 363 0.3 

06-15 Vegetable Products 16,089 13.3 

16-24 Foodstuffs 3879 3.2 

25-27 Mineral Products 15,401 12.8 

28-38 Chemicals & Allied Industries 2081 1.7 

39-40 Plastics / Rubbers 16,393 13.6 

41-43 Raw Hides, Skins, Leather, & Furs 111 0.1 

44-49 Wood & Wood Products 1,148 1.0 

50-63 Textiles 49,310 40.8 

64-67 Footwear / Headgear 1,012 0.8 

68-71 Stone / Glass 690 0.6 

72-83 Metals 309 0.3 

84-85 Machinery / Electrical 4,417 3.7 

86-89 Transportation 7,762 6.4 

90-97 Miscellaneous 1,720 1.4 

98-99 Service 47 0.0 

Total 120,732 100.0 

Source: ITC TradeMap 

Page 73 of 88

A list of Sri Lanka’s top ten exports (at HS 6-digit level) is given below in Table 4.2. These ten exports 

in total accounted for around 68 per cent of Sri Lanka’s total exports to China in 2012. It should be 

highlighted that 39 per cent of the top ten exports to China belonged to the textile sector, while the 

plastics/rubber sector accounted for 16 per cent. Given the significance of the top ten exports to 

China, it is imperative that these products are figured prominently in trade negotiations with China 

and Sri Lanka obtains considerable tariff reductions for them – see section 4 for further details 

relating to applicable tariffs. 

HS code 

(6 digit 

level) 

Table 4.2: Sri Lanka’s Top Ten Exports to China, 2012 

Product Description 

Sri Lanka's Exports to 

China (US$ 000) 

Percentage of 

Sri Lanka’s 

Total Exports 

to China 

530500 

Coconut, abaca Manila hemp or Musa textiles 

Nee, ramie, agave and other 

27,798 23.0 

261400 Titanium ores and concentrates 13,806 11.4 

090240 

Black tea (fermented) & partly fermented tea in 

packages exceeding 3 kg 

10,273 8.5 

400599 

Compounded rubber, unvulcanised in primary 

forms nes 

6,891 5.7 

890190 

Cargo vessels nes & other vessels for the 

transport of both persons & goods 

6,055 5.0 

090230 

Black tea (fermented)&partly fermented tea in 

packages not exceeding 3 kg 

3,826 3.2 

610990 

T-shirts, singlets and other vests, of other textile 

materials, knitted 

3,763 3.1 

401290 

Solid or cushioned tyres, interchangeable tire 

treads & tyre flaps of rubber 

3,597 3.0 

240120 

Tobacco, unmanufactured, partly or wholly 

stemmed or stripped 

3,361 2.8 

400129 Natural rubber in other forms nes 2,505 2.1 

Sri Lanka’s total exports to China 120,732 67.8 


4.3 Sri Lanka’s Potential Export Categories/Products 

Potential export products/sectors were identified using Revealed Comparative Advantage (RCA) 

index. The index uses the trade pattern to identify the products in which the economy has a 

comparative advantage (or disadvantage), by comparing the country of interest’s trade profile with 

the world average. More specifically RCA formula is given as: 

RCAij = (xij/Xit) / (xwj/Xwt) 

Where xij and xwj are the values of country i’s exports of product j and world exports of product j 

and where Xit and Xwt refer to the country’s total exports and world total exports. 

The RCA value ranges from 0 and + ∞. If the value is equal or more than unity it implies that the 

country has a revealed comparative advantage in the product. Similarly, if the index is less than 

unity, the country is said to have a revealed comparative disadvantage in the product. 

Page 74 of 88

Using World Bank’s WITS database the RCA index was calculated for Sri Lanka for export products (at 

HS 6-digit level). In order to identify potential products RCA was calculated for four years (2009 to 

2012) and the products that have a comparative advantage (RCA≥1) for at least two years were 

selected. From 2009 to 2012 Sri Lanka exported 2,066 to 2,188 products (HS 6-digit level) to the 

world per year, out of which Sri Lanka had a comparative advantage in 566 products (HS 6-digit 

level). Table 4.3 summarises the products category-wise. 

