You also want an ePaper? Increase the reach of your titles
YUMPU automatically turns print PDFs into web optimized ePapers that Google loves.
<str<strong>on</strong>g>Study</str<strong>on</strong>g> <strong>on</strong> <strong>China</strong>-<strong>Sri</strong> <strong>Lanka</strong> <strong>Free</strong><br />
<strong>Trade</strong> <strong>Agreement</strong><br />
Prepared<br />
By<br />
Institute of Policy Studies of <strong>Sri</strong> <strong>Lanka</strong><br />
For<br />
The Ceyl<strong>on</strong> Chamber of Commerce<br />
The Nati<strong>on</strong>al Chamber of Commerce of <strong>Sri</strong> <strong>Lanka</strong><br />
The Nati<strong>on</strong>al Chamber of Exporters<br />
The Ceyl<strong>on</strong> Nati<strong>on</strong>al Chamber of Industries<br />
The Internati<strong>on</strong>al Chamber of Commerce<br />
Page 1 of 88
C<strong>on</strong>tents<br />
Page<br />
1. Executive Summary…………………………………………………………………………………..04<br />
2. Background to the <str<strong>on</strong>g>Study</str<strong>on</strong>g>……………………………………………………………………………07<br />
3. <strong>Sri</strong> <strong>Lanka</strong>’s Experience with <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong>s………………………………….10<br />
4. Salient Features of <strong>China</strong>’s Existing FTAs……………………………………………………24<br />
5. <strong>Sri</strong> <strong>Lanka</strong>’s Potential Exports to <strong>China</strong> under Proposed FTA……………………….72<br />
6. C<strong>on</strong>clusi<strong>on</strong>………………………………………………………………………………………………….87<br />
Page 2 of 88
IPS Team of Researchers<br />
Janaka Wijayasiri, Research Fellow<br />
Dharshani Premaratne, Research Officer<br />
Suwendrani Jayaratne, Research Officer<br />
Nipuni Perera, Research Assistant<br />
Page 3 of 88
Executive Summary<br />
<strong>Sri</strong> <strong>Lanka</strong> has shown interests in exploring a bilateral trade agreement with <strong>China</strong>. Both countries<br />
now have agreed that they would embark <strong>on</strong> a free trade agreement, which is hoped to open up the<br />
vast Chinese market to <strong>Sri</strong> <strong>Lanka</strong>’s producers, manufacturers and exporters. This would not <strong>on</strong>ly<br />
boost bilateral trade but help reduce <strong>Sri</strong> <strong>Lanka</strong>’s heavy reliance <strong>on</strong> traditi<strong>on</strong>al markets in Europe and<br />
USA. In this regard, it is imperative that the agreement covers a substantial number of tariff lines<br />
and trade as well as address n<strong>on</strong>-tariff barriers that may hinder export expansi<strong>on</strong>. C<strong>on</strong>sidering the<br />
reservati<strong>on</strong>s about adverse effects of a FTA with <strong>China</strong>, the agreement needs to be prepared<br />
carefully taking into account asymmetries between the two ec<strong>on</strong>omies, with a rati<strong>on</strong>al negative list<br />
and a l<strong>on</strong>ger phase-out liberalisati<strong>on</strong> schedule. In this c<strong>on</strong>text, it is necessary to draw <strong>on</strong> <strong>Sri</strong> <strong>Lanka</strong>’s<br />
experience from existing FTAs to identify key challenges relating to both tariff and n<strong>on</strong>-tariff barriers<br />
to trade; highlight the key features of <strong>China</strong>'s existing FTAs with countries/regi<strong>on</strong>s to get a sense of<br />
what a possible FTA with <strong>China</strong> would look like; and identify <strong>Sri</strong> <strong>Lanka</strong>’s existing and potential export<br />
products to <strong>China</strong>, which should form part of negotiated trade agreement with <strong>China</strong>.<br />
<strong>Sri</strong> <strong>Lanka</strong>’s Existing <strong>Trade</strong> <strong>Agreement</strong>s and Less<strong>on</strong>s for the FTA with <strong>China</strong><br />
<strong>Sri</strong> <strong>Lanka</strong> participates in two regi<strong>on</strong>al agreements, the South Asian <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> (SAFTA)<br />
and the Asia-Pacific <strong>Trade</strong> <strong>Agreement</strong> (APTA), and two bilateral agreements, the Indo-<strong>Sri</strong> <strong>Lanka</strong> <strong>Free</strong><br />
<strong>Trade</strong> <strong>Agreement</strong> (ISFTA), and the Pakistan-<strong>Sri</strong> <strong>Lanka</strong> <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> (PSFTA). Some of the<br />
key less<strong>on</strong>s from <strong>Sri</strong> <strong>Lanka</strong>’s experience with these existing FTAs must be borne in mind when<br />
negotiating a trade agreement with <strong>China</strong>.<br />
• Special and Differential Treatment: Given the asymmetry of ec<strong>on</strong>omic size, <strong>Sri</strong> <strong>Lanka</strong><br />
received special and differential treatment under each of the existing <strong>Free</strong> <strong>Trade</strong><br />
<strong>Agreement</strong>s. For instance, <strong>Sri</strong> <strong>Lanka</strong> as a small ec<strong>on</strong>omy was allowed a l<strong>on</strong>ger tariff phaseout<br />
period, a l<strong>on</strong>ger negative list, immediate duty free access for products at the start of the<br />
agreement, and more favourable rules of origin under SAFTA, ISFTA and PSFTA.<br />
• Rules of Origin: Rules of origin criteria, which are used to determine country of origin under<br />
a FTA, have varied am<strong>on</strong>g the FTAs in South Asia. SAFTA and ISFTA require a change of tariff<br />
classificati<strong>on</strong> at the 4-digit level, which has been difficult to meet given the substantial<br />
transformati<strong>on</strong> required. Having the experience with ISFTA, PSFTA negotiati<strong>on</strong>s adopted less<br />
restrictive rules of origin criteria (a change of tariff heading at the HS 6-digit level). In<br />
negotiating a trade agreement, it is therefore important to relax and simplify the rules of<br />
origin so that they are easy for traders to understand and to comply with, while ensuring the<br />
necessary c<strong>on</strong>trols are in place to prevent fraud.<br />
• Negative List: This list c<strong>on</strong>tains sensitive products which are exempted from tariff<br />
c<strong>on</strong>cessi<strong>on</strong>s under the agreement. The negative list should be prepared in c<strong>on</strong>sultati<strong>on</strong> with<br />
local stakeholders by weighing revenue c<strong>on</strong>siderati<strong>on</strong>s as well as implicati<strong>on</strong>s for local<br />
industries and livelihoods which may be adversely affected by trade liberalisati<strong>on</strong>. However,<br />
it is important to keep the negative lists to a minimum to ensure that a substantial<br />
proporti<strong>on</strong> of tariff lines and products are covered under the agreement.<br />
• N<strong>on</strong>-tariff Measures: When tariffs are brought down through negotiati<strong>on</strong>s, n<strong>on</strong>-tariff<br />
measures (NTMs) can reduce the use of the agreements if they are not effectively dealt<br />
with. NTMs should be identified at the <strong>on</strong>set and addressed al<strong>on</strong>g with tariff<br />
reducti<strong>on</strong>s/eliminati<strong>on</strong>s. In this regard, there should be binding commitments.<br />
Page 4 of 88
• Tariff-rate Quotas: Although tariff schedules have been liberalized to a certain extent under<br />
ILFTA and PSFTA, <strong>Sri</strong> <strong>Lanka</strong>’s trade expansi<strong>on</strong> with India and Pakistan has been impeded by<br />
tariff-rate quotas agreed under the <strong>Agreement</strong>s.<br />
• Mutual Recogniti<strong>on</strong> of Standards: Lack of a Mutual Recogniti<strong>on</strong> <strong>Agreement</strong> (MRA) for<br />
standards between <strong>Sri</strong> <strong>Lanka</strong> and its FTA partners has resulted in various additi<strong>on</strong>al<br />
checks/certificati<strong>on</strong>s <strong>on</strong> the goods at the point of import, even though they have been<br />
previously tested and certified by the relevant authorities in <strong>Sri</strong> <strong>Lanka</strong>.<br />
• Awareness: Lack of knowledge and awareness am<strong>on</strong>g traders of the c<strong>on</strong>cessi<strong>on</strong>s offered by<br />
the FTAs has been a key impediment to garnering maximum benefits of existing FTAs.<br />
• Visas: <strong>Trade</strong>rs have highlighted the need to facilitate the visa processes between two<br />
countries if trade relati<strong>on</strong>ships between them are to be enhanced.<br />
• Instituti<strong>on</strong>al Support: The absence of a fixed body to address problems arising when trading<br />
under the agreement is an impediment to using the FTAs. When problems arise regarding a<br />
shipment there needs to be a formal body of authority to take up complaints and address<br />
them quickly.<br />
• C<strong>on</strong>sultati<strong>on</strong>: Experience with the ISFTA, and attempts to extend the agreement into a<br />
Comprehensive Ec<strong>on</strong>omic Partnership <strong>Agreement</strong> (CEPA), highlights the need for greater<br />
private-public dialogue in <strong>Sri</strong> <strong>Lanka</strong> <strong>on</strong> trade agreements, <strong>on</strong> an <strong>on</strong>-going and regular basis.<br />
<strong>China</strong>’s Approach to FTAs with Other Countries<br />
<strong>China</strong> has been actively pursuing FTAs with various countries over the past two decades. <strong>China</strong> has<br />
c<strong>on</strong>cluded FTAs, or entered into negotiati<strong>on</strong>s, with almost every major regi<strong>on</strong> in the world. By June<br />
2014, <strong>China</strong> had become a party to 11 bilateral trade agreements and <strong>on</strong>e regi<strong>on</strong>al trade agreement<br />
- ASEAN , H<strong>on</strong>g K<strong>on</strong>g , Macao , Chile , Pakistan , New Zealand , Singapore , Peru , Costa Rica , Taiwan ,<br />
Switzerland and Iceland .<br />
• Gradual Approach to <strong>Trade</strong> Liberalizati<strong>on</strong>: <strong>China</strong> has adopted a gradual approach in<br />
negotiating with trading partners – first, striking an agreement in trade in goods, then<br />
services and investment, followed by a comprehensive FTA package. <strong>China</strong>’s FTAs with<br />
ASEAN, Chile, and Pakistan followed such an approach. In c<strong>on</strong>trast, agreements with New<br />
Zealand, Singapore, and Peru were more comprehensive in scope at the time of signing.<br />
• Coverage of tariffs and goods: For most of <strong>China</strong>’s FTAs partners, the agreements have<br />
eliminated tariffs and allowed preferential market access to <strong>China</strong>, to a great extent. For<br />
example, in its agreements with Chile, Peru and New Zealand, <strong>China</strong> committed to eliminate<br />
duties <strong>on</strong> 94.6% to 97.2% of the tariff lines, which corresp<strong>on</strong>ded to 88 - 99.1% of its bilateral<br />
imports from these trading partners. The <strong>on</strong>ly excepti<strong>on</strong> to this is the <strong>China</strong>-Pakistan FTA.<br />
• <strong>China</strong>’s Negative Lists: <strong>China</strong>’s FTAs take into account the sensitiveness of both countries<br />
and c<strong>on</strong>tain Negative Lists, which exclude a number of products from tariff liberalisati<strong>on</strong>. A<br />
number of vegetable products, animal and vegetable fats and oils, prepared food, chemicals,<br />
wood products, pulp and paper, and textile categories are protected by <strong>China</strong>. In almost all<br />
of the agreements, <strong>China</strong> has placed pulp and paper in its negative list. Nevertheless, almost<br />
all of the agreements cover a substantial number of tariff lines and trade.<br />
• Rules of Origin: They tend to vary from agreement to agreement. Sometimes they are across<br />
product groups, which add to the complexity of <strong>China</strong>'s import regime. Rules of origin<br />
criteria for <strong>China</strong>’s FTAs with ASEAN, Chile, Pakistan, and Singapore are Local Value Additi<strong>on</strong><br />
(40% of total c<strong>on</strong>tent) and Regi<strong>on</strong>al Value C<strong>on</strong>tent (60% of the value of the product). The<br />
criteria for Peru, New Zealand and Costa-Rica are Change of Tariff Classificati<strong>on</strong> (HS 2-4 digit<br />
level) and Regi<strong>on</strong>al Value C<strong>on</strong>tent (40-60% of the value of the product).<br />
Page 5 of 88
• Services Liberalisati<strong>on</strong>: While the <strong>Agreement</strong>s <strong>on</strong> <strong>Trade</strong> in Goods have taken a Negative List<br />
approach, <strong>China</strong>’s <strong>Trade</strong> in Services <strong>Agreement</strong>s have taken a Positive List approach. In<br />
<strong>China</strong>’s FTAs with ASEAN, Chile, and Pakistan, the <strong>Agreement</strong> <strong>on</strong> Services is a separate<br />
document and follows the <strong>Agreement</strong> <strong>on</strong> Goods, while in the case of other partner countries<br />
(New Zealand, Peru, Singapore, Costa Rica), the FTA agreement were more comprehensive<br />
in coverage and included not <strong>on</strong>ly trade in goods but also services.<br />
• Cooperati<strong>on</strong> Bey<strong>on</strong>d Tariffs: Due to their focus <strong>on</strong> liberalizing markets and facilitating trade,<br />
agreements between <strong>China</strong> and other developing countries aimed at reducing tariffs and<br />
n<strong>on</strong>-tariff barriers to trade. Moreover, <strong>China</strong> was reluctant to include issues such as<br />
envir<strong>on</strong>ment protecti<strong>on</strong>, competiti<strong>on</strong> policy, and labour standards as part of the FTA<br />
package. However, <strong>China</strong> has shown some willingness to broaden its focus and include these<br />
issues over time. N<strong>on</strong>etheless, <strong>China</strong> has taken a cauti<strong>on</strong>ary approach and chosen not to<br />
include them in the main agreement of the FTA but as stand-al<strong>on</strong>e agreements or MOUs.<br />
<strong>Sri</strong> <strong>Lanka</strong>’s Potential Exports to <strong>China</strong> under Proposed FTA<br />
• <strong>Sri</strong> <strong>Lanka</strong> has a comparative advantage vis-à-vis the world in 566 products (at HS 6-digit<br />
level), out of which <strong>China</strong> does not import 24 products from the world.<br />
• Of the 542 potential exports to <strong>China</strong>, <strong>Sri</strong> <strong>Lanka</strong> already exports 243 products. The other 299<br />
products with trade potential to <strong>China</strong> are currently not exported by <strong>Sri</strong> <strong>Lanka</strong> to <strong>China</strong> but<br />
are imported by <strong>China</strong> from rest of the world, presenting new market opportunities for <strong>Sri</strong><br />
<strong>Lanka</strong>n producers, manufacturers and exporters. Appendix 1 lists the 542 potential exports.<br />
Recommendati<strong>on</strong>s<br />
• When negotiating with <strong>China</strong>, <strong>Sri</strong> <strong>Lanka</strong> should be mindful of the issues it has encountered<br />
with its existing FTAs. Similar challenges need to be thought out and addressed in an<br />
agreement with <strong>China</strong> to ensure <strong>Sri</strong> <strong>Lanka</strong> can fully benefit from a FTA with <strong>China</strong>.<br />
• Given that <strong>China</strong> has adopted a flexible and less stringent approach in its FTAs, <strong>Sri</strong> <strong>Lanka</strong><br />
should make use of this stance to reflect its trade interests.<br />
• With regard to trade liberalisati<strong>on</strong> programme, it would be best to adopt a gradual<br />
approach; <strong>Sri</strong> <strong>Lanka</strong> should first sign an agreement <strong>on</strong> trade in goods before dealing with<br />
services, and other complex issues to build c<strong>on</strong>fidence am<strong>on</strong>gst stakeholders in the country.<br />
• In seeking a trade deal in goods with <strong>China</strong>, <strong>Sri</strong> <strong>Lanka</strong> should obtain special and differential<br />
treatment given the asymmetries between the two countries (i.e., l<strong>on</strong>ger phase-out period.)<br />
• While bearing in mind the sensitivities of both countries, <strong>China</strong>’s FTAs have eliminated tariff<br />
and allowed preferential access to a great extent. Given that <strong>China</strong>’s negative list appears to<br />
be based <strong>on</strong> principle of reciprocity, <strong>Sri</strong> <strong>Lanka</strong> needs to decide <strong>on</strong> the length of its own list.<br />
• <strong>Trade</strong> negotiati<strong>on</strong>s with <strong>China</strong> should not <strong>on</strong>ly cover products in which <strong>Sri</strong> <strong>Lanka</strong> currently<br />
exports but also has a potential exports to <strong>China</strong>.<br />
• Tariff c<strong>on</strong>cessi<strong>on</strong>s awarded by <strong>China</strong> should be higher or at least equivalent to the tariff<br />
reducti<strong>on</strong>s granted to other countries by <strong>China</strong> under its various free trade agreements.<br />
• <strong>China</strong>’s rules of origin vary by agreement and products. <strong>Sri</strong> <strong>Lanka</strong> should negotiate in line<br />
with its existing preferential Rules of Origin and adopt rules which are simple and<br />
achievable.<br />
• Closer c<strong>on</strong>sultati<strong>on</strong> between the government, and other stakeholders in the ec<strong>on</strong>omy<br />
including the private sector, and civil society of the country. This can ease exporter-importer<br />
c<strong>on</strong>cerns, and help create broader public awareness of, and c<strong>on</strong>fidence in, the opportunities<br />
and benefits of the agreement.<br />
Page 6 of 88
1. Background to the study<br />
While historical and cultural relati<strong>on</strong>s between <strong>Sri</strong> <strong>Lanka</strong> and <strong>China</strong> date back many centuries,<br />
modern day ec<strong>on</strong>omic and political ties were established with the signing of the historic Sino-<strong>Lanka</strong><br />
Rubber-Rice Pact in 1952 and establishment of formal diplomatic relati<strong>on</strong>s in 1957. 1 Over the past<br />
55 years, very cordial relati<strong>on</strong>s have prevailed between the two countries and bilateral ec<strong>on</strong>omic<br />
cooperati<strong>on</strong> has developed. During the last few years relati<strong>on</strong>s have been elevated to a higher level, 2<br />
cemented by several visits of President Mahinda Rajapaksa to <strong>China</strong>. 3 C<strong>on</strong>currently <strong>China</strong> has<br />
emerged as <strong>Sri</strong> <strong>Lanka</strong>’s largest aid d<strong>on</strong>or replacing traditi<strong>on</strong>al d<strong>on</strong>ors 4 since 2009. 5 <strong>China</strong> has<br />
provided financial and technical assistance in the development of the Norochcholai Power Plant, the<br />
Hambantota Port, Mattala Airport, Colombo-Katunayaka Expressway to name a few important<br />
infrastructure development projects. 6<br />
In additi<strong>on</strong>, trade between the two countries has improved. Total trade between the two countries<br />
has increased steadily over the years; almost doubling between 2005 and 2008. 7 Major exports from<br />
<strong>Sri</strong> <strong>Lanka</strong> to <strong>China</strong> include: raw coc<strong>on</strong>ut, apparel, tea, natural rubber, diam<strong>on</strong>ds & other precious<br />
st<strong>on</strong>es, titanium ores, rubber tyres, bicycles, etc. <strong>China</strong> together with H<strong>on</strong>g K<strong>on</strong>g together is <strong>Sri</strong><br />
<strong>Lanka</strong>’s 13th largest market for exports. <strong>Sri</strong> <strong>Lanka</strong>’s major imports from <strong>China</strong> include electrical<br />
machinery & equipment, boilers & machinery, cott<strong>on</strong>, ir<strong>on</strong>/steel, man-made fibres,<br />
knitted/crocheted fabrics, fertilizers, railway locomotives, inorganic chemicals. <strong>China</strong> has emerged to<br />
become <strong>Sri</strong> <strong>Lanka</strong>’s sec<strong>on</strong>d largest source of imports after India. 8<br />
While <strong>Sri</strong> <strong>Lanka</strong>’s exports to <strong>China</strong> have grown over the last 5 years, imports from <strong>China</strong> have grown<br />
at a faster rate than exports, resulting in an expanding trade deficit. 9 In 2009, <strong>Sri</strong> <strong>Lanka</strong> had a trade<br />
deficit of US$ 1.499 bn with <strong>China</strong>. 10 This figure would be much greater if <strong>on</strong>e takes into account <strong>Sri</strong><br />
<strong>Lanka</strong>’s trade with H<strong>on</strong>g K<strong>on</strong>g. 11 In view of widening trade imbalance, the former Chinese Prime<br />
Minister Wen Jiabao assured <strong>Sri</strong> <strong>Lanka</strong> in 2011 that <strong>China</strong> would increase imports in additi<strong>on</strong> to<br />
encouraging more Chinese tourists to <strong>Sri</strong> <strong>Lanka</strong>. 12 This has provided the impetus for the muchneeded<br />
bilateral FTA. The 2014 Budget Speech also menti<strong>on</strong>s that <strong>Sri</strong> <strong>Lanka</strong> will explore bilateral<br />
1 Kelegama, S. (2009). <strong>China</strong>-<strong>Sri</strong> <strong>Lanka</strong> Ec<strong>on</strong>omic Relati<strong>on</strong>s: An Overview. <strong>Sri</strong> <strong>Lanka</strong>-<strong>China</strong> Business Forum.<br />
Colombo & Liyanage, M. (2010, 10 16). <strong>Sri</strong> <strong>Lanka</strong> gains as <strong>China</strong> propsers. Daily News, 6.<br />
2 Andree, M. (2010, April 3). Formal <strong>China</strong>-<strong>Lanka</strong> trade pact needed. Retrieved from www.island.lk<br />
3 Liyanage, M. (2010, 10 16). <strong>Sri</strong> <strong>Lanka</strong> gains as <strong>China</strong> propsers. Daily News, 6.<br />
4 Ibid & Daily News. (2010, April 19). <strong>Sri</strong> <strong>Lanka</strong>-<strong>China</strong> relati<strong>on</strong>s to a new height: <strong>China</strong> emerges as <strong>Sri</strong> <strong>Lanka</strong>'s<br />
top lender in 2009. 10.<br />
5 Daily News. (2010, April 19). <strong>Sri</strong> <strong>Lanka</strong>-<strong>China</strong> relati<strong>on</strong>s to a new height: <strong>China</strong> emerges as <strong>Sri</strong> <strong>Lanka</strong>'s top<br />
lender in 2009. 10.<br />
6 Andree, M. (2010, April 3). Formal <strong>China</strong>-<strong>Lanka</strong> trade pact needed. Retrieved from www.island.lk<br />
7 Kelegama, S. (2009). <strong>China</strong>-<strong>Sri</strong> <strong>Lanka</strong> Ec<strong>on</strong>omic Relati<strong>on</strong>s: An Overview. <strong>Sri</strong> <strong>Lanka</strong>-<strong>China</strong> Business Forum.<br />
Colombo.<br />
88 So, C., & Lam, A. (2013, September 16). <strong>China</strong> eyes <strong>Sri</strong> <strong>Lanka</strong>n free-trade deal. South <strong>China</strong> Morning Post.<br />
Retrieved from www.scmp.com<br />
9 Kelegama, S. (2009). <strong>China</strong>-<strong>Sri</strong> <strong>Lanka</strong> Ec<strong>on</strong>omic Relati<strong>on</strong>s: An Overview. <strong>Sri</strong> <strong>Lanka</strong>-<strong>China</strong> Business Forum.<br />
Colombo.<br />
10 Andree, M. (2010, April 3). Formal <strong>China</strong>-<strong>Lanka</strong> trade pact needed. Retrieved from www.island.lk<br />
11 Kelegama, S. (2009). <strong>China</strong>-<strong>Sri</strong> <strong>Lanka</strong> Ec<strong>on</strong>omic Relati<strong>on</strong>s: An Overview. <strong>Sri</strong> <strong>Lanka</strong>-<strong>China</strong> Business Forum.<br />
Colombo.<br />
12 Daily FT. (2011, August 15). <strong>China</strong> PM assures to boost <strong>Sri</strong> <strong>Lanka</strong>'s export, tourism. Retrieved from www.ft.lk.<br />
Page 7 of 88
trade agreements with <strong>China</strong> in additi<strong>on</strong> to Japan in view of the high trade deficit <strong>Sri</strong> <strong>Lanka</strong> runs with<br />
these countries.<br />
Currently, <strong>Sri</strong> <strong>Lanka</strong> is a party to a number of trade agreements: Indo-<strong>Lanka</strong> <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong><br />
(ILFTA), Pakistan-<strong>Sri</strong> <strong>Lanka</strong> <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> (PSFTA), South Asia <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> (SAFTA)<br />
and Asia Pacific <strong>Trade</strong> <strong>Agreement</strong> (APTA). These four agreements account for 21 per cent of <strong>Sri</strong><br />
<strong>Lanka</strong>’s total trade. 13 Under APTA, <strong>Sri</strong> <strong>Lanka</strong> receives tariff c<strong>on</strong>cessi<strong>on</strong>s 14 for over 1858 products<br />
exported to <strong>China</strong>. 15 These account for around 50 per cent of total exports to <strong>China</strong> from <strong>Sri</strong> <strong>Lanka</strong><br />
(Kelegama, 2009). However, the utilizati<strong>on</strong> of these c<strong>on</strong>cessi<strong>on</strong>s remains low. 16<br />
Discussi<strong>on</strong>s <strong>on</strong> having a FTA with <strong>China</strong> was launched when President Mahinda Rajapakske visited<br />
Beijing in May 2012 during which both countries expressed an interest in upgrading political and<br />
ec<strong>on</strong>omic relati<strong>on</strong>s. 17 Both countries now have agreed in principle that they would embark <strong>on</strong> a free<br />
trade agreement, which is hoped to open up the vast Chinese market to <strong>Sri</strong> <strong>Lanka</strong>’s producers and<br />
manufacturers 18 including the apparel and tea sectors. 19 This would not <strong>on</strong>ly boost bilateral trade 20<br />
but help to reduce <strong>Sri</strong> <strong>Lanka</strong>’s dependence <strong>on</strong> traditi<strong>on</strong>al markets in Europe and USA. 21 In this<br />
regard, it is imperative that the agreement covers a substantial number of tariff lines and trade to<br />
ensure its utility to exporters as well as address n<strong>on</strong>-tariff barriers that might hinder export<br />
expansi<strong>on</strong>. There are reservati<strong>on</strong>s am<strong>on</strong>gst some secti<strong>on</strong>s of the business community about adverse<br />
effects of a FTA with <strong>China</strong>; general view is that Chinese imports are far more competitive and could<br />
have the potential to decimate local industries. 22 Thus the agreement needs to be prepared carefully<br />
taking into account asymmetrical relati<strong>on</strong>ship between the two ec<strong>on</strong>omies, 23 with a rati<strong>on</strong>al<br />
negative list and a l<strong>on</strong>ger phase-out liberalisati<strong>on</strong> schedule to protect local producers and<br />
manufacturers to allay fears of a <strong>China</strong> threat. 24<br />
In this c<strong>on</strong>text, it is necessary to undertake an in-depth study as well as for the government engage<br />
and c<strong>on</strong>sult various stakeholders in the country- traders, producers/manufacturers and c<strong>on</strong>sumers -<br />
13 Senewiratne, H. (2013, July 16). <strong>China</strong> to expedite FTA. Daily News. Retrieved from www.dailynews.lk<br />
14 Andree, M. (2010, April 3). Formal <strong>China</strong>-<strong>Lanka</strong> trade pact needed. Retrieved from www.island.lk<br />
15 Daily FT. (2012, September 27). <strong>Sri</strong> <strong>Lanka</strong> wakes up to massive APTA.<br />
16 Kelegama, S. (2009). <strong>China</strong>-<strong>Sri</strong> <strong>Lanka</strong> Ec<strong>on</strong>omic Relati<strong>on</strong>s: An Overview. <strong>Sri</strong> <strong>Lanka</strong>-<strong>China</strong> Business Forum.<br />
Colombo.<br />
17 Ali, A. S. (2014, January 23). Feasibility study <strong>on</strong> <strong>Sri</strong> <strong>Lanka</strong>-<strong>China</strong> FTA due so<strong>on</strong>; deal signing slated before end<br />
of 2014. Retrieved from DailyFT: http://www.ft.lk/2014/01/23/feasibility-study-<strong>on</strong>-sri-lanka-china-fta-dueso<strong>on</strong>-deal-signing-slated-before-end-of-2014/<br />
18 Channel News Asia. (2013, September 17). <strong>Sri</strong> <strong>Lanka</strong>, <strong>China</strong> "to agree free-trade deal so<strong>on</strong>". Retrieved from<br />
www.channelnewsasia.com<br />
19 Koelmeyer, C. (2013, September 22). Chinese FTA evokes mixed reacti<strong>on</strong>s. The Nati<strong>on</strong>. Retrieved from<br />
www.bilaterals.org<br />
20 Ali, A. S. (2014, January 23). Feasibility study <strong>on</strong> <strong>Sri</strong> <strong>Lanka</strong>-<strong>China</strong> FTA due so<strong>on</strong>; deal signing slated before end<br />
of 2014. Retrieved from DailyFT: http://www.ft.lk/2014/01/23/feasibility-study-<strong>on</strong>-sri-lanka-china-fta-dueso<strong>on</strong>-deal-signing-slated-before-end-of-2014/<br />
21 Koelmeyer, C. (2013, September 22). Chinese FTA evokes mixed reacti<strong>on</strong>s. The Nati<strong>on</strong>. Retrieved from<br />
www.bilaterals.org<br />
22 Deeptha. (2013, November 4). <strong>China</strong>, CHOGM and FTA. Daily FT. Retrieved from ww.ft.lk<br />
23 Koelmeyer, C. (2013, September 22). Chinese FTA evokes mixed reacti<strong>on</strong>s. The Nati<strong>on</strong>. Retrieved from<br />
www.bilaterals.org<br />
24 Deeptha. (2013, November 4). <strong>China</strong>, CHOGM and FTA. Daily FT. Retrieved from ww.ft.lk<br />
Page 8 of 88
efore the agreement is finalized, which was pinpointed by the Minister of Industry and Commerce<br />
of <strong>Sri</strong> <strong>Lanka</strong>. 25 For this reas<strong>on</strong> this study:<br />
1) Examines <strong>Sri</strong> <strong>Lanka</strong>’s existing FTAs to identify key stumbling blocks relating to both tariff and<br />
n<strong>on</strong>-tariff barriers to trade, which should be borne in mind when negotiating a trade<br />
agreement with <strong>China</strong>.<br />
2) Describes salient features of <strong>China</strong>'s existing FTAs with countries/regi<strong>on</strong>s (ASEAN, Pakistan,<br />
Chile, New Zealand, Singapore, Peru, Costa Rica, Iceland, Switzerland).<br />
3) Identifies products with export potential to <strong>China</strong>-products of interest to <strong>Sri</strong> <strong>Lanka</strong> which<br />
should form part of trade negotiati<strong>on</strong>s with <strong>China</strong>.<br />
25 Nati<strong>on</strong>, T. (2013, November 3). <strong>Sri</strong> <strong>Lanka</strong>-<strong>China</strong> FTA not a blindsided rush-Rishad. Retrieved from<br />
www.nati<strong>on</strong>.lk<br />
Page 9 of 88
<strong>Sri</strong> <strong>Lanka</strong>’s Experience<br />
With<br />
<strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong>s<br />
Page 10 of 88
2.1 Introducti<strong>on</strong><br />
While <strong>Sri</strong> <strong>Lanka</strong> has been actively engaged in all multilateral trade negotiati<strong>on</strong>s and has been<br />
undertaking trade reforms in keeping with the WTO’s GATT principles, <strong>Sri</strong> <strong>Lanka</strong> also has been<br />
involved in a number of regi<strong>on</strong>al trade liberalizati<strong>on</strong> initiatives. <strong>Sri</strong> <strong>Lanka</strong> participates in two regi<strong>on</strong>al<br />
agreements: the South Asian <strong>Free</strong> <strong>Trade</strong> Area (SAFTA) <strong>Agreement</strong> and the Asia-Pacific <strong>Trade</strong><br />
<strong>Agreement</strong> (APTA), and two bilateral agreements: the Indo-<strong>Sri</strong> <strong>Lanka</strong> <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> (ISFTA),<br />
and the Pakistan-<strong>Sri</strong> <strong>Lanka</strong> <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> (PSFTA).<br />
To penetrate the South Asian markets <strong>Sri</strong> <strong>Lanka</strong> has been moving from regi<strong>on</strong>al to bilateral trade<br />
agreements due to the sluggish progress of SAFTA. Provisi<strong>on</strong>s made under the bilateral agreements<br />
are much more favourable than the provisi<strong>on</strong>s provided by SAFTA. Both the bilateral agreements<br />
have given <strong>Sri</strong> <strong>Lanka</strong> greater market access to India and Pakistan. Moreover, they are much more<br />
favourable than the provisi<strong>on</strong>s made under SAFTA. Nevertheless, the trade between <strong>Sri</strong> <strong>Lanka</strong> and<br />
India, and <strong>Sri</strong> <strong>Lanka</strong> and Pakistan still occur outside the FTAs due to the restricti<strong>on</strong>s maintained by all<br />
three countries. Negative list, restrictive rules of origin criteria and NTMs are some of the measures<br />
that hamper <strong>Sri</strong> <strong>Lanka</strong>’s trade with India and Pakistan. Therefore, it is crucial to identify the extent to<br />
which trade in <strong>Sri</strong> <strong>Lanka</strong> is deterred by tariff schedules, rules of origin and NTMs. For this reas<strong>on</strong>, the<br />
proceeding secti<strong>on</strong>s looks at the provisi<strong>on</strong>s made under SAFTA, ISFTA and PSFTA and the issues<br />
faced since the implementati<strong>on</strong> of the respective FTAs.<br />
2.2 SAPTA/SAFTA<br />
<strong>Sri</strong> <strong>Lanka</strong> is a member of the South Asian Associati<strong>on</strong> for Regi<strong>on</strong>al Cooperati<strong>on</strong> (SAARC). The seven<br />
members (Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and <strong>Sri</strong> <strong>Lanka</strong>) signed the South<br />
Asia Preferential Trading <strong>Agreement</strong> (SAPTA) in 1993. The objective of the SAPTA was to promote<br />
and sustain mutual trade and ec<strong>on</strong>omic cooperati<strong>on</strong> am<strong>on</strong>g the member countries through the<br />
exchange of trade c<strong>on</strong>cessi<strong>on</strong>s. Four rounds of trade liberalisati<strong>on</strong> were completed within SAPTA<br />
covering over 5000 tariff sub-headings 26 . Each round c<strong>on</strong>tributed to increased product coverage and<br />
deeper tariff c<strong>on</strong>cessi<strong>on</strong>s. However, due to the slow pace of trade liberalizati<strong>on</strong> under the SAPTA,<br />
South Asian <strong>Free</strong> <strong>Trade</strong> Area (SAFTA) was signed in 2004 and came into operati<strong>on</strong> in 2006<br />
superseding SAPTA. SAFTA aimed at further enhancing regi<strong>on</strong>al ec<strong>on</strong>omic integrati<strong>on</strong> through<br />
promoti<strong>on</strong> of preferential trade. However, the pace of liberalizati<strong>on</strong> under SAFTA has also been slow<br />
due to the large size of sensitive lists, prevalence of n<strong>on</strong>-tariff barriers (NTBs), exclusi<strong>on</strong> of services<br />
and investments, high transacti<strong>on</strong> costs and the political uncertainties between countries, especially<br />
between India and Pakistan. 27 Intra-regi<strong>on</strong>al trade in South Asia was as low as 5 per cent in 2006 at<br />
the time of SAFTA coming into effect. The much expected growth in intra-regi<strong>on</strong>al trade has not<br />
materialised to date despite the operati<strong>on</strong>alizati<strong>on</strong> of the agreement. 28 With the emergence of<br />
India, the dynamics of regi<strong>on</strong>al integrati<strong>on</strong> in South Asia also appears to have changed. 29 With India<br />
