WORLD TRADE  
ORGANIZATION  WT/REG237/M/1 
4 May 2009 
 (09-2149) 
Committee on Regional Trade Agreements 
Fifty-third Session  
 
 
 
CONSIDERATION OF THE FREE TRADE AGREEMENT  
BETWEEN PAKISTAN AND CHINA, GOODS  
 
Note on the Meeting of 20 April 2009  
 
Chairman: Mr D. Brauns (Germany) 
  
1. The meeting was convened in document WTO/AIR/3332/Rev.1, dated 1 April 2009. 
2. Under Agenda Item C.VI of its 53
rd Session, the Committee on Regional Trade Agreements 
(hereinafter CRTA or the Committee) took up cons ideration of the Free Trade Agreement between 
Pakistan and China (hereinafter 'the Agreement'), goods.  
3. The Chairman  said that the Agreement had entered into force on 1 July 2007 and had been 
notified by the Parties to the WTO on 18 January  2008 under Article XXIV:7(a) of GATT 1994 and 
the Understanding on the Interpretation of Article  XXIV as an Agreement establishing a free-trade 
area (document WT/REG237/N/1).  The text of the Agreement, together with its Annexes, was 
available on the Parties' official websites.  The Factual Presentation on goods aspects (document WT/REG237/1, dated 1 December 2008) had been  prepared by the Secretariat on its own 
responsibility in full consultation with the Parti es, in accordance with paragraph 7(b) of the 
Transparency Mechanism (TM) fo r Regional Trade Agreements (doc ument WT/L/671).  In addition, 
written questions and replies on the Agreement had been recently distributed in document 
WT/REG237/2, dated 13 March 2009.  He proposed to  organize the consideration of the Agreement 
by asking first the Parties and then other Member s to give any general comments.  The Committee 
would then turn to the specifics of the Agreement using the Factual Presentation to guide the debate.  
He proposed to go through the Factual Presentation by section, and then through the questions and 
replies document.  
4. The representative of China
 thanked the WTO Secretariat for the Factual Presentation and 
Australia, Chinese Taipei, the Eur opean Communities, Turkey, and th e United States as well as other 
Members for their interest and questions.  He al so thanked Pakistan for the close and fruitful 
cooperation during the consideration process.  China had started building its FTA network in 2003.  
FTAs had become a new tool of China's policy of openness and domestic reform.  China believed 
FTAs were effective platforms to integrate its economy into the global one, and strengthen economic 
cooperation with other economies.  Moreover, FTAs supplemented the multilateral trading system.   
5. The Parties had always maintained sound and st able bilateral relations. Over the years, 
Pakistan had always been an impor tant trading partner for China in South Asia, and bilateral trade and 
economic cooperation had enjoyed sound developmen t momentum.  From 2003 to 2007, bilateral 
trade had grown from US$2.4 billion to US$6.9 billion.  The Parties had launched the FTA 
negotiations on 5 April 2005.  After six rounds of  negotiations, the Agreement had been signed on 
24 November 2006 and had entered into force on 1 July 2007.  The Agreement mainly covered trade 
in goods and investment.  The Parties had decided to  proceed with liberalization of trade in goods in a WT/REG237/M/1 
Page 2  
 
