WORLD TRADE  
ORGANIZATION  WT/REG237/4 
26 May 2011 
 (11-2622) 
Committee on Regional Trade Agreements Original:   English 
  
 
ECONOMIC INTEGRATION AGREEMEN T BETWEEN CHINA AND PAKISTAN 
(SERVICES) 
 
Questions and Replies
 
 
 
 The following communication, dated 25 May 2011, is being circulated at the request of the delegations of China and Pakistan.   This document reproduces the questions addressed to the Parties and the responses submitted. 
 
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Questions from the Delegation of the European Union
 
 Trade in services and investment
 
 
1. According to the chapter on liberalization commitments of the Factual Presentation 
(WT/REG237/3), it is understood that the Part ies added new commitments in some service 
sectors or sub-sectors compared to their GATS Schedules.   
Given the fact that RTAs falling under Article V GATS are required to establish a 
substantial sectoral coverage, and in order to  see the extent to which the criteria are 
fulfilled, could the Parties provide further explanation on the number of sectors covered by this Agreement or the volume of trade affected by liberalization commitments 
therein?   
 As for China's commitment under this Agreement, 11 sectors and 133 sub sectors are covered of which 56 sectors or sub sectors are improve d or newly added in comparison with its 
GATS schedule;  and   Pakistan's multilateral commitments include d 5 sectors and 46 sub-sectors which were 
substantially improved by committing 11 sectors and 107 sub-sectors.  Besides, commitments in 
Mode 3 were also considerably improved even  in sectors/sub-sectors multilaterally committed.  
  Due to technical limitations, there is no statistical data collected on the volume of trade affected by this Agreement.  
 
2. Overall, the Chinese commitments for services only cover new or improved 
commitments in eight services sectors/sub-sectors.  Overall, this presents a picture of limited 
sectoral coverage understood in terms of number of  sectors, volume of trade affected and modes 
of supply covered.  
Could China explain how this limited num ber of new/improved commitments is in 
accordance with the conditions established in Article V GATS on economic integration? WT/REG237/4 
Page 2  
 
   The commitments of Service schedule covers 11 sectors and the new or improved 
commitments are very substantial, which reveal th e spirit of progressive liberalization by taking into 
the consideration of current status in term of  service trade between China and Pakistan.  The 
Agreement itself is a living Agreement by setting up the Review clause. Along with the 
implementation of the Agreement, both Parties ar e committed to consider possibilities of further 
liberalization in certain sectors, which are deem ed as necessary and of mutual interests.  The 
Committee on Trade in Services will be continuously  convened annually to discuss the issues covered 
by the Agreement on Trade in Services, including th e possibility to further liberalize trade in services 
between Parties.  
 3. According to paragraph 42 on page 14 of the Factual Presentation (WT/REG237/3), it is 
understood that the Parties shall develop mutual recognition arrangements among professional or regulatory bodies by facilitating discussion and establish focal points in each Party (Article 6.3).  The Parties indicated that such focal points had not been established as at January 2011 and are to be established as appropriate.  
(a) Could the Parties provide further information on already existing mutual 
recognition agreements which the Parties have signed with other non-parties before this agreement and by when these focal points would be established? 
 China has signed mutual recognition agreements  on education with 34 countries before this 
Agreement was signed.  The detailed list of countri es and documents of the agreements can be found 
on the following website: 
 
 http://www.moe.edu.cn/publicfiles/business/htmlfiles/moe/moe_857/index.html
  
  Pakistan has signed a mutual recogn ition agreement with Malaysia under the 
Pakistan-Malaysia Comprehensive Ec onomic Partnership Agreement.  
 
 The Parties are in the process of consultations with their relevant bodies in order to identify 
the areas of interest for developing provi sions for mutual recognition arrangements. 
 
(b) Could the Parties provide information on what exactly this facilitation process 
has consisted of so far and which bodies have been involved? 
 In terms of Article 20 of the Agreement, a Committee on Trade in Services was established. 
This Committee reports to the Free Trade Commissi on (FTC).  The issues concerning implementation 
of the Agreement on Services were discussed during the FTC's meetings which were held twice since 
2009.  Both Parties envisaged fac ilitating development of mutual recognition arrangements under this 
Mechanism.  
 
