China – Pakistan Free Trade Agreement

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China and Pakistan signed a free trade agreement (FTA) on Friday, which is projected to triple
their current bilateral trade to 15 billion U.S. dollars within five years.

Under the agreement, China and Pakistan will begin to reduce or eliminate tariffs on all products
in two phases from July 1, 2007.

During Phase I, both sides will reduce the tariffs on 85 percent of the products based on different
extents of tariff reduction within five years of the agreement entering into force, and 36 percent
of the products will be tariff free within three years.

During this phase, China will mainly reduce tariffs on livestock, aquatic products, vegetables,
mineral products and textiles, while Pakistan will mainly reduce tariffs on beef and mutton,
chemicals and machinery products.

Phase II starts from the sixth year of the entry into force of the agreement. Both sides will further
reduce tariffs on the products on the basis of a review of the implementation of the agreement.
The aim is to eliminate tariffs on no less than 90 percent of products, both in terms of tariff lines
and trade volume, within a reasonable period of time on the basis of friendly consultation and
accommodation of the concerns of both sides.

The Free Trade Agreement also covers investments, including investment promotion and
protection, treatment of investments, expropriation, compensation for damages and losses and
dispute settlement.

China and Pakistan launched negotiations on the agreement in April 2005. Over the past a year
and a half, the two sides have had six rounds of negotiations.

The deal would further upgrade bilateral trade and economic cooperation and inject new vigor
into the traditionally friendly relations between China and Pakistan, Chinese officials said.

China-Pakistan trade volume exceeded 4.3 billion dollars in 2005, representing a year-on-year
increase of 39 percent. The officials said the trade deal could triple bilateral trade to 15 billion
dollars within five years.

China mainly exports high-tech products, chemicals, plastics products and household appliances
to Pakistan, and imports textiles, leather and aquatic products from the south Asian country.
The conclusion of the FTA came after one and a half years of negotiations between the two
countries on market access for goods, rules of origin, trade remedies, sanitary and phytosanitary
measures, technical barriers to trade, investments and dispute settlement.

The agreement is the third of its kind reached between China and foreign countries after the
China-ASEAN FTA and the China-Chile FTA.

The deal was signed by Chinese Commerce Minister Bo Xilai and his Pakistani counterpart
Humayun Akhtar Khan, in the presence of Chinese President Hu Jintao and his Pakistani
counterpart Pervez Musharraf.

Hu arrived here on Thursday for a state visit at Musharraf's invitation. Pakistan is the last leg of
Hu's four-nation Asia tour, which has already taken him to Vietnam, Laos and India.

The visit also coincides with the 55th anniversary of the establishment of diplomatic ties between
China and Pakistan.