As shown in Table 4.3, Sri Lanka has a comparative advantage in textiles – there is a total of 248 

product lines (at HS 6-digit level) for which Sri Lanka has a comparative advantage. In addition to 

textiles, Sri Lanka has a comparative advantage in vegetable products (65 product lines), wood and 

wood products (32 product lines) and foodstuff (28 product lines). RCA indices for sectors and 

products at HS code 2-digit and 6-digit levels, respectively are given in Table 4.4. 

Table 4.3: Export Sectors and Products to World with Comparative Advantage, 

Sri Lanka, 2009-2012 


Number of products 

(HS 6-digit level) 

01-05 Animal & Animal Products 27 

06-15 Vegetable Products 65 

16-24 Foodstuffs 28 

25-27 Mineral Products 12 

28-38 Chemicals & Allied Industries 17 

39-40 Plastics / Rubbers 30 

41-43 Raw Hides, Skins, Leather, & Furs 6 

44-49 Wood & Wood Products 32 

50-63 Textiles 248 

64-67 Footwear / Headgear 14 

68-71 Stone / Glass 18 

72-83 Metals 18 

84-85 Machinery / Electrical 24 

86-89 Transportation 7 

90-97 Miscellaneous 20 

98-99 Service 0 

Total 566 

Source: WITS trade data 

Page 75 of 88

Table 4.4: Export Sectors and Products to World with a Comparative Advantage, 

Sri Lanka, 2009-2012 

Sector 

(HS Code 2-digit level) 

Number of 

products 

Product 

(HS Code 6 -digit level) 