26 WTO (2010), “<strong>Trade</strong> Policy Review – <strong>Sri</strong> <strong>Lanka</strong>”, available at<br />
http://www.wto.org/english/tratop_e/tpr_e/tp337_e.htm<br />
27 de Mel, D. (2007), “South Asia: Towards a Viable <strong>Free</strong> <strong>Trade</strong> Area”, Briefing Paper no. 5, South Asia Watch <strong>on</strong><br />
<strong>Trade</strong>, Ec<strong>on</strong>omics and Envir<strong>on</strong>ment”, Kathmandu, Nepal, available at:<br />
[http://www.ips.lk/research/sa_t_free_trade/SA_towards_a_free_trade_270508.pdf]<br />
28 Ibid.<br />
29 Weerako<strong>on</strong>, D. (2010), “SAFTA: Current Status and Prospects” in Promoting Ec<strong>on</strong>omic Cooperati<strong>on</strong> in South<br />
Asia: Bey<strong>on</strong>d SAFTA ed. Sadiq Ahmed, Saman Kelegama & Ejaz Ghani, Sage Publicati<strong>on</strong>s, New Delhi, India.<br />
Page 11 of 88
looking increasingly to strengthening ec<strong>on</strong>omic relati<strong>on</strong>s with the Asian regi<strong>on</strong> through initiatives<br />
such as Associati<strong>on</strong> of Southeast Asian Nati<strong>on</strong>s (ASEAN+3), the smaller South Asian nati<strong>on</strong>s have<br />
shown signs of strengthening links with the Indian ec<strong>on</strong>omy 30 . For this reas<strong>on</strong>, ec<strong>on</strong>omic integrati<strong>on</strong><br />
in South Asia has gained momentum, and SAFTA is likely to become marginal in that process. 31<br />
<strong>Trade</strong> liberalizati<strong>on</strong> under SAFTA:<br />
SAFTA suffers from significant limitati<strong>on</strong>s. For example, it has adopted a cauti<strong>on</strong>ary approach to<br />
trade liberalizati<strong>on</strong> within the South Asian regi<strong>on</strong>. 32 Under the <strong>Agreement</strong>, tariffs are lowered to 0-5<br />
per cent over a 10-year period for least developed countries (LDCs) and seven-year period for n<strong>on</strong>-<br />
LDCs. 33 In the case of <strong>Sri</strong> <strong>Lanka</strong>, tariff phase out period is 8-years under SAFTA. 34 The agreement is<br />
expected to be fully implemented by 2016. On the other hand, the phase-out periods for bilateral<br />
FTAs in the regi<strong>on</strong> are much shorter than in the case of SAFTA. For example <strong>Sri</strong> <strong>Lanka</strong> obtained dutyfree<br />
access to both Indian and Pakistani markets in three years of implementing the ISFTA and PSFTA<br />
respectively, except for the products that are included in the negative list.<br />
N<strong>on</strong>-Tariff Barriers:<br />
SAFTA has not been able to tackle the issues related to NTBs effectively. Even though SAFTA requires<br />
member countries to notify the Committee of Experts of NTBs and para-tariffs, the Committee can<br />
<strong>on</strong>ly make a recommendati<strong>on</strong> <strong>on</strong> their removal and this recommendati<strong>on</strong> is not a binding<br />
commitment. 35 As a result, a number of NTMs have been in place am<strong>on</strong>g SAFTA members even after<br />
implementing the SAFTA; for example India has maintained tariff rate quotas <strong>on</strong> 14 tariff lines at HS<br />
8-digit level, licences and import restricti<strong>on</strong>s. Moreover, there have been several barriers to trade at<br />
border points in South Asia due to the lack of mutual recogniti<strong>on</strong> of standards am<strong>on</strong>g members,<br />
especially between India, Bangladesh, Bhutan, Nepal and Pakistan. 36 While Pakistan has been<br />
maintaining technical and safety regulati<strong>on</strong>s, Bangladesh has been applying a significant rate of paratariffs<br />
(industrial development surcharges, supplementary duties etc.). <strong>Sri</strong> <strong>Lanka</strong> too has been<br />
implementing bans <strong>on</strong> certain imports from South Asia, such as tea and spices, to protect the quality<br />
of Ceyl<strong>on</strong> tea and spices.<br />
30 Ibid<br />
31 Ibid.<br />
32 Ibid.<br />
33 de Mel, D. (2007), “South Asia: Towards a Viable <strong>Free</strong> <strong>Trade</strong> Area”, Briefing Paper no. 5, South Asia Watch <strong>on</strong><br />
<strong>Trade</strong>, Ec<strong>on</strong>omics and Envir<strong>on</strong>ment”, Kathmandu, Nepal, available at:<br />
[http://www.ips.lk/research/sa_t_free_trade/SA_towards_a_free_trade_270508.pdf]<br />
34 de Mel, D. (2007), “South Asia: Towards a Viable <strong>Free</strong> <strong>Trade</strong> Area”, Briefing Paper no. 5, South Asia Watch <strong>on</strong><br />
<strong>Trade</strong>, Ec<strong>on</strong>omics and Envir<strong>on</strong>ment”, Kathmandu, Nepal, available at:<br />
[http://www.ips.lk/research/sa_t_free_trade/SA_towards_a_free_trade_270508.pdf]<br />
35 Ibid.<br />
36 Ibid.<br />
Page 12 of 88
Rules of Origin:<br />
The rules of origin criteria under SAFTA include a domestic value additi<strong>on</strong> and a change in tariff<br />
classificati<strong>on</strong>. The agreement requires a domestic value additi<strong>on</strong> of 40 per cent for India and<br />
Pakistan, 35 per cent for <strong>Sri</strong> <strong>Lanka</strong>, and 30 per cent for LDCs. 37 At the same time SAFTA requires a<br />
change of tariff classificati<strong>on</strong> at HS 4-digit level. 38 The agreement also allows derogating from the<br />
General Rule since some products have to undergo substantial transformati<strong>on</strong>s. Thus, the<br />
agreement allows the domestic value additi<strong>on</strong> criteria to be met without changing the tariff<br />
classificati<strong>on</strong> at the 4-digit level and vice versa. 39 Apart from country-specific rules of origin criteria,<br />
there is cumulative rules of origin requirement, with a minimum aggregate regi<strong>on</strong>al c<strong>on</strong>tent of 50<br />
per cent. 40<br />
37 Weerako<strong>on</strong>, D. (2010), “SAFTA: Current Status and Prospects” in Promoting Ec<strong>on</strong>omic Cooperati<strong>on</strong> in South<br />
Asia: Bey<strong>on</strong>d SAFTA ed. Sadiq Ahmed, Saman Kelegama & Ejaz Ghani, Sage Publicati<strong>on</strong>s, New Delhi, India.<br />
38 Ibid.<br />
39 Ibid.<br />
40 Ibid.<br />
Page 13 of 88
2.3 India-<strong>Sri</strong> <strong>Lanka</strong> <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong><br />
The slow progress of SAPTA gave rise to bilateral trading arrangements between countries in South<br />
Asia. One of the significant bilateral FTAs to emerge in the regi<strong>on</strong> was the India-<strong>Sri</strong> <strong>Lanka</strong> FTA (ISFTA).<br />
ISFTA was signed <strong>on</strong> 28 th December, 1998 with an overall objective of facilitating and enhancing<br />
trade relati<strong>on</strong>s between the two countries in order to broaden ec<strong>on</strong>omic integrati<strong>on</strong> and realize<br />
potential benefits thereof. 41 It was also an initiative undertaken to renew political c<strong>on</strong>fidence<br />
between <strong>Sri</strong> <strong>Lanka</strong> and India. Despite the delays in negotiati<strong>on</strong>s owning to domestic c<strong>on</strong>cerns, the<br />
agreement came into force <strong>on</strong> 1 st March, 2000 and has since c<strong>on</strong>tinued to be implemented<br />
according to the schedules that were agreed up<strong>on</strong>. 42<br />
<strong>Sri</strong> <strong>Lanka</strong>’s trade with India has gradually changed in terms of value and compositi<strong>on</strong> after the<br />
implementati<strong>on</strong> of the ISFTA. Immediately preceding the agreement, in the period 1995-2000,<br />
average annual exports from <strong>Sri</strong> <strong>Lanka</strong> to India were US$39 milli<strong>on</strong> (close to 1 per cent of <strong>Sri</strong> <strong>Lanka</strong>’s<br />
overall exports) while average imports from India were US$509 milli<strong>on</strong> (close to 10 per cent of <strong>Sri</strong><br />
<strong>Lanka</strong>’s overall imports). 43 While India was an important source of imports even prior to the FTA, it<br />
was not a major export market, and in 2000 it ranked 14 th in terms of export destinati<strong>on</strong>s of <strong>Sri</strong><br />
<strong>Lanka</strong>. 44 By 2005, however, <strong>Sri</strong> <strong>Lanka</strong>’s exports to India have increased by ten-fold, reaching US$566<br />
milli<strong>on</strong>, compared to 2000. 45 In 2008, India became the fifth largest destinati<strong>on</strong> for <strong>Sri</strong> <strong>Lanka</strong>’s<br />
exports, and by 2012 India had become the third largest export destinati<strong>on</strong> after the European<br />
Uni<strong>on</strong> (EU) and the United States (US). 46<br />
The number of products exported by <strong>Sri</strong> <strong>Lanka</strong> to India has also increased since the implementati<strong>on</strong><br />
of the ISFTA. While in 1999 <strong>Sri</strong> <strong>Lanka</strong> exported 505 products to India, by 2005 this had doubled to<br />
1,062, and by 2012 had further risen to 2,100. 47 In the early years of the FTA there appears to have<br />
been trade creati<strong>on</strong>, with a number of new, value added products being exported from both<br />
countries. 48 In 1999, <strong>Sri</strong> <strong>Lanka</strong>’s main exports to India included pepper, waste and scrap steel, areca<br />
nuts, dried fruit, cloves, and waste paper. 49 By 2008, apart from the primary products exported to<br />
India, several value-added products such as insulated wires and cables, pneumatic tyres, ceramics,<br />
41 High Commissi<strong>on</strong> of India (2013), “Handbook <strong>on</strong> the India-<strong>Sri</strong> <strong>Lanka</strong> <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong>”, High<br />
Commissi<strong>on</strong> of India, Colombo, <strong>Sri</strong> <strong>Lanka</strong>.<br />
42 Ibid.<br />
43 Kelegama, S. (2014), “The India-<strong>Sri</strong> <strong>Lanka</strong> <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> and the Proposed Comprehensive Ec<strong>on</strong>omic<br />
Partnership <strong>Agreement</strong>: A Closer Look,” ADBI Working Paper Series, available at:<br />
[http://www.adbi.org/files/2014.02.06.wp458.india.sri.lanka.free.trade.agreement.pdf]<br />
44 Ibid.<br />
45 Ibid.<br />
46 Ibid.<br />
47 Kelegama, S & C. Karunaratne (2013), “Experiences of <strong>Sri</strong> <strong>Lanka</strong> in the <strong>Sri</strong> <strong>Lanka</strong>-India FTA and the <strong>Sri</strong> <strong>Lanka</strong>-<br />
Pakistan FTA,” Background Paper <strong>on</strong> Regi<strong>on</strong>al Value Chains, UNCTAD, available at:<br />
[http://unctad.org/en/Publicati<strong>on</strong>sLibrary/ecidc2013misc1_bp10.pdf]<br />
48 Kelegama, S. (2014), “The India-<strong>Sri</strong> <strong>Lanka</strong> <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> and the Proposed Comprehensive Ec<strong>on</strong>omic<br />
Partnership <strong>Agreement</strong>: A Closer Look,” ADBI Working Paper Series, available at:<br />
[http://www.adbi.org/files/2014.02.06.wp458.india.sri.lanka.free.trade.agreement.pdf]<br />
49 Kelegama, S. (2014), “The India-<strong>Sri</strong> <strong>Lanka</strong> <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> and the Proposed Comprehensive Ec<strong>on</strong>omic<br />
Partnership <strong>Agreement</strong>: A Closer Look,” ADBI Working Paper Series, available at:<br />
[http://www.adbi.org/files/2014.02.06.wp458.india.sri.lanka.free.trade.agreement.pdf]<br />
Page 14 of 88
vegetable fats and oils, refined copper products, and furniture were am<strong>on</strong>g the top exports to<br />
India. 50<br />
However, since the implementati<strong>on</strong> of the ILFTA some unfavourable trends in <strong>Sri</strong> <strong>Lanka</strong>’s exports to<br />
India during 2005–2007 can be observed. The high growth in exports to India was driven mainly by<br />
two products (copper and Vanaspati - vegetable oil), which accounted for a 49.66 per cent share in<br />
<strong>Sri</strong> <strong>Lanka</strong>’s exports to India. 51 If Vanaspati and copper are excluded from the trade figures, <strong>Sri</strong><br />
<strong>Lanka</strong>’s exports to India would have increased <strong>on</strong>ly by five-fold compared to the ten-fold increase. . 52<br />
The rise in exports of these items was not due to any distinct comparative advantage <strong>on</strong> the part of<br />
<strong>Sri</strong> <strong>Lanka</strong>, but rather was due to a short-term tariff arbitrage by Indian manufacturers investing in <strong>Sri</strong><br />
<strong>Lanka</strong>. Copper exports from <strong>Sri</strong> <strong>Lanka</strong> were also subject to much scrutiny from India, based <strong>on</strong> their<br />
low domestic value additi<strong>on</strong>, with the Indians arguing that copper exports from <strong>Sri</strong> <strong>Lanka</strong> were<br />
under-invoiced and violated the ROO criteria. 53 Nevertheless exports to India have increased after<br />
the ILFTA, with over 70 per cent of <strong>Sri</strong> <strong>Lanka</strong>’s exports to India coming under the FTA during the<br />
post-2007 period. This figure increased to 83 per cent by 2011. 54<br />
Imports from India to <strong>Sri</strong> <strong>Lanka</strong> have also escalated at a rapid rate following the implementati<strong>on</strong> of<br />
the ILFTA. Imports from India amounted to US$600 milli<strong>on</strong> in 2000 have increased in six-fold by<br />
2012, reaching US$3,640 milli<strong>on</strong>. 55 Furthermore, India has become <strong>Sri</strong> <strong>Lanka</strong>’s main source of<br />
imports since 1997. Nevertheless, the major cause for the increased imports has been the escalating<br />
cost of petroleum products in the global markets at the time. Since petroleum imports are in <strong>Sri</strong><br />
<strong>Lanka</strong>’s negative list, the import of petroleum products from India has not been affected by the<br />
ILFTA. 56 In fact, the bulk of Indian imports to <strong>Sri</strong> <strong>Lanka</strong> (petroleum, vehicles, sugar, cott<strong>on</strong>, ir<strong>on</strong> and<br />
steel, and pharmaceutical products) are not subject to reduced tariffs under the <strong>Agreement</strong>. 57 Over<br />
70 per cent of <strong>Sri</strong> <strong>Lanka</strong>’s imports from India have been from products that are either in the negative<br />
list or are exempt from MFN duty. 58<br />
Tariff Rate Quotas:<br />
To provide <strong>Sri</strong> <strong>Lanka</strong> with market access to a certain degree, India has allowed tariff rate quotas for<br />
major export products from <strong>Sri</strong> <strong>Lanka</strong> under the <strong>Agreement</strong>. Initially, quota utilizati<strong>on</strong> has been<br />
50 Ibid.<br />
51 Kelegama, S. (2014), “The India-<strong>Sri</strong> <strong>Lanka</strong> <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> and the Proposed Comprehensive Ec<strong>on</strong>omic<br />
Partnership <strong>Agreement</strong>: A Closer Look,” ADBI Working Paper Series, available at:<br />
[http://www.adbi.org/files/2014.02.06.wp458.india.sri.lanka.free.trade.agreement.pdf]<br />
52 Ibid.<br />
53 IPS (2008), “ Internati<strong>on</strong>al Ec<strong>on</strong>omic Envir<strong>on</strong>ment” in State of the Ec<strong>on</strong>omy, Institute of Policy Studies of <strong>Sri</strong><br />
<strong>Lanka</strong>, Colombo, <strong>Sri</strong> <strong>Lanka</strong>.<br />
55 Kelegama, S. (2014), “The India-<strong>Sri</strong> <strong>Lanka</strong> <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> and the Proposed Comprehensive Ec<strong>on</strong>omic<br />
Partnership <strong>Agreement</strong>: A Closer Look,” ADBI Working Paper Series, available at:<br />
[http://www.adbi.org/files/2014.02.06.wp458.india.sri.lanka.free.trade.agreement.pdf]<br />
55 Kelegama, S. (2014), “The India-<strong>Sri</strong> <strong>Lanka</strong> <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> and the Proposed Comprehensive Ec<strong>on</strong>omic<br />
Partnership <strong>Agreement</strong>: A Closer Look,” ADBI Working Paper Series, available at:<br />
[http://www.adbi.org/files/2014.02.06.wp458.india.sri.lanka.free.trade.agreement.pdf]<br />
56 Ibid.<br />
57 Kelegama, S & C. Karunaratne (2013), “Experiences of <strong>Sri</strong> <strong>Lanka</strong> in the <strong>Sri</strong> <strong>Lanka</strong>-India FTA and the <strong>Sri</strong> <strong>Lanka</strong>-<br />
Pakistan FTA,” Background Paper <strong>on</strong> Regi<strong>on</strong>al Value Chains, UINCTAD, available at:<br />
[http://unctad.org/en/Publicati<strong>on</strong>sLibrary/ecidc2013misc1_bp10.pdf]<br />
58 Ibid.<br />
Page 15 of 88
minimal due to stringent ROO requirements and port restricti<strong>on</strong>s in India. Nevertheless, tea, readymade<br />
garments, and textiles, which made up 50 per cent exports to India, have improved to a<br />
certain extent following of the relaxati<strong>on</strong> of ROO and port restricti<strong>on</strong>s in 2007 (Table 2.1).<br />
Table 2.1: ILFTA Tariff Rate Quotas<br />
Product Tariff Preference Quota Other Restricti<strong>on</strong>s<br />
Tea<br />
Garments (Chapters 61<br />
& 62)<br />
Standard duty rate of<br />
7.5%<br />
15 milli<strong>on</strong> kg annually • Entry allowed <strong>on</strong>ly<br />
to the ports of<br />
Cochin and Kolkata.<br />
50% • 8 milli<strong>on</strong> pieces per year<br />
– 6 milli<strong>on</strong> of which need<br />
to have material sourced<br />
from India to receive<br />
preferences.<br />
• 3 milli<strong>on</strong> garment pieces<br />
now enjoy duty-free<br />
access to India<br />
• Port restricti<strong>on</strong>s<br />
were relaxed in<br />
2007<br />
-<br />
Textile (Chapters 51-60<br />
25% - -<br />
and 63, except few<br />
items in Chapters 53-56)<br />
Source: Table 2, de Mel, Deshal, undated, India – <strong>Sri</strong> <strong>Lanka</strong>, Pakistan – <strong>Sri</strong> <strong>Lanka</strong> Bilateral <strong>Free</strong> <strong>Trade</strong><br />
<strong>Agreement</strong>s, Institute of Policy Studies of <strong>Sri</strong> <strong>Lanka</strong>.<br />
Ready-made garments were granted preferential market access of 50 per cent for 8 milli<strong>on</strong> pieces<br />
per year while textiles were granted a preferential margin of 25 per cent with no quantitative<br />
restricti<strong>on</strong>s. 59 Out of the 8 milli<strong>on</strong> pieces, 3 milli<strong>on</strong> were required to have Indian fabrics as per the<br />
ROO. 60 In 2013, the Indian textile usage c<strong>on</strong>diti<strong>on</strong>ality was completely removed. 61<br />
Tariff liberalizati<strong>on</strong> under ISFTA:<br />
India and <strong>Sri</strong> <strong>Lanka</strong> have liberalized their tariff schedules gradually since the implementati<strong>on</strong> of the<br />
ISFTA over different time periods due to the ec<strong>on</strong>omic asymmetry between the two countries. While<br />
India had a three-year tariff phase-out period (reduced 50%, 75% and 100% of tariffs by 2003), <strong>Sri</strong><br />
<strong>Lanka</strong> liberalized its tariff schedule over an eight-year period (reduced 35%, 70% and 100% of tariffs<br />
by 2008). Under the <strong>Agreement</strong>, India has allowed duty-free access to 1351 tariff lines and has<br />
granted a preference margin of 50 per cent for the remaining 2,870 products initially. In turn, <strong>Sri</strong><br />
<strong>Lanka</strong> has allowed duty-free access to <strong>on</strong>ly 319 tariff lines and has granted 50 per cent preference<br />
59 Kelegama, S & C. Karunaratne (2013), “Experiences of <strong>Sri</strong> <strong>Lanka</strong> in the <strong>Sri</strong> <strong>Lanka</strong>-India FTA and the <strong>Sri</strong> <strong>Lanka</strong>-<br />
Pakistan FTA,” Background Paper <strong>on</strong> Regi<strong>on</strong>al Value Chains, UINCTAD, available at:<br />
[http://unctad.org/en/Publicati<strong>on</strong>sLibrary/ecidc2013misc1_bp10.pdf]<br />
60 de Mel, Deshal, undated, “India – <strong>Sri</strong> <strong>Lanka</strong>, Pakistan – <strong>Sri</strong> <strong>Lanka</strong> Bilateral <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong>s”, Institute<br />
of Policy Studies of <strong>Sri</strong> <strong>Lanka</strong>.<br />
61 Kelegama, S & C. Karunaratne (2013), “Experiences of <strong>Sri</strong> <strong>Lanka</strong> in the <strong>Sri</strong> <strong>Lanka</strong>-India FTA and the <strong>Sri</strong> <strong>Lanka</strong>-<br />
Pakistan FTA,” Background Paper <strong>on</strong> Regi<strong>on</strong>al Value Chains, UINCTAD, available at:<br />
[http://unctad.org/en/Publicati<strong>on</strong>sLibrary/ecidc2013misc1_bp10.pdf]<br />
Page 16 of 88
margin to 889 products from India initially. Further, India has maintained a smaller negative list with<br />
429 tariff lines compared to <strong>Sri</strong> <strong>Lanka</strong>’s l<strong>on</strong>g negative list of 1,220 tariff lines.<br />
N<strong>on</strong>-tariff barriers:<br />
Many <strong>Sri</strong> <strong>Lanka</strong>n exporters have faced difficulties in entering the Indian market due to the<br />
prevalence of n<strong>on</strong>-tariff barriers (NTBs) such as state taxes, standard requirements, and<br />
administrative procedures, which are outside the scope of tariff reducti<strong>on</strong> under the ILFTA. One<br />
example is state taxes charged by Tamil Nadu, where <strong>Sri</strong> <strong>Lanka</strong>n exporters are taxed at 21 per cent<br />
while local products are taxed <strong>on</strong>ly at 10.5 per cent <strong>on</strong> sales. 62 Lack of mutual recogniti<strong>on</strong> of<br />
standards between the two countries is another obstacle exporters encounter, especially perishable<br />
goods exporters.<br />
Rules of origin:<br />
The ILFTA uses a combinati<strong>on</strong> of rules of origin requirement: domestic value additi<strong>on</strong> and change in<br />
tariff classificati<strong>on</strong>. While the domestic value additi<strong>on</strong> requirement is 35 per cent of FOB value of the<br />
product, the final product must adhere to a change in tariff classificati<strong>on</strong> to HS 4-digit level. Apart<br />
from the stringent ROO which are applicable to the tariff rate quota items (i.e, the tariff rate quota<br />
for garments require 3 out of 8 milli<strong>on</strong> pieces of material to be sourced from India), the more<br />
general case of requiring a change of tariff classificati<strong>on</strong> at the HS 4-digit level has been burdensome<br />
for certain <strong>Sri</strong> <strong>Lanka</strong>n exports. 63 This rule has had a detrimental effect <strong>on</strong> <strong>Sri</strong> <strong>Lanka</strong>’s blended tea<br />
exports where a change in tariff classificati<strong>on</strong> at the 4-digit level is difficult to achieve even when<br />
blended with Indian tea. 64<br />
Unilateral impositi<strong>on</strong> of quotas:<br />
To avoid disrupti<strong>on</strong>s that can cause to the domestic industries, both countries agreed up<strong>on</strong><br />
unilateral quota impositi<strong>on</strong>s. <strong>Sri</strong> <strong>Lanka</strong> and India entered into negotiati<strong>on</strong>s in 2006 to apply a quota<br />
<strong>on</strong> Vanaspati exports due to the disrupti<strong>on</strong>s caused to the Indian domestic industry. 65 The two<br />
countries initially agreed to a quota of 250,000 metric t<strong>on</strong>nes per year and in 2006 India unilaterally<br />
reduced this quota to 100,000 metric t<strong>on</strong>nes and channelled all Vanaspati imports from <strong>Sri</strong> <strong>Lanka</strong><br />
through nati<strong>on</strong>al procurement agency. 66 After further negotiati<strong>on</strong>s the quota was reverted to<br />
250,000 metric t<strong>on</strong>nes. Similar issues were faced by exporters of bakery shortening, pepper, and<br />
copper. 67 These unilateral measures have undermined the c<strong>on</strong>fidence in the ILFTA. India has faced<br />
difficulty in removing these NTMs due to its federal state structure, which puts the pressure <strong>on</strong> the<br />
central government to accommodate the c<strong>on</strong>cerns of different state governments.<br />
62 Kelegama, S & C. Karunaratne (2013), “Experiences of <strong>Sri</strong> <strong>Lanka</strong> in the <strong>Sri</strong> <strong>Lanka</strong>-India FTA and the <strong>Sri</strong> <strong>Lanka</strong>-<br />
Pakistan FTA,” Background Paper <strong>on</strong> Regi<strong>on</strong>al Value Chains, UINCTAD, available at:<br />
[http://unctad.org/en/Publicati<strong>on</strong>sLibrary/ecidc2013misc1_bp10.pdf].<br />
63 de Mel, Deshal, undated, “India – <strong>Sri</strong> <strong>Lanka</strong>, Pakistan – <strong>Sri</strong> <strong>Lanka</strong> Bilateral <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong>s”, Institute<br />
of Policy Studies of <strong>Sri</strong> <strong>Lanka</strong>.<br />
64 Kelegama, S & C. Karunaratne (2013), “Experiences of <strong>Sri</strong> <strong>Lanka</strong> in the <strong>Sri</strong> <strong>Lanka</strong>-India FTA and the <strong>Sri</strong> <strong>Lanka</strong>-<br />
Pakistan FTA,” Background Paper <strong>on</strong> Regi<strong>on</strong>al Value Chains, UINCTAD, available at:<br />
[http://unctad.org/en/Publicati<strong>on</strong>sLibrary/ecidc2013misc1_bp10.pdf]<br />
65 Ibid.<br />
66 Ibid.<br />
67 Ibid.<br />
Page 17 of 88
Having an effective platform to discuss stakeholder issues:<br />
In the case of the Indo-<strong>Sri</strong> <strong>Lanka</strong> FTA, the governments’ efforts to develop it into a Comprehensive<br />
Ec<strong>on</strong>omic Partnership <strong>Agreement</strong> (CEPA) were not successful due to some c<strong>on</strong>cerns expressed by<br />
local groups <strong>on</strong> the agreement. Broadly they were <strong>on</strong>, (i) the nature of CEPA itself and (ii) the need<br />
to address the drawbacks in the FTA first. 68 The critics failed to take into account the special and<br />
differential treatment accorded to <strong>Sri</strong> <strong>Lanka</strong> and the positive list approach where each country can<br />
choose to make an offer based <strong>on</strong> their comfort levels and developmental interests. Further, CEPA<br />
was negotiated with the objective of addressing shortcomings of the FTA which included port<br />
restricti<strong>on</strong>s, NTBs, ROO and others. 69 Nevertheless, the experience with the Indo-<strong>Lanka</strong> CEPA<br />
highlights the need for greater private-public dialogue in <strong>Sri</strong> <strong>Lanka</strong>, <strong>on</strong> an <strong>on</strong>-going and regular basis.<br />
C<strong>on</strong>sultati<strong>on</strong>s should not be reserved purely to the governments and the commerce and trade<br />
departments but rather with stakeholders at large. This can ease exporter-importer c<strong>on</strong>cerns,<br />
dem<strong>on</strong>strate that challenges in the agreements can be addressed in a participatory manner, and<br />
help create broader public awareness of, and c<strong>on</strong>fidence in, the opportunities and benefits of the<br />
agreements.<br />
68 Kelegama, S. (2014), “The India-<strong>Sri</strong> <strong>Lanka</strong> <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> and the Proposed Comprehensive Ec<strong>on</strong>omic<br />
Partnership <strong>Agreement</strong>: A Closer Look,” ADBI Working Paper Series, available at:<br />
[http://www.adbi.org/files/2014.02.06.wp458.india.sri.lanka.free.trade.agreement.pdf]<br />
69 Ibid<br />
Page 18 of 88
2.3 Pakistan-<strong>Sri</strong> <strong>Lanka</strong> <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong><br />
As Pakistan represents <strong>Sri</strong> <strong>Lanka</strong>’s sec<strong>on</strong>d largest trading partner in the SAARC regi<strong>on</strong>, <strong>Sri</strong> <strong>Lanka</strong> was<br />
eager to sign a free trade agreement with the nati<strong>on</strong>, particularly after the significant market access<br />
<strong>Sri</strong> <strong>Lanka</strong> received following the FTA signed with India. Accordingly, the Pakistan-<strong>Sri</strong> <strong>Lanka</strong> <strong>Free</strong> <strong>Trade</strong><br />
<strong>Agreement</strong> (PSFTA) was signed in 2002 and came into implementati<strong>on</strong> in 2005. The <strong>Sri</strong> <strong>Lanka</strong>n<br />
experience with the PSFTA also suggests that there was a revival of <strong>Sri</strong> <strong>Lanka</strong>’s bilateral trade with<br />
Pakistan.<br />
<strong>Sri</strong> <strong>Lanka</strong>’s trade with Pakistan has accelerated during 2005-2010 since the PSFTA entered into force<br />
in 2005. However, trade between the two countries has occurred in areas outside the PSFTA as the<br />
products that were traded between the two countries have been in the negative lists. Although the<br />
exports from <strong>Sri</strong> <strong>Lanka</strong> to Pakistan have risen from US$ 56 milli<strong>on</strong> in 2003 to US$ 36 milli<strong>on</strong> in 2007,<br />
the share of exports has remained the same at 0.7 per cent out of <strong>Sri</strong> <strong>Lanka</strong>’s total export. 70 Imports<br />
from Pakistan to <strong>Sri</strong> <strong>Lanka</strong> have accelerated at a faster pace rising from US$ 71 milli<strong>on</strong> in 2003 (1 per<br />
cent of total imports), to US$ 178 milli<strong>on</strong> in 2007 (1.6 per cent of total imports). 71<br />
Imports from Pakistan gave grown significantly since the FTA came into place. The major import item<br />
from Pakistan is textiles and fabrics, which accounted for 55 per cent of <strong>Sri</strong> <strong>Lanka</strong>’s imports from<br />
Pakistan in 2007. 72 Other items include medicaments, potatoes, rice and dried fish. 73 While textile<br />
and apparel articles, and medicaments receive MFN duty-free treatment, rice and dried fish fall<br />
under the negative list and potatoes are imported under a tariff rate quota (TRQ) with the state<br />
retail firm Co-Operative Wholesale Establishment (CWE) being allocated the quota. 74<br />
Tariff Liberalizati<strong>on</strong> Programme:<br />
Both <strong>Sri</strong> <strong>Lanka</strong> and Pakistan have gradually liberalized their tariff schedules since the PSFTA entered<br />
into force. Initially Pakistan and <strong>Sri</strong> <strong>Lanka</strong> have offered <strong>on</strong>ly 206 and 102 tariff lines respectively for<br />
immediate zero duty. 75 Yet, Pakistan liberalized the remaining products over a three-year period,<br />
which ended in June 2008, effectively giving <strong>Sri</strong> <strong>Lanka</strong> duty free market access to more than 4,500<br />
products. 76 <strong>Sri</strong> <strong>Lanka</strong> has also liberalized its remaining products, excluding those <strong>on</strong> the negative list,<br />
over a five-year period that ended in November 2010.<br />
Negative Lists:<br />
70 Kelegama, S & C. Karunaratne (2013), “Experiences of <strong>Sri</strong> <strong>Lanka</strong> in the <strong>Sri</strong> <strong>Lanka</strong>-India FTA and the <strong>Sri</strong> <strong>Lanka</strong>-<br />
Pakistan FTA,” Background Paper <strong>on</strong> Regi<strong>on</strong>al Value Chains, UINCTAD, available at:<br />
[http://unctad.org/en/Publicati<strong>on</strong>sLibrary/ecidc2013misc1_bp10.pdf]\<br />
71 Ibid.<br />
72 IPS (2007), “ Internati<strong>on</strong>al Ec<strong>on</strong>omic Envir<strong>on</strong>ment” in State of the Ec<strong>on</strong>omy, Institute of Policy Studies of <strong>Sri</strong><br />
<strong>Lanka</strong>, Colombo, <strong>Sri</strong> <strong>Lanka</strong>.<br />
73 Ibid.<br />
74 de Mel, Deshal, undated, “India – <strong>Sri</strong> <strong>Lanka</strong>, Pakistan – <strong>Sri</strong> <strong>Lanka</strong> Bilateral <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong>s”, Institute<br />
of Policy Studies of <strong>Sri</strong> <strong>Lanka</strong>.<br />
75 Abeyratne, S. (2012), “<strong>Sri</strong> <strong>Lanka</strong>’s <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong>s with India and Pakistan: Are They Leading Bilateral<br />
<strong>Trade</strong> Bey<strong>on</strong>d Normalcy?”, The Lahore Journal of Ec<strong>on</strong>omics, Vol. 17, pp. 315-337, available at:<br />
[http://121.52.153.179/JOURNAL/LJE_Vol_17-<br />
SE_PDF/13%20Sirimal%20Abeyratne%20ED%20AAC%2001102012.pdf]<br />
76 Ibid.<br />
Page 19 of 88
As a result of the PSFTA <strong>Sri</strong> <strong>Lanka</strong> has diversified its export basket to Pakistan over time. Pakistan’s<br />
negative list, which c<strong>on</strong>sists of 540 tariff lines, c<strong>on</strong>tained many of <strong>Sri</strong> <strong>Lanka</strong>’s main exports to<br />
Pakistan including tea, rubber products, certain ceramics, paper products and several textile and<br />
garment products. 77 For this reas<strong>on</strong>, a range of new <strong>Sri</strong> <strong>Lanka</strong>n products have penetrated Pakistan’s<br />
market: fresh pineapple, sports goods, tamarind with seeds, edible oil, porcelain tableware and<br />
kitchenware, ceramic tiles, furniture, electrical switches and sockets, herbal cosmetic products,<br />
plastic articles, paints, glass paintings, leather products, frozen fish, prawns, lobsters, crabs, cut<br />
flowers and foliage, gems and Jewellery and aquarium fish. 78 <strong>Sri</strong> <strong>Lanka</strong>’s negative list also c<strong>on</strong>sists of<br />
697 products with mostly agriculture sector, rubber, products, paper products, footwear, ceramic<br />
products, many motor vehicles and part, al<strong>on</strong>g with several metal products. 79<br />
N<strong>on</strong>-tariff barriers:<br />
Although both the countries maintain a negative list, to provide market access to each other to a<br />
certain degree, Pakistan and <strong>Sri</strong> <strong>Lanka</strong> have allowed tariff rate quotas for major export products<br />
from both countries (Table 2.2). Tea, apparel, betel and cosmetics were subjected to tariff rate<br />
quotas for exports from <strong>Sri</strong> <strong>Lanka</strong>. <strong>Sri</strong> <strong>Lanka</strong>’s exports of these products to Pakistan have further<br />
improved following a degree of revisi<strong>on</strong>s made for tariff rate quotas and margin of preferences in<br />
2007.<br />
Table 2.2: PSFTA Tariff Rate Quotas<br />
Product Pakistan’s No. <strong>Sri</strong> <strong>Lanka</strong>’s No. Tariff Rate Quota<br />
of Tariff Lines of Tariff Lines<br />
Tea 4 - 10,000 MT<br />
Apparel 21 - 35% Margin of Preference<br />
Basmati - 1 Duty <strong>Free</strong> for 6,000 MT<br />
Potatoes - 1 Duty <strong>Free</strong> for 1,200 MT<br />
Betel 1 20% Margin of Preference<br />
Cosmetics 11 50% Margin of Preference<br />
Source, Table 4, de Mel, D., undated, India – <strong>Sri</strong> <strong>Lanka</strong>, Pakistan – <strong>Sri</strong> <strong>Lanka</strong> Bilateral <strong>Free</strong> <strong>Trade</strong><br />
<strong>Agreement</strong>s, Institute of Policy Studies of <strong>Sri</strong> <strong>Lanka</strong>.<br />
Rules of origin:<br />
Stringent rules of origin criteria were <strong>on</strong>e of the setbacks of ISFTA, which was c<strong>on</strong>sidered while<br />
negotiating the PSFTA. Having the experience with ISFTA, PSFTA negotiati<strong>on</strong>s adopted a less<br />
restricted rules of origin criteria. The major difference between the rules of origin of the ILFTA and<br />
PSFTA is the change of tariff classificati<strong>on</strong> criteria: the PSFTA adopts a change of tariff heading at HS<br />