(c) Could the Parties provide information on the sectors they are focusing on or how 
they will select specific sectors? 
 The Parties are in the process of consultations with its relevant bodies in order to identify any 
interest for developing this provision for specific sectors.  
 4. Regarding new commitments under R&D se rvices on natural sciences (CPC 8510), 
China excludes R&D services "listed in the Ca talogue of Prohibited Foreign Investment 
Industries of the Catalogue for the Guidance of  Foreign Investment Industries of China".  
(a) Could China clarify what this means given that the Catalogue is subject to 
frequent revisions?  WT/REG237/4 
 Page 3 
 
 
   Up to now from the entry into force of th e Agreement, the related content of the R&D 
services on natural sciences in the Catalogue has not been revised.   
(b) Does this mean that the Agreement is subject to the Investment Catalogue in 
force in 2007? 
 In China's commitment in R&D services under th e China-Pakistan Agreement, the exclusion 
is as follows:  excluding prohibited foreign inv estment industries defined in Catalogue for the 
Guidance of Foreign Investment Industries published by the Chinese government.  
5. The commitment on courier services states that the commitment does not apply to those 
services "currently specifically reserved to Chin ese postal authorities by law".  The 2007 
Investment Catalogue specifies this as domestic postal services.  
Could China clarify that this is the correct specification or if not what services were 
reserved to Chinese postal authorities by law both at the time of accession to the WTO 
in 2001 and at the time of entry into force of this Agreement? 
 
 The Agreement was signed in February 2009, a nd China has made partial commitments in the 
courier services, which is in line with the commi tments at China's accession to the WTO in 2001. 
According to the Postal Law effective as of 1986, posting and delivery services of mail and other articles with characteristics of mail shall be  exclusively operated by postal enterprises.  
 
6. Under the Agreement, represen tative offices in Pakistan cannot engage in any 
commercial or profit generating activity while this seems possible according to Pakistan's GATS 
schedule of specific commitments. 
Could Pakistan confirm whether this is the case, and if so, explain the reasons? 
 This provision is in accordance with Dome stic Regulations of Pakistan and does not 
undermine Pakistan's multilateral commitments, and less favourable treatment has not been accorded 
to China.  
7. Under the Agreement, Pakistan allows Chines e equity ownership up to 60% in most 
services sectors.  This represents an improvement with regards to its multilateral commitments, 
in particular, concerning some sectors like constr uction and distribution services where equity 
caps stand at 51% in Pakistan's GATS offer.  
Could Pakistan explain whether it considers that these improved commitments made at 
bilateral level could eventually lead to impr ovements in its multilateral commitments?    
 
 Pakistan's commitments at multilateral level would depend on the negotiations dynamics and 
outcome in other areas and may not rely merely  on what is done in bilateral agreements. 
 
Questions from the Delegation of the Separate Customs Territory of Taiwan, Penghu, Kinmen, 
and Matsu  
 8. As indicated in paragraphs 2-5 of pag es 1-3 of WT/REG237/3, China's commercial 
services trade with the world ran a constant tr ade deficit and Pakistan's services trade deficit 
continued to expand between 2000 and 2009.  In addition, China had a trade surplus with Pakistan. WT/REG237/4 
Page 4  
 
  (a) Given this pattern of negative development in trade in services over the last 
decade, how do the Parties see the Agree ment as helping to reduce their on-
going services trade deficits? 
 The improved market access provided by both Pa rties would help enhance bilateral trade in 
services and reduce trade deficit.  
(b) What sectors of China will benefit most from the Agreement? 
 China has obtained WTO plus market access in the Pakistani market for construction, 
telecommunications, finance, distribution, environmen t, health, tourism, transport, express delivery, 
R&D, computer, education and recreati onal, cultural and sporting services. 
 
(c) What sectors of Pakistan will benefit most from the Agreement? 
 Pakistan would benefit, especially in infrastru cture, computer & relate d services, educational 
services, research & development, tourism, sporting services and environmental services like sewage and cleaning services.  9. Paragraphs 12 and 14 of page 6 of WT/REG237/ 3 indicate that according to Article 24.1 
of the Agreement, a Party may deny the benefits  of the Agreement to service suppliers of the 
other Party where the service is being supplied by a juridical person owned or controlled by 
persons of a non-party or the denying Party,  and the juridical person has no substantial 
business activities in the territory of the other Party.  According to Article 24.2, a Party may 
also deny the benefits where the Party establis hes that the service is being supplied by a 
juridical person owned or controlled by persons of  a non-party, and that the denying Party does 
not maintain diplomatic relations with the non-party. 
(a) What is the definition of "substantial business activities" as it applies in the 
Agreement?  Could the Parties please elaborate further on the criteria used in 
evaluating "substantial business activities"? 
 Article XXVIII (m) of GATS includes the concept "substantive business operations".  The 
Parties understand that "substantive business activities" in  this Agreement is in line with "substantive 
business operations" in GATS . 
 