2 1 20220 

3 23 

30110, 30229, 30232, 30239, 30332, 30342, 30345, 30349, 

30379, 30410, 30420, 30490, 30559, 30611, 30612, 30613, 

30614, 30622, 30623, 30624, 30741, 30749, 30799 

4 1 40299 

5 2 50290, 50800 

6 5 60210, 60290, 60410, 60491, 60499 

7 10 

70890, 70959, 70990, 71140, 71190, 71331, 71339, 71340, 

71410, 71490 

8 13 

80111, 80119, 80132, 80290, 80300, 80420, 80430, 80550, 

80590, 80720, 81090, 81290, 81340 

9 18 

90210, 90220, 90230, 90240, 90411, 90412, 90420, 90610, 

90620, 90700, 90810, 90820, 90830, 91010, 91020, 91030, 

91091, 91099 

10 1 100620 

11 5 110100, 110210, 110290, 110610, 110620 

12 5 120300, 120740, 120930, 120999, 121190 

13 2 130190, 130220 

14 1 140490 

15 5 150410, 151311, 151319, 151550, 151790 

16 3 160100, 160242, 160415 

17 1 170290 

18 2 180310, 180400 

19 3 190300, 190490, 190531 

20 7 200110, 200190, 200819, 200820, 200929, 200949, 200980 

21 2 210120, 210690 

23 5 230230, 230240, 230250, 230650, 230990 

24 5 240110, 240120, 240130, 240210, 240310 

25 8 

250410, 250490, 250510, 250610, 250612, 252510, 252530, 

253090 

26 4 261400, 261510, 262019, 262029 

28 4 281700, 282410, 282490, 284690 

29 2 291421, 263690 

31 1 310390 

32 1 321000 

33 4 330190, 330520, 330530, 330749 

34 1 340119 

35 2 350520, 350790 

38 2 380210, 380991 

Page 76 of 88

39 4 391231, 391239, 392321, 392620 

40 26 

400110, 400121, 400129, 400300, 400400, 400599, 400811, 

400819, 400821, 401120, 401130, 401150, 401193, 401199, 

401219, 401290, 401310, 401320, 401390, 401490, 401511, 

401519, 401590, 401691, 401693, 401699 

41 1 410640 

42 5 420219, 420310, 420321, 420329, 420340 

44 7 440200, 440729, 441039, 441129, 441300, 441700, 442190 

46 1 460210 

47 3 470710, 470730, 470790 

48 15 

480210, 480220, 480540, 480820, 481141, 481149, 481710, 

481720, 481910, 481930, 481940, 482050, 482090, 482110, 

482190 

49 6 490210, 490300, 490700, 490810, 490890, 491199 

50 1 500790 

52 14 

520210, 520299, 520521, 520523, 520524, 520542, 520543, 

520829, 520911, 520929, 520931, 520932, 520939, 520942 

53 5 530500, 530590, 530810, 531090, 531100 

54 6 540120, 540231, 540239, 540241, 540490, 540720 

55 12 

550120, 550510, 550520, 550620, 550810, 551011, 551012, 

551219, 551311, 551319, 551449, 551512 

56 5 560130, 560290, 560410, 560790, 560819 

57 1 570220 

58 12 

580410, 580421, 580429, 580430, 580620, 580639, 580640, 

580710, 580790, 580890, 581092, 581100 

59 4 590290, 590390, 590691, 591000 

60 13 

600240, 600290, 600320, 600390, 600490, 600590, 600610, 

600621, 600622, 600624, 600642, 600644, 600690 

61 87 

610130, 610190, 610220, 610290, 610319, 610329, 610332, 

610333, 610339, 610342, 610343, 610349, 610413, 610419, 

610431, 610432, 610433, 610439, 610441, 610442, 610443, 

610444, 610449, 610452, 610453, 610459, 610461, 610462, 

610463, 610469, 610510, 610520, 610590, 610610, 610620, 

610690, 610711, 610712, 610719, 610721, 610722, 610729, 

610791, 610799, 610811, 610819, 610821, 610822, 610829, 

610831, 610832, 610839, 610891, 610892, 610899, 610910, 

610990, 611011, 611019, 611020, 611030, 611090, 611120, 

611130, 611190, 611211, 611212, 611219, 611231, 611239, 

611241, 611249, 611420, 611430, 611490, 611512, 611519, 

611591, 611592, 611599, 611610, 611691, 611692, 611693, 

611710, 611780, 611790 

Page 77 of 88

62 77 

620111, 620112, 620113, 620119, 620211, 620219, 620291, 

620292, 620332, 620333, 620339, 620342, 620343, 620349, 

620411, 620412, 620413, 620419, 620431, 620432, 620433, 

620439, 620441, 620442, 620443, 620444, 620449, 620451, 

620452, 620453, 620459, 620461, 620462, 620463, 620469, 

620520, 620530, 620590, 620610, 620620, 620630, 620640, 

620690, 620711, 620719, 620721, 620722, 620729, 620791, 

620799, 620811, 620819, 620821, 620822, 620829, 620891, 

620892, 620899, 620920, 620930, 620990, 621030, 621111, 

621112, 621132, 621139, 621141, 621142, 621143, 621210, 

621220, 621230, 621290, 621590, 621600, 621710, 621790 

63 11 

630293, 630520, 630533, 630539, 630590, 630622, 630631, 

630790, 630800, 631010, 631090 

64 4 640192, 640199, 640391, 640520 

65 6 650200, 650400, 650510, 650590, 650699, 650700 

66 1 660390 

67 3 670290,670419, 670420 

68 2 680221, 681599 

69 6 690810, 691110, 691190, 691200, 691310, 691390 

70 2 701090, 701990 

71 8 

710231, 710239, 710310, 710391, 710399, 710490, 711311, 

711719 

72 2 721669, 722611 

73 2 730290, 731300 

74 5 740312, 740319, 740811, 740819, 741129 

76 1 761511 

78 2 780110, 780199 

82 3 820719, 820730, 821210 

83 3 830220, 830810, 830890 

84 11 

841012, 841850, 842320, 842390, 842619, 842820, 843120, 

843860, 844010, 845130, 845180 

85 13 

850421, 850431, 851780, 851939, 853223, 853229, 853290, 

853400, 853540, 853810, 853890, 854411, 854430 

87 3 871200, 871639, 871690 

88 1 880400 

89 3 890190, 890200, 890391 

90 2 903083, 903180 

91 1 910990 

94 4 940350, 940421, 940429, 940430 

95 7 950390, 950510, 950590, 950621, 950629, 950720, 950790 

96 6 960310, 960329, 960330, 960621, 960629, 960711 

Total 566 

Page 78 of 88

4.4 Identification of Potential Export Products/Sectors from Sri Lanka to China 

When analyzing Sri Lanka’s potential exports (at HS 6-digit level) to China, it becomes evident that 

Sri Lanka has the potential in 542 products out of 566 products for which Sri Lanka has a 

comparative advantage vis-à-vis the world. China does not import 24 products from the world 

though Sri Lanka has a comparative advantage in them. 