6-digit level, which is more favourable to <strong>Sri</strong> <strong>Lanka</strong>, particularly for blended tea.<br />
2.4 C<strong>on</strong>clusi<strong>on</strong><br />
77 IPS (2007), “ Internati<strong>on</strong>al Ec<strong>on</strong>omic Envir<strong>on</strong>ment” in State of the Ec<strong>on</strong>omy, Institute of Policy Studies of <strong>Sri</strong><br />
<strong>Lanka</strong>, Colombo, <strong>Sri</strong> <strong>Lanka</strong>.<br />
78 Ibid.<br />
79 Ibid.<br />
Page 20 of 88
<strong>Sri</strong> <strong>Lanka</strong> has been involved in both regi<strong>on</strong>al and bilateral trading arrangements with South Asia. The<br />
first was South Asia Preferential Trading Arrangement (1995) followed by Indo-<strong>Sri</strong> <strong>Lanka</strong> <strong>Free</strong> <strong>Trade</strong><br />
<strong>Agreement</strong> (2000), Pakistan-<strong>Sri</strong> <strong>Lanka</strong> <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> (2005) and South Asia <strong>Free</strong> <strong>Trade</strong><br />
<strong>Agreement</strong> (2006). <strong>Sri</strong> <strong>Lanka</strong> has been benefiting more from the ISFTA and PSFTA in the absence of a<br />
progressive regi<strong>on</strong>al trading arrangement. The significance of SAFTA has been threatened by the<br />
emergence of ISFTA and PSFTA with their favourable provisi<strong>on</strong>s compared to SAFTA. Given the<br />
asymmetry of size of the ec<strong>on</strong>omies <strong>Sri</strong> <strong>Lanka</strong> received special and differential treatment under each<br />
of the existing FTAs, for instance <strong>Sri</strong> <strong>Lanka</strong> was allowed a l<strong>on</strong>ger tariff phase-out period than Pakistan<br />
and India in SAFTA, ISFTA and PSFTA. Drawing from previous FTA experiences following is a summary<br />
of the above discussi<strong>on</strong> and some of the areas that need attenti<strong>on</strong> in the <strong>China</strong>-<strong>Sri</strong> <strong>Lanka</strong> FTA<br />
negotiati<strong>on</strong>s.<br />
Negative List:<br />
The existing bilateral agreements (ILFTA and PSFTA) have outd<strong>on</strong>e the regi<strong>on</strong>al agreement (SAFTA)<br />
in South Asia. The provisi<strong>on</strong>s made in both bilateral agreements are far more generous than the<br />
provisi<strong>on</strong>s made under SAFTA. While 42 per cent of <strong>Sri</strong> <strong>Lanka</strong>’s exports to India are restricted by the<br />
Indian Negative List in SAFTA, <strong>on</strong>ly 3.3 per cent of <strong>Sri</strong> <strong>Lanka</strong>’s exports to India fall under the Negative<br />
List in the ILFTA. 80 Also, 44 per cent of imports from India fall under the Negative List of <strong>Sri</strong> <strong>Lanka</strong> in<br />
the ILFTA, while 54 per cent of India’s imports to <strong>Sri</strong> <strong>Lanka</strong> fall under the Negative list in the SAFTA. 81<br />
Tariff-rate Quotas:<br />
Although tariff schedules have been liberalized to a certain extent, <strong>Sri</strong> <strong>Lanka</strong>’s trade expansi<strong>on</strong> with<br />
India and Pakistan has been impeded by tariff-rate quotas, restrictive rules of origin criteria and<br />
other n<strong>on</strong>-tariff barriers. India has maintained tariff-rate quotas for tea, garments and textile while<br />
Pakistan maintained tariff-rate quotas for tea, garments and betel. Hence bulk of the tea exports<br />
from <strong>Sri</strong> <strong>Lanka</strong> to India and Pakistan have been outside the FTAs.<br />
Rules of Origin:<br />
Rules of origin criteria have varied am<strong>on</strong>g the FTAs in South Asia. SAFTA and ISFTA require a change<br />
of tariff classificati<strong>on</strong> at 4-digit level. 82 This rule has had a detrimental effect <strong>on</strong> <strong>Sri</strong> <strong>Lanka</strong>’s blended<br />
tea exports where a change in tariff classificati<strong>on</strong> at the 4-digit level is difficult to achieve even when<br />
blended with Indian tea. On the other hand, PSFTA has a more favourable change in tariff<br />
classificati<strong>on</strong> requirement of HS 6-digit. 83 As a c<strong>on</strong>sequence, more value-added exports from <strong>Sri</strong><br />
<strong>Lanka</strong> have received duty-free treatment to access the Pakistani market. Additi<strong>on</strong>ally, all three<br />
agreements have adopted the same domestic value additi<strong>on</strong> criteria; 35 per cent of the FOB value of<br />
the product.<br />
MRAs:<br />
80 de Mel, Deshal, undated, “India – <strong>Sri</strong> <strong>Lanka</strong>, Pakistan – <strong>Sri</strong> <strong>Lanka</strong> Bilateral <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong>s”, Institute<br />
of Policy Studies of <strong>Sri</strong> <strong>Lanka</strong>.<br />
81 Ibid.<br />
82 Ibid.<br />
83 Ibid.<br />
Page 21 of 88
Lack of a Mutual Recogniti<strong>on</strong> <strong>Agreement</strong> (MRA) for standards between <strong>Sri</strong> <strong>Lanka</strong> and its FTA partners<br />
has resulted in various additi<strong>on</strong>al checks/ certificati<strong>on</strong>s <strong>on</strong> the goods at the importing country<br />
although they have been previously tested and certified by the relevant, approved authorities in <strong>Sri</strong><br />
<strong>Lanka</strong>. Some of the issues faced by traders include intergovernmental n<strong>on</strong>-acceptance of testing<br />
methods and standards; packaging, labeling and markings; and duplicati<strong>on</strong> of health and safety<br />
checks in India and <strong>Sri</strong> <strong>Lanka</strong>. This has resulted in delays and additi<strong>on</strong>al costs. MRA between the two<br />
countries, especially between key agencies such as Standards Institutes and Industrial Technology<br />
Institutes, can assist in reducing the necessity to carry out additi<strong>on</strong>al checks. If the two governments<br />
can agree <strong>on</strong> testing/certifying bodies in each country then extra m<strong>on</strong>ey and time would not have to<br />
be spent <strong>on</strong> demands for additi<strong>on</strong>al certificates.<br />
COOs:<br />
There have also been instances where doubts have been raised by Indian officials <strong>on</strong> the validity of<br />
the COOs (sometimes in instances where the detailed cost sheets were produced) or the ISFTA<br />
certificate was refused citing that the signatures in the certificate are not that of the authorized<br />
pers<strong>on</strong>s. Furthermore, Indian customs /other bodies have also demanded for documents that have<br />
not been specified in the FTA.<br />
Awareness:<br />
Lack of knowledge/awareness am<strong>on</strong>g traders of the c<strong>on</strong>cessi<strong>on</strong>s offered by the FTAs has been a key<br />
impediment to garner benefits of FTAs. Although a majority of exporters/importers were aware of<br />
the FTA there are SMEs who lack awareness of specific informati<strong>on</strong> <strong>on</strong> the duty c<strong>on</strong>cessi<strong>on</strong>s offered<br />
and the processes attached to acquiring the preference (ROO, tariff rate quotas etc.).<br />
Instituti<strong>on</strong>al support:<br />
The absence of a fixed body to address problems arising when trading under the agreement is an<br />
impediment in using the FTAs. When problems arise regarding a shipment (i.e. documentati<strong>on</strong>)<br />
there is no formal body of authority that takes up the complaints and addresses them quickly. Quick<br />
resp<strong>on</strong>se is essential due to high costs of delays and if the cost benefit under the FTA is negated then<br />
the traders will not be encouraged to export/importer further. In the case of the ISFTA for example,<br />
<strong>Sri</strong> <strong>Lanka</strong>n traders pointed out that when there are any mistakes in the import certificate that need<br />
to be rectified, it has to be d<strong>on</strong>e in India since the Indian High Commissi<strong>on</strong> in Colombo does not have<br />
the authority to rectify these correcti<strong>on</strong>s and this was identified to be a time c<strong>on</strong>suming activity that<br />
needs to be changed. Furthermore, customs cooperati<strong>on</strong> <strong>on</strong> HS code classificati<strong>on</strong> is also an<br />
important measure that needs attenti<strong>on</strong> as disagreement <strong>on</strong> HS classificati<strong>on</strong> is often a bottleneck<br />
for traders.<br />
Government facilitati<strong>on</strong> (for companies/businesses) is also essential to overcome bureaucratic issues<br />
in countries with which <strong>Sri</strong> <strong>Lanka</strong> has bilateral and regi<strong>on</strong>al trading arrangements with, especially<br />
with regard to investing in the partner country.<br />
Page 22 of 88
<strong>Trade</strong> facilitati<strong>on</strong> issues:<br />
Further, trading procedures need to be laid down to reduce ambiguity <strong>on</strong> the procedures which can<br />
lead to complexities and rent seeking. Moreover, although a majority of exporters/importers are<br />
generally aware of the process that needs to be followed to receive trade c<strong>on</strong>cessi<strong>on</strong>s, small and<br />
medium scale businesses require specific informati<strong>on</strong> <strong>on</strong> the c<strong>on</strong>cessi<strong>on</strong>s offered and the processes<br />
attached to acquiring the preferences.<br />
The distance to labs in some countries to carry out the necessary checks creates a substantial delay<br />
in some instances, with highly perishable goods suffering the most in these instances. In the case of<br />
India, the requirement to carry out checking/c<strong>on</strong>formity of edible items at the Centre for Food<br />
Testing and Research Institute (CFTRI) in areas that are situated at a distance from the port in India is<br />
an impediment, i.e. imports into Chennai are sent to the CFTRI in Mysore (Mysore is about 470 km’s<br />
away from Chennai) and imports into Mumbai are sent to the CFTRI in Pune. It is also necessary to<br />
visit departments in different locati<strong>on</strong>s and this was seen to be a bottleneck by a few traders.<br />
<strong>Trade</strong>rs have highlighted the necessity of facilitating the visa processes between two countries if<br />
trade relati<strong>on</strong>ships between them are to be developed. <strong>Sri</strong> <strong>Lanka</strong>n exporters to India for instance<br />
have stated that getting business visa to India is extremely difficult and have highlighted the need to<br />
promote businessmen visiting India and to obtain multiple entry visas.<br />
Page 23 of 88
Salient Features of <strong>China</strong>'s<br />
Existing FTAs<br />
Page 24 of 88
3.1 Introducti<strong>on</strong><br />
<strong>China</strong> has emerged as a major player in the global ec<strong>on</strong>omy and c<strong>on</strong>siders free trade agreements as<br />
an important part of its global trading strategy. 84 Immediately after joining the World <strong>Trade</strong><br />
Organizati<strong>on</strong> (WTO) in December 2001, <strong>China</strong> not <strong>on</strong>ly reduced trade barriers as a member of the<br />
multilateral trading system but also adopted a bilateral/regi<strong>on</strong>al approach to trade liberalizati<strong>on</strong>. 85<br />
<strong>China</strong> did not enter into FTAs until then for several reas<strong>on</strong>s: little or no interest in FTAs in the 1970s<br />
and 1980s; different trade structure of <strong>China</strong>; resource c<strong>on</strong>straints; and strategic choice. 86 However<br />
in the mid- 1990s, the situati<strong>on</strong> changed and <strong>China</strong> started to c<strong>on</strong>sider the possibility of entering into<br />
FTAs, as highlighted in the Ninth Five Year Plan, a blueprint for nati<strong>on</strong>al ec<strong>on</strong>omic and social<br />
development, which was adopted in 1996. 87 According to the Plan: <strong>China</strong> shall “actively participate<br />
and develop regi<strong>on</strong>al ec<strong>on</strong>omic cooperati<strong>on</strong>” as well as “strengthen South-South Cooperati<strong>on</strong>, and<br />
promote and develop the ec<strong>on</strong>omic and trade cooperati<strong>on</strong> with developing countries.” At the same<br />
time the Plan calls for <strong>China</strong> to “actively participate and defend the global multilateral trading<br />
system, develop both bilateral and multilateral trade, so that they can promote each other and the<br />
market can be diversified”. Thus <strong>China</strong> c<strong>on</strong>siders regi<strong>on</strong>al trade agreements as a complement to the<br />
multilateral trading system 88 .<br />
In the words of <strong>China</strong>’s Ministry of Commerce, FTAs offer “as a new platform to further opening up<br />
to the outside and speeding up domestic reforms, an effective approach to integrate into global<br />
ec<strong>on</strong>omy and strengthen ec<strong>on</strong>omic cooperati<strong>on</strong> with other ec<strong>on</strong>omies, as well as particularly an<br />
important supplement to the multilateral trading system.” 89 Over the past two decades, <strong>China</strong> has<br />
been actively pursuing FTAs with various countries towards this end. The geographic distributi<strong>on</strong> of<br />
<strong>China</strong>’s FTAs dem<strong>on</strong>strates a high degree of cross-regi<strong>on</strong>al orientati<strong>on</strong>. <strong>China</strong> has c<strong>on</strong>cluded FTAs, or<br />
entered into negotiati<strong>on</strong>s, with almost every major regi<strong>on</strong> in the world, including Europe (Iceland,<br />
Norway, Switzerland), America (Chile, Peru and Costa Rica), Middle East (GCC), Africa (SACU), East<br />
Asia (Japan, Korea, H<strong>on</strong>g K<strong>on</strong>g, and Macau), Southeast Asia (ASEAN and Singapore), South Asia<br />
(Pakistan and India), and Oceania (New Zealand and Australia). 90 As of June 2014, <strong>China</strong> is a party to<br />
eleven bilateral trade agreements and a regi<strong>on</strong>al trade agreement. 91<br />
• <strong>China</strong>-ASEAN FTA<br />
• Mainland and H<strong>on</strong>g K<strong>on</strong>g Closer Ec<strong>on</strong>omic and Partnership Arrangement<br />
• Mainland and Macau Closer Ec<strong>on</strong>omic and Partnership Arrangement<br />
• <strong>China</strong>-Pakistan FTA<br />
• <strong>China</strong>-New Zealand FTA<br />
• <strong>China</strong>-Singapore FTA<br />
• <strong>China</strong>-Chile FTA<br />
• <strong>China</strong>-Peru FTA<br />
84 Zhan, Yunling (2011), People’s Republic of <strong>China</strong>, in Asia’s <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong>s: How is Business<br />
Resp<strong>on</strong>ding? (ed.) M. Kawai & G. Wignaraja, Edward Elgar Publishing, pp.107-109<br />
85 Yunling, Z. and Minhui, S. (200?), FTAs in Asia-Pacific: A Chinese Perspective, Available at:<br />
http://www2.jiia.or.jp/en/pdf/publicati<strong>on</strong>/2013-06_005-kokusaim<strong>on</strong>dai.pdf<br />
86 Gao, H. (2011), “<strong>China</strong>’s Strategy for <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong>s: Political Battle in the Name of <strong>Trade</strong>”, available<br />
at: [http://www.networkideas.org/networkideas/editorfiles/file/Henry_Gao.pdf]<br />
87 Ibid<br />
88 WTO (2012) <strong>Trade</strong> Policy Review: <strong>China</strong>, Secretariat Report. Available at:<br />
http://www.wto.org/english/tratop_e/tpr_e/tp364_e.htm<br />
89 Ministry of Commerce PRC, <strong>China</strong> FTA Network, Available at : http://fta.mofcom.gov.cn/english/index.shtml<br />
90 Ibid<br />
91 Ibid<br />
Page 25 of 88
• <strong>China</strong>-Costa Rica FTA<br />
• <strong>China</strong>-Switzerland FTA<br />
• <strong>China</strong>-Iceland FTA<br />
Further, <strong>China</strong> is in the process of negotiating eight more FTAs:<br />
• <strong>China</strong>-GCC (Gulf Cooperati<strong>on</strong> Council) FTA<br />
• <strong>China</strong>-Australia FTA<br />
• <strong>China</strong>-Norway FTA<br />
• <strong>China</strong>-SACU (Southern African Customs Uni<strong>on</strong>)<br />
• <strong>China</strong>-Korea FTA<br />
• <strong>China</strong>-Japan-Korea FTA<br />
• <strong>China</strong>-India FTA<br />
• <strong>China</strong>-<strong>Sri</strong> <strong>Lanka</strong> FTA<br />
This secti<strong>on</strong> will explore the main features of <strong>China</strong>’s FTAs, focusing <strong>on</strong> the agreements that have<br />
been signed and in force at the moment: <strong>China</strong>-ASEAN FTA, <strong>China</strong>-Chile FTA, <strong>China</strong>-New Zealand<br />
FTA, <strong>China</strong>-Singapore FTA, <strong>China</strong>-Pakistan FTA, <strong>China</strong>-Peru FTA, <strong>China</strong>-Costa Rica FTA, <strong>China</strong>-<br />
Switzerland FTA and <strong>China</strong>-Iceland FTA. Given that negotiati<strong>on</strong>s <strong>on</strong> <strong>Sri</strong> <strong>Lanka</strong>-<strong>China</strong> FTA are likely to<br />
begin to in the near future, it is worth while looking at the main features of <strong>China</strong>’s existing FTAs to<br />
get an idea of what a possible a FTA with <strong>China</strong> would look like. The secti<strong>on</strong> finds that <strong>China</strong> has<br />
adopted a flexible strategy that addresses its own prerogatives as well that of partner<br />
countries. 92 The variety of forms the agreements dem<strong>on</strong>strates geographic and development<br />
diversity of the partner countries.<br />
92 Zhao, J. & Webster, T. (2011), Taking Stock: <strong>China</strong>’s First Decade of <strong>Free</strong> <strong>Trade</strong>, Available at:<br />
[https://www.google.lk/url?url=https://www.law.upenn.edu/live/files/140-<br />
zhaowebster33upajintll652011pdf&rct=j&frm=1&q=&esrc=s&sa=U&ei=5m-<br />
uU47bLIaIuASHsILgCw&ved=0CBIQFjAA&sig2=WpNHYdEB2u0MHICgkKrizg&usg=AFQjCNFel7ydWu0Q-<br />
XusQIcuH4_aV9bGfg]<br />
Page 26 of 88
3.2 <strong>China</strong>-ASEAN <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong><br />
<strong>China</strong>-ASEAN FTA is <strong>China</strong>’s first initiative, which was proposed by <strong>China</strong> and supported by ASEAN as<br />
a group in 2000. A Framework <strong>Agreement</strong> <strong>on</strong> Comprehensive Ec<strong>on</strong>omic Cooperati<strong>on</strong> between<br />
ASEAN and <strong>China</strong> was signed in 2002 providing the basis for ASEAN and <strong>China</strong> to negotiate enabling<br />
agreements that have led to the creati<strong>on</strong> of the ASEAN-<strong>China</strong> <strong>Free</strong> <strong>Trade</strong> Area (ACFTA) <strong>on</strong> 1 January<br />
2010. In essence it was an agreement to agree. The Framework laid down the broad ec<strong>on</strong>omic aims<br />
of the <strong>China</strong>-ASEAN relati<strong>on</strong>ship and acknowledges the special status of the LDCs of ASEAN –<br />
Vietnam, Laos, Cambodia and Myanmar) without imposing binding commitments . The Early Harvest<br />
Programme was signed in 2004, and this was followed by <strong>Agreement</strong> <strong>on</strong> <strong>Trade</strong> in Goods (2004),<br />
<strong>Agreement</strong> <strong>on</strong> Services (2007), Investment <strong>Agreement</strong> (2009) . The <strong>Agreement</strong> <strong>on</strong> <strong>Trade</strong> in Services<br />
aims to liberalize and substantially eliminate discriminatory measures with respect to trade in<br />
services am<strong>on</strong>g in various services sectors. The level of liberalizati<strong>on</strong> commitments under this<br />
<strong>Agreement</strong> would be c<strong>on</strong>siderably higher than the commitments made under the General<br />
<strong>Agreement</strong> <strong>on</strong> <strong>Trade</strong> in Services (GATS) in the WTO . The <strong>Agreement</strong> <strong>on</strong> Investment aims to create a<br />
favourable envir<strong>on</strong>ment for the investors and their investments from ASEAN and <strong>China</strong>. Thus,<br />
<strong>China</strong>’s FTA with ASEAN can be best described as a series of agreements making progress<br />
incrementally rather than a ‘big bang type’ of agreement favoured by developed countries like the<br />
US, Japan .<br />
Liberalizati<strong>on</strong> of Tariffs and <strong>Trade</strong>:<br />
Under the <strong>Agreement</strong> <strong>on</strong> <strong>Trade</strong> in Goods, tariffs were reduced to zero per cent <strong>on</strong> nearly 8000<br />
products items or 90 per cent of goods traded between the original 6 ASEAN members (Brunei<br />
Darussalam, Ind<strong>on</strong>esia, Malaysia, the Philippines, Singapore and Thailand) and <strong>China</strong> by 2010 . Other<br />
members of ASEAN (Cambodia, Laos, Myanmar and Vietnam) will follow suit; they have an<br />
additi<strong>on</strong>al five years to reduce their tariffs (2015).<br />
With the implementati<strong>on</strong> of the ASEAN-<strong>China</strong> <strong>Free</strong> <strong>Trade</strong> Area in 2010, the average tariff rate <strong>on</strong><br />
Chinese goods exported to the ASEAN bloc has fallen to just 0.6 per cent from 12.8 per cent while<br />
the tariff rate <strong>on</strong> ASEAN goods exported to <strong>China</strong> fell from 9.8 per cent to 0.1 per cent . With the<br />
implementati<strong>on</strong> of the agreement, the ASEAN-<strong>China</strong> FTA became the largest free trade area in terms<br />
of populati<strong>on</strong>, and third largest in terms of nominal GDP after the European Uni<strong>on</strong> and NAFTA.<br />
Bilateral trade gas rapidly increased from US$40 billi<strong>on</strong> in 2000 to US$362.9 billi<strong>on</strong> in 2011,<br />
suggesting that both sides have gained from increasingly favourable market access. Bilateral trade is<br />
further expected to reach US$500 billi<strong>on</strong> by 2015.<br />
While the <strong>Agreement</strong> includes provisi<strong>on</strong>s <strong>on</strong> general excepti<strong>on</strong>s and security excepti<strong>on</strong>s but does not<br />
include a specific list of excluded products. In additi<strong>on</strong>, the agreement allows all parties to list<br />
sensitive products whose tariffs will be reduced by 2015 for ASEAN-6 and <strong>China</strong> and 2018 for LDC<br />
members of ASEAN.<br />
Page 27 of 88
Table 3.1: Features of the <strong>China</strong>-ASEAN <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong><br />
Parties<br />
Date of Signature<br />
Date of Entry into<br />
Force<br />
Full Implementati<strong>on</strong><br />
Transiti<strong>on</strong> for full<br />
implementati<strong>on</strong><br />
Members of ASEAN (Brunei, Myanmar, Cambodia, Ind<strong>on</strong>esia, Laos, Malaysia,<br />
the Philippines, Singapore, Thailand and Viet Nam) and <strong>China</strong><br />
29 November 2004 (Goods)<br />
14 January 2007 (Services)<br />
1 January 2005 (Good)<br />
1 July 2007 (Services)<br />
2015 for ASEAN 6 countries and 2018 for Cambodia, Myanmar, Laos, Viet<br />
Nam<br />
• Tariff reducti<strong>on</strong> and eliminati<strong>on</strong> for tariff lines categorized in either the<br />
Normal Track or the Sensitive Track:<br />
• Parties committed to reduce and eliminate their tariffs for goods listed<br />
under the Normal Track 1 from 2005-2010 and Normal Track 2 (not<br />
exceeding 150 tariff lines) from 2010-2012 as part of flexibility provided.<br />
• Sensitive Track c<strong>on</strong>sists of the Sensitive List and the Highly Sensitive List.<br />
The timeframe for Sensitive List (400 tariff lines) requires tariffs to be<br />
reduced to 20% in 2012 and subsequently reduced to 0-5% in 2018. Those<br />
in the Highly Sensitive List (100 tariff lines), tariffs will be reduced to not<br />
more than 50% by 2015 for ASEAN-6 and <strong>China</strong> and 2018 for the newer<br />
ASEAN members. The list of <strong>China</strong>’s highly sensitive products include<br />
some agricultural products, wood products, paper products, etc.<br />
Negative List • There are no product exclusi<strong>on</strong>s.<br />
Rules of Origin (ROO)<br />
Requirements<br />
• Products must be wholly obtained or produced in ASEAN countries.<br />
• Local Value Additi<strong>on</strong> - 40% of total c<strong>on</strong>tent.<br />
• Regi<strong>on</strong>al Value C<strong>on</strong>tent (RVC) criteri<strong>on</strong> or value of the n<strong>on</strong>-originating<br />
parts or comp<strong>on</strong>ents used in the manufacture of the products must be no<br />
more than 60% of the FOB value of the product.<br />
• The country of origin is defined as the country where the last processing<br />
operati<strong>on</strong> takes place.<br />
• 565 products traded between the parties are subject to Product Specific<br />
Rules, mainly textiles.<br />
• Goods must meet the direct transport rule.<br />
Other Provisi<strong>on</strong>s • Anti - Dumping: Article 7: As per WTO/GATT<br />
• Countervailing Duties: Article 7: As per WTO/GATT<br />
• Safeguards: Article 9: As per WTO/GATT, allows transiti<strong>on</strong>al SG for first 5<br />
years. Article 11: BOP, as per WTO/GATT<br />
• Standards : Article 7: SPS, TBT, as per WTO/GATT<br />
• Intellectual Property: Article 7: As per WTO<br />
• Dispute Settlement: Article 21: The <strong>Agreement</strong> <strong>on</strong> Dispute Settlement<br />
Mechanism<br />
• Instituti<strong>on</strong>al mechanism: Article 16<br />
• <strong>Trade</strong> regulati<strong>on</strong>s publicati<strong>on</strong> and administrati<strong>on</strong> (transparency): Article<br />
4: As per GATTS<br />
Relevant websites • http://www.mofcom.gov.cn/<br />
• http://www.aseansec.org/<br />
Sources: http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=8<br />
http://artnet.unescap.org/APTIAD/viewagreement.aspx?id=CHINA-ASEAN<br />
Rules of Origin:<br />
Page 28 of 88
Product specific rules pertaining to agriculture products require a change in HS Chapters 1 through<br />
22 and a change in HS heading for Chapters 17 through 19 while a minimum 50 per cent RVC of the<br />
FOB value of the product is required from the remaining products. The value of the n<strong>on</strong>-originating<br />
parts or comp<strong>on</strong>ents used in the manufacture of the products must be no more than 60 per cent of<br />
the FOB value of the product. The country of origin is defined as the country where the last<br />
manufacturing operati<strong>on</strong> takes place, or in accordance with product-specific rules. 565 products<br />
traded between the parties are subject to Product Specific Rules, mainly textiles. Requirements <strong>on</strong><br />
direct c<strong>on</strong>signment must be complied with.<br />
Other Provisi<strong>on</strong>s:<br />
In order to address the c<strong>on</strong>cerns of the domestic industries of both <strong>China</strong> and ASEAN countries<br />
regarding issues related to a possible accelerati<strong>on</strong> in imports, the <strong>Agreement</strong> has included the<br />
c<strong>on</strong>diti<strong>on</strong>s applicable to the use of bilateral safeguard measures. The <strong>Agreement</strong> specifies that a<br />
Party may impose a bilateral safeguard measure <strong>on</strong> a product benefiting from preferential tariff<br />
treatment under the <strong>Agreement</strong> if there is an increase in imports in absolute terms or relative to<br />
domestic producti<strong>on</strong>, which c<strong>on</strong>stitutes a substantial cause of serious injury or threat thereof to the<br />
domestic industry of the importing Party producing a like or directly competitive good. 93 Disciplines<br />
regarding the applicati<strong>on</strong> of such measures include an investigati<strong>on</strong> by the Party's competent<br />
authorities prior to its applicati<strong>on</strong>. In additi<strong>on</strong> to safeguard measures, anti-dumping, countervailing<br />
duties, SPS and TBT measures, intellectual property, dispute settlement, trade regulati<strong>on</strong>s<br />
publicati<strong>on</strong> and administrati<strong>on</strong> (transparency) and instituti<strong>on</strong>al mechanism are also covered in the<br />
<strong>Agreement</strong>.<br />
93 "Serious injury" is defined in Article 50 of the <strong>Agreement</strong> as "a significant overall impairment in the positi<strong>on</strong><br />
of a domestic industry".<br />
Page 29 of 88
3.3 <strong>China</strong>-Chile <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong><br />
Chile is <strong>on</strong>e of the first South American countries to establish trade and diplomatic relati<strong>on</strong>s with<br />
<strong>China</strong>. Since setting up diplomatic relati<strong>on</strong>s in 1970, bilateral ec<strong>on</strong>omic relati<strong>on</strong>s between Chile and<br />
<strong>China</strong> have also grown c<strong>on</strong>siderably. 94 <strong>China</strong>-Chile <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> in goods was signed <strong>on</strong><br />
18 th November 2005, which came into effect <strong>on</strong> 1 st October 2006. 95 It is the first such agreement<br />
that <strong>China</strong> signed with any Latin American country. 96 The agreement is expected to be fully<br />
implemented by 2015 by which time 97 per cent of the tariff lines will be reduced/eliminated. 97<br />
The FTA has expanded bey<strong>on</strong>d trade in goods to include trade in service. In April 2008, <strong>China</strong> and<br />
Chile signed the <strong>Trade</strong> in Services <strong>Agreement</strong>, which came into force in August 2010. 98 While the<br />
agreement has used a positive list approach for negotiati<strong>on</strong>s, the two countries have opened their<br />
service sectors in all four modes 99 to each other’s markets <strong>on</strong> the basis of their commitments to the<br />
WTO. The two countries are also expected to further strengthen exchange and cooperati<strong>on</strong> in such<br />
areas as SMEs, culture, educati<strong>on</strong>, science and technology, and envir<strong>on</strong>mental protecti<strong>on</strong>. 100<br />
Chile has reaped ec<strong>on</strong>omic benefits of the FTA so<strong>on</strong> after its implementati<strong>on</strong> with the expansi<strong>on</strong> of<br />
bilateral trade. Chile’s exports to <strong>China</strong> which represented x per cent of Chile’s total exports at the<br />
time of signing of the agreement in 2005 increased to 15.5 per cent of Chile's total exports by 2007,<br />
overtaking the US accounted, which was Chile’s largest export market. In 2012, Chile’s exports to<br />
<strong>China</strong> reached US$18 bn compared to its exports to the US, which was US$9.4 bn. 101 <strong>China</strong> has been<br />
particularly interested in Chile’s copper industry, which is c<strong>on</strong>sidered the world's largest copper<br />
mine. As a result, 80 per cent of the country's exported copper in 2012 was channelled to <strong>China</strong>,<br />
totalling US$14 bn. 102<br />
The <strong>Agreement</strong> is composed of 14 chapters: Chapter 1: Initial Provisi<strong>on</strong>s, Chapter 2: General<br />
Definiti<strong>on</strong>s, Chapter 3: Nati<strong>on</strong>al Treatment and Market Access for Goods, Chapter 4: Rules of Origin,<br />
Chapter 5: Procedures Related to Rules of Origin, Chapter 6: <strong>Trade</strong> Remedies, Chapter 7: Sanitary<br />
and Phytosanitary Measures, Chapter 8: Technical Barriers to <strong>Trade</strong>, Chapter 9: Transparency,<br />
Chapter 10: Dispute Settlement, Chapter 11: Administrati<strong>on</strong>, Chapter 12: Excepti<strong>on</strong>s, Chapter 13:<br />
Cooperati<strong>on</strong> and Chapter 14: Final Provisi<strong>on</strong>s. The <strong>Agreement</strong> has eight annexes which c<strong>on</strong>tain the<br />
following: eliminati<strong>on</strong> of import customs duties; list of geographical indicati<strong>on</strong>s; product specific<br />
rules; certificate of origin; competent governmental authorities of Chile; model of certificati<strong>on</strong> and<br />
94 Bart<strong>on</strong>, J. R. (2009), “The Impact of <strong>China</strong>’s Global Expansi<strong>on</strong>s <strong>on</strong> Chile” in The Impact of <strong>China</strong>’s Global<br />
Ec<strong>on</strong>omic Expansi<strong>on</strong> <strong>on</strong> Latin America, Working Paper No. 6, available at:<br />
[http://www.uea.ac.uk/polopoly_fs/1.116928!<strong>China</strong>Chile%20General%20wp6.pdf]<br />
95 Ibid.<br />
96 Taifend, C. (2009), Regi<strong>on</strong>al <strong>Trade</strong> <strong>Agreement</strong>s vs. Multilateral Trading System: A <str<strong>on</strong>g>Study</str<strong>on</strong>g> of Chinese Interests<br />
and Policy Opti<strong>on</strong>s, NUPI Working Paper 762, available at:[<br />
http://www.nupi.no/c<strong>on</strong>tent/download/10219/102610/versi<strong>on</strong>/5/file/WP-762-Taifeng.pdf]<br />
97 Ibid<br />
98 WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between Chile and <strong>China</strong> (Goods and<br />
Services), 2008, available at: [http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=8]<br />
99 Cross-border supply (Mode 1), C<strong>on</strong>sumpti<strong>on</strong> abroad (Mode 2), Commercial presence (Mode 3) and Presence<br />
of natural pers<strong>on</strong>s (Mode 4).<br />
100 Taifeng, C. (2009), “Regi<strong>on</strong>al <strong>Trade</strong> <strong>Agreement</strong>s vs. Multilateral Trading System: A <str<strong>on</strong>g>Study</str<strong>on</strong>g> of Chinese Interests<br />
and Policy Opti<strong>on</strong>s”, NUPI Working Paper 762, available at:[<br />
http://www.nupi.no/c<strong>on</strong>tent/download/10219/102610/versi<strong>on</strong>/5/file/WP-762-Taifeng.pdf]<br />
101 Ibid.<br />
102 Ibid.<br />
Page 30 of 88
verificati<strong>on</strong> networking system <strong>on</strong> certificate of origin; rules of procedure of arbitral panel; and<br />
implementati<strong>on</strong> of modificati<strong>on</strong>s approved by the Commissi<strong>on</strong>.<br />
Table 3.2: Features of the <strong>China</strong>-Chile FTA<br />
Parties<br />
<strong>China</strong> , Chile<br />
Date of Signature 18 November 2005 (Goods)<br />
13 April 2008 (Services)<br />
Date of Entry into<br />
Force<br />
1 October 2006 (Goods)<br />
1 August 2010 (Services)<br />
Full Implementati<strong>on</strong> 2015<br />
Transiti<strong>on</strong> for full<br />
implementati<strong>on</strong><br />
• For <strong>China</strong>, 37.5% of tariffs (in terms of tariff lines) are to be eliminated <strong>on</strong> the day<br />
the agreement enters into force, and 25.8% are to be eliminated within 10 years.<br />
• 74.5% of Chile's tariffs are to be eliminated immediately, and other tariffs are to be<br />
eliminated within 5 and 10 years, respectively.<br />
Main products • <strong>China</strong> has excluded 214 products including wood and paper products, edible<br />
excluded from vegetable oils, tariff-quota products, and iodine from allowing preferential<br />
liberalizati<strong>on</strong><br />
treatment.<br />
• Chile has excluded 152 products including re-treaded tyres.<br />
Rules of Origin • Products must be wholly obtained or produced in Chile/<strong>China</strong> or both.<br />
(ROO)<br />
• Regi<strong>on</strong>al Value C<strong>on</strong>tent (RVC) criteri<strong>on</strong> or value of the n<strong>on</strong>-originating parts or<br />