  prudent and pragmatic manner.  The decision was based  on the fact that the Parties were developing 
countries with large populations and similar econom ic structures, and with a view to ensuring a 
smooth transition and reducing the adverse impact of the Agreement.  Therefore, the Parties had decided to eliminate tariffs in two phases.  Under the first phase, from 1 Ju ly 2007 to January 2010, 
the Parties would eliminate duties on 36% of tariff lines.  From 1 July 2007 to 1 January 2012, they 
would reduce tariffs on 50% of lines to either 0-5% or by a margin of preference of 50% and 20%.  
Moreover, the Parties had still committed to do the utmost to accelerate the liberalization process 
when appropriate.  The first phase of tariff elimin ation and reduction would be  completed by 2012.  
Before 2012, the Parties would re-negotiate to d eepen liberalization in goods for the second phase of 
the Agreement, for which the Parties would endea vor to eliminate tariffs on no less than 90% of 
products both in terms of tariff lines and trade volume within a reasonable period of time.  He 
believed that such tariff elimination would fulf ill the requirement of “eliminating duties on 
substantially all the trade” under GATT Article XXIV.  The Agreement also co ntained an Investment 
Chapter, which not only provided protection to inv estment, but also contained an incentive package 
for investment.  Following its entry into force, the Agreement had been welcomed by the business 
communities of the Parties.  According to Chin a’s trade statistics, during the first year of 
implementation, from July 2007 to June 2008, bilate ral trade volume had reached US$7.2 billion, an 
increase of 18.5% in comparison with US$6.1 billion in  the previous period.  The Agreement had also 
contributed to a steady growth in FDI between the Parties.  In December 2006, the Parties had 
launched negotiations on trade in services; the Agr eement on services had been signed on 21 February 
2009.  It would enter into force in the near futu re and would be notified to the WTO in a timely 
manner.   
6. The representative of Pakistan
 thanked the Secretariat for the Factual Presentation.  He 
believed that transparency and predictability were  the main pillars in the rule based multilateral 
trading system and supported the Transparency Mechanism for Regional Trade Agreements.  The 
Parties to the Agreement had enjoyed all-weather friendship and deep political relations for almost 
six decades.  The relationship had began to tran slate into equally deep trade, commercial and 
economic relations in the beginning of 2004.  In th at year the Parties had signed a preferential trade 
agreement (PTA) based on a positive-list approach  and market access offers on selected commodities 
on a margin of preference basis.  At that time, th e political leaders of the Pa rties had already decided 
to negotiate a comprehensive free trade agreemen t.  A joint study had been initiated with an 
understanding to launch an early harvest programme at  the conclusion of the study.  The early harvest 
programme had been signed in 2005 and had been implemented on 1 January 2006.  The phase-out 
period for tariff reduction (and in certain cases elimina tion) had been two years in three stages within 
the given time frame.  Before implementing the pr ogramme, the Parties had discussed the architecture 
for a comprehensive bilateral free trade agreemen t covering goods and investment, which had been 
implemented on 1 July 2007.  It had been also de cided that tariff elimination in the early harvest 
programme would still follow the pre-determined phase-out period.  For all other goods, tariff 
elimination was to be completed within three years,  i.e. by  1 January 2010.  There would also be 
categories of goods for which tariffs would be re duced substantially.  Despite the Parties being 
developing countries, it had been decided to cover 90% of bilateral trade as well as 90% of tariff lines 
in a phased programme.  At the time of signing the Agreement, bilateral trade had been concentrated 
in a small basket of goods, as had been reflected in the Factual Presentation.  Pakistan was making 
efforts to diversify its international trade, as wa s evident from the share of textiles which had fallen 
from over 64% in 2006 to slightly over 50%, although there had been a considerable increase in overall exports.  The Parties thus had agreed th at such diversification would be taken into 
consideration when the second phase of tariff reduction/ elimination was launched.  He believed that in 
this manner the Agreement would be dynamic in na ture, reflecting the spirit of GATT Article XXIV.  
 
  WT/REG237/M/1 
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  7. The Parties had recently signed an Agreement on trade in services which they had ratified to 
further deepen their economic and trade relations.  It would be operational by August 2009.  The 
Agreement on trade in services was ambitious in te rms of liberalization and the Parties had gone 
beyond their existing GATS commitments and their resp ective offers in the Doha Negotiations.  The 
Parties would notify it to the WTO shortly. 
8. Noting the current global financial crisis, he  said that countries were putting in place 
non-tariff barriers with protectionist sentiments beco ming visible.  Since the Agreement required the 
applied tariff in 2006, which was much below th e WTO bound rates for most tariff lines as the base 
rate for applying tariff reductions, a deviation from this level or the adoption of protectionist measures 
in the Agreement would be prohibited.  Furthermor e, the rules of origin under the Agreement were 
simple, transparent and easy to understand.  Va lue addition of 40% was required for attracting 
preferential tariffs.  As the basket of exportable goods was enlarged, there could be a possibility to 
soften the criteria for certain tradable goods.  T hus, there was room to negotiate products specific 
rules.  Since 2004, the Parties had honoured all th eir commitments and had implemented all their 
obligations without any change and within the agr eed time frame.  He was co nfident that the Parties 
would launch the second phase of the Agreement soon.  
9. The representative of the European Communities  (EC) thanked the Parties for the 
presentation of the Agreement and for their replies provided to the EC's questions.  The EC expressed 
disappointment on the low level of ambition in tari ff reductions.  The first phase of tariff reductions 
was to be completed within five years, with a s ubsequent review and modification of the reductions 
scheduled in 201, or beginning of 2012.  During th e first phase, Pakistan had committed to liberalize 
only 36.4% of tariff lines, corresponding to 45.4% of imports from China.  It meant that 63.6% of 
Pakistani tariffs lines remained subject to duties.  In  the case of China, a total of 35.4% of tariffs lines, 
corresponding to 30.3% of imports from Pakistan would be liberalized.  Among the products excluded 
from tariff liberalization were some of the most trad ed products between the Parties.  For example, as 
paragraph 7 of the Factual Presentation noted, te xtiles alone had accounted for 72.5% of China's 
imports from Pakistan in the period 2004-2006.  In their written replies,  the Parties had confirmed that 
there was no plan or schedule available for the completion of the FTA and they would endeavor to reach consensus on a reasonable and relatively short period of time to form a complete FTA.  In 
addition, the Parties had said in their written repli es that the exact proportion of tariffs and trade 
between agricultural and non-agricultural sectors w as up to future negotiations under the second 
phase, suggesting that the Committee was consider ing an "imaginary" FTA, an agreement whose 
terms and conditions had not been yet agreed.  In her delegation's view, the indication that the final 
Agreement, which was in fact after the second phase,  would cover no less than 90% of tariffs and 
trade was an unsubstantiated statement with no su pporting evidence.  The Committee needed facts 
and not intentions, and the Parties could not make the Committee pretend to consider an Agreement 
that had not yet been negotiated.  The only provi sions which would be considered by the Committee 
were those related to the first phase which woul d liberalize only about 35% of tariff lines for both 
Parties.  The EC sensed that Members would agree that the Agreement could not satisfy the requirements of Paragraph 8(b) of Article XXIV of GATT 1994 to liberaliz e "substantially all the 
trade".  Even if WTO Members had not yet agreed on a common interpretation of such terminology, they, including the Parties to the Agreement, w ould all agree that 35% could not represent any 
ordinary meaning of "substantially all the trade".  The Parties' reply to question number 16 noted that 
the EC should not judge compliance by the Agreement by focusing only on one part of it.  However, 
there was no other part of the Agreement to look at.  The EC thus asked the Parties to explain in detail 
the ultimate objective of their FTA and their interest to engage in the Agreement, given that the vast 
majority of tariff lines were not covered under the Agreement and the most traded products were 
excluded.   
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Page 4  
 