Of the 542 potential exports to China, Sri Lanka already exports 243 products. The other 299 

products with trade potential to China are currently not exported by Sri Lanka to China but are 

imported by China from elsewhere in the world, presenting new market opportunities for Sri Lankan 

exporters of these products. Appendix 1 lists the 542 potential exports to China. For example, Sri 

Lanka currently does not export HS020220 Meat of Bovine Animals with Bone in (Frozen) to China 

but China imports US$ 20 mn from the world and Sri Lanka currently exports US$ 0.5 to the rest of 

the world. Appendix also provides the indicative trade potential by value (US$ ‘000) for each of the 

potential products to China. Table 4.5 lists the Indicative trade potential with China by export 

category, while Table 4.6 shows the top ten products with the highest indicative potential to China. 

Indicative potential is defined as the lower of the value a selected country exports to the world or 

the value the partner country imports from the world minus the current trade between the two 

countries under review. For example, Sri Lanka is currently exporting US$ 7,000 worth of diamonds 

to China while Sri Lanka exports US$ 257 mn of diamonds to the world and China imports US$ 4 bn 

from the rest of the world (Table 4.6). Thus, Sri Lanka has an indicative potential to export US$ 256 

mn worth of diamonds to China. In summary when negotiating a trade deal with China it is 

important to not only look at the current products/sectors but also to consider products/sectors for 

which Sri Lanka has a comparative advantage and high trade potential to trade with China (Appendix 

2 lists the 542 products in which Sri Lanka has a comparative advantage ranked by the value of 

indicative potential to China). 

Table 4.5: Sri Lanka’s Indicative Trade Potential with China, 2012 


Indicative Potential 

Trade (US$ 000) 

Percentage of Total 

Indicative Potential 

01-05 Animal & Animal Products 53,870 1.4 

06-15 Vegetable Products 164,910 4.1 

16-24 Foodstuffs 213,183 5.4 

25-27 Mineral Products 26,179 0.7 

28-38 Chemicals & Allied Industries 91,891 2.3 

39-40 Plastics / Rubbers 458,366 11.5 

41-43 Raw Hides, Skins, Leather, & Furs 15,799 0.4 

44-49 Wood & Wood Products 100,723 2.5 

50-63 Textiles 1,936,464 48.6 

64-67 Footwear / Headgear 21,976 0.6 

68-71 Stone / Glass 453,908 11.4 

72-83 Metals 41,261 1.0 

84-85 Machinery / Electrical 204,058 5.1 

86-89 Transportation 130,476 3.3 

90-97 Miscellaneous 69,059 1.7 

98-99 Service - 1.4 

Total 3,982,123 4.1 


Page 79 of 88

HS Code 

(6 digit 

level) 

Table 4.6: Top Ten Products with the Highest Indicative potential (US$ ‘000), 2012 

Product description 

Sri Lanka's 

Exports to 

China 

China's 

Imports from 

the World 

Sri Lanka's 

exports to 

world 

Indicative 

Potential 

Trade 

710239 

Diamonds non-industrial nes excluding 

mounted or set diamonds 

7 4,226,239 256,672 256,665 

620342 

Mens/boys trousers and shorts, of cotton, 

not knitted 

1,078 256,959 284,305 255,881 

610910 

T-shirts, singlets and other vests, of cotton, 

knitted 

392 180,074 187,956 179,682 

620520 Mens/boys shirts, of cotton, not knitted 372 191,644 140,775 140,403 

620462 

Womens/girls trousers and shorts, of cotton, 

not knitted 

304 147,553 122,336 122,032 

401519 Gloves nes of rubber 1,071 86,034 131,670 84,963 

890190 

Cargo vessels nes & other vessels for the 

transport of both persons & goods 

6,055 167,814 91,013 84,958 

530500 

Coconut, abaca Manila hemp or Musa 

textiles Nee, ramie, agave and other 

27,798 206,221 112,380 84,582 

610990 

T-shirts, singlets and other vests, of other 

textile materials, knitted 

3,763 75,302 163,524 71,539 

380210 Activated carbon 1,635 65,429 77,096 63,794 


4.5 China’s Tariff Rates 

China employs three types of import duty rates, namely general rates, MFN rates and preferential 

rates. While MFN rates are applied to imports from WTO members, preferential rates are applied to 

imports originating in countries/regions with which China has preferential tariff agreements. General 

rates are applied to imports whose origin cannot be determined or where the products originate 

from countries/regions where China does not apply MFN tariff rates or preferential rates. China also 

gives special preferential tariffs unilaterally to a number of goods imported from 36 least developed 

countries. 