Requirements<br />
comp<strong>on</strong>ents used in the manufacture of the products must be no more than 60%<br />
of the FOB value of the product.<br />
• Product specific rules: for most agricultural goods, a change of HS Chapter applies<br />
(for Ch.17-19 a change of heading is required); in 49 HS Chapters, a RVC of 40<br />
applies (either to the entire chapter, selected headings or sub-headings)<br />
• De Minimis: 8% of the FOB value of the product.<br />
• Goods must meet the direct transport rule.<br />
Services • Positive list.<br />
• All modes (cross-border supply, c<strong>on</strong>sumpti<strong>on</strong> abroad, commercial presence<br />
abroad, presence of natural pers<strong>on</strong>s).<br />
• Specific chapters <strong>on</strong>: movement of natural pers<strong>on</strong>s.<br />
• Specific sectors excluded: financial services, nati<strong>on</strong>al maritime cabotage.<br />
Other Provisi<strong>on</strong>s • Anti - Dumping: Chapter VI; Article 52: Allowed as per WTO/GATT<br />
• Countervailing Duties: Chapter VI; Article 52: Allowed as per WTO/GATT<br />
• Safeguards : Chapter VI; Article 44; allowed during the transiti<strong>on</strong> period <strong>on</strong>ly<br />
• Standards: Chapter VII: SPS. Chapter VIII: TBT: establish a Committee <strong>on</strong> SPS and<br />
TBT<br />
• Export subsidies eliminated for agricultural products, but no eliminati<strong>on</strong> of tariffs.<br />
• Intellectual Property: Article 10 (Geographic Indicati<strong>on</strong>s) and Article 111<br />
(cooperati<strong>on</strong>) - based <strong>on</strong> TRIPS<br />
• Dispute Settlement: Chapter X<br />
• Labour and Envir<strong>on</strong>mental Standards: Article 108: Parties shall enhance their<br />
communicati<strong>on</strong> and cooperati<strong>on</strong> <strong>on</strong> labour, social security and envir<strong>on</strong>ment<br />
• Technical cooperati<strong>on</strong>: Chapter VIII; Article 68<br />
• Instituti<strong>on</strong>al mechanism: Chapter XI<br />
• <strong>Trade</strong> regulati<strong>on</strong>s publicati<strong>on</strong> and administrati<strong>on</strong> (transparency): Chapter IX;<br />
Article 73<br />
Relevant websites • http://www.mofcom.gov.cn/<br />
• http://www.direc<strong>on</strong>.gob.cl/<br />
Sources: WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between Chile and <strong>China</strong><br />
(Goods), 2008. http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=8<br />
http://artnet.unescap.org/APTIAD/viewagreement.aspx?id=CHINA-CHILE<br />
Page 31 of 88
The <strong>Agreement</strong> c<strong>on</strong>tains no explicit transiti<strong>on</strong> period as the tariff eliminati<strong>on</strong> <strong>on</strong> imports of goods for<br />
both parties is to be completed within a period of ten years (January 2015). Duty reducti<strong>on</strong>s take<br />
place <strong>on</strong> the date of entry into force of the <strong>Agreement</strong> and <strong>on</strong> 1 January of the following years: Chile<br />
(2006, 2010 and 2015) and <strong>China</strong> (2006, 2007, 2010 and 2015).<br />
Liberalizati<strong>on</strong> of Tariff Lines:<br />
Both the countries have gradually eliminated their tariff lines from the date the agreement came<br />
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<br />
already duty-free <strong>on</strong> an MFN basis in 2006. Chile has allowed access to further 74.1 per cent of tariff<br />
lines duty-free for imports from <strong>China</strong> in 2006. By the end of the transiti<strong>on</strong> period in 2015, a further<br />
23.6 per cent of tariff lines are to be liberalized by Chile, which accounts for 46.2 per cent of imports<br />
from <strong>China</strong> for the period 2003-2005. Thus, a total of 98.1 per cent of tariff lines are liberalized<br />
under the <strong>Agreement</strong> by Chile, corresp<strong>on</strong>ding to 96.9 per cent of imports by value from <strong>China</strong> for the<br />
period 2003-2005.<br />
Table 3.3: Chile’s Tariff eliminati<strong>on</strong> commitments under the <strong>Agreement</strong> and corresp<strong>on</strong>ding<br />
average trade<br />
Duty phase-out period<br />
Number<br />
of lines<br />
% of total lines<br />
in Chile's tariff<br />
schedule<br />
Value of Chile's imports<br />
from <strong>China</strong> (2003-2005)<br />
in milli<strong>on</strong> US$<br />
% of Chile's total<br />
imports from<br />
<strong>China</strong> 2003-2005<br />
MFN duty free (2006) 35 0.4 - -<br />
2006 5,856 74.1 958.8 50.7<br />
2010 1,048 13.3 382.7 20.2<br />
2015 811 10.3 492.1 26.0<br />
Remain dutiable 152 1.9 58.1 3.1<br />
Total 7,902 100.0 1,891.8 100.0<br />
Source: WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between Chile and <strong>China</strong><br />
(Goods), 2008.<br />
<strong>China</strong> has allowed duty-free access to 8.5 per cent of total tariff lines 104 <strong>on</strong> an MFN basis in 2006<br />
(Table 3.4). A further 28.8 per cent of tariff lines have become duty-free for imports from Chile in<br />
2006. By the end of the transiti<strong>on</strong> period in 2015, a further 59.9 per cent of tariff lines are to be<br />
liberalized, accounting for a further 9.3 per cent of imports from Chile for the period 2003-2005.<br />
Thus, a total of 97.2 per cent of tariff lines were liberalized under the <strong>Agreement</strong>, corresp<strong>on</strong>ding to<br />
99.1 per cent of imports by value from Chile for the period 2003-2005.<br />
103 Chile's tariff is composed of 7,902 tariff lines at the HS 8-digit level, of which 7,894 c<strong>on</strong>tain ad valorem<br />
rates; the remaining eight lines are composed of ad valorem and specific duties.<br />
104 <strong>China</strong>'s tariff is composed of 7,605 tariff lines at the HS 8-digit level, of which 7,556 are subject to<br />
ad valorem rates. For the 49 lines subject to specific duties, <strong>China</strong> has provided ad valorem equivalent rates.<br />
Such lines occur in HS Chapters 2, 5, 37, and 85.<br />
Page 32 of 88
Table 3.4: <strong>China</strong>’s Tariff eliminati<strong>on</strong> commitments under the <strong>Agreement</strong> and corresp<strong>on</strong>ding<br />
average trade<br />
Duty phase-out<br />
period<br />
No. of<br />
tariff<br />
lines<br />
% of total lines<br />
in <strong>China</strong>'s tariff<br />
schedule<br />
Value of <strong>China</strong>'s imports<br />
from Chile (2003-2005)<br />
in milli<strong>on</strong> US$<br />
% of <strong>China</strong>'s total<br />
imports from<br />
Chile 2003-2005<br />
MFN duty free (2006) 647 8.5 1,378.0 38.9<br />
2006 2,187 28.8 1,800.8 50.9<br />
2007 1,960 25.8 0.4 0.0<br />
2010 975 12.8 14.8 0.4<br />
2015 1,622 21.3 313.4 8.9<br />
Remain dutiable 214 2.8 30.5 0.9<br />
Total 7,605 100.0 3,537.9 100.0<br />
Source: WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between Chile and <strong>China</strong><br />
(Goods), 2008.<br />
Liberalizati<strong>on</strong> of <strong>Trade</strong>:<br />
<strong>Trade</strong> liberalizati<strong>on</strong> commitments of both <strong>China</strong> and Chile have been <strong>on</strong> the basis of products at the<br />
HS 8-digit level. As depicted in Table 3.5, out of the 7,902 tariff lines, Chile has allowed duty-free<br />
access to 35 tariff lines <strong>on</strong> an MFN basis in 2006. An additi<strong>on</strong>al 5,856 lines covering products in all HS<br />
categories were also liberalized up<strong>on</strong> entry into force of the <strong>Agreement</strong> in October 2006. In 2010, an<br />
additi<strong>on</strong>al 1,048 lines were subjected to liberalizati<strong>on</strong>. Chile is expected to liberalize 811 more tariff<br />
lines in 2015. The 152 tariff lines that remain in the negative list include: agricultural products,<br />
prepared food, minerals, plastics and rubber, textiles, base metals and machinery. Textiles, base<br />
metals and machinery formed bulk of Chile’s negative lists.<br />
Table 3.5: Chile’s Tariff Eliminati<strong>on</strong> Under the <strong>Agreement</strong>, by HS Chapter<br />
HS secti<strong>on</strong> and descripti<strong>on</strong> MFN<br />
average<br />
Total<br />
No. of<br />
MFN duty<br />
free<br />
No. of duty-free lines<br />
under the <strong>Agreement</strong> in:<br />
Remain<br />
dutiable<br />
% lines<br />
2006 2010 2015<br />
1. Live animals and animal 6.3 567 567<br />
products<br />
2. Vegetable products 6.0 397 375 11 3 8<br />
3. Animal or vegetable 6.0 65 36 29<br />
fats and oils<br />
4. Prepared food etc. 6.0 398 378 3 17<br />
5. Minerals 6.0 191 186 3 2<br />
6. Chemical and products 6.0 1,190 1,094 50 46<br />
7. Plastics and rubber 6.0 307 204 42 54 7<br />
8. Hides and skins 6.0 86 48 38<br />
9. Wood and articles 6.0 142 84 1 57<br />
10. Pulp, paper etc. 5.9 235 4 56 20 155<br />
11. Textile and textile 6.0 1,171 251 531 323 66<br />
articles<br />
12. Footwear, headgear 6.0 115 29 86<br />
13. Articles of st<strong>on</strong>e 6.0 180 44 93 39 4<br />
14. Precious st<strong>on</strong>es, etc. 6.0 59 58 1<br />
15. Base metals and<br />
6.0 657 539 31 56 31<br />
products<br />
16. Machinery 6.0 1,266 2 1,209 7 31 17<br />
17. Transport equipment 5.5 343 29 234 58 22<br />
Page 33 of 88
18. Precisi<strong>on</strong> equipment 6.0 290 286 4<br />
19. Arms and ammuniti<strong>on</strong> 6.0 23 23<br />
20. Misc. manufactured 6.0 213 148 43 22<br />
articles<br />
21. Works of art, etc. 6.0 7 7<br />
Total 6.0 7,902 35 5,856 1,048 811 152<br />
Source: WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between Chile and <strong>China</strong><br />
(Goods), 2008.<br />
In return, <strong>China</strong> has also allowed duty-free access to 647 tariff lines under HS 8-digit level out of the<br />
total 7,605 tariff lines <strong>on</strong> an MFN basis in 2006 (Table 3.6). An additi<strong>on</strong>al 2,187 tariff lines were<br />
liberalized up<strong>on</strong> entry into force of the <strong>Agreement</strong> (comprising both agricultural and industrial<br />
products). <strong>China</strong> maintains a negative list with a total of 214 tariff lines covering vegetable products,<br />
vegetable and animal fats and oils, prepared food, chemicals, wood products, pulp and paper, and<br />
textiles, for which tariff are not liberalized under the <strong>Agreement</strong>.<br />
Table 3.6: <strong>China</strong>’s Tariff Eliminati<strong>on</strong> Under the <strong>Agreement</strong>, by HS Chapter<br />
HS secti<strong>on</strong> and descripti<strong>on</strong> MFN<br />
average<br />
Total<br />
No. of<br />
MFN<br />
duty<br />
No. of duty-free lines under<br />
the <strong>Agreement</strong> in:<br />
% lines free<br />
2006 2007 2010 2015<br />
1. Live animals and animal 12.4 368 43 12 55 116 142<br />
products<br />
Remain<br />
dutiable<br />
2. Vegetable products 14.4 463 54 71 142 85 86 25<br />
3. Animal or vegetable fats 15.0 53 3 8 12 11 19<br />
and oils<br />
4. Prepared food etc. 17.9 279 1 36 40 58 138 6<br />
5. Minerals 3.7 202 37 119 8 38<br />
6. Chemical and products 7.0 1,186 9 732 71 65 305 4<br />
7. Plastics and rubber 9.8 262 1 84 57 26 94<br />
8. Hides and skins 12.5 108 30 23 42 13<br />
9. Wood and articles 4.1 160 65 10 27 14 19 25<br />
10. Pulp, paper etc. 5.4 165 34 3 4 124<br />
11. Textile and textile 11.6 1,106 233 861 1 11<br />
articles<br />
12. Footwear, headgear 18.6 60 55 5<br />
13. Articles of st<strong>on</strong>e 13.6 175 1 26 28 77 43<br />
14. Precious st<strong>on</strong>es, etc. 10.0 84 32 21 19 12<br />
15. Base metals and<br />
7.5 706 4 374 77 78 173<br />
products<br />
16. Machinery 8.4 1,376 258 277 274 173 394<br />
17. Transport equipment 12.8 318 1 81 198 6 32<br />
18. Precisi<strong>on</strong> equipment 10.0 326 43 74 38 108 63<br />
19. Arms and ammuniti<strong>on</strong> 13.0 21 18 3<br />
20. Misc. manufactured 11.6 178 62 6 66 44<br />
articles<br />
21. Works of art, etc. 9.6 9 2 1 4 2<br />
Total 9.9 7,605 647 2,187 1,960 975 1,622 214<br />
Source: WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between Chile and <strong>China</strong><br />
(Goods), 2008.<br />
Rules of Origin:<br />
Page 34 of 88
Rules of Origin (ROO) are a critical comp<strong>on</strong>ent of any free trade agreement. Only goods that satisfy<br />
the specified rules of origin will qualify for preference. There is no single rule of origin methodology.<br />
A good is c<strong>on</strong>sidered originating if: it is wholly obtained or produced in Chile or <strong>China</strong> or both;<br />
produced in <strong>on</strong>e or both countries using n<strong>on</strong>-originating materials that c<strong>on</strong>form to a regi<strong>on</strong>al value<br />
c<strong>on</strong>tent not less than 40 per cent except for those listed in Product Specific Rules. Specific Rules call<br />
for a change of HS heading Level (4-digit) for most agricultural goods while RVC of 50 per cent<br />
applies for 49 HS chapters (entire chapter, selected headings or subheadings)<br />
Other Provisi<strong>on</strong>s:<br />
In order to address the c<strong>on</strong>cerns of the domestic industries of both <strong>China</strong> and Chile regarding a<br />
substantial increase in imports benefiting from preferential tariff treatment, the <strong>Agreement</strong> includes<br />
bilateral safeguard measures. In additi<strong>on</strong> to safeguard measures, anti-dumping, countervailing<br />
duties, SPS and TBT measures, intellectual property, dispute settlement, labour and envir<strong>on</strong>mental<br />
standards, technical cooperati<strong>on</strong> and instituti<strong>on</strong>al mechanism are also covered in the <strong>Agreement</strong><br />
Page 35 of 88
3.4 <strong>China</strong>-New Zealand <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong><br />
New Zealand was the first developed country to propose FTA negotiati<strong>on</strong>s with <strong>China</strong>. In 2004, <strong>China</strong><br />
and New Zealand have embarked up<strong>on</strong> negotiati<strong>on</strong>s of a comprehensive free trade agreement<br />
covering goods, services and investment, which would deliver benefits to both ec<strong>on</strong>omies. However,<br />
negotiati<strong>on</strong>s have been stretched over four years and after c<strong>on</strong>cluding their joint feasibility study the<br />
agreement was signed <strong>on</strong> 7 th April 2008. 105 The FTA has come into effect <strong>on</strong> 1 st October 2008 and it<br />
is expected to be fully implemented by 2019. While the trade in services agreement has used a<br />
positive list approach for negotiati<strong>on</strong>s, the two countries have opened their service sectors in all four<br />
modes 106 to each other’s markets <strong>on</strong> the basis of their commitments to the WTO. The <strong>Agreement</strong> is<br />
<strong>China</strong>'s first FTA partnered with a member state of the Organizati<strong>on</strong> for Ec<strong>on</strong>omic Cooperati<strong>on</strong> and<br />
Development (OECD). 107<br />
FTA was a significant factor in the 20 per cent growth in bilateral two-way merchandise trade in the<br />
first year following entry into force, and to a doubling of bilateral trade in the past five years. 108<br />
Benefits arising from the FTA include, inter alia, improved market access, improved customs<br />
procedures and trade facilitati<strong>on</strong>, increased efficiency, and enhanced transfer of technology and<br />
skills. <strong>China</strong> is now New Zealand’s sec<strong>on</strong>d-largest trading partner overall, as well as sec<strong>on</strong>d-largest<br />
source of imports and sec<strong>on</strong>d-largest destinati<strong>on</strong> for exports. 109 New Zealand’s importance as a<br />
trading partner for <strong>China</strong> has also grown with New Zealand’s share of <strong>China</strong>’s total trade rising from<br />
0.17 per cent in 2007 to 0.21 per cent in 2009. 110<br />
The <strong>Agreement</strong> is composed of 18 chapters: Chapter 1: Initial Provisi<strong>on</strong>s, Chapter 2: General<br />
Definiti<strong>on</strong>s, Chapter 3: <strong>Trade</strong> in Goods, Chapter 4: Rules of Origin and Operati<strong>on</strong>al Procedures,<br />
Chapter 5: Customs Procedures and Cooperati<strong>on</strong>, Chapter 6: <strong>Trade</strong> Remedies, Chapter 7: Sanitary<br />
and Phytosanitary Measures, Chapter 8: Technical Barriers to <strong>Trade</strong>, Chapter 9: <strong>Trade</strong> in Services,<br />
Chapter 10: Movement of Natural Pers<strong>on</strong>s, Chapter 11: Investment, Chapter 12: Intellectual<br />
Property Rights, Chapter 13: Transparency, Chapter 14: Cooperati<strong>on</strong>, Chapter 15: Administrative and<br />
Instituti<strong>on</strong>al Provisi<strong>on</strong>s, Chapter 16: Dispute Settlement, Chapter 17: Excepti<strong>on</strong>s and Chapter 18:<br />
Final Provisi<strong>on</strong>s. The <strong>Agreement</strong> has 13 annexes which c<strong>on</strong>tain the following: tariff schedules, special<br />
agriculture safeguard measures, mid-term review mechanism, <strong>China</strong>’s country-specific tariff quotas<br />
for wool and wool tops, product specific rules of origin, certificate of origin, declarati<strong>on</strong> of origin,<br />
schedules of specific commitments <strong>on</strong> services, sectoral coverage, visa facilitati<strong>on</strong>, expropriati<strong>on</strong> and<br />
commitments <strong>on</strong> temporary entry by natural pers<strong>on</strong>s.<br />
Table 3.7: Features of the <strong>China</strong>-New Zealand FTA<br />
105 New Zealand Ministry of Foreign Affairs (2010), “The <strong>China</strong>-New Zealand <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong>: Two-Year<br />
Review Joint Report”, available at: [http://www.chinafta.govt.nz/4-Events-and-press/2-Press-releases/jointreport-feb2011.pdf]<br />
106 Cross-border supply (Mode 1), C<strong>on</strong>sumpti<strong>on</strong> abroad (Mode 2), Commercial presence (Mode 3) and<br />
Presence of natural pers<strong>on</strong>s (Mode 4).<br />
107 WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between Chinn and New Zealand (Goods<br />
and Services), 2010, available at: [http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=8]<br />
108 Ibid.<br />
109 New Zealand Ministry of Foreign Affairs (2010), “The <strong>China</strong>-New Zealand <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong>: Two-Year<br />
Review Joint Report”, available at: [http://www.chinafta.govt.nz/4-Events-and-press/2-Press-releases/jointreport-feb2011.pdf]<br />
110 Ibid.<br />
Page 36 of 88
Parties<br />
<strong>China</strong> , New Zealand<br />
Date of signature 7 April 2008<br />
Entry into force 1 October 2008<br />
Full Implementati<strong>on</strong> 2019<br />
Transiti<strong>on</strong> for full<br />
implementati<strong>on</strong><br />
• For <strong>China</strong>, 96% of tariffs (in terms of tariff lines) are to be eliminated<br />
gradually within 12 years of implementati<strong>on</strong>, by 2019.<br />
• For New Zealand, 63.3% of the tariff lines are to be eliminated up<strong>on</strong> entry<br />
into force of the agreement. The remaining tariffs are to be progressively<br />
eliminated in four additi<strong>on</strong>al stages between 2012 and 2016: 27.2% of<br />
them are to be eliminated within 5 years, 1.2% within 6 years, 6.4% within<br />
7 years, and 1.6% within 9 years<br />
Negative List • <strong>China</strong>'s negative list includes 223 products; vegetable products, vegetable<br />
and animal fats and oils, prepared food, chemicals, wood products, pulp<br />
and paper, and textiles.<br />
• New Zealand does not maintain a negative list or TRQs.<br />
Rules of Origin (ROO)<br />
Requirements<br />
• Change in tariff classificati<strong>on</strong> criteri<strong>on</strong> - at HS 2-digit, 4-digit or 6-digit level.<br />
• Products must be wholly obtained or produced in New Zealand, or products<br />
be produced in New Zealand, using n<strong>on</strong>-originating materials that c<strong>on</strong>form<br />
to a change in tariff classificati<strong>on</strong>.<br />
• Some products must also be c<strong>on</strong>forming to a RVC of 30%, 40%, 45%, or<br />
50%, or a process requirement.<br />
• Goods must meet the direct transport rule.<br />
• Bilateral cumulati<strong>on</strong> is allowed; cumulati<strong>on</strong> in terms of material between<br />
the Parties.<br />
• Tolerance rule - for tariff classificati<strong>on</strong> change criteri<strong>on</strong>, n<strong>on</strong>-originating<br />
materials can represent a maximum of 10% of the FOB value of product.<br />
• Requirements <strong>on</strong> direct c<strong>on</strong>signment must be complied with.<br />
Other Provisi<strong>on</strong>s • Anti - Dumping: Article 62 of Chapter 6 <strong>on</strong> <strong>Trade</strong> Remedies<br />
• Countervailing Duties: Article 63 of the Chapter 6 <strong>on</strong> <strong>Trade</strong> remedies<br />
"Neither Party shall introduce or maintain any form of export subsidy <strong>on</strong><br />
any goods destined for the territory of the other Party."<br />
• Safeguards: Chapter 6 of Chapter 6 <strong>on</strong> <strong>Trade</strong> Remedies<br />
• Standards: Chapter 7 <strong>on</strong> SPS and Chapter 8 <strong>on</strong> TBT of the <strong>Agreement</strong><br />
• Customs procedures: Chapter 1<br />
• Government Procurement: Excluded under Article 105 and Article 137<br />
• Investment: Chapter 11<br />
• Intellectual Property: Chapter 12<br />
• Dispute Settlement: Chapter 16<br />
• Labour Mobility: Chapter 10<br />
• Labour and Envir<strong>on</strong>ment Standards: Memoranda of Understanding <strong>on</strong><br />
Labour Cooperati<strong>on</strong> and the Envir<strong>on</strong>ment Cooperati<strong>on</strong> <strong>Agreement</strong>, also in<br />
Preamble, Chapter 8 (Technical Barriers to <strong>Trade</strong>), Chapter 14<br />
(Cooperati<strong>on</strong>), Chapter 17 (Excepti<strong>on</strong>s)<br />
Relevant websites • http://www.mofcom.gov.cn/<br />
• http://www.mfat.govt.nz./<br />
Sources: WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between <strong>China</strong> and New<br />
Zealand (Goods and Services), 2010 and WTO Secretariat, <strong>Trade</strong> Policy Review: <strong>China</strong>, 2012.<br />
http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=8<br />
http://artnet.unescap.org/APTIAD/viewagreement.aspx?id=CHINA-NEWZEALAND<br />
Page 37 of 88
The <strong>Agreement</strong> c<strong>on</strong>tains no explicit transiti<strong>on</strong> period as the tariff eliminati<strong>on</strong> <strong>on</strong> imports of goods for<br />
both Parties is to be completed within a period of ten years (2019). Duty reducti<strong>on</strong>s take place <strong>on</strong><br />
the date of entry into force of the <strong>Agreement</strong> and <strong>on</strong> following years: New Zealand (2008-2011,<br />
2012, 2013, 2014-2015 and 2016) and <strong>China</strong> (2008-2011, 2012, 2013-2015, 2016, 2017-2018 and<br />
2019).<br />
Liberalizati<strong>on</strong> of Tariff Lines:<br />
Both the countries have gradually eliminated their tariff lines from the date the agreement came<br />
into force in 2008. As shown in Table 3.8, in the case of New Zealand, 57.6 per cent of total tariff<br />
lines were already duty-free <strong>on</strong> an MFN basis, 111 even before the agreement was in force in 2008.<br />
Up<strong>on</strong> entry into force, New Zealand has allowed access to further 5.7 per cent of tariff lines dutyfree<br />
for imports from <strong>China</strong> in 2008. A total of 63.3 per cent of New Zealand’s tariff lines have<br />
become duty free accounting 39.2 per cent of imports from <strong>China</strong>. By the end of implementati<strong>on</strong> in<br />
2016, 100 per cent of tariff lines that account for all the imports from <strong>China</strong> will be duty-free.<br />
Table 3.8: New Zealand’s Tariff eliminati<strong>on</strong> commitments under the <strong>Agreement</strong> and corresp<strong>on</strong>ding<br />
average trade<br />
Duty phase-out No. of<br />
period<br />
lines<br />
% of total lines<br />
in New Zealand's<br />
tariff schedule<br />
Value of New Zealand's<br />
imports from <strong>China</strong><br />
(2005-2007)<br />
in milli<strong>on</strong> US$<br />
% of New Zealand's<br />
total imports from<br />
<strong>China</strong><br />
2005-2007<br />
MFN duty free (2008) 4,190 57.6 1,264.8 37.4<br />
2008-2011 415 5.7 60.5 1.79<br />
2012 1,967 27.1 1,237.0 36.58<br />
2013 86 1.2 5.4 0.16<br />
2014-2015 466 6.4 148.6 4.39<br />
2016 146 2.0 665.5 19.68<br />
Total 7,270 100.0 3,381.7 100.0<br />
Sources: WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between <strong>China</strong> and New<br />
Zealand (Goods and Services), 2010.<br />
<strong>China</strong> has also allowed duty-free access to 8.4 per cent of total tariff lines <strong>on</strong> an MFN basis 112 in<br />
2008 before the entry into force of the agreement (Table 3.9). Up<strong>on</strong> entry into force, a further 15.7<br />
per cent of tariff lines have become duty-free for imports from New Zealand in 2008. By the end of<br />
the transiti<strong>on</strong> period in 2018, a further 72.9 per cent of tariff lines are to be liberalized, accounting<br />
for 39 per cent of imports from New Zealand. Thus, a total of 97.1 per cent of tariff lines will be dutyfree<br />
under the <strong>Agreement</strong>, corresp<strong>on</strong>ding to 88 per cent of imports by value from New Zealand.<br />
111 New Zealand's MFN tariff schedule in the year of entry into force of the <strong>Agreement</strong> (2008) comprised<br />
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<br />
duties; and 0.4% to others.<br />
112 <strong>China</strong>'s MFN tariff schedule in the year of entry into force of the <strong>Agreement</strong> (2008) comprised 7,646 tariff<br />
lines at the HS 8-digit level; 99.4% of this tariff is ad valorem, 0.58% relates to lines with specific duties; and<br />
0.07% to others.<br />
Page 38 of 88
Table 3.9: <strong>China</strong>’s Tariff eliminati<strong>on</strong> commitments under the <strong>Agreement</strong> and corresp<strong>on</strong>ding<br />
average trade<br />
Duty phase-out period No. of<br />
lines<br />
% of total lines<br />
in <strong>China</strong>'s tariff<br />
schedule<br />
Value of <strong>China</strong>'s imports<br />
from New Zealand<br />
(2005-2007)<br />
in milli<strong>on</strong> US$<br />
% of <strong>China</strong>'s total<br />
imports from<br />
New Zealand<br />
2005-2007<br />
MFN duty free (2008) 639 8.4 349.2 25.9<br />
2008-2011 1,204 15.7 100.9 7.5<br />
2012 5,100 66.7 414.7 30.8<br />
2013-2015 437 5.7 1.2 0.1<br />
2016 32 0.4 70.5 5.2<br />
2017-2018 7 0.1 38.8 2.9<br />
2019 4 0.1 210.5 15.6<br />
Remain dutiable 223 2.9 161.9 12.0<br />
Total 7,646 100.0 1,347.7 100.0<br />
Sources: WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between <strong>China</strong> and New<br />
Zealand (Goods and Services), 2010.<br />
Liberalizati<strong>on</strong> of <strong>Trade</strong>:<br />
<strong>Trade</strong> liberalizati<strong>on</strong> commitments of both <strong>China</strong> and New Zealand have been <strong>on</strong> the basis of<br />
products at the HS 8-digit level. As shown in Table 3.10, out of the 7,270 tariff lines, New Zealand has<br />
allowed duty-free access to 4,190 tariff lines <strong>on</strong> an MFN basis in 2008. An additi<strong>on</strong>al 415 lines<br />
covering products in all HS categories, except pulp and paper, footwear and headgear, precious<br />
st<strong>on</strong>es, arms and ammuniti<strong>on</strong>, and works of art were also liberalized up<strong>on</strong> entry into force of the<br />
<strong>Agreement</strong> in October 2008. The remaining tariffs are to be progressively eliminated in four<br />
additi<strong>on</strong>al stages between 2012 and 2016, when most remaining tariffs are due to be eliminated.<br />
Table 3.10: New Zealand’s Tariff Eliminati<strong>on</strong> Under the <strong>Agreement</strong>, by HS Chapter<br />
HS secti<strong>on</strong><br />
MFN Total MFN<br />
No. of duty-free lines<br />
average No. of 2008 2008- 2012 2013 2014- 2016<br />
% lines<br />
2011<br />
2015<br />
1. Live animals and animal<br />
0.8 251 209 23 19<br />
products<br />
2. Vegetable products 1.2 300 231 43 26<br />
3. Animal or vegetable fats and 1.1 58 45 4 9<br />
oils<br />
4. Prepared foods etc. 2.6 482 226 75 181<br />
5. Minerals 0.2 181 172 1 8<br />
6. Chemicals and chemical<br />
0.7 941 805 39 91 6<br />
products<br />
7. Plastics and rubber 3.2 390 153 31 194 2 7 3<br />
8. Hides and skins 2.6 102 54 6 29 10 3<br />
9. Wood and articles 2.5 205 102 42 61<br />
10. Pulp, paper etc. 0.0 228 228<br />
11. Textiles and textiles articles 4.9 1,059 484 24 9 49 400 93<br />
12. Footwear, headgear 7.0 106 38 9 43 16<br />
13. Articles of st<strong>on</strong>e 2.5 226 119 13 91 3<br />
14. Precious st<strong>on</strong>es, etc. 1.2 68 52 16<br />
15. Base metals and base metals 2.6 802 397 27 374 4<br />
products<br />
16. Machinery 2.8 1,178 513 67 579 3 16<br />
17. Transport equipment 3.6 233 99 4 105 24 1<br />
18. Precisi<strong>on</strong> equipment 0.9 240 188 10 34 8<br />
Page 39 of 88
19. Arms and ammuniti<strong>on</strong> 1.8 35 21 12 2<br />
20. Misc. manufactured articles 3.7 178 47 6 120 1 4<br />
21. Works of art, etc. 0.0 7 7<br />
Total 2.5 7,270 4,190 415 1,967 86 466 146<br />
Sources: WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between <strong>China</strong> and New<br />
Zealand (Goods and Services), 2010.<br />
<strong>China</strong> has also allowed duty-free access to 639 tariff lines under HS 8-digit level out of the total 7,646<br />
tariff lines <strong>on</strong> an MFN basis in 2008 (Table 3.11). An additi<strong>on</strong>al 1,204 tariff lines were liberalized<br />
up<strong>on</strong> entry into force of the <strong>Agreement</strong> and a majority of the products include minerals, chemicals,<br />
textiles, base metals, and machinery. Further 5,100 tariff lines were liberalized in 2012 that mainly<br />
include chemicals, textiles, and machinery. <strong>China</strong> maintains a negative list with a total of 223 tariff<br />
lines covering vegetable products, vegetable and animal fats and oils, prepared food, chemicals,<br />
wood products, pulp and paper, and textiles.<br />
Table 3.11: <strong>China</strong>’s Tariff Eliminati<strong>on</strong> Under the <strong>Agreement</strong>, by HS Chapter<br />
HS secti<strong>on</strong><br />
MFN<br />
average<br />
%<br />
MFN<br />
2008<br />
No. of duty-free lines<br />
Total<br />
No.<br />
of<br />
lines<br />
2008-<br />
2011<br />
2012<br />
2013-<br />
2015<br />
2016<br />
2017-<br />
2018<br />
2019<br />
No. of<br />
Remain<br />
dutiable<br />
Avg. Final<br />
Tariff<br />
(Dutiable)<br />
1. Live animals and<br />
12.3 377 44 6 284 14 18 7 4<br />
animal products<br />
2. Vegetable products 14.5 457 48 36 304 38 6 25 55.8<br />
3. Animal or vegetable 12.9 53 1 30 3 19 9.3<br />
fats and oils<br />
4. Prepared foods etc. 18.0 279 1 41 150 78 3 6 50.0<br />
5. Minerals 3.7 199 37 116 46<br />
6. Chemicals and<br />
6.6 1,189 9 195 967 15 3 50.0<br />
chemical products<br />
7. Plastics and rubber 9.5 263 1 6 248 8<br />
8. Hides and skins 12.3 106 15 86 1 4<br />
9. Wood and articles 4.3 189 72 31 45 41 6.0<br />
10. Pulp, paper etc. 5.3 160 35 7 118 6.7<br />
11. Textiles and textiles 11.6 1,105 195 890 9 11 38.4<br />
articles<br />
12. Footwear, headgear 18.4 56 32 24<br />
13. Articles of st<strong>on</strong>e 13.4 184 1 6 147 30<br />
14. Precious st<strong>on</strong>es, etc. 10.0 84 32 10 22 20<br />
15. Base metals and base 7.4 714 4 234 464 12<br />
metals products<br />
16. Machinery 8.4 1,398 259 187 883 68 1<br />
17. Transport equipment 12.3 318 1 60 195 62<br />
18. Precisi<strong>on</strong> equipment 10.2 307 31 65 196 15<br />
19. Arms and<br />
13.0 21 21<br />
ammuniti<strong>on</strong><br />
20. Misc. manufactured 11.6 178 62 76 40<br />
articles<br />
21. Works of art, etc. 9.6 9 2 7<br />
Total 9.8 7,646 639 1,204 5,100 437 32 7 4 223 15.6<br />
Sources: WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between <strong>China</strong> and New<br />
Zealand (Goods and Services), 2010.<br />
Tariff-Rate Quotas<br />
Page 40 of 88
One of the quantitative restricti<strong>on</strong>s <strong>China</strong> maintains is country-specific tariff-rate quotas (TRQ). In<br />
the case of the FTA with New Zealand, TRQs for nine tariff lines <strong>on</strong> wool and wool tops were<br />
maintained, for which it also maintained TRQs in 2009 <strong>on</strong> an MFN basis. 113 Additi<strong>on</strong>ally, <strong>China</strong><br />
maintains TRQs <strong>on</strong> 36 tariff lines relating to wheat 114 , corn 115 , rice 116 , sugar 117 , fertilizer 118 , and<br />
cott<strong>on</strong> 119 . 120 The Parties clarify that quota is in additi<strong>on</strong> to the MFN TRQ quantity for the same<br />
products. The operati<strong>on</strong> of the TRQs are expected to be transparent and if the New Zealand c<strong>on</strong>tact<br />
point requests, <strong>China</strong> should provide informati<strong>on</strong> <strong>on</strong> the quantity of TRQs issued.<br />
Rules of Origin:<br />
Rules of origin criteria as per the <strong>Agreement</strong> are change in tariff classificati<strong>on</strong>, RVC and product<br />
specific rules for certain sectors. In cases where the regi<strong>on</strong>al value c<strong>on</strong>tent rule is utilized, mostly the<br />
change in tariff classificati<strong>on</strong> is applied provided that there is a qualifying minimum value c<strong>on</strong>tent of<br />
30 per cent, 40 per cent, 45 per cent, or 50 per cent of material exported from <strong>on</strong>e Party to another.<br />
There are four products for which the regi<strong>on</strong>al value c<strong>on</strong>tent rule is applied exclusively. 121 A<br />
de minimis principle is established whereby a product is c<strong>on</strong>sidered to be originating if the value of<br />
all n<strong>on</strong>-originating materials that do not meet the change in tariff classificati<strong>on</strong> requirement is no<br />
more than 10 per cent of the free <strong>on</strong> board (FOB) value of the products, and the good satisfies all<br />
other applicable criteria. Furthermore, the agreement also specifies how certain material (packing<br />
and c<strong>on</strong>tainers for transportati<strong>on</strong> and retail sale, accessories, spare parts and tools, neutral<br />
elements, and interchangeable materials) are to be treated when determining their origin.<br />
Other Provisi<strong>on</strong>s:<br />
In order to address the c<strong>on</strong>cerns of the domestic industries of both <strong>China</strong> and New Zealand<br />
regarding issues such as excessive flow of cheaper imports, the <strong>Agreement</strong> has made provisi<strong>on</strong>s to<br />
the use of bilateral safeguard measures. The importing Party may apply a bilateral safeguard, to the<br />
extent necessary to prevent or remedy the serious injury, and to facilitate adjustment, caused by a<br />
reducti<strong>on</strong> or eliminati<strong>on</strong> of customs duties under the <strong>Agreement</strong>, if a good benefiting from<br />
preferential tariff treatment under the <strong>Agreement</strong> is being imported into the territory of a Party in<br />
such increased quantities, in absolute terms or relative to domestic producti<strong>on</strong>, and under such<br />