  10. The representative of the United States
 thanked the Parties and the Secretariat for the 
materials provided for the consideration of the Agre ement, which was very helpful and contributed to 
transparency.  In terms of substantially all the tr ade coverage, the United States had thought they had 
seen the worst in the previous CRTA.  They had used  the words 'egregious' a nd 'abysmal' in noting the 
extremely poor level of c overage apparent in those previous agreements.  He r delegation was now lost 
for words to express the coverage that was regret tably even worse.  Several Members had raised 
concerns about the compatibility of the Agreement with the substantially all trade requirement under 
GATT Article XXIV.  Instead of explaining how such poor coverage could possibly satisfy the 
rigorous standards, the Parties appear ed to affectively acknowledge that in  fact it did not satisfy them.  
Instead, they appeared to be saying "do not worry about  substantially all the trade, we will get there at 
some point".  However, this was plainly unacceptable under the terms of GATT Article XXIV.  She 
expressed disappointment for the fact that the Parti es instead of explaining how such poor coverage 
could possibly satisfy GATT provisions appeared to  make light of the substantially all trade 
requirement.  The United States believed that an ag reement that provided for open-ended negotiations 
that "might" result in additional elimination of tari ffs could not constitute an  agreement establishing 
or leading to the formation of an FTA.  GATT Article XXIV and its Understanding made it 
abundantly clear that where an agreement provide a schedule for tariff elimination on substantially all 
trade, it was not entitled to the protection of this provision, unless and until such a schedule was put 
into place.  Otherwise, the disciplines of GATT Ar ticle XXIV, which were needed to preserve the 
MFN and other rights of other Members, had no meani ng.  The Parties seemed to have avoided all the 
difficulties of liberalizing trade and had gone straight  to highly selective tariff liberalization, violating 
the rights of other WTO Members without any basis in GATT Article XXIV.  According to paragraph 
5 on page 18 of the Factual Presentation, even in  the case that the first phase of the Agreement was 
fully implemented under the current terms, 12 out of  Pakistan's top 25 exports, including certain 
textiles and clothing articles, petroleum oils and rice, were excluded from trade liberalization by China.  According to paragraph 7 on page 19 of  the Factual Presentation, 17 out of China's top 
25 exports were excluded from tariff liberalization by Pakistan.  It was difficult to imagine under what 
circumstances such a result would be consistent with calling this a free trade agreement.  She 
acknowledged that all WTO Members had their own sensitiveness, however, at least by the United 
States' experiences and observations, FTAs with li mited coverage or significant carve-outs only 
solidified such sensitivities over time complicating the effectiveness of the multilateral system and 
arguably preventing progress.  Members should not be able to secure safe haven under Article XXIV 
with an agreement including such limited tariff elimination.  
11. The representative of the European Communities
 (EC) asked the Parties to further clarify the 
answer provided to question number 17, where they  confirmed that there were no provisions on 
export duties and taxes under the Agreement.  He r delegation understood from this that export duties 
and taxes could be applied to trade between the Pa rties, and asked how many tariff lines exactly and 
how bilateral trade might be affected by the appli cation of such duties and taxes.  Additionally, she 
asked how the Parties intended to ensure complianc e with the obligations of GATT Article XXIV to 
eliminate duties and other restrictive regulations of commerce on substantially all their trade.  In this 
regard, she underlined the obligations in GATT Article XXIV to cover export duties in the 
liberalization commitments.  The representative of China  responded that under the Agreement there 
were no provisions on export duties and taxes; thus he  considered the EC's question irrelevant to this 
meeting and invited the EC to raise the question in other fora, such as the Trade Policy Review Body.   
12. Responding to concerns on substan tially all the trade coverage raised by the United States and 
the EC, the representative of Pakistan  emphasized that the Agreement, which was dynamic, aimed to 
achieve liberalization of 90% of both tariffs and tr ade in time through future negotiations.  Moreover, 
he noted that the Parties intended to increase the basket of goods on which to eliminate tariffs.  
Recalling the intervention by China, he stressed that a second phase would follow from the first phase 
under which it had been already agreed to reduce du ties on 50% of tariff lines.  These were the lines 
on which tariffs would ultimately be eliminated during the second phase.  Pakistan believed that a  WT/REG237/M/1 
 Page 5 
 