The simple average applied MFN duty rate for all products in 2011 was 9.5 per cent. The simple 

average applied MFN rates for agricultural products were 15.1 per cent, while for non-agricultural 

products it was 8.6 per cent. A summary of the preferential tariffs offered by China is given in Table 

8. ASEAN countries receive significant tariff concessions, with at least 90 per cent of the total tariff 

lines of its member countries having duty-free access to China and an average applied rate of about 

1 per cent for other products. From the bilateral FTAs, Chile receives notable preferential access; 

Chile currently receives duty free access for 75.1 per cent of the total tariff lines and an average 

applied duty of 1.4 per cent. Sri Lanka currently has preferential access to China as a member of the 

Asia-Pacific Trade Agreement (APTA). Nevertheless, compared to other agreements the preferences 

received under APTA are rather limited with only 9.6 per cent of the total tariff lines being offered 

duty free access to China and an average applied duty of 8.9 per cent for other products. 

Page 80 of 88

Table 4.7: Summary Analysis of China's Preferential Tariff, 2011 

Average 

(%) 

Total WTO agriculture WTO non-agriculture 

Duty-free 

rates a (%) 

Average 

(%) 

Duty-free 

rates a (%) 

Average 

(%) 

Duty-free 

rates a (%) 

MFN 9.5 9.4 15.1 7.0 8.6 9.8 

Agreement tariff rates 

APTA b 8.9 9.6 14.1 8.0 8.1 9.9 

ASEAN 

Brunei Darussalam 1.0 91.7 2.5 89.7 0.7 92.0 

Cambodia 1.1 90.8 2.6 88.7 0.9 91.1 

Indonesia 1.0 91.7 2.5 89.8 0.8 92.0 

Laos 1.1 90.9 2.6 89.1 0.9 91.1 

Malaysia 1.0 91.7 2.5 89.8 0.8 92.0 

Myanmar 1.0 91.7 2.5 89.6 0.8 92.0 

Philippines 1.0 91.7 2.5 89.4 0.7 92.0 

Singapore 1.0 91.7 2.5 89.8 0.7 92.0 

Thailand 1.0 91.7 2.5 89.4 0.8 92.0 

Viet Nam 1.0 91.7 2.5 89.4 0.8 92.0 

Hong Kong, China CEPA c 7.3 29.4 13.0 19.7 6.4 31.0 

Macao, China CEPA c 7.5 24.6 10.6 32.5 7.0 23.3 

Chinese Taipei ECFA d 9.2 10.3 15.0 7.0 8.3 10.9 

Pakistan FTA 6.2 35.8 12.1 21.9 5.3 38.1 

Chile FTA 1.4 75.1 3.9 67.2 1.0 76.4 

New Zealand FTA 2.4 24.9 5.1 13.9 1.9 26.6 

Singapore FTA 9.0 12.2 14.1 10.6 8.2 12.5 

Peru FTA 4.8 61.2 10.8 30.4 3.8 66.1 

Costa Rica FTA 4.7 65.5 11.1 34.1 3.7 70.5 

Least developed preferential rates 

Special preferential tariff agreement for: 

Bangladesh and Laos under APTA 9.3 10.4 15.0 7.0 8.4 11.0 

Cambodia 8.8 14.6 12.2 28.2 8.3 12.5 

Laos 9.0 13.1 13.1 21.4 8.4 11.8 

Myanmar 9.1 12.2 14.0 13.5 8.4 12.0 

36 LDCs 5.1 60.6 9.3 55.5 4.4 61.4 

Niger and Somalia under LDC 8.9 15.3 14.6 10.7 8.0 16.1 

a Duty-free lines as a percentage of total tariff lines. 

b Preferential rates under APTA are applicable to the Republic of Korea, Sri Lanka, Bangladesh, India, and Laos. 

c Closer Economic Partnership Agreement. 

d Cross-straits Economic Co-operation Framework Agreement. According to the Chinese authorities, tariff reductions under the 

ECFA have not yet been fully implemented. 

Note: Calculations are based on the national tariff line level (8-digit); excluding in-quota rates and including AVEs for non-ad valorem 

rates provided by the authorities, as available. Interim duty rates are used for the calculations when fully applied at the 8-digit level. 

Source: WTO Secretariat calculations, based on data provided by the authorities of China. 