c<strong>on</strong>diti<strong>on</strong>s that the imports c<strong>on</strong>stitute a cause of serious injury or threat to a domestic industry of<br />
the importing Party, in accordance with WTO <strong>Agreement</strong> <strong>on</strong> Safeguards. 122 In additi<strong>on</strong> to safeguard<br />
measures, anti-dumping, countervailing duties, SPS and TBT measures, intellectual property, dispute<br />
settlement, labour and envir<strong>on</strong>mental standards, trade facilitati<strong>on</strong>, government procurement,<br />
technical cooperati<strong>on</strong> and instituti<strong>on</strong>al mechanism are also covered in the <strong>Agreement</strong>.<br />
113 WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between Chinn and New Zealand (Goods<br />
and Services), 2010, available at: [http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=8]<br />
114 HS 10011000; 10019010; 10019090; 11010000; 11031100; and 11032010.<br />
115 HS 10051000; 10059000; 11022000; 11031300; and 11042300.<br />
116 HS 10061011; 10061019; 10061091; 10061099; 10062010; 10062090; 10063010; 10063090; 10064010;<br />
10064090; 11029011; 11029019; 11031921; and 11031929.<br />
117 HS 17011100; 17011200; 17019100; 17019910; 17019920; and 17019990.<br />
118 HS 31021000; 31052000; and 31053000.<br />
119 HS 52010000; and 52030000.<br />
120 WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between Chinn and New Zealand (Goods<br />
and Services), 2010, available at: [http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=8]<br />
121 HS 320611 (RVC 50%); HS 330112 (RVC 50%); HS 330125 (RVC 30%); and HS 340213 (RVC 40%).<br />
122 WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between Chinn and New Zealand (Goods<br />
and Services), 2010, available at: [http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=8]<br />
Page 41 of 88
Page 42 of 88
3.5 <strong>China</strong>-Singapore <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong><br />
The first comprehensive bilateral FTA that <strong>China</strong> has signed with another Asian country is its FTA<br />
with Singapore, covering trade in goods, trade in services, rules of origin, trade remedies, sanitary<br />
and Phytosanitary measures, technical barriers to trade, customs procedures, ec<strong>on</strong>omic cooperati<strong>on</strong><br />
and dispute settlement, am<strong>on</strong>g others. Currently, <strong>China</strong> is Singapore's third largest trading partner<br />
and largest investment destinati<strong>on</strong>. The <strong>China</strong>-Singapore FTA was signed <strong>on</strong> 23 rd October 2008 and<br />
has entered into force <strong>on</strong> 1 st January 2009. The FTA c<strong>on</strong>cluded in 2010.<br />
The tariff lines that are subject to the tariff reducti<strong>on</strong> or eliminati<strong>on</strong> programme under this<br />
<strong>Agreement</strong> are all the tariff lines covered under the Normal Track, as specified in the <strong>Agreement</strong> <strong>on</strong><br />
<strong>Trade</strong> in Goods of the Framework <strong>Agreement</strong> <strong>on</strong> Comprehensive Ec<strong>on</strong>omic Co-operati<strong>on</strong> between<br />
the ASEAN and the <strong>China</strong>, which was signed <strong>on</strong> 29 th November 2004. 123 In the case of Singapore, this<br />
<strong>Agreement</strong> shall also include all tariff lines covered under the Sensitive Track, as specified in the<br />
ASEAN-<strong>China</strong> <strong>Trade</strong> in Good <strong>Agreement</strong>.<br />
The FTA has provided preferential coverage for about 95 per cent of Singapore’s exports to <strong>China</strong>,<br />
with a trade value of more than S$18 billi<strong>on</strong>. More than 85 per cent of Singapore exports to <strong>China</strong><br />
were at zero-tariff up<strong>on</strong> the <strong>Agreement</strong>’s entry into force <strong>on</strong> 1 st January 2009. An additi<strong>on</strong>al 10 per<br />
cent had become duty-free <strong>on</strong> 1 st January 2010. Key exports that benefit include petrochemicals,<br />
processed foods, and electr<strong>on</strong>ics and electrical products. In additi<strong>on</strong> to individual income tax<br />
benefits, Singapore has intended to grow its populati<strong>on</strong> by another 2 milli<strong>on</strong> people, and many of<br />
these are expected to be wealthy mainland Chinese nati<strong>on</strong>als.<br />
Corporate benefits include reducti<strong>on</strong> <strong>on</strong> withholding taxes for a variety of services, including<br />
chargeable royalties. This, coupled with Singapore’s low corporate and individual income tax rates, is<br />
<strong>on</strong>e of the reas<strong>on</strong>s Singapore is becoming a corporate regi<strong>on</strong>al hub for investments into <strong>China</strong> and<br />
Asia. As foreign investors automatically qualify as Singaporean companies when setting up a<br />
subsidiary there, they can also access Singapore’s own impressive array of internati<strong>on</strong>al tax treaties,<br />
which include numerous other FTAs, as well as over 80 bilateral double tax agreements. 124<br />
The <strong>Agreement</strong> has 14 chapters: Chapter 1: Initial Provisi<strong>on</strong>s, Chapter 2: General Definiti<strong>on</strong>s, Chapter<br />
3: <strong>Trade</strong> in Goods, Chapter 4: Rules of Origin, Chapter 5: Customs Procedures, Chapter 6: <strong>Trade</strong><br />
Remedies, Chapter 7: Technical Barriers to <strong>Trade</strong>, Chapter 8: <strong>Trade</strong> in Services, Chapter 9:<br />
Movement of Natural Pers<strong>on</strong>s, Chapter 10: Investment, Chapter 11: Ec<strong>on</strong>omic Cooperati<strong>on</strong>, Chapter<br />
12: Dispute Settlement, Chapter 13: Excepti<strong>on</strong>s and Chapter 14: General and Final Provisi<strong>on</strong>s. The<br />
<strong>Agreement</strong> has 7 annexes which c<strong>on</strong>tain the following: tariff eliminati<strong>on</strong> schedules, product specific<br />
rules, formats of certificate of origin, c<strong>on</strong>tact points for TBT and SPS, schedules of specific<br />
commitments <strong>on</strong> services, commitments <strong>on</strong> temporary entry by natural pers<strong>on</strong>s and rules and<br />
procedures for arbitral proceedings.<br />
123 Available at: [http://www.fta.gov.sg/fta_csfta.asp?hl=27]<br />
124 Dev<strong>on</strong>shire-Ellis, C (2014), “Understanding <strong>China</strong>’s <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong>s”, <strong>China</strong> Briefing, February 2014,<br />
available at: [http://www.china-briefing.com/news/2014/02/10/understanding-chinas-free-tradeagreements.html]<br />
Page 43 of 88
Table 3.12: Features of the <strong>China</strong>-Singapore FTA<br />
Parties<br />
<strong>China</strong> , Singapore<br />
Date of Signature 23 October 2008<br />
Date of Entry into 1 January 2009<br />
Force<br />
Full<br />
2010<br />
Implementati<strong>on</strong><br />
Negative List The tariff lines that are subject to the tariff reducti<strong>on</strong> or eliminati<strong>on</strong> will be<br />
eliminated by 2010.<br />
Rules of Origin • Products must be wholly obtained or produced in Singapore.<br />
(ROO)<br />
• Local Value Additi<strong>on</strong> –40% of total c<strong>on</strong>tent.<br />
Requirements • Regi<strong>on</strong>al Value C<strong>on</strong>tent (RVC) criteri<strong>on</strong> or value of the n<strong>on</strong>-originating parts or<br />
comp<strong>on</strong>ents used in the manufacture of the products must be no more than<br />
60% of the FOB value of the product.<br />
• The country of origin is defined as the country where the last processing<br />
operati<strong>on</strong> takes place.<br />
• Product Specific Rules, Process Criteri<strong>on</strong> for Textile and Textile ProductsGoods<br />
must meet the direct transport rule.<br />
Experiences (i.e. • Standards: Chapter 7 : TBT and SPS; The Parties shall use internati<strong>on</strong>al<br />
NTBs)<br />
standards; The Parties hereby establish the Joint Working Group <strong>on</strong> TBT and SPS<br />
• Anti - Dumping: Chapter 6; Article 40: Allowed as per WTO/GATT<br />
• Countervailing Duties: Chapter 6; Article 41; Not allowed<br />
• Safeguards: Chapter 6; Article 43: Allowed within the transiti<strong>on</strong> period<br />
• Customs procedures: Chapter 5<br />
• Investment: Article 84, Chapter 10<br />
• Competiti<strong>on</strong> Policy: Article 69. Chapter 8, Each Party shall ensure that any<br />
m<strong>on</strong>opoly supplier of a service in its territory does not, in the supply of the<br />
m<strong>on</strong>opoly service supplier in its territory does not act in a manner inc<strong>on</strong>sistent<br />
with that Party's specific commitments.<br />
• Dispute Settlement: Chapter 12 and Annex 7 <strong>on</strong> Rules and procedures for<br />
Arbitral proceedings<br />
• Technical cooperati<strong>on</strong>: Chapter 11 <strong>on</strong> Ec<strong>on</strong>omic Cooperati<strong>on</strong><br />
• Instituti<strong>on</strong>al mechanism: Article 68, Chapter 8: Joint Committee <strong>on</strong> Recogniti<strong>on</strong><br />
Co-operati<strong>on</strong>. Article 111 Chapter 14: The Parties shall establish an FTA Joint<br />
Relevant<br />
websites<br />
Committee.<br />
• http://www.mofcom.gov.cn/<br />
• http://www.iesingapore.gov.sg/<br />
Sources: http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=8<br />
http://artnet.unescap.org/APTIAD/viewagreement.aspx?id=CHINA-SINGAPORE<br />
Rules of Origin:<br />
Rules of origin criteria as per the <strong>Agreement</strong> are domestic value additi<strong>on</strong> and RVC. While the local<br />
value additi<strong>on</strong> requirement is 40 per cent of total c<strong>on</strong>tent the RVC requirement is 60 per cent of the<br />
FOB value of the product. Product Specific Rules, Process Criteri<strong>on</strong> for Textile and Textile<br />
ProductsGoods must meet the direct transport rule.<br />
Other Provisi<strong>on</strong>s:<br />
Singapore and <strong>China</strong> have also agreed up<strong>on</strong> not maintaining any quantitative restricti<strong>on</strong>s at any time<br />
unless otherwise permitted under the WTO disciplines. They have also decided not to adopt or<br />
maintain any n<strong>on</strong>-tariff measures <strong>on</strong> the importati<strong>on</strong> of any good of the other market or <strong>on</strong> the<br />
Page 44 of 88
exportati<strong>on</strong> of any good destined for the territory of the other market. Furthermore, each market<br />
shall ensure the transparency of its n<strong>on</strong>-tariff measures. 125<br />
Singapore and <strong>China</strong> have agreed to simplify our customs procedures to facilitate Goods trade. The<br />
key facilitative commitments include Third Party Invoicing, Advance Ruling to provide traders with<br />
more certainty and enhancement of the applicati<strong>on</strong> of risk management to facilitate the clearance of<br />
low risk c<strong>on</strong>signments.<br />
125 Available at: [http://www.fta.gov.sg/fta_csfta.asp?hl=27]<br />
Page 45 of 88
3.6 <strong>China</strong>-Pakistan <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong><br />
Having been a very close ally of <strong>China</strong> for a l<strong>on</strong>g time, Pakistan was the first South Asian country to<br />
establish an FTA, for both goods and services, with <strong>China</strong>. As the first step towards strengthening<br />
trade links, the two countries have signed an Early Harvest Program (EHP) <strong>on</strong> 5 th April 2005, which<br />
has become operati<strong>on</strong>al <strong>on</strong> 1 st January 2006. 126 Within a year <strong>on</strong> 24 th November 2006, Pakistan and<br />
<strong>China</strong> have signed the FTA in goods and finalized the modalities for Stage One, which came into<br />
effect <strong>on</strong> 1 st July 2007. 127 The agreement has been fully implemented in 2012. The FTA between<br />
Pakistan and <strong>China</strong> was Pakistan's first and <strong>China</strong>'s fourth bilateral FTA notified to the WTO. 128<br />
Pakistan-<strong>China</strong> FTA has extended trade relati<strong>on</strong>s from trade in goods to trade in service. On 21 st<br />
February 2009, the two countries have signed the <strong>Trade</strong> in Services <strong>Agreement</strong>, which came into<br />
effect <strong>on</strong> 10 th October 2009. 129 While the agreement has used a positive list approach for<br />
negotiati<strong>on</strong>s, the two countries have opened their service sectors in all four modes 130 to each other’s<br />
markets <strong>on</strong> the basis of their commitments to the WTO.<br />
<strong>Trade</strong> between <strong>China</strong> and Pakistan has seen a growth since the implementati<strong>on</strong> of the FTA. <strong>China</strong> is<br />
the <strong>on</strong>e of the largest import sources of Pakistan and its share has increased from 14 to 17 per cent<br />
during 2003‐2007 period. 131 Even though the exports have grown, 10 per cent growth in exports to<br />
<strong>China</strong> was in products that remain outside the scope of the FTA. 132 Many of them are Pakistan’s top<br />
exports to the world. Although china’s demand for these products is significant, Pakistan exports<br />
c<strong>on</strong>tribute to less than 1 per cent of <strong>China</strong>’s imports of these products. 133<br />
A growing increase in Pakistan’s trade imbalance with <strong>China</strong> was seen after implementing the FTA.<br />
<strong>China</strong> has shown a significant increase in its share in Pakistan’s imports; 18 to 63 per cent in<br />
electrical and electr<strong>on</strong>ics, 18 to 44 per cent in products of ir<strong>on</strong> and steel, 7 to 45 per cent in manmade<br />
staple fibres. 134 Post-FTA <strong>China</strong> has become the sec<strong>on</strong>d largest source of Pakistan’s imports,<br />
which accounts for over 25 per cent of total imports excluding petroleum products. 135<br />
The <strong>Agreement</strong> is composed of 12 chapters: Chapter 1: Initial Provisi<strong>on</strong>s, Chapter 2: General<br />
Definiti<strong>on</strong>s, Chapter 3: Nati<strong>on</strong>al Treatment and Market Access for Goods, Chapter 4: Rules of Origin,<br />
Chapter 5: <strong>Trade</strong> Remedies, Chapter 6: Sanitary and Phytosanitary Measures, Chapter 7: Technical<br />
Barriers to <strong>Trade</strong>, Chapter 8: Transparency, Chapter 9: Investments, Chapter 10: Dispute Settlement,<br />
Chapter 11: Administrati<strong>on</strong> and Chapter 12: Final Provisi<strong>on</strong>s. The <strong>Agreement</strong> c<strong>on</strong>tains three annexes<br />
126 Government of Pakistan (2012), “Pakistan-<strong>China</strong> <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong>: Analytical Report <strong>on</strong> Textile and<br />
Clothing”, Research, Development and Advisory Cell, Ministry of Textile Industry.<br />
127 Ibid.<br />
128 WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between Pakistan and <strong>China</strong> (Goods), 2008,<br />
available at: [http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=8]<br />
129 Ibid.<br />
130 Cross-border supply (Mode 1), C<strong>on</strong>sumpti<strong>on</strong> abroad (Mode 2), Commercial presence (Mode 3) and<br />
Presence of natural pers<strong>on</strong>s (Mode 4).<br />
131 Government of Pakistan (2012), “Pakistan-<strong>China</strong> <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong>: Analytical Report <strong>on</strong> Textile and<br />
Clothing”, Research, Development and Advisory Cell, Ministry of Textile Industry.<br />
132 The Pakistan Business Council (2013), “Preliminary study <strong>on</strong> Pakistan and <strong>China</strong> trade partnership post<br />
FTA”, available at: [http://www.pbc.org.pk/assets/pdf/21-Oct_Pakistan_<strong>China</strong>_<strong>Trade</strong>_<str<strong>on</strong>g>Study</str<strong>on</strong>g>_2013.pdf]<br />
133 Ibid.<br />
134 Ibid.<br />
135 Ibid.<br />
Page 46 of 88
with the following: eliminati<strong>on</strong> of import customs duties; certificate of origin; and rules of procedure<br />
of the arbitral panel.<br />
Table 3.13: Features of the <strong>China</strong>-Pakistan FTA<br />
Parties<br />
<strong>China</strong> , Pakistan<br />
Date of signature 24 November 2006 (Goods)<br />
21 February 2009 ( Services)<br />
Entry into force 01 July 2007 (Goods)<br />
10 October 2009 (Services)<br />
Full Implementati<strong>on</strong> 2012<br />
Transiti<strong>on</strong> for full <strong>China</strong> and Pakistan have implemented tariff reducti<strong>on</strong>s for all products in two<br />
implementati<strong>on</strong> stages:<br />
• First stage: 85% of all tariff lines were reduced at different rates within five<br />
years of entry into force of the agreement; the tariff <strong>on</strong> approximately 36%<br />
of products were reduced to zero within three years of the agreement, and<br />
<strong>on</strong> the remainder to 5% or below or by 50% or 20% within five years.<br />
• All tariff reducti<strong>on</strong>s in the first stage were completed <strong>on</strong> 1 January 2012.<br />
• Sec<strong>on</strong>d stage: <strong>China</strong> and Pakistan have started negotiati<strong>on</strong>s.<br />
Negative List<br />
• Each Party has progressively eliminated its import customs duties in Negative<br />
list, margin of preference, by 2012.<br />
• <strong>China</strong> and Pakistan have c<strong>on</strong>sidered reducti<strong>on</strong>/eliminati<strong>on</strong> of tariffs <strong>on</strong> goods<br />
produced in the <strong>China</strong>-Pakistan Investment Z<strong>on</strong>es including the Haier-Ruba<br />
Ec<strong>on</strong>omic Z<strong>on</strong>e.<br />
• <strong>China</strong>’s negative list - 4,936 tariff lines that include products under all HS<br />
categories.<br />
• Pakistan’s negative list - 4,394 tariff lines that include products under all HS<br />
Rules of Origin (ROO)<br />
Requirements<br />
categories.<br />
• Products must be wholly obtained or produced in Pakistan.<br />
• Local Value Additi<strong>on</strong> – 40% of total c<strong>on</strong>tent.<br />
• Regi<strong>on</strong>al Value C<strong>on</strong>tent (RVC) criteri<strong>on</strong> or value of the n<strong>on</strong>-originating parts<br />
or comp<strong>on</strong>ents used in the manufacture of the products must be no more<br />
than 60% of the FOB value of the product.<br />
• The country of origin is defined as the country where the last processing<br />
operati<strong>on</strong> takes place.<br />
• Goods must meet the direct transport rule.<br />
Experiences (i.e. NTBs) • Anti - Dumping: Chapter V; Article 25: Allowed as per WTO/GATT<br />
• Countervailing Duties: Chapter V; Article 25: Allowed as per WTO/GATT<br />
• Safeguards: Chapter V; Article 27: Allowed bilateral safeguard measures<br />
for transiti<strong>on</strong> period time<br />
• Standards: Chapter VI: SPS. Chapter VII: TBT: establish the Joint Committee<br />
<strong>on</strong> SPS and TBT<br />
• Dispute Settlement: Chapter X<br />
• Competiti<strong>on</strong> Policy: Article 7 of <strong>Agreement</strong> <strong>on</strong> <strong>Trade</strong> in Service: Party shall<br />
ensure the m<strong>on</strong>opoly supplier and its affiliated company does not act in a<br />
manner inc<strong>on</strong>sistent with the commitments of this agreement.<br />
• <strong>Trade</strong> regulati<strong>on</strong>s publicati<strong>on</strong> and administrati<strong>on</strong> (transparency): Chapter<br />
VIII; Article 43<br />
• Technical Cooperati<strong>on</strong>: Chapter VII<br />
• Instituti<strong>on</strong>al Mechanism: Chapter XI<br />
Relevant websites • http://www.mofcom.gov.cn/<br />
• http://www.commerce.gov.pk/index.asp<br />
Sources: WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between Pakistan and <strong>China</strong><br />
(Goods), 2008.<br />
Page 47 of 88
http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=8<br />
http://artnet.unescap.org/APTIAD/viewagreement.aspx?id=CHINA-PAKISTAN<br />
The <strong>Agreement</strong> c<strong>on</strong>tains no explicit transiti<strong>on</strong> period as the tariff eliminati<strong>on</strong> <strong>on</strong> imports of goods for<br />
both Parties is to be completed within a period of five years (January 2012). Duty eliminati<strong>on</strong>s take<br />
place <strong>on</strong> the date of entry into force of the <strong>Agreement</strong> and <strong>on</strong> 1 st January of the following years for<br />
both countries (2007, 2008 and 2010). 136<br />
Liberalizati<strong>on</strong> of Tariff Lines:<br />
Both the countries have gradually eliminated their tariff lines from the date the agreement came<br />
into force in 2007. As shown in Table 3.14, In the case of Pakistan, 5.8 per cent of total tariff lines<br />
were already duty-free <strong>on</strong> an MFN basis in 2006. 137 A further 7 per cent of tariff lines have become<br />
duty-free for imports from <strong>China</strong> in 2007. By the end of the transiti<strong>on</strong> period in 2012, a further 23.6<br />
per cent of tariff lines were liberalized, accounting for 23.4 per cent of imports from <strong>China</strong> for the<br />
period 2004-2006. 138 Thus, a total of 36.4 per cent of tariff lines were liberalized under the<br />
<strong>Agreement</strong>, corresp<strong>on</strong>ding to 44.4 per cent of imports by value from <strong>China</strong> for the period 2004-<br />
2006.<br />
Table 3.14: Pakistan’s Tariff eliminati<strong>on</strong> commitments under the <strong>Agreement</strong> and corresp<strong>on</strong>ding<br />
average trade<br />
Duty phase-out period No. of<br />
lines<br />
% of total lines in<br />
Pakistan's tariff<br />
schedule<br />
Value of Pakistan's imports<br />
from <strong>China</strong> (2004-2006)<br />
in milli<strong>on</strong> US$<br />
% of Pakistan's<br />
total imports<br />
from <strong>China</strong> 2004-<br />
2006<br />
MFN duty free (2007) 399 5.8 226.4 11.6<br />
2007 486 7.0 184.4 9.4<br />
2008 31 0.4 0.8 0.0<br />
2010 1,601 23.2 457.0 23.4<br />
Remain dutiable 4,394 63.6 1,088.3 55.6<br />
Total 6,911 100.0 1,956.9 100.0<br />
Source: WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between Pakistan and <strong>China</strong><br />
(Goods), 2008.<br />
<strong>China</strong> has also allowed duty-free access to 8.4 per cent of total tariff lines 139 <strong>on</strong> an MFN basis in<br />
2007, before the agreement came into force (Table 3.15). A further 9.4 per cent of tariff lines have<br />
become duty-free for imports from Chile in 2007. By the end of the transiti<strong>on</strong> period in 2012, a<br />
further 23.6 per cent of tariff lines were liberalized, accounting for a further 23.4 per cent of imports<br />
from Pakistan for the period 2004-2006. Thus, a total of 36.4 per cent of tariff lines were liberalized<br />
136 WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between Pakistan and <strong>China</strong> (Goods), 2008,<br />
available at: [http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=8]<br />
137 Pakistan's tariff is composed of 6,911 tariff lines at the HS 8-digit level, of which 6,867 c<strong>on</strong>tain ad valorem<br />
rates; the remaining 44 lines are subject to specific duties.<br />
138 2010 is the last year when tariffs are scheduled to be fully liberalized. Further tariff reducti<strong>on</strong>s are<br />
scheduled to take place in 2011 and 2012.<br />
139 <strong>China</strong>'s tariff is composed of 7,605 tariff lines at the HS 8-digit level, of which 7,556 are subject to<br />
ad valorem rates. For the 49 lines subject to specific duties, <strong>China</strong> has provided ad valorem equivalent rates.<br />
Such lines occur in HS Chapters 2, 5, 37, and 85.<br />
Page 48 of 88
under the <strong>Agreement</strong>, corresp<strong>on</strong>ding to 44.4 per cent of imports by value from Pakistan for the<br />
period 2004-2006.<br />
Table 3.15: <strong>China</strong>’s Tariff eliminati<strong>on</strong> commitments under the <strong>Agreement</strong> and corresp<strong>on</strong>ding<br />
average trade<br />
Duty phase-out period No.<br />
of<br />
lines<br />
% of total lines<br />
in <strong>China</strong>'s tariff<br />
schedule<br />
Value of <strong>China</strong>'s imports<br />
from Pakistan (2004-2006)<br />
in milli<strong>on</strong> US$<br />
% of <strong>China</strong>'s total<br />
imports from<br />
Pakistan 2004-2006<br />
MFN duty free (2007) 640 8.4 28.8 3.7<br />
2007 720 9.4 117.2 15.0<br />
2008 59 0.8 0.3 0.0<br />
2010 1,291 16.9 90.8 11.6<br />
Remain dutiable 4,936 64.6 544.8 69.7<br />
Total 7,646 100.0 781.8 100.0<br />
Source: WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between Pakistan and <strong>China</strong><br />
(Goods), 2008.<br />
Liberalizati<strong>on</strong> of <strong>Trade</strong>:<br />
<strong>Trade</strong> liberalizati<strong>on</strong> commitments of both <strong>China</strong> and Pakistan have been <strong>on</strong> the basis of products at<br />
the HS 8-digit level. As presented in Table 3.16, out of the 6,911 tariff lines, Pakistan has allowed<br />
duty-free access to 399 tariff lines <strong>on</strong> an MFN basis in 2007. An additi<strong>on</strong>al 486 lines, covering<br />
agricultural products, minerals, chemicals, and machinery, were also liberalized up<strong>on</strong> entry into<br />
force of the <strong>Agreement</strong> in 2007. In 2010, an additi<strong>on</strong>al 1,602 tariff lines were subjected to<br />
liberalizati<strong>on</strong>. Nevertheless, 4,394 tariff lines are still subjected to duties covering all HS categories.<br />
HS secti<strong>on</strong> and<br />
descripti<strong>on</strong><br />
Table 3.16: Pakistan’s Tariff Eliminati<strong>on</strong> Under the <strong>Agreement</strong>, by HS Chapter<br />
MFN No. MFN No. of duty-free lines Remain<br />
average of 2007 2007 2008 2010 dutiable<br />
% lines<br />
Average<br />
Final<br />
Tariff<br />
(Dutiable)<br />
1. Live animals and<br />
11.7 248 24 86 20 118 15.3<br />
animal products<br />
2. Vegetable products 10.9 312 68 21 14 52 157 11.7<br />
3. Animal or vegetable 11.8 54 3 51 9.9<br />
fats and oils<br />
4. Prepared food etc. 24.1 229 12 217 20.6<br />
5. Minerals 8.2 195 23 46 12 50 64 5.9<br />
6. Chemical and products 8.3 1,153 51 112 1 551 438 10.0<br />
7. Plastics and rubber 16.9 300 21 30 249 17.0<br />
8. Hides and skins 10.2 93 38 17 38 15.0<br />
9. Wood and articles 12.1 106 34 5 67 12.2<br />
10. Pulp, paper etc. 16.0 182 28 21 133 17.9<br />
11. Textile and textile 18.8 921 30 3 888 16.0<br />
articles<br />
12. Footwear, headgear 23.2 53 53 11.4<br />
13. Articles of st<strong>on</strong>e 21.9 191 10 181 16.6<br />
14. Precious st<strong>on</strong>es, etc. 5.0 60 3 49 8 5.0<br />
15. Base metals and<br />
13.7 761 24 200 537 13.6<br />
products<br />
16. Machinery 12.8 1,247 46 221 4 338 638 17.6<br />
17. Transport equipment 33.3 287 1 48 238 38.6<br />
Page 49 of 88
18. Precisi<strong>on</strong> equipment 9.4 274 7 183 84 15.5<br />
19. Arms and ammuniti<strong>on</strong> 20.2 52 52 5.0<br />
20. Misc. manufactured 20.5 186 1 4 181 11.6<br />
articles<br />
21. Works of art, etc. 5.7 7 5 2 7.5<br />
Total 14.5 6,911 399 486 31 1,601 4,394 16.1<br />
Source: WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between Pakistan and <strong>China</strong><br />
(Goods), 2008.<br />
<strong>China</strong> has also allowed duty-free access to 640 tariff lines under HS 8-digit level out of the total 7,646<br />
tariff lines <strong>on</strong> an MFN basis in 2007 (Table 3.17). An additi<strong>on</strong>al 720 tariff lines were liberalized up<strong>on</strong><br />
entry into force of the <strong>Agreement</strong> (comprising both agricultural and industrial products). <strong>China</strong><br />
maintains a negative list with a total of 4,936 tariff lines covering all HS categories, for instance live<br />
animal, vegetable products, vegetable and animal fats and oils, prepared food, chemicals, plastics<br />
and rubber, hides and skins, wood products, pulp and paper, textiles, and machinery.<br />
The tariff c<strong>on</strong>cessi<strong>on</strong>s given to Pakistan appear impressive but nearly all top performing products,<br />
including those where Pakistan holds a comparative advantage, <strong>China</strong> has awarded higher or same<br />
reducti<strong>on</strong> in tariffs to ASEAN members. 140 By 2011, tariffs under the 100 per cent c<strong>on</strong>cessi<strong>on</strong><br />
category, that c<strong>on</strong>stitutes more than 35 per cent of the total products part of the FTA, were reduced<br />
to 0 per cent for Pakistan. Yet, the average tariff al<strong>on</strong>g these products for ASEAN was also 0 per<br />
cent. 141 This indicates that tariff reducti<strong>on</strong>s for Pakistan were not Pakistan specific even al<strong>on</strong>g<br />
products that Pakistan enjoys 100 per cent c<strong>on</strong>cessi<strong>on</strong>s, but were offered to Pakistan’s competitors<br />
as well.<br />
140 The Pakistan Business Council (2013), “Preliminary study <strong>on</strong> Pakistan and <strong>China</strong> trade partnership post FTA”,<br />
available at: [http://www.pbc.org.pk/assets/pdf/21-Oct_Pakistan_<strong>China</strong>_<strong>Trade</strong>_<str<strong>on</strong>g>Study</str<strong>on</strong>g>_2013.pdf]<br />
141 Ibid.<br />
Page 50 of 88
Table 3.17: <strong>China</strong>’s Tariff Eliminati<strong>on</strong> Under the <strong>Agreement</strong>, by HS Chapter<br />
HS secti<strong>on</strong> and MFN No. MFN No. of duty-free lines Remain Average<br />
descripti<strong>on</strong> average of 2007 2007 2008 2010 dutiable Final<br />
% lines<br />
Tariff<br />
(Dutiable)<br />
1. Live animals and<br />
12.2 377 44 8 325 10.3<br />
animal products<br />
2. Vegetable products 14.5 457 48 62 3 53 291 15.4<br />
3. Animal or vegetable 12.9 53 2 51 12.9<br />
fats and oils<br />
4. Prepared food etc. 18.0 279 1 4 2 38 234 18.0<br />
5. Minerals 3.7 199 37 64 57 41 5.3<br />
6. Chemical and products 6.9 1,189 9 75 414 691 6.6<br />
7. Plastics and rubber 9.6 263 1 21 241 7.1<br />
8. Hides and skins 12.3 106 3 4 18 81 10.6<br />
9. Wood and articles 4.3 189 72 30 87 6.1<br />
10. Pulp, paper etc. 5.3 160 35 125 6.6<br />
11. Textile and textile 11.6 1,105 437 33 67 568 8.4<br />
articles<br />
12. Footwear, headgear 18.4 56 56 13.7<br />
13. Articles of st<strong>on</strong>e 13.5 184 1 6 10 6 161 9.8<br />
14. Precious st<strong>on</strong>es, etc. 10.0 84 32 1 13 38 18.4<br />
15. Base metals and<br />
7.4 714 4 13 7 251 439 6.6<br />
products<br />
16. Machinery 8.4 1,398 260 3 210 925 7.7<br />
17. Transport equipment 12.3 318 1 65 252 11.7<br />
18. Precisi<strong>on</strong> equipment 10.2 307 31 28 40 208 10.7<br />
19. Arms and ammuniti<strong>on</strong> 13.0 21 21 6.5<br />
20. Misc. manufactured 11.6 178 62 22 94 17.4<br />
articles<br />
21. Works of art, etc. 9.6 9 2 7 7.5<br />
Total 9.8 7,646 640 720 59 1,291 4,936 9.4<br />
Source: WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between Pakistan and <strong>China</strong><br />
(Goods), 2008.<br />
Rules of Origin:<br />
Rules of origin criteria as per the <strong>Agreement</strong> are domestic value additi<strong>on</strong> and RVC. While the local<br />
value additi<strong>on</strong> requirement is 40 per cent of total c<strong>on</strong>tent the RVC requirement is 60 per cent of the<br />
FOB value of the product. The <strong>Agreement</strong> also provides a list of minimal, n<strong>on</strong>-qualifying operati<strong>on</strong>s<br />
carried out in the territory of the Parties that do not c<strong>on</strong>fer origin. The <strong>Agreement</strong> underlines that<br />
products may be transported through third countries as l<strong>on</strong>g as they satisfy the c<strong>on</strong>diti<strong>on</strong>s specified<br />
in the <strong>Agreement</strong>. Additi<strong>on</strong>al rules clarify how certain material (packaging materials, accessories,<br />
spare parts or tools, and indirect materials) are to be treated/valued when determining the origin of<br />
goods.<br />
Other Provisi<strong>on</strong>s:<br />
To manage the c<strong>on</strong>sequences of increased imports from both countries, the <strong>Agreement</strong> has set out<br />
c<strong>on</strong>diti<strong>on</strong>s applicable to the use of bilateral safeguard measures. The <strong>Agreement</strong> specifies that a<br />
Party may impose a bilateral safeguard measure <strong>on</strong> a product benefiting from preferential tariff<br />
treatment under the <strong>Agreement</strong> if there is an increase in imports in absolute terms or relative to<br />
Page 51 of 88
domestic producti<strong>on</strong>, which c<strong>on</strong>stitutes a substantial cause of serious injury or threat thereof to the<br />
domestic industry of the importing Party producing a like or directly competitive good. 142 Disciplines<br />
regarding the applicati<strong>on</strong> of such measures include an investigati<strong>on</strong> by the Party's competent<br />
authorities prior to its applicati<strong>on</strong>; its scope and durati<strong>on</strong>, c<strong>on</strong>sultati<strong>on</strong> procedures, and<br />
compensati<strong>on</strong>. The Parties were anticipated to agree within five years of the entry into force of the<br />
<strong>Agreement</strong> to meet to determine whether there is a need to maintain the bilateral safeguard<br />
mechanism. In additi<strong>on</strong> to safeguard measures, anti-dumping, countervailing duties, SPS and TBT<br />
measures, dispute settlement, competiti<strong>on</strong> policy, technical cooperati<strong>on</strong> and instituti<strong>on</strong>al<br />
mechanism are also covered in the <strong>Agreement</strong>.<br />
142 "Serious injury" is defined in Article 50 of the <strong>Agreement</strong> as "a significant overall impairment in the positi<strong>on</strong><br />
of a domestic industry".<br />
Page 52 of 88
3.7 <strong>China</strong>-Peru <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong><br />
Bilateral agreement between <strong>China</strong> and Peru has strategic c<strong>on</strong>notati<strong>on</strong>s for each country. In the case<br />
of <strong>China</strong>, it is <strong>on</strong>e of the important ways to strengthen its ec<strong>on</strong>omic and diplomatic relati<strong>on</strong>s with<br />
Latin America. For Peru, it is a critical step to strengthen links with leading world countries like <strong>China</strong>,<br />
in order to become a business and productive platform within South America. As the Peruvian<br />
government has pushed forward with pro-export ec<strong>on</strong>omic policies and <strong>China</strong> has sought to tap into<br />
Peru’s natural resource wealth, the relati<strong>on</strong>ship between the two countries has grown over time. To<br />
strengthen their ec<strong>on</strong>omic ties, Chine-Peru <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> in goods was signed <strong>on</strong> 28 th April<br />
2009, which came into effect <strong>on</strong> 1 st March 2010. 143 The agreement is expected to be fully<br />
implemented by 2026. It is <strong>China</strong>'s first comprehensive FTA, covering goods and services, with a<br />
Latin American member.<br />
Since the implementati<strong>on</strong> of the FTA, trade between the two nati<strong>on</strong>s has gradually accelerated. In<br />
