Dawn | 12 December 2023
China agrees to review Free Trade Agreement, boost yuan-based trade
by Mubarak Zeb Khan
ISLAMABAD: The Chinese government has agreed to consider a request to amend the existing Free Trade Agreement (FTA), supply trade finance in yuans and provide loans to assist industry relocation to Pakistan.
The requests were made during Pakistan’s Interim Commerce Minister Gohar Ejaz’s visit to China, where he is leading a 20-member group. Pakistan and China have come to a mutual understanding to revise the FTA.
This revision aims to extend comparable preferences to Pakistani products, aligning them with the existing agreement between China and the Association of Southeast Asian Nations (ASEAN) countries, Mr Ejaz told Dawn on Monday.
He said Pakistan will submit a priority list after consultation with the relevant stakeholders. “We will evolve the list in consultation with all stakeholders”, he said, adding that his Chinese counterpart has agreed to the requests.
Pakistan has formally approached the Chinese government urging them to allocate a substantial sum of $5 billion equivalent to RMB for financing investments aimed at facilitating the relocation of Chinese companies. The proposed funding would be structured under a “Pay as You Earn” framework allowing for repayment through the utilisation of export proceeds.
The relocation will be only made to the Special Economic Zones (SECZ) or Export Processing Zones (EPZ) in Pakistan. Chinese investors will actively pursue investment funds from their government and generate revenue in US dollars through the export of goods. These proceeds will then be utilised to offset the loan amount.
If the proposed scheme is given the green light, the minister has assured that Pakistan’s foreign exchange reserves will remain unaffected, thus alleviating any potential burden.
Yet another development, it was also agreed that an amount of $5bn equivalent to 30bn RMB will be available for trade finance immediately. The Chinese currency will be used for export and import to minimise reliance on US dollars.
Both sides also agreed to align import valuation data to remove discrepancies in trade figures.