The China–Pakistan Free Trade Agreement (CPFTA) is a free trade agreement (FTA) between the People's Republic of China and the Islamic Republic of Pakistan that seeks to increase trade and strengthen the partnership between the two countries.
Earlier agreements in the economic and trade relationship include the Preferential Trade Agreement (PTA) in 2003, the Early Harvest Program (EHP) in 2006, and the China-Pakistan Economic Corridor (CPEC) in 2015.
Background
The CPFTA has two phases. The initial phase was signed on 24 November 2006, and concluded in December 2012. The second phase was signed on 28 April 2019, and came into force on 1 January 2020. Phase two will conclude in 2024.
The objective of the first phase was to reduce tariffs on 85% of product lines, eliminating them completely on at least 36%. This phase increased bilateral trade between China and Pakistan by 242% between 2007 and 2018. Contrastingly, greater exports from China than from Pakistan caused Pakistan's trade deficit with China to rise from 25% in 2007 to 35% in 2018, or around $13 billion. Phase one also received criticism from domestic producers and business groups in Pakistan. The domestic industry communicated concern about the increased Chinese products competing with domestic producers. Pakistani business groups raised criticism about not being granted effective market access into the Chinese market. Phase two of the CPFTA seeks to address these criticisms, enhance the trade relationship between the two nations, and further liberalise trade. China and Pakistan aim to increase bilateral trade to US$15–20 billion by the completion of the second phase and eliminate tariffs on 75% of product lines.
First phase
In April 2005, the Former Prime Minister of Pakistan, Shaukat Aziz, and the Premier of China, Wen Jiabao, announced the commencement of negotiations towards an FTA. On 24 November 2006, former Chinese President, Hu Jintao, visited Pakistan and signed the CPFTA. The CPFTA was enforced on 7 July 2007. The first phase of the CPFTA concluded in December 2012 as negotiations for the second phase began in July 2013. The primary goal of the first phase was to provide tariff concessions on at least 85% of product lines and establish 36% of product lines as tariff-free.
Market access in the first phase
In the first phase of the CPFTA, China applied tariff concessions on 6418 product lines, and Pakistan implemented tariff concessions on 6711 product lines. Among other products, Pakistan mainly gained duty-free access to goods such as industrial alcohol, textiles, tiles such as marble, sports goods, medical equipment, fruits and vegetables, minerals such as copper and chromium, iron and steel products, and engineering goods. China also implemented a 50% tariff reduction for Pakistan on goods including fishery, dairy products, plastic goods, rubber products, leather articles, and knitwear. China gained duty-free access primarily to machinery, organic and inorganic chemicals, and raw materials. Pakistan also reduced tariffs to the 0-5% range on mainly iron, pharmaceuticals, fibres, electrical equipment, and rayon.
Pakistan also relaxed shareholding restrictions on Chinese investment in the construction, telecom, finance, distribution, health care, environmental protection, tourism, transportation, research and development, and IT education sectors. Chinese service providers will be allowed to hold 60 percent to 99.99 percent stakes in those sectors, in contrast with the normal cap of 40 percent to 51 percent of allowed foreign investment. Fifty-six sectors, including five major sectors in the fields of distribution, education, environment, transportation, entertainment, and sports were opened to Chinese providers for the first time. Chinese investors were also granted access to service markets in sub-sectors such as legal affairs, accountancy, architecture, printing and publishing, veterinary, and more.