2009, <strong>China</strong> was an important trading partner for Peru representing its third largest export market,<br />
accounting for 15.3 per cent of its total exports, and its sec<strong>on</strong>d largest source of imports, with 14.9<br />
per cent of Peru's total imports. 144 <strong>China</strong> has become Peru's top export market accounting for 17 per<br />
cent (close to US$8 billi<strong>on</strong>) of its exports in 2012. 145 By way of comparis<strong>on</strong>, the United States fell to<br />
sec<strong>on</strong>d place in 2012 accounting for a 13 per cent (US$6 billi<strong>on</strong>) share of Peru's exports. 146 Over the<br />
same period, <strong>China</strong>'s imports from Peru were valued at US$4.4 billi<strong>on</strong> and were dominated by<br />
minerals (75.8% of the total). 147<br />
The <strong>Agreement</strong> is composed of 17 chapters: Chapter 1: Initial Provisi<strong>on</strong>s, Chapter 2: Nati<strong>on</strong>al<br />
Treatment and Market Access for Goods, Chapter 3: Rules of Origin and Operati<strong>on</strong>al Procedures<br />
Related to Origin, Chapter 4: Customs Procedures and <strong>Trade</strong> Facilitati<strong>on</strong>, Chapter 5: <strong>Trade</strong> Remedies,<br />
Chapter 6: Sanitary and Phytosanitary Measures, Chapter 7: Technical Barriers to <strong>Trade</strong>, Chapter 8:<br />
<strong>Trade</strong> in Services, Chapter 9: Temporary Entry for Business Pers<strong>on</strong>s, Chapter 10: Investment, Chapter<br />
11: Intellectual Property Rights, Chapter 12: Cooperati<strong>on</strong>, Chapter 13: Transparency, Chapter 14:<br />
Administrati<strong>on</strong> of the <strong>Agreement</strong>, Chapter 15: Dispute Settlement, Chapter 16: Excepti<strong>on</strong>s and<br />
Chapter 17: Final Provisi<strong>on</strong>s. The <strong>Agreement</strong> has 12 annexes which c<strong>on</strong>tain the following:<br />
eliminati<strong>on</strong> of import customs duties; list of geographical indicati<strong>on</strong>s; product specific rules;<br />
certificate of origin; competent governmental authorities of Peru; model of certificati<strong>on</strong> and<br />
verificati<strong>on</strong> networking system <strong>on</strong> certificate of origin; rules of procedure of arbitral panel; and<br />
implementati<strong>on</strong> of modificati<strong>on</strong>s approved by the Commissi<strong>on</strong>.<br />
143 WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between Peru and <strong>China</strong> (Goods and<br />
Services), 2010, available at: [http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=8]<br />
144 Ibid.<br />
145 Ibid.<br />
146 Ibid.<br />
147 Ibid.<br />
Page 53 of 88
Parties<br />
Table 3.18: Features of the <strong>China</strong>-Peru FTA<br />
<strong>China</strong> , Peru<br />
Date of signature 28 April 2009<br />
Entry into force 1 March 2010<br />
Full Implementati<strong>on</strong> 2026<br />
Transiti<strong>on</strong> for full<br />
implementati<strong>on</strong><br />
• For <strong>China</strong>, 61.2% of tariff lines are to be eliminated <strong>on</strong> the day the<br />
agreement enters into force and a total of 94.6% tariff lines are to be<br />
eliminated by 2026.<br />
Negative List<br />
• 63.5% of Peru’s tariffs are to be eliminated immediately, and 91.9 per cent<br />
of the tariffs are to be eliminated by 2026.<br />
• <strong>China</strong>’s negative list – 422 tariff lines.<br />
Rules of Origin (ROO)<br />
Requirements<br />
• Peru’s negative list – 592 tariff lines.<br />
• Products must be wholly obtained or produced in Peru.<br />
• Change of tariff classificati<strong>on</strong> at HS 2, 4, & 6 digit levels.<br />
• Regi<strong>on</strong>al Value C<strong>on</strong>tent (RVC) criteri<strong>on</strong> or value of the n<strong>on</strong>-originating<br />
parts or comp<strong>on</strong>ents used in the manufacture of the products must be no<br />
more than 40-50% of the FOB value of the product.<br />
• The country of origin is defined as the country where the last processing<br />
operati<strong>on</strong> takes place.<br />
• De Minimis – 10% of the FOB<br />
• Goods must meet the direct transport rule.<br />
Experiences (i.e. NTBs) • Anti - Dumping: Chapter 5; Secti<strong>on</strong> C; Article 77: Allowed as per<br />
WTO/GATT, antidumping investigati<strong>on</strong> is required<br />
• Countervailing Duties: Chapter 5; Secti<strong>on</strong> C; Article 77: Allowed as per<br />
WTO/GATT, antidumping investigati<strong>on</strong> is required<br />
• Safeguards: Chapter 5; Secti<strong>on</strong> B: Allowed<br />
• Standards: Chapter 6: SPS. CHAPTER 7:TBT: establish the Committee <strong>on</strong><br />
SPS and TBT, ensure to cooperate in technical c<strong>on</strong>sultati<strong>on</strong>s<br />
• Customs procedures: Chapter 4<br />
• Customs valuati<strong>on</strong>: Chapter 2; Secti<strong>on</strong> E; Article 14. CHAPTER 4; Article<br />
55: as per WTO Committee <strong>on</strong> Customs Valuati<strong>on</strong>.<br />
• <strong>Trade</strong> regulati<strong>on</strong>s publicati<strong>on</strong> and administrati<strong>on</strong><br />
(transparency): Chapter 4; Article 63<br />
• Investment : Chapter 10<br />
• Competiti<strong>on</strong> Policy: Chapter 12; Article 159<br />
• Intellectual Property: Chapter 11<br />
• Dispute Settlement: Chapter 15<br />
• Technical cooperati<strong>on</strong>: Chapter 7<br />
• Instituti<strong>on</strong>al mechanism: Chapter 14<br />
Relevant websites • http://www.mofcom.gov.cn/<br />
• http://www.mincetur.gob.pe/newweb/<br />
Sources: WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between Peru and <strong>China</strong> (Goods<br />
and Services), 2010.<br />
http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=8<br />
http://artnet.unescap.org/APTIAD/viewagreement.aspx?id=CHINA-PERU<br />
Page 54 of 88
Liberalizati<strong>on</strong> of Tariff Lines:<br />
Both the countries have gradually eliminated their tariff lines from the date the agreement came<br />
into force in 2010. As presented in Table 3.19, In the case of Peru, 53.8 per cent of total tariff lines<br />
were already duty-free <strong>on</strong> an MFN basis in 2010. A further 9.6 per cent of tariff lines have become<br />
duty-free for imports from <strong>China</strong> in 2010. By 2019, further 26.9 per cent of Peru’s tariff lines are<br />
expected to liberalized, corresp<strong>on</strong>ding to 87.1 per cent of its imports from <strong>China</strong> in 2007-2009. At<br />
the end of the implementati<strong>on</strong> in 2026, 91.9 per cent of tariff lines will be liberalized, accounting for<br />
91 per cent of imports from <strong>China</strong>.<br />
Table 3.19: Peru’s Tariff eliminati<strong>on</strong> commitments under the <strong>Agreement</strong> and corresp<strong>on</strong>ding<br />
average trade<br />
Duty phase-out period No. of<br />
lines<br />
% of total lines<br />
in Peru's tariff<br />
schedule<br />
Value of Peru's imports<br />
from <strong>China</strong> (2007-2009)<br />
in milli<strong>on</strong> US$<br />
% of Peru's total<br />
imports from<br />
<strong>China</strong> 2007-2009<br />
MFN duty free (2010) 3,957 53.8 2,024.1 62.9<br />
2010 709 9.6 33.5 1.0<br />
2014 941 12.8 386.7 12.0<br />
2019 1,037 14.1 359.4 11.2<br />
2021 4 0.1 0.0 0.0<br />
2024 13 0.2 0.0 0.0<br />
2025 87 1.2 127.5 4.0<br />
2026 11 0.1 0.0 0.0<br />
Remain dutiable 592 8.1 288.1 9.0<br />
Total 7,351 100.0 3,219.3 100.0<br />
Source:WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between Peru and <strong>China</strong> (Goods),2010.<br />
<strong>China</strong> has also allowed duty-free access to 8.4 per cent of total tariff lines <strong>on</strong> an MFN basis in 2010,<br />
before the agreement came into force, which accounted for 77 per cent of imports from Peru (Table<br />
3.20). Up<strong>on</strong> entry into force of the <strong>Agreement</strong>, a further 52.8 per cent of tariff lines have become<br />
duty-free for imports from Peru in 2010. In 2019, an additi<strong>on</strong>al 32.6 per cent of the tariffs are to be<br />
liberalized. By the end of the transiti<strong>on</strong> period in 2026, a total of 94.6 per cent of tariff lines will be<br />
liberalized, accounting for 99.1 per cent of imports from Peru.<br />
Table 3.20: <strong>China</strong>’s Tariff eliminati<strong>on</strong> commitments under the <strong>Agreement</strong> and corresp<strong>on</strong>ding<br />
average trade<br />
Duty phase-out<br />
period<br />
No. of<br />
lines<br />
% of total lines<br />
in <strong>China</strong>'s tariff<br />
schedule<br />
Value of <strong>China</strong>'s imports<br />
from Peru (2007-2009)<br />
in milli<strong>on</strong> US$<br />
% of <strong>China</strong>'s total<br />
imports from<br />
Peru 2007-2009<br />
MFN duty free (2010) 649 8.4 3,409.8 77.0<br />
2010 4,098 52.8 148.2 3.3<br />
2014 908 11.7 16.5 0.4<br />
2016 2 0.0 699.3 15.8<br />
2017 14 0.2 36.2 0.8<br />
2019 1,604 20.7 62.1 1.4<br />
2021 24 0.3 12.7 0.3<br />
2024 12 0.2 0.0 0.0<br />
2025 5 0.1 4.5 0.1<br />
2026 20 0.3 0.0 0.0<br />
Remain dutiable 422 5.4 37.7 0.9<br />
Total 7,758 100.0 4,427.1 100.0<br />
Source:WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between Peru and <strong>China</strong> (Goods),2010.<br />
Liberalizati<strong>on</strong> of <strong>Trade</strong>:<br />
Page 55 of 88
<strong>Trade</strong> liberalizati<strong>on</strong> commitments of both <strong>China</strong> and Peru have been by product categories. As<br />
presented in Table 3.21, out of the 7,351 tariff lines, Peru has already allowed duty-free access to<br />
3,957 tariff lines <strong>on</strong> an MFN basis in 2010. An additi<strong>on</strong>al 709 tariff lines, for all product categories<br />
except plastics, footwear and headgear, transport equipment and arms and ammuniti<strong>on</strong>, were also<br />
liberalized up<strong>on</strong> entry into force of the <strong>Agreement</strong> in 2010. After ten years of implementati<strong>on</strong>, a<br />
further 1,978 lines are to be liberalized, which mainly include chemical products, textiles and<br />
machinery. Almost all (531) of the 592 lines that remain dutiable at the end of the implementati<strong>on</strong><br />
period fall under HS secti<strong>on</strong> 11 (textiles).<br />
Table 3.21: Peru’s Tariff Eliminati<strong>on</strong> Under the <strong>Agreement</strong>, by HS Chapter<br />
MFN No.<br />
No. of duty-free lines<br />
avg of<br />
% lines<br />
HS secti<strong>on</strong> and<br />
descripti<strong>on</strong><br />
MFN<br />
2010<br />
2010<br />
2014<br />
2019<br />
2021<br />
2024<br />
2025<br />
2026<br />
Remain<br />
dutiable<br />
Avg. Final<br />
Tariff<br />
(Dutiable)<br />
%<br />
1. Live animals and 3.7 305 192 42 28 21 2 12 8<br />
animal products<br />
2. Vegetable products 6.7 384 121 227 24 9 1 2<br />
3. Animal or vegetable 3.9 64 36 16 9 3<br />
fats and oils<br />
4. Prepared foods etc. 5.9 297 109 65 83 37 1 1 1<br />
5. Minerals 2.9 202 138 1 60 3<br />
6. Chemicals and<br />
3.0 1,465 970 132 125 237 1 9.0<br />
chemical products<br />
7. Plastics and rubber 3.4 312 195 13 94 1 9 9.0<br />
8. Hides and skins 8.0 79 9 12 28 25 2 3 9.0<br />
9. Wood and articles 6.6 107 28 13 66<br />
10. Pulp, paper etc. 5.6 246 93 12 97 41 3 9.0<br />
11. Textiles and textiles 14.1 966 63 17 90 201 64 531 15.8<br />
articles<br />
12. Footwear, headgear 13.4 56 27 4 25 17.0<br />
13. Articles of st<strong>on</strong>e 3.5 174 106 21 35 7 5 9.0<br />
14. Precious st<strong>on</strong>es, etc. 6.8 57 14 14 18 11<br />
15. Base metals and base 2.5 700 505 17 39 126 1 12 9.0<br />
metals products<br />
16. Machinery 1.7 1,195 991 10 133 53 6 2 9.0<br />
17. Transport equipment 1.8 226 181 8 37<br />
18. Precisi<strong>on</strong> equipment 3.6 290 175 66 45 3 1<br />
19. Arms and ammuniti<strong>on</strong> 9.0 69 63 6<br />
20. Misc. manufactured 7.1 150 31 15 73 29 1 1 9.0<br />
articles<br />
21. Works of art, etc. 9.0 7 7<br />
Total 5.0 7,351 3,957 709 941 1,037 4 13 87 11 592 15.5<br />
Source: WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between Peru and <strong>China</strong><br />
(Goods), 2010.<br />
<strong>China</strong> has also allowed duty-free access to 649 tariff lines under HS 8-digit level out of the total 7,758<br />
tariff lines <strong>on</strong> an MFN basis in 2010 (Table 3.22). An additi<strong>on</strong>al 4,098 tariff lines were liberalized<br />
up<strong>on</strong> entry into force of the <strong>Agreement</strong>, comprising mainly of chemicals and chemical products, and<br />
machinery and base metals. In 2019 a further 2,528 tariff lines are to be liberalized. N<strong>on</strong>etheless,<br />
<strong>China</strong> maintains a negative list with a total of 422 tariff lines covering all HS categories, except<br />
footwear and headgear, precious st<strong>on</strong>es, arms and ammuniti<strong>on</strong> and miscellaneous manufactured<br />
Page 56 of 88
articles. In 2026, the overall average tariff <strong>on</strong> dutiable lines will be 16.8 per cent with the highest<br />
rate for vegetables (49 per cent).<br />
HS secti<strong>on</strong> and<br />
descripti<strong>on</strong><br />
Table 3.22: <strong>China</strong>’s Tariff Eliminati<strong>on</strong> Under the <strong>Agreement</strong>, by HS Chapter<br />
MFN No.<br />
No. of duty-free lines<br />
avg of<br />
% lines<br />
MFN<br />
2010<br />
2010<br />
2014<br />
2016<br />
2017<br />
2019<br />
2021<br />
2024<br />
2025<br />
2026<br />
Remain<br />
dutiable<br />
Avg. Final<br />
Tariff<br />
(Dutiable)<br />
%<br />
1. Live animals and 12.3 377 44 61 79 4 160 4 8 13 4 10.0<br />
animal products<br />
2. Vegetable products 14.4 466 49 113 107 1 3 149 13 1 30 49.0<br />
3. Animal or vegetable 12.9 53 12 3 1 13 24 11.9<br />
fats and oils<br />
4. Prepared foods etc. 17.9 282 1 52 17 1 5 157 7 4 6 32 27.8<br />
5. Minerals 3.7 199 37 150 1 6 5 7.0<br />
6. Chemicals and chemical 7.0 1,206 9 1,045 32 1 93 4 22 16.0<br />
products<br />
7. Plastics and rubber 9.4 267 1 179 10 60 17 16.6<br />
8. Hides and skins 12.3 106 40 19 37 10 11.0<br />
9. Wood and articles 4.3 189 72 68 5 44 7.1<br />
10. Pulp, paper etc. 5.3 160 35 7 118 6.7<br />
11. Textiles and textiles 11.5 1,118 557 250 278 33 17.8<br />
articles<br />
12. Footwear, headgear 17.6 62 18 3 41<br />
13. Articles of st<strong>on</strong>e 13.5 184 1 61 62 60<br />
14. Precious st<strong>on</strong>es, etc. 10.0 84 32 24 4 24<br />
15. Base metals and base 7.4 727 4 575 65 78 1 4 2.0<br />
metals products<br />
16. Machinery 8.4 1,433 268 783 126 236 20 24.4<br />
17. Transport equipment 12.3 319 1 199 31 33 55 24.7<br />
18. Precisi<strong>on</strong> equipment 10.1 318 31 149 40 94 4 20.0<br />
19. Arms and ammuniti<strong>on</strong> 13.0 21 21<br />
20. Misc. manufactured 11.6 178 62 4 29 83<br />
articles<br />
21. Works of art, etc. 9.6 9 2 1 4 2<br />
Total 9.8 7,758 649 4,098 908 2 14 1,604 24 12 5 20 422 16.8<br />
Source: WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between Peru and <strong>China</strong><br />
(Goods), 2010.<br />
Rules of Origin:<br />
Rules of origin criteria as per the <strong>Agreement</strong> are change of tariff classificati<strong>on</strong> and RVC. While the<br />
change of tariff classificati<strong>on</strong> requirement should not exceed 10 per cent of the FOB value of the<br />
product, RVC requirement is 40-50 per cent of the FOB value of the product. Tolerance rule for tariff<br />
classificati<strong>on</strong> change criteri<strong>on</strong> is also applied; n<strong>on</strong>-originating materials can represent a maximum of<br />
10 per cent of the value of product (pursuant to regi<strong>on</strong>al value c<strong>on</strong>tent). Requirements <strong>on</strong> direct<br />
transport rule must also be complied with.<br />
Page 57 of 88
Other Provisi<strong>on</strong>s:<br />
To manage the c<strong>on</strong>sequences of increased imports from both countries, the <strong>Agreement</strong> has set out<br />
c<strong>on</strong>diti<strong>on</strong>s applicable to the use of bilateral safeguard measures. The <strong>Agreement</strong> specifies that a<br />
Party may impose a bilateral safeguard measure <strong>on</strong> a product benefiting from preferential tariff<br />
treatment under the <strong>Agreement</strong> if there is an increase in imports in absolute terms or relative to<br />
domestic producti<strong>on</strong>, which c<strong>on</strong>stitutes a substantial cause of serious injury or threat thereof to the<br />
domestic industry of the importing Party producing a like or directly competitive good. Disciplines<br />
regarding the applicati<strong>on</strong> of such measures include an investigati<strong>on</strong> by the Party's competent<br />
authorities prior to its applicati<strong>on</strong>; its scope and durati<strong>on</strong>, c<strong>on</strong>sultati<strong>on</strong> procedures, and<br />
compensati<strong>on</strong>. The Parties were anticipated to agree within five years of the entry into force of the<br />
<strong>Agreement</strong> to meet to determine whether there is a need to maintain the bilateral safeguard<br />
mechanism. In additi<strong>on</strong> to safeguard measures, anti-dumping, countervailing duties, SPS and TBT<br />
measures, customs procedures, customs valuati<strong>on</strong>, competiti<strong>on</strong> policy, intellectual property and<br />
trade regulati<strong>on</strong>s publicati<strong>on</strong>s and administrati<strong>on</strong> also covered in the <strong>Agreement</strong>.<br />
Page 58 of 88
3.8 <strong>China</strong>-Costa Rica <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong><br />
In June 2007, <strong>China</strong> and Costa Rica established diplomatic relati<strong>on</strong>s later extending them to<br />
ec<strong>on</strong>omic relati<strong>on</strong>s. As a result, <strong>China</strong>-Costa Rica <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> in goods was signed <strong>on</strong> 8 th<br />
April 2010, which came into effect <strong>on</strong> 1 st August 2011. The agreement is expected to be fully<br />
implemented by 2025. <strong>China</strong> is the sec<strong>on</strong>d largest trading partner of Costa Rica. In recent years,<br />
bilateral trade between the two countries has grown rapidly<br />
In service trade, 45 service sectors and sub-sectors of Costa Rica, including telecommunicati<strong>on</strong><br />
services, commercial services, c<strong>on</strong>structi<strong>on</strong>, real estate, distributi<strong>on</strong>, educati<strong>on</strong>, envir<strong>on</strong>ment,<br />
computers and tourism services, and 7 service sectors and sub-sectors of <strong>China</strong>, including computer<br />
services, real estate, market research, translati<strong>on</strong> and interpretati<strong>on</strong> and sport, will further open to<br />
each other, based <strong>on</strong> their respective commitments to WTO. The two countries have also agreed to<br />
deepen people to people exchanges as <strong>China</strong> has pledged to c<strong>on</strong>tinue to provide pers<strong>on</strong>nel training<br />
for Costa Ricans, while the Costa Rica has promised to simplify visa procedures for Chinese tourists.<br />
The <strong>Agreement</strong> is composed of 16 chapters: Chapter 1: Initial Provisi<strong>on</strong>s, Chapter 2: Definiti<strong>on</strong> of<br />
General Applicati<strong>on</strong>, Chapter 3: Nati<strong>on</strong>al Treatment and Market Access for Goods, Chapter 4: Rules<br />
of Origin and Related Operati<strong>on</strong>al Procedures, Chapter 5: Customs Procedures, Chapter 6: Sanitary<br />
and Phytosanitary Measures, Chapter 7: Technical Barriers to <strong>Trade</strong>, Chapter 8: <strong>Trade</strong> Remedies,<br />
Chapter 9: Investment, <strong>Trade</strong> in Services and Temporary Entry for Business Pers<strong>on</strong>s, Chapter 10:<br />
Intellectual Property Rights, Chapter 11: Cooperati<strong>on</strong>, Promoti<strong>on</strong> and Enhancement of <strong>Trade</strong><br />
Relati<strong>on</strong>s, Chapter 12: Transparency, Chapter 13: Administrati<strong>on</strong> of the <strong>Agreement</strong>, Chapter: Dispute<br />
Settlement, Chapter 15: Excepti<strong>on</strong>s and Chapter 16: Final Provisi<strong>on</strong>s. The <strong>Agreement</strong> has 13 annexes<br />
that c<strong>on</strong>tain the following: nati<strong>on</strong>al treatment and import and export restricti<strong>on</strong>s, eliminati<strong>on</strong> of<br />
tariff; geographical indicati<strong>on</strong>s; product specific rules; certificate of origin; c<strong>on</strong>tact points for sanitary<br />
and phytosanitary matters; c<strong>on</strong>tact point for technical barriers to trade; schedules of specific<br />
commitments; working group <strong>on</strong> temporary entry of business pers<strong>on</strong>s; the free trade Commissi<strong>on</strong>;<br />
implementati<strong>on</strong> of modificati<strong>on</strong>s approved by the free trade Commissi<strong>on</strong>; and free trade agreement<br />
coordinators.<br />
Page 59 of 88
Parties<br />
Table 3.23: Features of the <strong>China</strong>-Costa Rica FTA<br />
<strong>China</strong> , Costa Rica<br />
Date of signature 8 April 2010<br />
Entry into force 1 August 2011<br />
Full Implementati<strong>on</strong> 2025<br />
Transiti<strong>on</strong> for full<br />
implementati<strong>on</strong><br />
Negative List/Positive<br />
list<br />
Rules of Origin (ROO)<br />
Requirements<br />
• For <strong>China</strong>, 65.7% of tariffs lines are to be eliminated <strong>on</strong> the day the<br />
agreement enters into force, and 28.4% are to be eliminated in 2015.<br />
• 63% of Costa Rica's tariffs are to be eliminated immediately in 2011, and<br />
other tariffs are to be eliminated in 2015, 2020 and 2025, respectively. By<br />
2025, 91% of tariffs are to be eliminated.<br />
• <strong>China</strong>’s Negative List – 259 tariff lines<br />
• Costa Rica’s Negative List – 591 tariff lines<br />
• Change of tariff classificati<strong>on</strong>–Change in Tariff Classificati<strong>on</strong> 2 digit or 4<br />
digit.<br />
• Regi<strong>on</strong>al Value C<strong>on</strong>tent (RVC) criteri<strong>on</strong> or value of the n<strong>on</strong>-originating<br />
parts or comp<strong>on</strong>ents used in the manufacture of the products must be no<br />
more than 40-60% of the FOB value of the product.<br />
• De Minimis – 10% of the FOB<br />
Experiences (i.e. NTBs)<br />
• Anti - Dumping : Chapter 8; Secti<strong>on</strong> C: Allowed as per WTO/GATT, with<br />
anti-dumping investigati<strong>on</strong><br />
• Countervailing Duties : Chapter 8; Secti<strong>on</strong> C: Allowed as per WTO/GATT<br />
• Safeguards : Chapter 8;Secti<strong>on</strong> B; Article 79: Allowed during the transiti<strong>on</strong><br />
period <strong>on</strong>ly<br />
• Standards: Chapter 6: SPS. Chapter 7: TBT: The Parties hereby establish a<br />
Committee <strong>on</strong> SPS and TBT<br />
• Customs procedures : Chapter 5<br />
• <strong>Trade</strong> regulati<strong>on</strong>s publicati<strong>on</strong> and administrati<strong>on</strong><br />
(transparency): Chapter 5; Article 48. Chapter 12;Article 129<br />
• E-Commerce / Paperless trade: Chapter 5; Article 50<br />
• Government Procurement : Article 91, Under Chapter 9 Investment,<br />
<strong>Trade</strong> in Services and Temporary Entry of Business Pers<strong>on</strong>s<br />
• Investment : Article 89, refer to the <strong>Agreement</strong> <strong>on</strong> the Promoti<strong>on</strong> and<br />
Protecti<strong>on</strong> of Investments between the two government in forced 2007<br />
• Competiti<strong>on</strong> Policy : Article 126, cooperati<strong>on</strong> <strong>on</strong>ly<br />
• Intellectual Property : Chapter 10<br />
• Dispute Settlement: Chapter 14 and Article 107 under Chapter 9<br />
• Labour and Envir<strong>on</strong>mental Standards : Article 159 under Chapter 15<br />
Excepti<strong>on</strong>s<br />
• Technical cooperati<strong>on</strong> : Article 66<br />
• Instituti<strong>on</strong>al mechanism : Chapter 3; Secti<strong>on</strong> G.<br />
Relevant websites • http://www.mofcom.gov.cn/<br />
• http://www.comex.go.cr/Paginas/inicio.aspx/<br />
Sources: WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between <strong>China</strong> and Costa Rica<br />
(Goods and Services), 2013.<br />
http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=8<br />
http://artnet.unescap.org/APTIAD/viewagreement.aspx?id=CHINA-COSTARICA<br />
Liberalizati<strong>on</strong> of Tariff Lines:<br />
Page 60 of 88
Both the countries have gradually eliminated their tariff lines from the date the agreement came<br />
into force in 2011. As presented in Table 3.24, In the case of Costa Rica, 2.2 per cent of total tariff<br />
lines were already duty-free <strong>on</strong> an MFN basis in 2011. A further 60.8 per cent of tariff lines have<br />
become duty-free for imports from <strong>China</strong> in 2011, up<strong>on</strong> entry into force of the <strong>Agreement</strong>. By 2020,<br />
88.5 per cent of Costa Rica’s tariff lines are expected to liberalize. At the end of the implementati<strong>on</strong><br />
in 2025, 91 per cent of tariff lines will be liberalized, which will account for about 85.1 per cent of<br />
imports from <strong>China</strong>.<br />
Table 3.24: Costa Rica’s Tariff eliminati<strong>on</strong> commitments under the <strong>Agreement</strong> and corresp<strong>on</strong>ding<br />
average trade<br />
Duty phase-out<br />
period<br />
No.<br />
of<br />
lines<br />
% of total lines<br />
in Costa Rica<br />
tariff schedule<br />
Value of Costa Rica's<br />
imports from <strong>China</strong><br />
(2008-2010) in milli<strong>on</strong> US$<br />
% of Costa Rica's total<br />
imports from <strong>China</strong><br />
2008-2010<br />
MFN duty free (2011) 142 2.2 104 12.1<br />
2011 3,989 60.8 377 43.7<br />
2015 264 4.0 25 2.9<br />
2020 1,411 21.5 202 23.4<br />
2025 167 2.5 26 3.1<br />
Remain dutiable 591 9.0 128 14.9<br />
Total 6,564 100.0 863 100.0<br />
Source: WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between <strong>China</strong> and Costa Rica<br />
(Goods and Services), 2013.<br />
<strong>China</strong> has also allowed duty-free access to 9 per cent of total tariff lines <strong>on</strong> an MFN basis in 2011,<br />
before the agreement came into force, which accounted for 98.1 per cent of imports from Cost Rica<br />
(Table 3.25). Up<strong>on</strong> entry into force of the <strong>Agreement</strong>, a further 56.7 per cent of tariff lines have<br />
become duty-free for imports from Costa Rica in 2011. In 2015, an additi<strong>on</strong>al 28.4 per cent of the<br />
tariffs are to be liberalized. By the end of the transiti<strong>on</strong> period in 2025, a total of 99.6 per cent of<br />
tariff lines will be liberalized, accounting for 100 per cent of imports from Costa Rica.<br />
Table 3.25: <strong>China</strong>’s Tariff eliminati<strong>on</strong> commitments under the <strong>Agreement</strong> and corresp<strong>on</strong>ding<br />
average trade<br />
Duty phase-out<br />
period<br />
No.<br />
of<br />
lines<br />
% of total lines<br />
in <strong>China</strong>'s tariff<br />
schedule<br />
Value of <strong>China</strong>'s imports<br />
from Costa Rica<br />
(2008-2010) in milli<strong>on</strong> US$<br />
% of <strong>China</strong>'s total<br />
imports from Costa Rica<br />
2008-2010<br />
MFN duty free (2011) 705 9.0 2,622.4 98.1<br />
2011 4,463 56.7 17.3 0.6<br />
2015 2,231 28.4 23.1 0.9<br />
2020 139 1.8 9.9 0.4<br />
2025 71 0.9 1.4 0.1<br />
Remain dutiable 259 3.3 0.4 0.0<br />
Total 7,868 100.0 2,674.6 100.0<br />
Source: WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between <strong>China</strong> and Costa Rica<br />
(Goods and Services), 2013.<br />
Page 61 of 88
Liberalizati<strong>on</strong> of <strong>Trade</strong>:<br />
<strong>Trade</strong> liberalizati<strong>on</strong> commitments of both <strong>China</strong> and Costa Rica have been by product categories. As<br />
presented in Table 3.26, out of the 7,351 tariff lines, Peru has already allowed duty-free access to<br />
3,957 tariff lines <strong>on</strong> an MFN basis in 2010. An additi<strong>on</strong>al 709 tariff lines, for all product categories<br />
except plastics, footwear and headgear, transport equipment and arms and ammuniti<strong>on</strong>, were also<br />
liberalized up<strong>on</strong> entry into force of the <strong>Agreement</strong> in 2010. After ten years of implementati<strong>on</strong>, a<br />
further 1,978 lines are to be liberalized, which mainly include chemical products, textiles and<br />
machinery. Almost all (531) of the 592 lines that remain dutiable at the end of the implementati<strong>on</strong><br />
period fall under HS secti<strong>on</strong> 11 (textiles).<br />
Table 3.26: Costa Rica’s Tariff Eliminati<strong>on</strong> Under the <strong>Agreement</strong>, by HS Chapter<br />
HS secti<strong>on</strong><br />
MFN<br />
average<br />
No. of<br />
lines<br />
MFN<br />
dutyfree<br />
No. of duty-free lines under<br />
the <strong>Agreement</strong><br />
No. of<br />
lines<br />
Avg. Final<br />
Tariff<br />
%<br />
2011 2015 2020 2025 remaining (Dutiable)<br />
(2012)<br />
dutiable %<br />
1. Live animals and 20.6 299 132 10 78 3 76 38.9<br />
animal products<br />
2. Vegetable products 9.5 376 228 14 87 11 36 21.8<br />
3. Animal or vegetable 8.9 54 8 7 6 33 10.7<br />
fats and oils<br />
4. Prepared foods etc. 14.0 274 87 23 47 10 107 20.0<br />
5. Minerals 3.6 178 11 140 1 22 4<br />
6. Chemicals and<br />
2.8 961 1 819 7 92 15 27 13.8<br />
chemical products<br />
7. Plastics and rubber 5.2 335 152 11 66 16 90 8.3<br />
8. Hides and skins 8.8 108 33 53 22<br />
9. Wood and articles 8.9 138 25 3 34 67 9 8.0<br />
10. Pulp, paper etc. 5.6 294 149 109 13 23 12.2<br />
11. Textiles and textiles 9.9 920 459 12 416 33 13.7<br />
articles<br />
12. Footwear, headgear 12.6 64 15 7 35 7 15.0<br />
13. Articles of st<strong>on</strong>e 6.9 176 87 2 58 29 11.2<br />
14. Precious st<strong>on</strong>es, etc. 7.5 54 54<br />
15. Base metals and 3.9 696 470 1 118 19 88 11.2<br />
base metals products<br />
16. Machinery 2.8 974 118 767 11 55 23 9.7<br />
17. Transport equipment 6.0 234 148 56 30<br />
18. Precisi<strong>on</strong> equipment 4.6 237 12 184 37 4<br />
19. Arms and<br />
12.9 21 21<br />
ammuniti<strong>on</strong><br />
20. Misc. manufactured 10.9 162 32 12 105 3 10 12.7<br />
articles<br />
21. Works of art, etc. 8.2 9 4 5<br />
Total 6.8 6564 142 3989 264 1411 167 591 16.8<br />
Source: WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between <strong>China</strong> and Costa Rica<br />
(Goods and Services), 2013.<br />
<strong>China</strong> has also allowed duty-free access to 649 tariff lines under HS 8-digit level out of the total 7,758<br />
tariff lines <strong>on</strong> an MFN basis in 2010 (Table 3.27). An additi<strong>on</strong>al 4,098 tariff lines were liberalized<br />
up<strong>on</strong> entry into force of the <strong>Agreement</strong>, comprising mainly of chemicals and chemical products, and<br />
machinery and base metals. In 2019 a further 2,528 tariff lines are to be liberalized. N<strong>on</strong>etheless,<br />
Page 62 of 88
<strong>China</strong> maintains a negative list with a total of 422 tariff lines covering all HS categories, except<br />
footwear and headgear, precious st<strong>on</strong>es, arms and ammuniti<strong>on</strong> and miscellaneous manufactured<br />
articles. In 2026, the overall average tariff <strong>on</strong> dutiable lines will be 16.8 per cent with the highest<br />
rate for vegetables (49 per cent).<br />
Table 3.27: <strong>China</strong>’s Tariff Eliminati<strong>on</strong> Under the <strong>Agreement</strong>, by HS Chapter<br />
HS secti<strong>on</strong><br />
MFN<br />
avg<br />
No.<br />
of<br />
MFN<br />
dutyfree<br />
No. of duty-free lines under<br />
the <strong>Agreement</strong><br />
No. of<br />
lines<br />
Avg. Final<br />
Tariff<br />
% lines<br />
2011 2015 2020 2025 remaining (Dutiable)<br />
(2011)<br />
dutiable %<br />
1. Live animals and animal 12.0 377 51 68 145 81 32<br />
products<br />
2. Vegetable products 14.4 467 49 126 226 3 35 28 51.7<br />
3. Animal or vegetable fats 13.1 54 14 21 19 9.3<br />
and oils<br />
4. Prepared foods etc. 18.0 285 1 76 184 1 4 19 34.5<br />
5. Minerals 3.7 200 37 160 3<br />
6. Chemicals and chemical 6.3 1221 46 1116 56 3 50.0<br />
products<br />
7. Plastics and rubber 9.4 269 1 221 47<br />
8. Hides and skins 12.3 106 19 33 54<br />
9. Wood and articles 4.4 202 74 74 4 50 7.3<br />
10. Pulp, paper etc. 5.3 160 35 7 118 6.7<br />
11. Textiles and textiles 11.5 1128 626 491 11 38.4<br />
articles<br />
12. Footwear, headgear 17.9 69 19 50<br />
13. Articles of st<strong>on</strong>e 13.5 186 1 62 123<br />
14. Precious st<strong>on</strong>es, etc. 10.0 84 32 25 27<br />
15. Base metals and base 7.4 737 4 613 120<br />
metals products<br />
16. Machinery 8.2 1448 278 865 295 10 27.0<br />
17. Transport equipment 13.2 345 1 211 133<br />
18. Precisi<strong>on</strong> equipment 10.1 322 31 154 136 1 5.0<br />
19. Arms and ammuniti<strong>on</strong> 13.0 21 21<br />
20. Misc. manufactured 11.6 178 62 6 110<br />
articles<br />
21. Works of art, etc. 9.6 9 2 1 6<br />
Total 9.7 7868 705 4463 2231 139 71 259 16.5<br />
Source: WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> Between <strong>China</strong> and Costa Rica<br />
(Goods and Services), 2013.<br />
Rules of Origin:<br />
The <strong>Agreement</strong> underlines the rules of origin criteria as change of tariff classificati<strong>on</strong> and RVC. While<br />
the change of tariff classificati<strong>on</strong> requirement is at HS 2-digit or 4-digit level, RVC requirement is 40-<br />
60 per cent of the FOB value of the product. Tolerance rule for tariff classificati<strong>on</strong> change criteri<strong>on</strong> is<br />
also applied; n<strong>on</strong>-originating materials can represent a maximum of 10 per cent of the value of<br />
product (pursuant to regi<strong>on</strong>al value c<strong>on</strong>tent). Requirements <strong>on</strong> direct transport rule must also be<br />
complied with. For a few products in some HS chapters, an RVC may be used instead of, or in<br />
additi<strong>on</strong> to, a change in tariff classificati<strong>on</strong>. These are HS chapters 41 (RVC of not less than 35 per<br />
cent), chapters 44 (50 per cent or 60 per cent), chapters 84 (45 per cent), chapters 85 (40 per cent),<br />
chapters 87 (40 per cent or 50 per cent), chapters 90 (50 per cent), and chapters 94 (60 per cent).<br />
Page 63 of 88
For a number of products c<strong>on</strong>sidered as waste or scrap, such as cott<strong>on</strong>, wool, glass, ir<strong>on</strong>, cott<strong>on</strong> and<br />
aluminium, the rule is that such products shall be derived from either processing operati<strong>on</strong>s<br />
c<strong>on</strong>ducted in the territory of <strong>China</strong> or Costa Rica and fit <strong>on</strong>ly for the recovery for the raw materials,<br />
or used goods collected in the territory of <strong>China</strong> or Costa Rica, provided that such goods are fit <strong>on</strong>ly<br />
for the recovery of raw materials.<br />
Other Provisi<strong>on</strong>s:<br />
To manage the c<strong>on</strong>sequences of increased imports from both countries, the <strong>Agreement</strong> has set out<br />