The applicable tariffs for the top 10 export products (at 6-digit level) from Sri Lanka to China in 2012 

are given in Table 4.8. The respective tariff rates for the given products are for the year 2011. Of the 

31 relevant tariff lines at HS-code 8-digit level for these top 10 products, Sri Lanka gets preferential 

access in 10 tariff lines under APTA; MFN tariff rates apply for the rest. MFN applied tariff rates for 

Page 81 of 88

the 10 products (at 6-digit level) range from 0 to 22. The average tariff for these 10 products 173 (31 

tariff lines at 8-digit) is 9.8 per cent. 

For the top 10 products (at 6-digit level) with the highest indicative potential for trade between Sri 

Lanka and China, average tariff (MFN applied) levied by China is 10.5 per cent (see Table 4.9). Peru, 

Chile, Costa Rica and New Zealand which have bilateral trade agreements with China have got 

preferential rates on all 22 tariff lines, with Chile receiving the best rate, with an average tariff of 1.5 

per cent. Average tariffs for New Zealand, Peru and Costa Rica are 2.1, 4.4 and 4.5 per cent 

respectively for these tariff lines. The average tariff for ASEAN is 0.7 (14 of the total 22 tariff lines 

receive preferential rates) while for APTA under which Sri Lanka gets preferential access, the average 

tariff is 8.7 per cent (with 10 of the 22 tariff lines receiving preferential rates). The preferential tariffs 

for these 10 products under APTA range between 0 and 14.4 per cent. 

The analyses of tariffs imposed by China show that different regional groupings and countries have 

received varying levels of preferential access via trade agreements. At a first glance, ASEAN and Chile 

appear to receive better access through lower tariffs and greater duty free access. However, the 

tariff levels and the number of tariff lines for which preferences are offered differ between 

agreements. Therefore, it is important for Sri Lanka to analyse and evaluate the preferential tariffs 

offered by China at a disaggregate level. The relevant tariff rates for products with which Sri Lanka 

has a comparative advantage and potential to export are given in Appendix 3. The list can be used as 

a guide in the negotiations to note the preferential rates offered by China to other countries and 

regions. It is imperative that trade negotiations with China not only cover products in which Sri Lanka 

currently exports and a comparative advantage but also that the concessions awarded by China 

should be higher or at least equivalent to the tariff reduction granted to other countries under 

various preferential agreements. 

173 10 products selected at HS-code 6-digit level 

Page 82 of 88

Table 4.8: Tariffs for Top 10 Current Exports from Sri Lanka to China, 2012 

Product 

Code 

6-digit 

level 

Description 

8-Digit 

Product 

Code 

MFN 

(Applied) 