 
  very small percentage of tariff lines would remain dutia ble.  He further noted that about 86% of tariff 
lines were already subject to tariff reduction below th e MFN applied rates.  With regards to textiles 
products of interest to Pakistan, those tariffs lin es not fully covered under the Agreement related to 
cotton and yarn, since Pakistan wished to in crease high-value production for export; thus tariff 
liberalization had been concentrated in value-added textiles products.   
13. The representative of the EC  took note of the replies provided but noted that clarifications on 
the exact terms and conditions of the Agreement ha d not been provided.  She asked the Parties to 
elaborate further on how they intended to achieve the objective of tariff liberalization of 90%.  The 
EC could at present only give an opinion on the fi rst phase, as it was the only part of the Agreement 
for which details of tariff libera lization existed.  On the question on export duties and taxes, the EC 
had already raised the issue in other fora, such as the Trade Po licy Review Body, but since GATT 
Article XXIV also set out obligations on export du ties in the liberalization commitments, she believed 
the CRTA to be the appropriate body to address such  a issue.  She urged the Parties to provide 
comprehensive replies on the ultimate objectives of  the Agreement in order for the Committee to 
consider it.  The representative of China  replied that the time period of the second phase depended on 
future negotiations between the Parties, and noted that the first phase was only five years, a quite 
limited timeframe if compared with other RTAs wh ere implementation roughly last ten years or even 
more.  The Parties had accelerated tariff liberalization in the first phase.  He reiterated that tariff liberalization consisted of two parts:  one was the total elimination, th e other was reduction of tariffs.  
Tariffs which were to be eliminated under the second  phase were limited, and thus would be easy to 
remove them in a shorter period.  Re garding the coverage of substantiall y all the trade, he stressed that 
currently there was no an agreed definition or criteri a.  The approach used by the Parties was "the 
more, the better", thus the final target of 90% liber alization both in terms of tariffs and trade in the 
second phase, which the Parties endeavoured to achie ve, permitted the Agreement to be qualified as a 
high quality FTA.  Regarding the question on export duties, he believed that since there were no 
provisions under the Agreement, this would not lead to discrimination against other trading partners.  
If the EC wanted more detail on this issue, it coul d raise it in writing, and China committed to respond 
to it at a later stage.  The representative of the EC
 thanked China and asked for a reply in writing on 
export duties and on all the other issues as she rema ined convinced that the Agreement could not be 
considered as it was an FTA that had not yet been completed. 
14. The Chairman  noted that the consideration of the goods aspects of the Free Trade Agreement 
between Pakistan and China had allowed the Comm ittee to clarify a number of questions and oral 
discussion of the Agreement could be concluded in accordance with paragraph 11 of the TM.  If any 
delegations wished to ask follow-up questions they we re invited to forward submissions in writing  to 
the Secretariat by 27 April 2009 and the Parties were asked to submit replies  in writing by no later 
than 4 May 2009.  In accordance with paragraph 13 of the TM all written submissions, as well as 
minutes of the meeting would be circulated promptly , in all WTO official languages, and would  be 
made available on the WTO website. 
15. The Committee took note  of the comments made. 
__________