c<strong>on</strong>diti<strong>on</strong>s applicable to the use of bilateral safeguard measures. The <strong>Agreement</strong> specifies that a<br />
Party may impose a bilateral safeguard measure <strong>on</strong> a product benefiting from preferential tariff<br />
treatment under the <strong>Agreement</strong> if there is an increase in imports in absolute terms or relative to<br />
domestic producti<strong>on</strong>, which c<strong>on</strong>stitutes a substantial cause of serious injury or threat thereof to the<br />
domestic industry of the importing Party producing a like or directly competitive good. Disciplines<br />
regarding the applicati<strong>on</strong> of such measures include an investigati<strong>on</strong> by the Party's competent<br />
authorities prior to its applicati<strong>on</strong>; its scope and durati<strong>on</strong>, c<strong>on</strong>sultati<strong>on</strong> procedures, and<br />
compensati<strong>on</strong>. The two countries have also agreed to make provisi<strong>on</strong>s <strong>on</strong> areas such as antidumping,<br />
countervailing duties, standards, customs procedures, intellectual property rights, dispute<br />
settlement, competiti<strong>on</strong> policy, technical cooperati<strong>on</strong> and instituti<strong>on</strong>al mechanism.<br />
Page 64 of 88
3.9 <strong>China</strong>-Switzerland <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong><br />
Having c<strong>on</strong>cluded nine rounds of negotiati<strong>on</strong>s and various inter-sessi<strong>on</strong>al meetings from April 2011<br />
to May 2013, the <strong>China</strong>-Switzerland <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong> was signed <strong>on</strong> 6 th July 2013 and the FTA<br />
will be coming into force <strong>on</strong> 1 st July 2014. <strong>China</strong> is Switzerland’s third largest trading partner after<br />
the EU and the US and Switzerland has <strong>on</strong>ly a limited internal market and is therefore heavily<br />
dependent <strong>on</strong> foreign trade. 148149 Under the terms of the agreement, up to 99.7 per cent of Chinese<br />
exports to Switzerland would be exempted from tariffs, while approximately 84.2 per cent of Swiss<br />
exports to <strong>China</strong> would also achieve zero-duty access. 150 In additi<strong>on</strong> to the potential financial gains<br />
for both sides as a result of this agreement, the FTA also represents an important step for Chinese<br />
ec<strong>on</strong>omic diplomacy in Europe, highlighting Beijing’s commitment to deepening its trade ties with<br />
the c<strong>on</strong>tinent. 151 N<strong>on</strong>etheless, there had been criticism coming from NGOs and lefties parties of<br />
Switzerland about the FTA with <strong>China</strong> demanding for renegotiati<strong>on</strong>, with explicit provisi<strong>on</strong>s <strong>on</strong><br />
human rights and labour protecti<strong>on</strong> to be included in the text of the treaty.<br />
The <strong>Agreement</strong> is composed of 16 chapters: Chapter 1: General Provisi<strong>on</strong>s, Chapter 2: <strong>Trade</strong> in<br />
Goods, Chapter 3: Rules of Origin and Implementati<strong>on</strong> Procedures, Chapter 4: Customs Procedures<br />
and <strong>Trade</strong> Facilitati<strong>on</strong>, Chapter 5: <strong>Trade</strong> Remedies, Chapter 6: Technical Barriers to <strong>Trade</strong>, Chapter 7:<br />
Sanitary and Phytosanitary Measures, Chapter 8: <strong>Trade</strong> in Services, Chapter 9: Investment<br />
Promoti<strong>on</strong>, Chapter 10: Competiti<strong>on</strong>, Chapter 11: Protecti<strong>on</strong> of Intellectual Property Rights, Chapter<br />
12: Envir<strong>on</strong>mental Issues, Chapter 13: Ec<strong>on</strong>omic and Technical Cooperati<strong>on</strong>, Chapter 14: Instituti<strong>on</strong>al<br />
Provisi<strong>on</strong>s, Chapter 15: Dispute Settlement and Chapter 16: Final Provisi<strong>on</strong>s. The <strong>Agreement</strong> has 11<br />
annexes that c<strong>on</strong>tain the following: nati<strong>on</strong>al treatment and import and export restricti<strong>on</strong>s,<br />
eliminati<strong>on</strong> of tariff; geographical indicati<strong>on</strong>s; product specific rules; certificate of origin; c<strong>on</strong>tact<br />
points for sanitary and Phytosanitary matters; c<strong>on</strong>tact point for technical barriers to trade; schedules<br />
of specific commitments; working group <strong>on</strong> temporary entry of business pers<strong>on</strong>s; the free trade<br />
Commissi<strong>on</strong>; implementati<strong>on</strong> of modificati<strong>on</strong>s approved by the free trade Commissi<strong>on</strong>; and free<br />
trade agreement coordinators.<br />
148 Lanteigne, M. (2014), “The Sino-Swiss <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong>”, CSS Analyses in Security Policy, available at:<br />
[http://www.css.ethz.ch/publicati<strong>on</strong>s/pdfs/CSSAnalyses147-EN.pdf]<br />
149 Ibid.<br />
150 Ibid.<br />
151 Ibid.<br />
Page 65 of 88
3.10 <strong>China</strong>-Iceland <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong><br />
The Iceland-<strong>China</strong> FTA is a comprehensive agreement as envisi<strong>on</strong>ed at the beginning of the<br />
negotiati<strong>on</strong>, covering a wide range of issues like trade in goods, rules of origin, trade facilitati<strong>on</strong>,<br />
intellectual property rights, trade in services, investment, competiti<strong>on</strong>, cooperati<strong>on</strong>, instituti<strong>on</strong>al<br />
provisi<strong>on</strong>s and dispute settlement. Both countries have also made more commitments than they<br />
made to WTO <strong>on</strong> trade in services. 152 The first round of Iceland-<strong>China</strong> <strong>Free</strong> <strong>Trade</strong> negotiati<strong>on</strong> was<br />
held in Beijing in April 2007. 153 The six-year Iceland-<strong>China</strong> FTA negotiati<strong>on</strong>s were formally c<strong>on</strong>cluded<br />
by signing the agreement in April 2013 and will come into effect 1 st July 2014. 154 The agreement<br />
covers trade in goods, services and investment. This FTA can be regarded as a guiding light for<br />
<strong>China</strong>´s <strong>on</strong>-going and future FTA negotiati<strong>on</strong>s with European countries. The FTA is expected to<br />
provide zero tariffs to all industrial products from <strong>China</strong>, which account for 99 per cent of the total<br />
exports of <strong>China</strong> to Iceland at present. 155 At the same time, <strong>China</strong> is also expected to implement zero<br />
tariffs to Icelandic products under 7,830 tariff lines, accounting for 82 per cent of current exports of<br />
Iceland to <strong>China</strong>. 156 Furthermore, tariffs <strong>on</strong> a small number of products shall be liberalized after a<br />
transiti<strong>on</strong>al period of 5 or 10 years. 157<br />
The <strong>Agreement</strong> is composed of 12 chapters: Chapter 1: General Provisi<strong>on</strong>s, Chapter 2: <strong>Trade</strong> in<br />
Goods, Chapter 3: Rules of Origin, Chapter 4: Customs Procedures and <strong>Trade</strong> Facilitati<strong>on</strong>, Chapter 5:<br />
Competiti<strong>on</strong>, Chapter 6: Intellectual Property Rights, Chapter 7: <strong>Trade</strong> in Services, Chapter 8:<br />
Investment, Chapter 9: Cooperati<strong>on</strong>, Chapter 10: Instituti<strong>on</strong>al Provisi<strong>on</strong>s, Chapter 11: Dispute<br />
Settlement and Chapter 12: Final Provisi<strong>on</strong>s. The <strong>Agreement</strong> has 9 annexes that c<strong>on</strong>tain the<br />
following: tariff schedule, competent authorities and c<strong>on</strong>tact points <strong>on</strong> SPS, competent authorities<br />
and c<strong>on</strong>tact points <strong>on</strong> TBT, product specific rules of origin, certificate of origin, declarati<strong>on</strong> of origin,<br />
schedules of specific commitments in services, movement of natural pers<strong>on</strong>s supplying services; and<br />
rules of procedure of the arbitrati<strong>on</strong> panel.<br />
152 J<strong>on</strong>ss<strong>on</strong>, O. D., I Hannibalss<strong>on</strong> & L Yang (2013), “A bilateral free trade agreement between <strong>China</strong> and<br />
Iceland”, available at: [http://skemman.is/stream/get/1946/16786/39049/3/OrnDJ<strong>on</strong>ss<strong>on</strong>_VID.pdf]<br />
153 Ibid.<br />
154 Skjaldars<strong>on</strong>, S. (2014), “The Iceland-<strong>China</strong> <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong>: A Milest<strong>on</strong>e for Strengthening Good<br />
Relati<strong>on</strong>s Between Iceland and <strong>China</strong>,” available at: [http://www.chinatoday.com.cn/english/society/2014-<br />
05/05/c<strong>on</strong>tent_617157.htm]<br />
155 J<strong>on</strong>ss<strong>on</strong>, O. D., I Hannibalss<strong>on</strong> & L Yang (2013), “A bilateral free trade agreement between <strong>China</strong> and<br />
Iceland”, available at: [http://skemman.is/stream/get/1946/16786/39049/3/OrnDJ<strong>on</strong>ss<strong>on</strong>_VID.pdf]<br />
156 Ibid.<br />
157 Ibid.<br />
Page 66 of 88
3.11 C<strong>on</strong>clusi<strong>on</strong><br />
<strong>China</strong>’s shift in trade policy from multilateralism to bilateral/regi<strong>on</strong>al arrangements took place in the<br />
late 1990s, following its accessi<strong>on</strong> to the WTO. Though <strong>China</strong> was a latecomer to regi<strong>on</strong>al trade<br />
agreements, <strong>China</strong> has become an active participant 158 and is a party to eleven bilateral trade<br />
agreements and a regi<strong>on</strong>al trade agreement: ASEAN (2004), H<strong>on</strong>g K<strong>on</strong>g (2004), Macao (2004), Chile<br />
(2006), Pakistan (2007), New Zealand (2008), Singapore (2008), Peru (2009), Costa Rica (2010),<br />
Taiwan (2010), Switzerland (2014) and Iceland (2014). While its earliest agreements were signed<br />
with neighbours (H<strong>on</strong>g K<strong>on</strong>g, Macau, ASEAN and Asia Pacific <strong>Trade</strong> <strong>Agreement</strong>), <strong>China</strong> has since<br />
moved bey<strong>on</strong>d the regi<strong>on</strong> in search of FTA partners. 159 The structure of the agreements has<br />
changed – they have become deeper over time and more recent agreements include service<br />
liberalisati<strong>on</strong> commitments. 160<br />
When negotiating with <strong>China</strong> <strong>Sri</strong> <strong>Lanka</strong> should be mindful of the challenges that were encountered<br />
with the existing FTAs that <strong>Sri</strong> <strong>Lanka</strong> has signed. These include issues related to tariff liberalizati<strong>on</strong><br />
programme, ROO, NTBs including MRAs and TRQs, Instituti<strong>on</strong>al support, Awareness of agreements<br />
and C<strong>on</strong>sultati<strong>on</strong> with stakeholders. These need to be properly addressed to ensure that <strong>Sri</strong> <strong>Lanka</strong><br />
utilize the agreement and benefit from it.<br />
Gradual trade liberalizati<strong>on</strong>: Generally speaking <strong>China</strong> has adopted a gradual stance in negotiating<br />
with trading partners, striking an agreement <strong>on</strong> trade in goods, then services and investment,<br />
followed by a comprehensive FTA package. 161 The ASEAN-<strong>China</strong> FTA, <strong>China</strong>-Chile FTA and <strong>China</strong>-<br />
Pakistan FTA were adopted gradually. Both <strong>China</strong>-ASEAN FTA and <strong>China</strong>-Pakistan FTA were preceded<br />
by an Early Harvest Programme, which was based <strong>on</strong> tariff reducti<strong>on</strong>s, after which further<br />
negotiati<strong>on</strong>s <strong>on</strong> goods, services and investment took place. 162 For example, the liberalizati<strong>on</strong> of<br />
trade in goods with Pakistan was started with the signing of the <strong>Agreement</strong> <strong>on</strong> Early Harvest<br />
Programme in April 2005, the <strong>Agreement</strong> <strong>on</strong> <strong>Trade</strong> in Services was signed fours later in February<br />
2009. 163 Similarly, the <strong>Agreement</strong> <strong>on</strong> trade in goods with ASEAN was signed in November 2004 while<br />
the agreement <strong>on</strong> services was signed in January 2007. In c<strong>on</strong>trast, <strong>China</strong>-New Zealand and, <strong>China</strong>-<br />
Singapore and <strong>China</strong>-Peru FTAs were more comprehensive in scope at the time of signing, including<br />
special provisi<strong>on</strong>s for labour and envir<strong>on</strong>ment, etc. 164 It would be best for <strong>Sri</strong> <strong>Lanka</strong> to adopt a<br />
gradual approach, which <strong>China</strong> has accommodated in its FTAs with other countries. Therefore <strong>Sri</strong><br />
<strong>Lanka</strong> should first sign the agreement <strong>on</strong> trade in goods before investments, services and other<br />
complex issues are dealt with to build c<strong>on</strong>fidence am<strong>on</strong>gst stakeholders.<br />
<strong>Trade</strong> liberalizati<strong>on</strong> programme: This varied across the FTAs, from 2 years in the case of Singapore to<br />
17 years in the case of Peru while LDC partners of ASEAN were given special and differential<br />
treatment comply; for example, Cambodia, Myanmar, Laos, Vietnam were given additi<strong>on</strong>al years to<br />
158 WTO (2012) <strong>Trade</strong> Policy Review: <strong>China</strong>, Secretariat Report.<br />
159 Ibid<br />
160 Ibid<br />
161 Gao, H. (2011), “<strong>China</strong>’s Strategy for <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong>s: Political Battle in the Name of <strong>Trade</strong>”<br />
162 Zhang, Y. Ec<strong>on</strong>omic and Social Impact of Liberalizati<strong>on</strong>: A <str<strong>on</strong>g>Study</str<strong>on</strong>g> <strong>on</strong> Early Harvest Program under <strong>China</strong>-<br />
ASEAN FTA, Beijing: Social Sciences Academic Press<br />
163 Gao, H. (2011), “<strong>China</strong>’s Strategy for <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong>s: Political Battle in the Name of <strong>Trade</strong>”.<br />
164 Zhao, J. & Webster, T. (2011), Taking Stock: <strong>China</strong>’s First Decade of <strong>Free</strong> <strong>Trade</strong>.<br />
Page 67 of 88
liberalise trade with <strong>China</strong> compared to ASEAN-6 partners. In seeking a trade deal in goods with<br />
<strong>China</strong> <strong>Sri</strong> <strong>Lanka</strong> should also ensure to obtain special and differential treatment given the<br />
asymmetries between <strong>Sri</strong> <strong>Lanka</strong> and <strong>China</strong>. For example, LDCs members of ASEAN have obtained a<br />
l<strong>on</strong>ger tariff liberalizati<strong>on</strong> period with <strong>China</strong> compared to other members. At the same time a<br />
prol<strong>on</strong>ged tariff liberalizati<strong>on</strong> period could lead to erosi<strong>on</strong> of preferences as <strong>China</strong> has already signed<br />
11 FTAs and in the process of negotiating 7 other FTAs.<br />
Coverage of trade: In general, the agreements have a relatively high tariff line and bilateral import<br />
coverage. For example, in its agreements with Chile, Peru and New Zealand, <strong>China</strong> commits to<br />
eliminate duties <strong>on</strong> 94.6 per cent to 97.2 per cent of the tariff lines, which corresp<strong>on</strong>ds to 88-99.1<br />
per cent of its bilateral imports from these trading partners. 165 However, tariffs and trade under FTA<br />
with Pakistan has not been liberalized to a substantial level even after its full implementati<strong>on</strong> in<br />
2012; duties <strong>on</strong> 35.4 per cent will be eliminated, corresp<strong>on</strong>ding to 44.4 per cent of <strong>China</strong>’s imports<br />
from Pakistan. Pakistan too has committed to relatively low levels of tariff eliminati<strong>on</strong> in the<br />
agreement. In negotiating tariff c<strong>on</strong>cessi<strong>on</strong>s with <strong>China</strong>, <strong>Sri</strong> <strong>Lanka</strong> needs to include not <strong>on</strong>ly existing<br />
but also the potential exports to <strong>China</strong> and needs to ensure for these existing and potential exports<br />
that tariffs are reduced or eliminated to the same extent as those offered to <strong>China</strong>’s other FTA<br />
partners.<br />
Negative Lists: <strong>China</strong>’s FTAs take into account the sensitiveness of both countries and c<strong>on</strong>tain<br />
Negative Lists, which exclude a number of products from tariff liberalisati<strong>on</strong>. Except with Singapore,<br />
<strong>China</strong> maintains a negative list with all the other FTA members to protect its domestic industries.<br />
Am<strong>on</strong>g others a number of vegetable products, animal and vegetable fats and oils, prepared food,<br />
chemicals, wood products, pulp and paper, and textile categories are protected by <strong>China</strong> (Table<br />
3.28). In almost all of the agreements, <strong>China</strong> has placed a large number of pulp and paper in its<br />
negative list. Almost all of the agreements cover a substantial number of tariff lines and trade, with<br />
the excepti<strong>on</strong> of FTA with Pakistan. A c<strong>on</strong>siderable number of products are placed in <strong>China</strong>’s<br />
negative list with Pakistan (4,936 out of 7646 tariff lines). Similarly, Pakistan maintains a large<br />
Negative List (4394 out of 6911 tariff lines). There are no products exclusi<strong>on</strong>s in the FTA with ASEAN<br />
members. Nevertheless, ASEAN and <strong>China</strong> maintain a Sensitive List (SL) and a Highly Sensitive List<br />
(HSL) for which tariffs are lowered incrementally between 2012 and 2018. However, <strong>China</strong>’s<br />
negative list has been based <strong>on</strong> principles of reciprocity. Thus <strong>Sri</strong> <strong>Lanka</strong> needs to decide <strong>on</strong> how l<strong>on</strong>g<br />
or short its negative list is going to be with <strong>China</strong>.<br />
165 WTO (2012) <strong>Trade</strong> Policy Review: <strong>China</strong>, Secretariat Report.<br />
Page 68 of 88
HS secti<strong>on</strong> and descripti<strong>on</strong><br />
Table 3.28: <strong>China</strong>’s Products in the Sensitive List<br />
Remain Dutiable Up<strong>on</strong> Full Implementati<strong>on</strong> of the FTA<br />
Chile New Pakistan Peru Costa Singapore<br />
Zealand<br />
Rica<br />
1. Live animals and animal<br />
325 4<br />
products<br />
2. Vegetable products 25 25 291 30 28 30<br />
3. Animal or vegetable fats 19 19 51 24 19 11<br />
and oils<br />
4. Prepared food etc. 6 6 234 32 19 22<br />
5. Minerals 41 5 5<br />
6. Chemical and products 4 3 691 22 3 30<br />
7. Plastics and rubber 241 17 9<br />
8. Hides and skins 81 10<br />
9. Wood and articles 25 41 87 44 50 57<br />
10. Pulp, paper etc. 124 118 125 118 118 6.7<br />
11. Textile and textile articles 11 11 568 33 11 20.5<br />
12. Footwear, headgear 56<br />
13. Articles of st<strong>on</strong>e 161<br />
14. Precious st<strong>on</strong>es, etc. 38<br />
15. Base metals and products 439 4 2<br />
16. Machinery 925 20 10 27<br />
17. Transport equipment 252 55 87<br />
18. Precisi<strong>on</strong> equipment 208 4 1<br />
19. Arms and ammuniti<strong>on</strong> 21<br />
20. Misc. manufactured<br />
94 3<br />
articles<br />
21. Works of art, etc. 7<br />
Total 214 223 4,936 422 259 425<br />
Source: WTO Secretariat, Factual Presentati<strong>on</strong> of <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong>, between various countries.<br />
http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=8<br />
Preferential rules of origin: Rules of origin, which are used to determine the country of origin of a<br />
product in preferential trade agreements, tend to vary from agreement to agreement. Sometimes<br />
they across product groups, which add to the complexity of <strong>China</strong>'s import regime. The primary<br />
criteria of Rules of Origin under the various FTAs are: wholly obtained and substantial<br />
transformati<strong>on</strong> criteria. 166 Substantial transformati<strong>on</strong> criteria include change in tariff classificati<strong>on</strong><br />
criteri<strong>on</strong>, regi<strong>on</strong>al value c<strong>on</strong>tent criteri<strong>on</strong>, manufacturing process criteri<strong>on</strong>, or combinati<strong>on</strong> of the<br />
criteria menti<strong>on</strong>ed above. <strong>China</strong>’s FTAs with ASEAN, Chile, Pakistan, Singapore mainly use the<br />
regi<strong>on</strong>al value c<strong>on</strong>tent criteri<strong>on</strong>, while <strong>China</strong>’s FTAs with New Zealand, Peru and Costa Rica mainly<br />
use the change in tariff classificati<strong>on</strong> criteri<strong>on</strong>, supplemented by the regi<strong>on</strong>al value c<strong>on</strong>tent and the<br />
manufacturing process criteria. Regarding the substantial transformati<strong>on</strong> criteria adopted under<br />
166 N.A. (2010) Joint Feasibility <str<strong>on</strong>g>Study</str<strong>on</strong>g> <strong>on</strong> a <strong>China</strong>-Switzerland <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong>, available at:<br />
http://www.google.lk/url?url=http://www.seco.admin.ch/themen/00513/00515/01330/05166/index.html%3F<br />
lang%3Dde%26download%3DNHzLpZeg7t,lnp6I0NTU042l2Z6ln1acy4Zn4Z2qZpnO2Yuq2Z6gpJCFen58gWym16<br />
2epYbg2c_JjKbNoKSn6A--&rct=j&frm=1&q=&esrc=s&sa=U&ei=o6mzU_-<br />
THJO0uASXsIG4Cw&ved=0CBIQFjAA&usg=AFQjCNHflmhl-Vziijevwh6PAmANV513zg<br />
Page 69 of 88
various <strong>China</strong>’s FTAs, a product specific rules of origin list had been set out for products to be<br />
granted originating status. Besides, the imported goods must meet the direct transport rule to apply<br />
for preferential rules of origin. Thus <strong>Sri</strong> <strong>Lanka</strong> can negotiate in line with its existing preferential ROOs<br />
similar to those adopted by the PSFTA.<br />
Services: While the <strong>Trade</strong> in Goods <strong>Agreement</strong>s have taken a negative list approach, <strong>China</strong>’s <strong>Trade</strong><br />
in Services <strong>Agreement</strong>s have taken a positive list approach in line with WTOs General <strong>Agreement</strong> <strong>on</strong><br />
<strong>Trade</strong> in Services (GATS). Interestingly, <strong>China</strong> FTAs with ASEAN, Chile and Pakistan, the <strong>Agreement</strong><br />
<strong>on</strong> Services is separate document and followed the <strong>Agreement</strong> <strong>on</strong> Goods while in the case of<br />
partner countries (New Zealand, Peru, Singapore, Costa Rica), the FTA agreement was more<br />
comprehensive in coverage and include not <strong>on</strong>ly trade in goods but also services liberalisati<strong>on</strong>. All<br />
the services agreements have covered all four modes, namely Cross-border supply (Mode1),<br />
C<strong>on</strong>sumpti<strong>on</strong> Abroad (Mode2), Commercial Presence (Mode3) and Presence of Natural Pers<strong>on</strong>s<br />
(Mode4). While all the services agreements have a specific chapter <strong>on</strong> Movement of Natural<br />
Pers<strong>on</strong>s, specific sector commitments have been made in the FTAs with the following partner<br />
country: Air services liberalizati<strong>on</strong> in FTAs with Pakistan, New Zealand, Peru and Costa Rica; Financial<br />
services liberalizati<strong>on</strong> in FTAs with Chile, Costa Rica and Peru; nati<strong>on</strong>al maritime cabotage<br />
liberalizati<strong>on</strong> in FTAs with Chile, Pakistan and Costa Rica.<br />
Singapore offers corporate benefits include reducti<strong>on</strong> <strong>on</strong> withholding taxes for a variety of services,<br />
including chargeable royalties under the agreement <strong>on</strong> services. This, coupled with Singapore’s low<br />
corporate and individual income tax rates, is <strong>on</strong>e of the reas<strong>on</strong>s Singapore is becoming a corporate<br />
regi<strong>on</strong>al hub for investments into <strong>China</strong> and Asia. As foreign investors automatically qualify as<br />
Singaporean companies when setting up a subsidiary there, they can also access Singapore’s own<br />
impressive array of internati<strong>on</strong>al tax treaties, which include numerous other FTAs, as well as over 80<br />
bilateral double tax agreements. Therefore, if <strong>Sri</strong> <strong>Lanka</strong> is attempting to positi<strong>on</strong> itself as a regi<strong>on</strong>al<br />
hub for investors then the benefits that <strong>Sri</strong> <strong>Lanka</strong> can offer has to be either equal or impressive than<br />
that of Singapore’s. This could also have good synergies with <strong>Sri</strong> <strong>Lanka</strong>’s commercial hub regulati<strong>on</strong>s<br />
which enables entreport trade, logistical/ warehousing activity for regi<strong>on</strong>al distributi<strong>on</strong> as well.<br />
Other issues: Due to their focus <strong>on</strong> liberalizing markets and facilitati<strong>on</strong> trade, agreements between<br />
<strong>China</strong> and other developing countries focused <strong>on</strong> reducing tariffs and n<strong>on</strong>-tariff barriers to trade.<br />
Moreover, <strong>China</strong> was reluctant to include issues such as envir<strong>on</strong>ment protecti<strong>on</strong>, competiti<strong>on</strong> policy<br />
and labour standard as part of the FTA package. 167 However, <strong>China</strong> has shown some willingness to<br />
broaden its focus and include other these issues over time. For example, <strong>China</strong>’s agreements with<br />
developed countries such as New Zealand and Singapore in 2008 incorporate other issues including<br />
intellectual property rights, trade facilitati<strong>on</strong>, labour standards, and competiti<strong>on</strong> policy. 168<br />
N<strong>on</strong>etheless, <strong>China</strong> has taken a cauti<strong>on</strong>ary approach and chosen not to include them in the main<br />
agreement of the FTA but as stand-al<strong>on</strong>e agreements or MOUs. 169 <strong>China</strong> has recently taken a more<br />
comprehensive approach to FTAs with the agreements with Iceland and Switzerland signed in<br />
167 Gao, H. (2011), “<strong>China</strong>’s Strategy for <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong>s: Political Battle in the Name of <strong>Trade</strong>”,<br />
available at: [http://www.networkideas.org/networkideas/editorfiles/file/Henry_Gao.pdf]<br />
168 Zhan, Yunling (2011), People’s Republic of <strong>China</strong>, in Asia’s <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong>s: How is Business<br />
Resp<strong>on</strong>ding? (ed.) M. Kawai & G. Wignaraja, Edward Elgar Publishing, pp.107-109.<br />
169 Gao, H. (2011), “<strong>China</strong>’s Strategy for <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong>s: Political Battle in the Name of <strong>Trade</strong>”,<br />
available at: [http://www.networkideas.org/networkideas/editorfiles/file/Henry_Gao.pdf]<br />
Page 70 of 88
2013. 170 <strong>China</strong> is now dem<strong>on</strong>strating a greater willingness to engage in deeper level of liberalizati<strong>on</strong><br />
of trade, shifting from the previous strategy of focusing <strong>on</strong> trade in goods to a broader focus <strong>on</strong><br />
issues bey<strong>on</strong>d goods. However, Chine’s FTAs are not as comprehensive in terms of coverage and<br />
depth compared to other countries/groups like the US, Japan and the EU. 171 As dem<strong>on</strong>strated in <strong>Sri</strong><br />
<strong>Lanka</strong>’s experience with FTAs, reducing tariffs is <strong>on</strong>ly part of the story in accessing markets abroad.<br />
In this regard NTBs need to be identified and dealt with in order to ensure that they are not<br />
unnecessarily restrictive and anti-competitive.<br />
In c<strong>on</strong>clusi<strong>on</strong>, what can be said regarding the salient features of <strong>China</strong>’s FTAs is n<strong>on</strong>e of the<br />
<strong>Agreement</strong>s follow <strong>on</strong>e template/model but they are tailored to partner country’s’ preferences. The<br />
FTAs differ widely from <strong>on</strong>e agreement to another unlike the US practice. The US has a standard<br />
model as well as enhancements to that model to which it more or less adheres in negotiating<br />
FTAs. 172 In comparis<strong>on</strong>, <strong>China</strong> is less stringent and more flexible; each agreement is a product or<br />
collaborati<strong>on</strong> between <strong>China</strong> and partner countries. According to Zhao and Webster (2011: p.99),<br />
the ‘greatest defining feature of Chinese FTAs is their malleability’, which serves <strong>China</strong>’s interest as<br />
well those of <strong>Sri</strong> <strong>Lanka</strong>. More importantly such an approach stands to quell the <strong>China</strong> Threat, which<br />
is afflicts businesses around the world including those in <strong>Sri</strong> <strong>Lanka</strong>.<br />
170 Pan, X. (2014), <strong>China</strong>’s FTA Strategy, The Diplomat, Available at: http://thediplomat.com/2014/06/chinasfta-strategy/<br />
171 Ibid<br />
172 Zhao, J. & Webster, T. (2011), Taking Stock: <strong>China</strong>’s First Decade of <strong>Free</strong> <strong>Trade</strong>,<br />
Page 71 of 88
<strong>Sri</strong> <strong>Lanka</strong>’s Potential Exports<br />
to <strong>China</strong> under Proposed<br />
FTA<br />
Page 72 of 88
4.1 Introducti<strong>on</strong><br />
Over the past 55 years <strong>Sri</strong> <strong>Lanka</strong>’s bilateral ec<strong>on</strong>omic relati<strong>on</strong>s with <strong>China</strong> has expanded under very<br />
cordial relati<strong>on</strong>s established between the two countries. According to trade statistics, bilateral trade<br />
has seen a notable expansi<strong>on</strong>. Total trade between the two countries has doubled between 2009<br />
and 2012 from US$ 1.1bn to US$ 2.6 bn. <strong>China</strong> is now <strong>Sri</strong> <strong>Lanka</strong>’s sec<strong>on</strong>d largest trading partner as<br />
well as the sec<strong>on</strong>d largest source of imports (after India). In 2012, <strong>China</strong> accounted for 14 per cent of<br />
the total imports of <strong>Sri</strong> <strong>Lanka</strong> but is less prominent as an export market for <strong>Sri</strong> <strong>Lanka</strong>. It ranked as the<br />
16 th largest export destinati<strong>on</strong> and accounted for <strong>on</strong>ly 1.2 per cent of total exports from <strong>Sri</strong> <strong>Lanka</strong> in<br />
2012. Nevertheless, the importance of <strong>China</strong> as an export destinati<strong>on</strong> seems to be <strong>on</strong> the rise given<br />
that exports to <strong>China</strong> have been growing vigorously over the years, recording an annual growth of 27<br />
per cent annually during 2008-2012.<br />
There lies potential for <strong>Sri</strong> <strong>Lanka</strong> to expand trade with <strong>China</strong> given the sheer size of the Chinese<br />
market and its share of world trade. In 2012, <strong>China</strong> has imported US$ 1,818 bn from the world<br />
(accounting for 10 per cent of world imports) and exported US$ 2,048 bn (11 per cent of world<br />
exports). Therefore, this secti<strong>on</strong> intends to identify <strong>Sri</strong> <strong>Lanka</strong>’s Top exports to <strong>China</strong> and calculate the<br />
Revealed Comparative Advantage (RCA) to capture the potential list of exports from <strong>Sri</strong> <strong>Lanka</strong> to<br />
<strong>China</strong>.<br />
4.2 <strong>Sri</strong> <strong>Lanka</strong>’s Current Export Categories/Products to <strong>China</strong><br />
In 2012, <strong>Sri</strong> <strong>Lanka</strong> exported US$ 121 mn worth of goods to <strong>China</strong>, of which textiles accounted for<br />
nearly 41 per cent of <strong>Sri</strong> <strong>Lanka</strong>’s exports to <strong>China</strong> (Table 4.1). Plastics/rubbers, vegetable products<br />
and mineral products each accounted for around 13 per cent of total exports to <strong>China</strong> and were<br />
other significant export categories to <strong>China</strong>. These four categories together accounted for 81 per<br />
cent of <strong>Sri</strong> <strong>Lanka</strong>’s total exports to <strong>China</strong> in 2012.<br />
Table 4.1: <strong>Sri</strong> <strong>Lanka</strong>’s Exports to <strong>China</strong>, 2012<br />
Product Category<br />
<strong>Sri</strong> <strong>Lanka</strong>'s Exports Percentage of <strong>Sri</strong> <strong>Lanka</strong>’s<br />
to <strong>China</strong> (US$ 000) Total Exports to <strong>China</strong><br />
01-05 Animal & Animal Products 363 0.3<br />
06-15 Vegetable Products 16,089 13.3<br />
16-24 Foodstuffs 3879 3.2<br />
25-27 Mineral Products 15,401 12.8<br />
28-38 Chemicals & Allied Industries 2081 1.7<br />
39-40 Plastics / Rubbers 16,393 13.6<br />
41-43 Raw Hides, Skins, Leather, & Furs 111 0.1<br />
44-49 Wood & Wood Products 1,148 1.0<br />
50-63 Textiles 49,310 40.8<br />
64-67 Footwear / Headgear 1,012 0.8<br />
68-71 St<strong>on</strong>e / Glass 690 0.6<br />
72-83 Metals 309 0.3<br />
84-85 Machinery / Electrical 4,417 3.7<br />
86-89 Transportati<strong>on</strong> 7,762 6.4<br />
90-97 Miscellaneous 1,720 1.4<br />
98-99 Service 47 0.0<br />
Total 120,732 100.0<br />
Source: ITC <strong>Trade</strong>Map<br />
Page 73 of 88
A list of <strong>Sri</strong> <strong>Lanka</strong>’s top ten exports (at HS 6-digit level) is given below in Table 4.2. These ten exports<br />
in total accounted for around 68 per cent of <strong>Sri</strong> <strong>Lanka</strong>’s total exports to <strong>China</strong> in 2012. It should be<br />
highlighted that 39 per cent of the top ten exports to <strong>China</strong> bel<strong>on</strong>ged to the textile sector, while the<br />
plastics/rubber sector accounted for 16 per cent. Given the significance of the top ten exports to<br />
<strong>China</strong>, it is imperative that these products are figured prominently in trade negotiati<strong>on</strong>s with <strong>China</strong><br />
and <strong>Sri</strong> <strong>Lanka</strong> obtains c<strong>on</strong>siderable tariff reducti<strong>on</strong>s for them – see secti<strong>on</strong> 4 for further details<br />
relating to applicable tariffs.<br />
HS code<br />
(6 digit<br />
level)<br />
Table 4.2: <strong>Sri</strong> <strong>Lanka</strong>’s Top Ten Exports to <strong>China</strong>, 2012<br />
Product Descripti<strong>on</strong><br />
<strong>Sri</strong> <strong>Lanka</strong>'s Exports to<br />
<strong>China</strong> (US$ 000)<br />
Percentage of<br />
<strong>Sri</strong> <strong>Lanka</strong>’s<br />
Total Exports<br />
to <strong>China</strong><br />
530500<br />
Coc<strong>on</strong>ut, abaca Manila hemp or Musa textiles<br />
Nee, ramie, agave and other<br />
27,798 23.0<br />
261400 Titanium ores and c<strong>on</strong>centrates 13,806 11.4<br />
090240<br />
Black tea (fermented) & partly fermented tea in<br />
packages exceeding 3 kg<br />
10,273 8.5<br />
400599<br />
Compounded rubber, unvulcanised in primary<br />
forms nes<br />
6,891 5.7<br />
890190<br />
Cargo vessels nes & other vessels for the<br />