 Denial of benefits is subject to prior notif ication and mutual consultation in accordance with 
Article 24.  
(b) Why does the provision in the Agreement regarding the denial of benefits refer 
specifically to non-parties with whom th e Parties do not maintain diplomatic 
relations?  Does this not constitute the creation of trade barriers as far as 
non-parties not maintaining diplomatic rel ations with the Parties are concerned? 
 This provision has been included to ensure th at the benefit of market access to third parties 
may not accrue as a result of their presence th rough "shell companies" and "mail box companies."  
This provides further clarity to the ru les of origin for trade in services. 
 10. As indicated in paragraph 41 of page 14 of WT/REG237/3, Article 5.4 stipulates that the 
Parties shall consult periodically with the aim of removing any remaining citizenship 
requirements for the licensing or certificat ion of each other's services suppliers.  WT/REG237/4 
 Page 5 
 
 
  (a) Which service sectors of the Parties are subject to citizenship requirements for 
the licensing or certification of service suppliers under the Agreement?  Could a 
foreigner's permanent residence be used in lieu of these requirements? 
 Both Parties have established a Free Trade Commission (FTC) and the Committee on Trade 
in Services.  The related issues could be discussed in the above mechanism. 
 
(b) Have any consultations been undertaken in this regard and, if so, what have 
been the results?  If none have yet taken place, do the Parties envisage holding consultations in the near future, and whic h sectors do the Parties expect to deal 
with first? 
 Since no problem was identified by either Party,  this issue did not come up for consultations 
in the previously held meetings of the Free Trade Commission (FTC).  
11. Paragraph 8 of page 5 of WT/REG237/3 indi cates that there is an upward trend in 
China's outward investment with Pakistan, reach ing US$1.068 billion in 2007.  This amount of 
investment in 2007 represented substantial growth of more than seven times the level of the 
previous year. 
(a) What were the main drivers of the aforementioned substantial growth in 
outward investment? 
(b) What were the main sectors covered by this investment surge in 2007? 
The outward investment to Pakistan in the sectors of telecommunication, construction, mining 
and quarrying, electrical machinery is the main drivers of the growth. 
 
Questions from the delegation of the United States
 
 12. Paragraph 12 of the Factual Presentation descri bes certain definitions applicable to the 
Agreement.  Juridical persons of the two Parties are defined under the Agreement as those that 
are "constituted or otherwise organised under the la w of the country of that other Party, and [ ] 
engaged in substantive business operations in the t erritory of the country of that other Party" 
(Article 1).  At the same time, in Article 24, the Parties have provided that they may deny the benefits of the Agreement to certain juridica l persons of the other Party that have "no 
substantial business activities in the territory of the other Party." 
(a) Why did China and Pakistan include a denial of benefits exception in 
Article 24.1(a), when juridical persons that do not have substantive business operations in the territory of the oth er Party would already be excluded from 
the Agreement's scope (they would not satisfy the Article 1 definition of 
"juridical person of another Party")? 
 The provision in Article 24.1(a) is consistent with the definition of "juridical persons" in 
Article 1 of the Agreement.  Both the provisions re-enforce each other.  
(b) Do the Parties consider the terms "substantive business operations" and 
"substantial business activities" to mean different things?  If so, how do Parties interpret these two standards? WT/REG237/4 
Page 6  
 
   Article XXVIII (m) of GATS includes the concept "substantive business operations".  The 
Parties understand that "substantive business activities" in  this Agreement is in line with "substantive 
business operations" in GATS . 
 
13. Table I.1 of the Factual Presentation provi des sector-specific data on commercial 
services trade between the two Parties.  Accord ing to these data, communications and financial 
services are amongst the least traded services betw een the Parties, accounting for less than 3% 
of Parties' two-way trade in commercial services.   Further, Tables II.2 and II.1 note that, while 
Pakistan has improved upon its GATS commitments in these two sectors, China has undertaken no new or improved commitments. 
(a) Could the Parties explain why, unlike Pakistan, China did not strive to achieve 
any new liberalization under the Agreeme nt in communications and financial 
services, as a means of stimulating trade in two sectors in which current trade between the Parties is currently so low?  
 The current commitments in the telecommunica tion sector are based on the mutual agreement 
between China and Pakistan.  Pakistan side agr ees with the current commitments made by China. 
 