Non-MFN 

tariff 

ASEAN 

Chile 

Costa 

Rica 

Laos 

New 

Zealand 

Pakistan 

Peru 

Thailand 

Hong 

Kong 

APTA 

LDC s 

Myanmar 

Banglade 

sh 

Macau 

Chinese 

Taipei 

Singapore 

530500 Coconut, abaca Manila hemp or Musa textiles Nee, 

ramie, agave and other 

53050011 5 30 0 0 0 0 0 0 

53050012 5 30 0 0 0 0 0 0 

53050013 5 30 0 0 0 0 0 0 

53050019 5 20 0 0 0 0 0 0 

53050020 3 20 0 0 0 0 0 0 

53050091 5 30 0 0 0 0 0 0 0 

53050092 5 30 0 0 0 0 0 0 0 0 4 0 0 

53050099 0 30 0 0 0 0 0 0 

261400 Titanium ores and concentrates 26140000 0 0 

90240 Black tea (fermented) & partly fermented tea in 9024010 15 100 0 0 12 0 3 7.5 12 0 0 7.5 0 0 5 

packages exceeding 3 kg 

9024020 15 100 0 0 12 0 3 7.5 12 0 0 7.5 0 0 

400599 Compounded rubber, unvulcanised in primary forms 

nes 

890190 Cargo vessels nes & other vessels for the transport of 

both persons & goods 

90230 Black tea (fermented)&partly fermented tea in 

packages not exceeding 3 kg 

610990 T-shirts, singlets and other vests, of other textile 


9024090 15 100 0 0 12 0 3 7.5 12 0 0 7.5 0 0 0 5 

40059900 8 35 0 0 0 1.6 5.5 0 0 

89019032 6 14 2.4 0 1.2 0 

89019041 9 14 3.6 0 1.8 0 

89019042 9 14 3.6 0 1.8 0 

89019043 9 14 3.6 0 1.8 0 

89019050 9 14 3.6 0 1.8 0 

89019080 9 14 5 3.6 0 1.8 5.7 0 0 

89019090 8 30 5 3.2 0 1.6 5.5 0 0 

9023010 15 100 0 0 12 3 7.5 12 0 7.5 0 5 

9023020 15 100 0 0 12 3 7.5 12 0 7.5 0 

9023090 15 100 0 0 12 3 7.5 12 0 7.5 0 0 5 

61099010 14 130 0 0 11.2 2.8 8.3 8.4 0 9.3 0 0 

61099090 14 130 0 0 11.2 0 2.8 9.3 11.2 0 0 9.3 0 0 0 0 

401290 Solid o cushioned tires, interchangeable tire treads & 40129010 1 11 0 0 0 0 0 0 

Page 83 of 88

tire flaps of rubber 40129020 22 50 0 0 17.6 8 17.6 

40129090 22 50 0 0 17.6 8 17.6 

240120 Tobacco, unmanufactured, partly or wholly stemmed 24012010 10 70 4 2 

or stripped 

24012090 10 70 4 2 

400129 Natural rubber in other forms nes 40012900 20 40 0 16 4 17 17 

Source: WITS (2014) 

Page 84 of 88

Table 4.9: Tariffs for Top 10 Indicative Potential Products 

Product 

Code 

6-Digit 

level 

Description 

8-Digit 

Product 

Code 

MFN 

(Applied) 

Non-MFN 

tariff 

ASEAN 

Chile 

Costa Rica 

Laos 

New 

Zealand 

Pakistan 

Peru 

Thailand 

Hong Kong 

APTA 

LDCs 

Myanmar 

Bangladesh 

Macau 

Singapore 

710239 

620342 

Diamonds non-industrial nes excluding mounted or 

set diamonds 

Mens/boys trousers and shorts, of cotton, not 

knitted 

71023900 8 35 0 0 0 1.6 0 0 0 

62034210 16 90 0 0 12.8 3.2 9.4 12.8 0 12.9 11.2 0 

62034290 16 90 0 0 12.8 0 3.2 9.4 12.8 0 0 12.9 0 0 11.2 0 

610910 T-shirts, singlets and other vests, of cotton, knitted 61091000 14 90 0 0 11.2 0 2.8 9.4 11.2 0 0 9.4 0 0 0 

620520 Mens/boys shirts, of cotton, not knitted 62052000 16 90 0 0 12.8 0 3.2 8 12.8 0 0 8 0 0 6.4 0 

620462 

Womens/girls trousers and shorts, of cotton, not 

knitted 

62046200 16 90 0 0 12.8 0 3.2 13.4 12.8 0 0 14.4 0 0 11.2 0 

401519 Gloves nes of rubber 40151900 18 80 0 0 14.4 3.6 14.4 

89019021 9 14 3.6 0 1.8 0 

89019022 6 14 2.4 0 1.2 0 

89019031 9 14 3.6 0 1.8 0 

89019032 6 14 2.4 0 1.2 0 

890190 

530500 

Cargo vessels nes & other vessels for the transport 

of both persons & goods 

Coconut, abaca Manila hemp or Musa textiles Nee, 

ramie, agave and other 

89019041 9 14 3.6 0 1.8 0 

89019042 9 14 3.6 0 1.8 0 

89019043 9 14 3.6 0 1.8 0 

89019050 9 14 3.6 0 1.8 0 

89019080 9 14 5 3.6 0 1.8 5.7 0 0 

89019090 8 30 5 3.2 0 1.6 5.5 0 0 

53050011 5 30 0 0 0 0 0 0 

53050012 5 30 0 0 0 0 0 0 

53050013 5 30 0 0 0 0 0 0 

53050019 5 20 0 0 0 0 0 0 

53050020 3 20 0 0 0 0 0 0 

53050091 5 30 0 0 0 0 0 0 0 

85

53050092 5 30 0 0 0 0 0 0 0 4 0 0 

610990 

T-shirts, singlets & other vests, of other textile 


380210 Activated carbon 

Source: WITS (2014) 