transport of both pers<strong>on</strong>s & goods<br />
6,055 5.0<br />
090230<br />
Black tea (fermented)&partly fermented tea in<br />
packages not exceeding 3 kg<br />
3,826 3.2<br />
610990<br />
T-shirts, singlets and other vests, of other textile<br />
materials, knitted<br />
3,763 3.1<br />
401290<br />
Solid or cushi<strong>on</strong>ed tyres, interchangeable tire<br />
treads & tyre flaps of rubber<br />
3,597 3.0<br />
240120<br />
Tobacco, unmanufactured, partly or wholly<br />
stemmed or stripped<br />
3,361 2.8<br />
400129 Natural rubber in other forms nes 2,505 2.1<br />
<strong>Sri</strong> <strong>Lanka</strong>’s total exports to <strong>China</strong> 120,732 67.8<br />
Source: ITC <strong>Trade</strong>Map<br />
4.3 <strong>Sri</strong> <strong>Lanka</strong>’s Potential Export Categories/Products<br />
Potential export products/sectors were identified using Revealed Comparative Advantage (RCA)<br />
index. The index uses the trade pattern to identify the products in which the ec<strong>on</strong>omy has a<br />
comparative advantage (or disadvantage), by comparing the country of interest’s trade profile with<br />
the world average. More specifically RCA formula is given as:<br />
RCAij = (xij/Xit) / (xwj/Xwt)<br />
Where xij and xwj are the values of country i’s exports of product j and world exports of product j<br />
and where Xit and Xwt refer to the country’s total exports and world total exports.<br />
The RCA value ranges from 0 and + ∞. If the value is equal or more than unity it implies that the<br />
country has a revealed comparative advantage in the product. Similarly, if the index is less than<br />
unity, the country is said to have a revealed comparative disadvantage in the product.<br />
Page 74 of 88
Using World Bank’s WITS database the RCA index was calculated for <strong>Sri</strong> <strong>Lanka</strong> for export products (at<br />
HS 6-digit level). In order to identify potential products RCA was calculated for four years (2009 to<br />
2012) and the products that have a comparative advantage (RCA≥1) for at least two years were<br />
selected. From 2009 to 2012 <strong>Sri</strong> <strong>Lanka</strong> exported 2,066 to 2,188 products (HS 6-digit level) to the<br />
world per year, out of which <strong>Sri</strong> <strong>Lanka</strong> had a comparative advantage in 566 products (HS 6-digit<br />
level). Table 4.3 summarises the products category-wise.<br />
As shown in Table 4.3, <strong>Sri</strong> <strong>Lanka</strong> has a comparative advantage in textiles – there is a total of 248<br />
product lines (at HS 6-digit level) for which <strong>Sri</strong> <strong>Lanka</strong> has a comparative advantage. In additi<strong>on</strong> to<br />
textiles, <strong>Sri</strong> <strong>Lanka</strong> has a comparative advantage in vegetable products (65 product lines), wood and<br />
wood products (32 product lines) and foodstuff (28 product lines). RCA indices for sectors and<br />
products at HS code 2-digit and 6-digit levels, respectively are given in Table 4.4.<br />
Table 4.3: Export Sectors and Products to World with Comparative Advantage,<br />
<strong>Sri</strong> <strong>Lanka</strong>, 2009-2012<br />
Product Category<br />
Number of products<br />
(HS 6-digit level)<br />
01-05 Animal & Animal Products 27<br />
06-15 Vegetable Products 65<br />
16-24 Foodstuffs 28<br />
25-27 Mineral Products 12<br />
28-38 Chemicals & Allied Industries 17<br />
39-40 Plastics / Rubbers 30<br />
41-43 Raw Hides, Skins, Leather, & Furs 6<br />
44-49 Wood & Wood Products 32<br />
50-63 Textiles 248<br />
64-67 Footwear / Headgear 14<br />
68-71 St<strong>on</strong>e / Glass 18<br />
72-83 Metals 18<br />
84-85 Machinery / Electrical 24<br />
86-89 Transportati<strong>on</strong> 7<br />
90-97 Miscellaneous 20<br />
98-99 Service 0<br />
Total 566<br />
Source: WITS trade data<br />
Page 75 of 88
Table 4.4: Export Sectors and Products to World with a Comparative Advantage,<br />
<strong>Sri</strong> <strong>Lanka</strong>, 2009-2012<br />
Sector<br />
(HS Code 2-digit level)<br />
Number of<br />
products<br />
Product<br />
(HS Code 6 -digit level)<br />
2 1 20220<br />
3 23<br />
30110, 30229, 30232, 30239, 30332, 30342, 30345, 30349,<br />
30379, 30410, 30420, 30490, 30559, 30611, 30612, 30613,<br />
30614, 30622, 30623, 30624, 30741, 30749, 30799<br />
4 1 40299<br />
5 2 50290, 50800<br />
6 5 60210, 60290, 60410, 60491, 60499<br />
7 10<br />
70890, 70959, 70990, 71140, 71190, 71331, 71339, 71340,<br />
71410, 71490<br />
8 13<br />
80111, 80119, 80132, 80290, 80300, 80420, 80430, 80550,<br />
80590, 80720, 81090, 81290, 81340<br />
9 18<br />
90210, 90220, 90230, 90240, 90411, 90412, 90420, 90610,<br />
90620, 90700, 90810, 90820, 90830, 91010, 91020, 91030,<br />
91091, 91099<br />
10 1 100620<br />
11 5 110100, 110210, 110290, 110610, 110620<br />
12 5 120300, 120740, 120930, 120999, 121190<br />
13 2 130190, 130220<br />
14 1 140490<br />
15 5 150410, 151311, 151319, 151550, 151790<br />
16 3 160100, 160242, 160415<br />
17 1 170290<br />
18 2 180310, 180400<br />
19 3 190300, 190490, 190531<br />
20 7 200110, 200190, 200819, 200820, 200929, 200949, 200980<br />
21 2 210120, 210690<br />
23 5 230230, 230240, 230250, 230650, 230990<br />
24 5 240110, 240120, 240130, 240210, 240310<br />
25 8<br />
250410, 250490, 250510, 250610, 250612, 252510, 252530,<br />
253090<br />
26 4 261400, 261510, 262019, 262029<br />
28 4 281700, 282410, 282490, 284690<br />
29 2 291421, 263690<br />
31 1 310390<br />
32 1 321000<br />
33 4 330190, 330520, 330530, 330749<br />
34 1 340119<br />
35 2 350520, 350790<br />
38 2 380210, 380991<br />
Page 76 of 88
39 4 391231, 391239, 392321, 392620<br />
40 26<br />
400110, 400121, 400129, 400300, 400400, 400599, 400811,<br />
400819, 400821, 401120, 401130, 401150, 401193, 401199,<br />
401219, 401290, 401310, 401320, 401390, 401490, 401511,<br />
401519, 401590, 401691, 401693, 401699<br />
41 1 410640<br />
42 5 420219, 420310, 420321, 420329, 420340<br />
44 7 440200, 440729, 441039, 441129, 441300, 441700, 442190<br />
46 1 460210<br />
47 3 470710, 470730, 470790<br />
48 15<br />
480210, 480220, 480540, 480820, 481141, 481149, 481710,<br />
481720, 481910, 481930, 481940, 482050, 482090, 482110,<br />
482190<br />
49 6 490210, 490300, 490700, 490810, 490890, 491199<br />
50 1 500790<br />
52 14<br />
520210, 520299, 520521, 520523, 520524, 520542, 520543,<br />
520829, 520911, 520929, 520931, 520932, 520939, 520942<br />
53 5 530500, 530590, 530810, 531090, 531100<br />
54 6 540120, 540231, 540239, 540241, 540490, 540720<br />
55 12<br />
550120, 550510, 550520, 550620, 550810, 551011, 551012,<br />
551219, 551311, 551319, 551449, 551512<br />
56 5 560130, 560290, 560410, 560790, 560819<br />
57 1 570220<br />
58 12<br />
580410, 580421, 580429, 580430, 580620, 580639, 580640,<br />
580710, 580790, 580890, 581092, 581100<br />
59 4 590290, 590390, 590691, 591000<br />
60 13<br />
600240, 600290, 600320, 600390, 600490, 600590, 600610,<br />
600621, 600622, 600624, 600642, 600644, 600690<br />
61 87<br />
610130, 610190, 610220, 610290, 610319, 610329, 610332,<br />
610333, 610339, 610342, 610343, 610349, 610413, 610419,<br />
610431, 610432, 610433, 610439, 610441, 610442, 610443,<br />
610444, 610449, 610452, 610453, 610459, 610461, 610462,<br />
610463, 610469, 610510, 610520, 610590, 610610, 610620,<br />
610690, 610711, 610712, 610719, 610721, 610722, 610729,<br />
610791, 610799, 610811, 610819, 610821, 610822, 610829,<br />
610831, 610832, 610839, 610891, 610892, 610899, 610910,<br />
610990, 611011, 611019, 611020, 611030, 611090, 611120,<br />
611130, 611190, 611211, 611212, 611219, 611231, 611239,<br />
611241, 611249, 611420, 611430, 611490, 611512, 611519,<br />
611591, 611592, 611599, 611610, 611691, 611692, 611693,<br />
611710, 611780, 611790<br />
Page 77 of 88
62 77<br />
620111, 620112, 620113, 620119, 620211, 620219, 620291,<br />
620292, 620332, 620333, 620339, 620342, 620343, 620349,<br />
620411, 620412, 620413, 620419, 620431, 620432, 620433,<br />
620439, 620441, 620442, 620443, 620444, 620449, 620451,<br />
620452, 620453, 620459, 620461, 620462, 620463, 620469,<br />
620520, 620530, 620590, 620610, 620620, 620630, 620640,<br />
620690, 620711, 620719, 620721, 620722, 620729, 620791,<br />
620799, 620811, 620819, 620821, 620822, 620829, 620891,<br />
620892, 620899, 620920, 620930, 620990, 621030, 621111,<br />
621112, 621132, 621139, 621141, 621142, 621143, 621210,<br />
621220, 621230, 621290, 621590, 621600, 621710, 621790<br />
63 11<br />
630293, 630520, 630533, 630539, 630590, 630622, 630631,<br />
630790, 630800, 631010, 631090<br />
64 4 640192, 640199, 640391, 640520<br />
65 6 650200, 650400, 650510, 650590, 650699, 650700<br />
66 1 660390<br />
67 3 670290,670419, 670420<br />
68 2 680221, 681599<br />
69 6 690810, 691110, 691190, 691200, 691310, 691390<br />
70 2 701090, 701990<br />
71 8<br />
710231, 710239, 710310, 710391, 710399, 710490, 711311,<br />
711719<br />
72 2 721669, 722611<br />
73 2 730290, 731300<br />
74 5 740312, 740319, 740811, 740819, 741129<br />
76 1 761511<br />
78 2 780110, 780199<br />
82 3 820719, 820730, 821210<br />
83 3 830220, 830810, 830890<br />
84 11<br />
841012, 841850, 842320, 842390, 842619, 842820, 843120,<br />
843860, 844010, 845130, 845180<br />
85 13<br />
850421, 850431, 851780, 851939, 853223, 853229, 853290,<br />
853400, 853540, 853810, 853890, 854411, 854430<br />
87 3 871200, 871639, 871690<br />
88 1 880400<br />
89 3 890190, 890200, 890391<br />
90 2 903083, 903180<br />
91 1 910990<br />
94 4 940350, 940421, 940429, 940430<br />
95 7 950390, 950510, 950590, 950621, 950629, 950720, 950790<br />
96 6 960310, 960329, 960330, 960621, 960629, 960711<br />
Total 566<br />
Page 78 of 88
4.4 Identificati<strong>on</strong> of Potential Export Products/Sectors from <strong>Sri</strong> <strong>Lanka</strong> to <strong>China</strong><br />
When analyzing <strong>Sri</strong> <strong>Lanka</strong>’s potential exports (at HS 6-digit level) to <strong>China</strong>, it becomes evident that<br />
<strong>Sri</strong> <strong>Lanka</strong> has the potential in 542 products out of 566 products for which <strong>Sri</strong> <strong>Lanka</strong> has a<br />
comparative advantage vis-à-vis the world. <strong>China</strong> does not import 24 products from the world<br />
though <strong>Sri</strong> <strong>Lanka</strong> has a comparative advantage in them.<br />
Of the 542 potential exports to <strong>China</strong>, <strong>Sri</strong> <strong>Lanka</strong> already exports 243 products. The other 299<br />
products with trade potential to <strong>China</strong> are currently not exported by <strong>Sri</strong> <strong>Lanka</strong> to <strong>China</strong> but are<br />
imported by <strong>China</strong> from elsewhere in the world, presenting new market opportunities for <strong>Sri</strong> <strong>Lanka</strong>n<br />
exporters of these products. Appendix 1 lists the 542 potential exports to <strong>China</strong>. For example, <strong>Sri</strong><br />
<strong>Lanka</strong> currently does not export HS020220 Meat of Bovine Animals with B<strong>on</strong>e in (Frozen) to <strong>China</strong><br />
but <strong>China</strong> imports US$ 20 mn from the world and <strong>Sri</strong> <strong>Lanka</strong> currently exports US$ 0.5 to the rest of<br />
the world. Appendix also provides the indicative trade potential by value (US$ ‘000) for each of the<br />
potential products to <strong>China</strong>. Table 4.5 lists the Indicative trade potential with <strong>China</strong> by export<br />
category, while Table 4.6 shows the top ten products with the highest indicative potential to <strong>China</strong>.<br />
Indicative potential is defined as the lower of the value a selected country exports to the world or<br />
the value the partner country imports from the world minus the current trade between the two<br />
countries under review. For example, <strong>Sri</strong> <strong>Lanka</strong> is currently exporting US$ 7,000 worth of diam<strong>on</strong>ds<br />
to <strong>China</strong> while <strong>Sri</strong> <strong>Lanka</strong> exports US$ 257 mn of diam<strong>on</strong>ds to the world and <strong>China</strong> imports US$ 4 bn<br />
from the rest of the world (Table 4.6). Thus, <strong>Sri</strong> <strong>Lanka</strong> has an indicative potential to export US$ 256<br />
mn worth of diam<strong>on</strong>ds to <strong>China</strong>. In summary when negotiating a trade deal with <strong>China</strong> it is<br />
important to not <strong>on</strong>ly look at the current products/sectors but also to c<strong>on</strong>sider products/sectors for<br />
which <strong>Sri</strong> <strong>Lanka</strong> has a comparative advantage and high trade potential to trade with <strong>China</strong> (Appendix<br />
2 lists the 542 products in which <strong>Sri</strong> <strong>Lanka</strong> has a comparative advantage ranked by the value of<br />
indicative potential to <strong>China</strong>).<br />
Table 4.5: <strong>Sri</strong> <strong>Lanka</strong>’s Indicative <strong>Trade</strong> Potential with <strong>China</strong>, 2012<br />
Product Category<br />
Indicative Potential<br />
<strong>Trade</strong> (US$ 000)<br />
Percentage of Total<br />
Indicative Potential<br />
01-05 Animal & Animal Products 53,870 1.4<br />
06-15 Vegetable Products 164,910 4.1<br />
16-24 Foodstuffs 213,183 5.4<br />
25-27 Mineral Products 26,179 0.7<br />
28-38 Chemicals & Allied Industries 91,891 2.3<br />
39-40 Plastics / Rubbers 458,366 11.5<br />
41-43 Raw Hides, Skins, Leather, & Furs 15,799 0.4<br />
44-49 Wood & Wood Products 100,723 2.5<br />
50-63 Textiles 1,936,464 48.6<br />
64-67 Footwear / Headgear 21,976 0.6<br />
68-71 St<strong>on</strong>e / Glass 453,908 11.4<br />
72-83 Metals 41,261 1.0<br />
84-85 Machinery / Electrical 204,058 5.1<br />
86-89 Transportati<strong>on</strong> 130,476 3.3<br />
90-97 Miscellaneous 69,059 1.7<br />
98-99 Service - 1.4<br />
Total 3,982,123 4.1<br />
Source: ITC <strong>Trade</strong>Map<br />
Page 79 of 88
HS Code<br />
(6 digit<br />
level)<br />
Table 4.6: Top Ten Products with the Highest Indicative potential (US$ ‘000), 2012<br />
Product descripti<strong>on</strong><br />
<strong>Sri</strong> <strong>Lanka</strong>'s<br />
Exports to<br />
<strong>China</strong><br />
<strong>China</strong>'s<br />
Imports from<br />
the World<br />
<strong>Sri</strong> <strong>Lanka</strong>'s<br />
exports to<br />
world<br />
Indicative<br />
Potential<br />
<strong>Trade</strong><br />
710239<br />
Diam<strong>on</strong>ds n<strong>on</strong>-industrial nes excluding<br />
mounted or set diam<strong>on</strong>ds<br />
7 4,226,239 256,672 256,665<br />
620342<br />
Mens/boys trousers and shorts, of cott<strong>on</strong>,<br />
not knitted<br />
1,078 256,959 284,305 255,881<br />
610910<br />
T-shirts, singlets and other vests, of cott<strong>on</strong>,<br />
knitted<br />
392 180,074 187,956 179,682<br />
620520 Mens/boys shirts, of cott<strong>on</strong>, not knitted 372 191,644 140,775 140,403<br />
620462<br />
Womens/girls trousers and shorts, of cott<strong>on</strong>,<br />
not knitted<br />
304 147,553 122,336 122,032<br />
401519 Gloves nes of rubber 1,071 86,034 131,670 84,963<br />
890190<br />
Cargo vessels nes & other vessels for the<br />
transport of both pers<strong>on</strong>s & goods<br />
6,055 167,814 91,013 84,958<br />
530500<br />
Coc<strong>on</strong>ut, abaca Manila hemp or Musa<br />
textiles Nee, ramie, agave and other<br />
27,798 206,221 112,380 84,582<br />
610990<br />
T-shirts, singlets and other vests, of other<br />
textile materials, knitted<br />
3,763 75,302 163,524 71,539<br />
380210 Activated carb<strong>on</strong> 1,635 65,429 77,096 63,794<br />
Source: ITC <strong>Trade</strong>Map<br />
4.5 <strong>China</strong>’s Tariff Rates<br />
<strong>China</strong> employs three types of import duty rates, namely general rates, MFN rates and preferential<br />
rates. While MFN rates are applied to imports from WTO members, preferential rates are applied to<br />
imports originating in countries/regi<strong>on</strong>s with which <strong>China</strong> has preferential tariff agreements. General<br />
rates are applied to imports whose origin cannot be determined or where the products originate<br />
from countries/regi<strong>on</strong>s where <strong>China</strong> does not apply MFN tariff rates or preferential rates. <strong>China</strong> also<br />
gives special preferential tariffs unilaterally to a number of goods imported from 36 least developed<br />
countries.<br />
The simple average applied MFN duty rate for all products in 2011 was 9.5 per cent. The simple<br />
average applied MFN rates for agricultural products were 15.1 per cent, while for n<strong>on</strong>-agricultural<br />
products it was 8.6 per cent. A summary of the preferential tariffs offered by <strong>China</strong> is given in Table<br />
8. ASEAN countries receive significant tariff c<strong>on</strong>cessi<strong>on</strong>s, with at least 90 per cent of the total tariff<br />
lines of its member countries having duty-free access to <strong>China</strong> and an average applied rate of about<br />
1 per cent for other products. From the bilateral FTAs, Chile receives notable preferential access;<br />
Chile currently receives duty free access for 75.1 per cent of the total tariff lines and an average<br />
applied duty of 1.4 per cent. <strong>Sri</strong> <strong>Lanka</strong> currently has preferential access to <strong>China</strong> as a member of the<br />
Asia-Pacific <strong>Trade</strong> <strong>Agreement</strong> (APTA). Nevertheless, compared to other agreements the preferences<br />
received under APTA are rather limited with <strong>on</strong>ly 9.6 per cent of the total tariff lines being offered<br />
duty free access to <strong>China</strong> and an average applied duty of 8.9 per cent for other products.<br />
Page 80 of 88
Table 4.7: Summary Analysis of <strong>China</strong>'s Preferential Tariff, 2011<br />
Average<br />
(%)<br />
Total WTO agriculture WTO n<strong>on</strong>-agriculture<br />
Duty-free<br />
rates a (%)<br />
Average<br />
(%)<br />
Duty-free<br />
rates a (%)<br />
Average<br />
(%)<br />
Duty-free<br />
rates a (%)<br />
MFN 9.5 9.4 15.1 7.0 8.6 9.8<br />
<strong>Agreement</strong> tariff rates<br />
APTA b 8.9 9.6 14.1 8.0 8.1 9.9<br />
ASEAN<br />
Brunei Darussalam 1.0 91.7 2.5 89.7 0.7 92.0<br />
Cambodia 1.1 90.8 2.6 88.7 0.9 91.1<br />
Ind<strong>on</strong>esia 1.0 91.7 2.5 89.8 0.8 92.0<br />
Laos 1.1 90.9 2.6 89.1 0.9 91.1<br />
Malaysia 1.0 91.7 2.5 89.8 0.8 92.0<br />
Myanmar 1.0 91.7 2.5 89.6 0.8 92.0<br />
Philippines 1.0 91.7 2.5 89.4 0.7 92.0<br />
Singapore 1.0 91.7 2.5 89.8 0.7 92.0<br />
Thailand 1.0 91.7 2.5 89.4 0.8 92.0<br />
Viet Nam 1.0 91.7 2.5 89.4 0.8 92.0<br />
H<strong>on</strong>g K<strong>on</strong>g, <strong>China</strong> CEPA c 7.3 29.4 13.0 19.7 6.4 31.0<br />
Macao, <strong>China</strong> CEPA c 7.5 24.6 10.6 32.5 7.0 23.3<br />
Chinese Taipei ECFA d 9.2 10.3 15.0 7.0 8.3 10.9<br />
Pakistan FTA 6.2 35.8 12.1 21.9 5.3 38.1<br />
Chile FTA 1.4 75.1 3.9 67.2 1.0 76.4<br />
New Zealand FTA 2.4 24.9 5.1 13.9 1.9 26.6<br />
Singapore FTA 9.0 12.2 14.1 10.6 8.2 12.5<br />
Peru FTA 4.8 61.2 10.8 30.4 3.8 66.1<br />
Costa Rica FTA 4.7 65.5 11.1 34.1 3.7 70.5<br />
Least developed preferential rates<br />
Special preferential tariff agreement for:<br />
Bangladesh and Laos under APTA 9.3 10.4 15.0 7.0 8.4 11.0<br />
Cambodia 8.8 14.6 12.2 28.2 8.3 12.5<br />
Laos 9.0 13.1 13.1 21.4 8.4 11.8<br />
Myanmar 9.1 12.2 14.0 13.5 8.4 12.0<br />
36 LDCs 5.1 60.6 9.3 55.5 4.4 61.4<br />
Niger and Somalia under LDC 8.9 15.3 14.6 10.7 8.0 16.1<br />
a Duty-free lines as a percentage of total tariff lines.<br />
b Preferential rates under APTA are applicable to the Republic of Korea, <strong>Sri</strong> <strong>Lanka</strong>, Bangladesh, India, and Laos.<br />
c Closer Ec<strong>on</strong>omic Partnership <strong>Agreement</strong>.<br />
d Cross-straits Ec<strong>on</strong>omic Co-operati<strong>on</strong> Framework <strong>Agreement</strong>. According to the Chinese authorities, tariff reducti<strong>on</strong>s under the<br />
ECFA have not yet been fully implemented.<br />
Note: Calculati<strong>on</strong>s are based <strong>on</strong> the nati<strong>on</strong>al tariff line level (8-digit); excluding in-quota rates and including AVEs for n<strong>on</strong>-ad valorem<br />
rates provided by the authorities, as available. Interim duty rates are used for the calculati<strong>on</strong>s when fully applied at the 8-digit level.<br />
Source: WTO Secretariat calculati<strong>on</strong>s, based <strong>on</strong> data provided by the authorities of <strong>China</strong>.<br />
The applicable tariffs for the top 10 export products (at 6-digit level) from <strong>Sri</strong> <strong>Lanka</strong> to <strong>China</strong> in 2012<br />
are given in Table 4.8. The respective tariff rates for the given products are for the year 2011. Of the<br />
31 relevant tariff lines at HS-code 8-digit level for these top 10 products, <strong>Sri</strong> <strong>Lanka</strong> gets preferential<br />
access in 10 tariff lines under APTA; MFN tariff rates apply for the rest. MFN applied tariff rates for<br />
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<br />
tariff lines at 8-digit) is 9.8 per cent.<br />
For the top 10 products (at 6-digit level) with the highest indicative potential for trade between <strong>Sri</strong><br />
<strong>Lanka</strong> and <strong>China</strong>, average tariff (MFN applied) levied by <strong>China</strong> is 10.5 per cent (see Table 4.9). Peru,<br />
Chile, Costa Rica and New Zealand which have bilateral trade agreements with <strong>China</strong> have got<br />
preferential rates <strong>on</strong> all 22 tariff lines, with Chile receiving the best rate, with an average tariff of 1.5<br />
per cent. Average tariffs for New Zealand, Peru and Costa Rica are 2.1, 4.4 and 4.5 per cent<br />
respectively for these tariff lines. The average tariff for ASEAN is 0.7 (14 of the total 22 tariff lines<br />
receive preferential rates) while for APTA under which <strong>Sri</strong> <strong>Lanka</strong> gets preferential access, the average<br />
tariff is 8.7 per cent (with 10 of the 22 tariff lines receiving preferential rates). The preferential tariffs<br />
for these 10 products under APTA range between 0 and 14.4 per cent.<br />
The analyses of tariffs imposed by <strong>China</strong> show that different regi<strong>on</strong>al groupings and countries have<br />
received varying levels of preferential access via trade agreements. At a first glance, ASEAN and Chile<br />
appear to receive better access through lower tariffs and greater duty free access. However, the<br />
tariff levels and the number of tariff lines for which preferences are offered differ between<br />
agreements. Therefore, it is important for <strong>Sri</strong> <strong>Lanka</strong> to analyse and evaluate the preferential tariffs<br />
offered by <strong>China</strong> at a disaggregate level. The relevant tariff rates for products with which <strong>Sri</strong> <strong>Lanka</strong><br />
has a comparative advantage and potential to export are given in Appendix 3. The list can be used as<br />
a guide in the negotiati<strong>on</strong>s to note the preferential rates offered by <strong>China</strong> to other countries and<br />
regi<strong>on</strong>s. It is imperative that trade negotiati<strong>on</strong>s with <strong>China</strong> not <strong>on</strong>ly cover products in which <strong>Sri</strong> <strong>Lanka</strong><br />
currently exports and a comparative advantage but also that the c<strong>on</strong>cessi<strong>on</strong>s awarded by <strong>China</strong><br />
should be higher or at least equivalent to the tariff reducti<strong>on</strong> granted to other countries under<br />
various preferential agreements.<br />
173 10 products selected at HS-code 6-digit level<br />
Page 82 of 88
Table 4.8: Tariffs for Top 10 Current Exports from <strong>Sri</strong> <strong>Lanka</strong> to <strong>China</strong>, 2012<br />
Product<br />
Code<br />
6-digit<br />
level<br />
Descripti<strong>on</strong><br />
8-Digit<br />
Product<br />
Code<br />
MFN<br />
(Applied)<br />
N<strong>on</strong>-MFN<br />
tariff<br />
ASEAN<br />
Chile<br />
Costa<br />
Rica<br />
Laos<br />
New<br />
Zealand<br />
Pakistan<br />
Peru<br />
Thailand<br />
H<strong>on</strong>g<br />
K<strong>on</strong>g<br />
APTA<br />
LDC s<br />
Myanmar<br />
Banglade<br />
sh<br />
Macau<br />
Chinese<br />
Taipei<br />
Singapore<br />
530500 Coc<strong>on</strong>ut, abaca Manila hemp or Musa textiles Nee,<br />
ramie, agave and other<br />
53050011 5 30 0 0 0 0 0 0<br />
53050012 5 30 0 0 0 0 0 0<br />
53050013 5 30 0 0 0 0 0 0<br />
53050019 5 20 0 0 0 0 0 0<br />
53050020 3 20 0 0 0 0 0 0<br />
53050091 5 30 0 0 0 0 0 0 0<br />
53050092 5 30 0 0 0 0 0 0 0 0 4 0 0<br />
53050099 0 30 0 0 0 0 0 0<br />
261400 Titanium ores and c<strong>on</strong>centrates 26140000 0 0<br />
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<br />
packages exceeding 3 kg<br />
9024020 15 100 0 0 12 0 3 7.5 12 0 0 7.5 0 0<br />
400599 Compounded rubber, unvulcanised in primary forms<br />
nes<br />
890190 Cargo vessels nes & other vessels for the transport of<br />
both pers<strong>on</strong>s & goods<br />
90230 Black tea (fermented)&partly fermented tea in<br />
packages not exceeding 3 kg<br />
610990 T-shirts, singlets and other vests, of other textile<br />
materials, knitted<br />
9024090 15 100 0 0 12 0 3 7.5 12 0 0 7.5 0 0 0 5<br />
40059900 8 35 0 0 0 1.6 5.5 0 0<br />
89019032 6 14 2.4 0 1.2 0<br />
89019041 9 14 3.6 0 1.8 0<br />
89019042 9 14 3.6 0 1.8 0<br />
89019043 9 14 3.6 0 1.8 0<br />
89019050 9 14 3.6 0 1.8 0<br />
89019080 9 14 5 3.6 0 1.8 5.7 0 0<br />
89019090 8 30 5 3.2 0 1.6 5.5 0 0<br />
9023010 15 100 0 0 12 3 7.5 12 0 7.5 0 5<br />
9023020 15 100 0 0 12 3 7.5 12 0 7.5 0<br />
9023090 15 100 0 0 12 3 7.5 12 0 7.5 0 0 5<br />
61099010 14 130 0 0 11.2 2.8 8.3 8.4 0 9.3 0 0<br />
61099090 14 130 0 0 11.2 0 2.8 9.3 11.2 0 0 9.3 0 0 0 0<br />
401290 Solid o cushi<strong>on</strong>ed tires, interchangeable tire treads & 40129010 1 11 0 0 0 0 0 0<br />
Page 83 of 88
tire flaps of rubber 40129020 22 50 0 0 17.6 8 17.6<br />
40129090 22 50 0 0 17.6 8 17.6<br />
240120 Tobacco, unmanufactured, partly or wholly stemmed 24012010 10 70 4 2<br />
or stripped<br />
24012090 10 70 4 2<br />
400129 Natural rubber in other forms nes 40012900 20 40 0 16 4 17 17<br />
Source: WITS (2014)<br />
Page 84 of 88
Table 4.9: Tariffs for Top 10 Indicative Potential Products<br />
Product<br />
Code<br />
6-Digit<br />
level<br />
Descripti<strong>on</strong><br />
8-Digit<br />
Product<br />
Code<br />
MFN<br />
(Applied)<br />
N<strong>on</strong>-MFN<br />
tariff<br />
ASEAN<br />
Chile<br />
Costa Rica<br />
Laos<br />
New<br />
Zealand<br />
Pakistan<br />
Peru<br />
Thailand<br />
H<strong>on</strong>g K<strong>on</strong>g<br />
APTA<br />
LDCs<br />
Myanmar<br />
Bangladesh<br />
Macau<br />
Singapore<br />
710239<br />
620342<br />
Diam<strong>on</strong>ds n<strong>on</strong>-industrial nes excluding mounted or<br />
set diam<strong>on</strong>ds<br />
Mens/boys trousers and shorts, of cott<strong>on</strong>, not<br />
knitted<br />
71023900 8 35 0 0 0 1.6 0 0 0<br />
62034210 16 90 0 0 12.8 3.2 9.4 12.8 0 12.9 11.2 0<br />
62034290 16 90 0 0 12.8 0 3.2 9.4 12.8 0 0 12.9 0 0 11.2 0<br />
610910 T-shirts, singlets and other vests, of cott<strong>on</strong>, knitted 61091000 14 90 0 0 11.2 0 2.8 9.4 11.2 0 0 9.4 0 0 0<br />
620520 Mens/boys shirts, of cott<strong>on</strong>, not knitted 62052000 16 90 0 0 12.8 0 3.2 8 12.8 0 0 8 0 0 6.4 0<br />
620462<br />
Womens/girls trousers and shorts, of cott<strong>on</strong>, not<br />
knitted<br />
62046200 16 90 0 0 12.8 0 3.2 13.4 12.8 0 0 14.4 0 0 11.2 0<br />
401519 Gloves nes of rubber 40151900 18 80 0 0 14.4 3.6 14.4<br />
89019021 9 14 3.6 0 1.8 0<br />
89019022 6 14 2.4 0 1.2 0<br />
89019031 9 14 3.6 0 1.8 0<br />
89019032 6 14 2.4 0 1.2 0<br />
890190<br />
530500<br />
Cargo vessels nes & other vessels for the transport<br />
of both pers<strong>on</strong>s & goods<br />
Coc<strong>on</strong>ut, abaca Manila hemp or Musa textiles Nee,<br />
ramie, agave and other<br />
89019041 9 14 3.6 0 1.8 0<br />
89019042 9 14 3.6 0 1.8 0<br />
89019043 9 14 3.6 0 1.8 0<br />
89019050 9 14 3.6 0 1.8 0<br />
89019080 9 14 5 3.6 0 1.8 5.7 0 0<br />
89019090 8 30 5 3.2 0 1.6 5.5 0 0<br />
53050011 5 30 0 0 0 0 0 0<br />
53050012 5 30 0 0 0 0 0 0<br />
53050013 5 30 0 0 0 0 0 0<br />
53050019 5 20 0 0 0 0 0 0<br />
53050020 3 20 0 0 0 0 0 0<br />
53050091 5 30 0 0 0 0 0 0 0<br />
85
53050092 5 30 0 0 0 0 0 0 0 4 0 0<br />
610990<br />
T-shirts, singlets & other vests, of other textile<br />
materials, knitted<br />
380210 Activated carb<strong>on</strong><br />
Source: WITS (2014)<br />
53050099 5 30 0 0 0 0 0 0<br />
61099010 14 130 0 0 11.2 2.8 8.3 8.4 0 9.3 0 0<br />
61099090 14 130 0 0 11.2 0 2.8 9.3 11.2 0 0 9.3 0 0 0 0<br />
38021010 6.5 20 0 0 0 1.3 5.2 0 5.5<br />
38021090 6.5 20 0 0 0 1.3 5.2 0 5.5<br />
86
5. C<strong>on</strong>clusi<strong>on</strong> to the study<br />
Secti<strong>on</strong> <strong>on</strong>e of this study provided a background to <strong>Sri</strong> <strong>Lanka</strong>’s political and ec<strong>on</strong>omic relati<strong>on</strong>s with<br />
<strong>China</strong>. <strong>Sri</strong> <strong>Lanka</strong>’s trade and ec<strong>on</strong>omic relati<strong>on</strong>s with <strong>China</strong> dates back to the Sino-<strong>Sri</strong> <strong>Lanka</strong> Rubber-<br />
Rice Pact, which was signed in 1952. Since then the trade relati<strong>on</strong>s have expanded overtime<br />
between the two countries, with <strong>China</strong> becoming <strong>Sri</strong> <strong>Lanka</strong>’s sec<strong>on</strong>d largest trading partner next to<br />
India. While <strong>Sri</strong> <strong>Lanka</strong>’s exports to <strong>China</strong> have doubled from US$ 59 mn in 2009 to 120 mn in 2012,<br />
imports from <strong>China</strong> have tripled from US$ 881 mn in 2009 to US$ 2,567 mn in 2012 widening <strong>Sri</strong><br />
<strong>Lanka</strong>’s trade deficit with <strong>China</strong> to US$ 2,447 mn. The widening trade balance has provided the<br />
impetus for the much-needed bilateral FTA between <strong>Sri</strong> <strong>Lanka</strong> and <strong>China</strong>.<br />
Secti<strong>on</strong> two examined <strong>Sri</strong> <strong>Lanka</strong>’s existing FTAs to identify key stumbling blocks relating to both tariff<br />
and n<strong>on</strong>-tariff barriers to trade, which should be borne in mind when negotiating a trade agreement<br />
with <strong>China</strong>. The study found out that although <strong>Sri</strong> <strong>Lanka</strong> has been able to improve market access to<br />
South Asian countries through SAFTA, ISFTA and PSFTA, <strong>Sri</strong> <strong>Lanka</strong>’s intra-regi<strong>on</strong>al trade is still<br />
restricted due to various reas<strong>on</strong>s. <strong>Sri</strong> <strong>Lanka</strong>’s major exports falling under the Negative List of<br />
respective agreements, and restrictive rules of origin criteria and NTMs maintained by partner<br />
countries are some of the measures that hamper <strong>Sri</strong> <strong>Lanka</strong>’s intra-regi<strong>on</strong>al trade. Additi<strong>on</strong>ally, lack of<br />
awareness of FTAs am<strong>on</strong>g relevant stakeholders and traders, lack of Mutual Recogniti<strong>on</strong> <strong>Agreement</strong>s<br />
for standards and the absence of a nodal point for inquiries are some of the other weakness of the<br />
existing FTAs that are prevailing. Therefore, it is crucial to accommodate and overcome the issues<br />
faced by traders when negotiating the <strong>China</strong>-<strong>Sri</strong> <strong>Lanka</strong> <strong>Free</strong> <strong>Trade</strong> <strong>Agreement</strong>.<br />
Secti<strong>on</strong> three looked at salient features of <strong>China</strong>'s existing FTAs with countries/regi<strong>on</strong>s (ASEAN,<br />
Pakistan, Chile, New Zealand, Singapore, Peru, Costa Rica, Iceland, Switzerland). <strong>China</strong> had been<br />
actively pursuing bilateral FTAs with other countries. Currently, <strong>China</strong> has nine FTAs with 18 member<br />
countries. <strong>China</strong>’s FTA strategy has not followed a fixed formula but has customized each FTA<br />
according to the partner and has been based up<strong>on</strong> reciprocity. Further, <strong>China</strong> has moved from<br />
liberalizing trade in goods to trade in services and investments in all its existing FTAs. While some<br />
FTAs were comprehensive up<strong>on</strong> entry into force (covering goods, services and investments) some<br />
have gradually liberalized trade in goods to services to investments. On the c<strong>on</strong>trary, <strong>Sri</strong> <strong>Lanka</strong>’s FTAs<br />
with its partners have <strong>on</strong>ly covered trade in goods so far. Moreover, both <strong>Sri</strong> <strong>Lanka</strong> and <strong>China</strong> are<br />
party to Asia Pacific <strong>Trade</strong> <strong>Agreement</strong> (APTA) and under APTA, <strong>Sri</strong> <strong>Lanka</strong> receives tariff c<strong>on</strong>cessi<strong>on</strong>s<br />
for over 1,858 products exported to <strong>China</strong>. These account for around 50 per cent of total exports to<br />
<strong>China</strong> from <strong>Sri</strong> <strong>Lanka</strong>. However, the utilizati<strong>on</strong> of these c<strong>on</strong>cessi<strong>on</strong>s remains low.<br />
Secti<strong>on</strong> four aimed to identify products with export potential to <strong>China</strong> - products of interest to <strong>Sri</strong><br />
<strong>Lanka</strong> which should form part of trade negotiati<strong>on</strong>s with <strong>China</strong>. Bulk of <strong>Sri</strong> <strong>Lanka</strong>’s exports to <strong>China</strong><br />
has been c<strong>on</strong>centrated <strong>on</strong> a few products. In 2012, out of the US$ 121 mn worth of exports to <strong>China</strong>,<br />
textiles have accounted for nearly 41 per cent and Plastics/rubbers, vegetable products and mineral<br />
products have each accounted for around 13 per cent shares. These four categories together<br />
accounted for 81 per cent of <strong>Sri</strong> <strong>Lanka</strong>’s total exports to <strong>China</strong> in 2012. <strong>Sri</strong> <strong>Lanka</strong> has a comparative<br />
advantage in producing textiles – there is a total of 248 product lines (at HS 6-digit level) for which<br />
<strong>Sri</strong> <strong>Lanka</strong> has a comparative advantage. In additi<strong>on</strong> to textiles, <strong>Sri</strong> <strong>Lanka</strong> has a comparative<br />
advantage in exporting vegetable products (65 product lines), wood and wood products (32 product<br />
87
lines) and foodstuff (28 product lines). These sectors need prominence in negotiating market access<br />
to <strong>China</strong>. Tariffs imposed by <strong>China</strong> show that different regi<strong>on</strong>al groupings and countries have<br />
received varying levels of preferential access via trade agreements. Therefore, it is important for <strong>Sri</strong><br />
<strong>Lanka</strong> to negotiate and agree up<strong>on</strong> tariff c<strong>on</strong>cessi<strong>on</strong>s with <strong>China</strong> that are greater or at least<br />
equivalent to the tariff reducti<strong>on</strong>s granted to other countries under various preferential agreements.<br />
88