(b) With respect to its commitments in te lecommunications, China's schedule under 
the Agreement inscribes the following mode  1 limitation for all its commitments 
in the sector:  "See Mode 3."  Could the Parties clarify what this means?  Specifically, what do China's commitments in mode 3 have to do with its 
commitments (or lack thereof) in mode 1?  What commitments, if any, does 
China have under the Agreement for telecommunications services supplied 
through mode 1? 
 "See Mode 3" means the limitation on cross-border supply and on commercial presence are 
the same.  China reserves such kind of limitations in Mode 1 with the aim of better protecting the 
benefits of China's consumers and the commitment s under China-Pakistan Agreement is the same as 
the China's commitments in the WTO.  
14. Paragraph 28 of the Factual Presentation d escribes Pakistan's horizontal commitments 
under the Agreement, and how those commitment s compare to those it has undertaken under 
the GATS.  It notes that Pakistan has inscribed a new horizontal limitation – not present in its 
GATS schedule – that prohibits representative o ffices from partaking in commercial, financial, 
or profit-generating activity. 
Could the Parties explain why Pakistan has included this new limitation, which appears 
to provide China's mode 3 service suppliers l ess favorable treatment that Pakistan is 
obligated to provide on an MFN-basis to the services suppliers of all WTO Members? 
 
 This provision is in accordance with Dome stic Regulations of Pakistan and does not 
undermine Pakistan's multilateral commitments.  Therefore no less favourable treatment has been accorded to China.  15. Paragraph 33 of the Factual Presentati on describes the specific commitments 
undertaken by Pakistan under the Agreement with resp ect to distribution services.  It notes that 
Pakistan has inscribed the following general discl aimer in its schedule, applicable to all its 
commitments in the sector:  "Any future domestic  regulations, applicable to the foreign service 
suppliers/ juridical persons, shall be inscribed in  this Schedule under the column of Limitations 
on National Treatment."  WT/REG237/4 
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  (a) Could the Parties explain what this di sclaimer means?  In particular, would 
Pakistan be required to inscribe any fu ture domestic regulations, even where 
they do not affect Pakistan's spec ific commitments under the Agreement 
(for example, a new regulation that is applied in a non-discriminatory manner and does not create any new ma rket access restrictions)? 
 This has been agreed between the Parties and th e provision is inserted in order to incorporate 
the Domestic Regulations in the areas (such as Distribution Services) where these do not exist at 
present.  
(b) How would such new inscriptions occur in  practice?  The Agreement does not 
appear to contain any specific provisions for amendment of Parties' specific 
commitments.  Would Parties both have to agree on any changes to Pakistan's 
schedule, or could Pakistan amend its schedule unilaterally? 
 This would be done as per Articles 19 and 20 of the Agreement.  
 16. Paragraph 42 of the Factual Presentation describes the Agreement's provisions on 
recognition of qualifications.  It notes that Parties have undertaken a binding obligation to "develop mutual recognition arrangements am ong professional or regulatory bodies, and 
establish focal points in each Party."  It furth er notes that the Parties have not, more than one 
year after entry into force of the Agreem ent, yet established such focal points. 
(a) What steps are the Parties taking, indi vidually and together, to fulfil the 
Article 6.3 obligation to "facilitate development of mutual recognition 
arrangements among professional or regulatory bodies?" 
 The Parties are in the process of consultations with their relevant bodies in order to identify 
the areas of interest for developing provisi ons for mutual recognition arrangements.  
 
(b) What impediments have prevented the Parties from carrying out their 
obligation under Article 6.3 to appoint focal points for facilitating discussion and for information exchange? 
 There have been no impediments identified and the process is ongoing.  Both Parties plan to 
establish the focal points during the meeting of Ch ina and Pakistan Free Trade Commission in order 
to appoint focal points for facilitating discussion and for information exchange. 
 
17. Paragraph 52 of the Agreement describes th e dispute settlement procedures applicable 
to the Agreement's services obligations.  It note s that Chapter 10 of the Parties' agreement on 
goods apply to the services Agreement, as do th e Article 53 state-to-state dispute settlement 
procedures under their agreement on goods' chapter on investment. 
Could the Parties explain why they did not al so incorporate the Article 54 procedures of 
their goods agreement relating to dispute settlement between one Party and the investors of the other Party?  Why was this procedural mechanisms made available to investors in good sectors, but not to  investors in se rvices sectors? 
 
The Agreement on Trade in Services was negotiated as a stand alone Agreement and by 
consensus of Parties, the provisions of Chapter 10  relating to Dispute Settlement of the bilateral 
Free Trade Agreement were incor porated into this Agreement. 
 
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