53050099 5 30 0 0 0 0 0 0 

61099010 14 130 0 0 11.2 2.8 8.3 8.4 0 9.3 0 0 

61099090 14 130 0 0 11.2 0 2.8 9.3 11.2 0 0 9.3 0 0 0 0 

38021010 6.5 20 0 0 0 1.3 5.2 0 5.5 

38021090 6.5 20 0 0 0 1.3 5.2 0 5.5 

86

5. Conclusion to the study 

Section one of this study provided a background to Sri Lanka’s political and economic relations with 

China. Sri Lanka’s trade and economic relations with China dates back to the Sino-Sri Lanka Rubber- 

Rice Pact, which was signed in 1952. Since then the trade relations have expanded overtime 

between the two countries, with China becoming Sri Lanka’s second largest trading partner next to 

India. While Sri Lanka’s exports to China have doubled from US$ 59 mn in 2009 to 120 mn in 2012, 

imports from China have tripled from US$ 881 mn in 2009 to US$ 2,567 mn in 2012 widening Sri 

Lanka’s trade deficit with China to US$ 2,447 mn. The widening trade balance has provided the 

impetus for the much-needed bilateral FTA between Sri Lanka and China. 

Section two examined Sri Lanka’s existing FTAs to identify key stumbling blocks relating to both tariff 

and non-tariff barriers to trade, which should be borne in mind when negotiating a trade agreement 

with China. The study found out that although Sri Lanka has been able to improve market access to 

South Asian countries through SAFTA, ISFTA and PSFTA, Sri Lanka’s intra-regional trade is still 

restricted due to various reasons. Sri Lanka’s major exports falling under the Negative List of 

respective agreements, and restrictive rules of origin criteria and NTMs maintained by partner 

countries are some of the measures that hamper Sri Lanka’s intra-regional trade. Additionally, lack of 

awareness of FTAs among relevant stakeholders and traders, lack of Mutual Recognition Agreements 

for standards and the absence of a nodal point for inquiries are some of the other weakness of the 

existing FTAs that are prevailing. Therefore, it is crucial to accommodate and overcome the issues 

faced by traders when negotiating the China-Sri Lanka Free Trade Agreement. 

Section three looked at salient features of China's existing FTAs with countries/regions (ASEAN, 

Pakistan, Chile, New Zealand, Singapore, Peru, Costa Rica, Iceland, Switzerland). China had been 

actively pursuing bilateral FTAs with other countries. Currently, China has nine FTAs with 18 member 

countries. China’s FTA strategy has not followed a fixed formula but has customized each FTA 

according to the partner and has been based upon reciprocity. Further, China has moved from 

liberalizing trade in goods to trade in services and investments in all its existing FTAs. While some 

FTAs were comprehensive upon entry into force (covering goods, services and investments) some 

have gradually liberalized trade in goods to services to investments. On the contrary, Sri Lanka’s FTAs 

with its partners have only covered trade in goods so far. Moreover, both Sri Lanka and China are 

party to Asia Pacific Trade Agreement (APTA) and under APTA, Sri Lanka receives tariff concessions 

for over 1,858 products exported to China. These account for around 50 per cent of total exports to 

China from Sri Lanka. However, the utilization of these concessions remains low. 

Section four aimed to identify products with export potential to China - products of interest to Sri 

Lanka which should form part of trade negotiations with China. Bulk of Sri Lanka’s exports to China 

has been concentrated on a few products. In 2012, out of the US$ 121 mn worth of exports to China, 

textiles have accounted for nearly 41 per cent and Plastics/rubbers, vegetable products and mineral 

products have each accounted for around 13 per cent shares. These four categories together 

accounted for 81 per cent of Sri Lanka’s total exports to China in 2012. Sri Lanka has a comparative 

advantage in producing textiles – there is a total of 248 product lines (at HS 6-digit level) for which 

Sri Lanka has a comparative advantage. In addition to textiles, Sri Lanka has a comparative 

advantage in exporting vegetable products (65 product lines), wood and wood products (32 product 

87

lines) and foodstuff (28 product lines). These sectors need prominence in negotiating market access 

to China. Tariffs imposed by China show that different regional groupings and countries have 

received varying levels of preferential access via trade agreements. Therefore, it is important for Sri 

Lanka to negotiate and agree upon tariff concessions with China that are greater or at least 

equivalent to the tariff reductions granted to other countries under various preferential agreements. 

88

Study on China-Sri Lanka Free Trade Agreement

Create successful ePaper yourself

Delete template?

Save as template?