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Russia may sign PTA or FTA with Pakistan

Business Recorder, Pakistan

Russia may sign PTA or FTA with Pakistan

15 July 2012

By Ghulam Abbas

The Russian Federation, which ratified its accession to World Trade Organisation (WTO) a few days ago, may also agree to sign a Preferential Trade Agreement (PTA) or a Free Trade Agreement (FTA) with Pakistan.

Russia has previously been reluctant to sign agreements such as PTA and FTA with Pakistan, linking the issue with its accessions to WTO, despite a proposal by Islamabad. However, Moscow may change its former stance after the fresh development. Russian lawmakers on Tuesday voted to ratify the country’s accession to WTO as 156th member after 18-year-long negotiations.

In the absence of such agreements, Pakistan’s share in the huge import market of Russian Federation was no more than 0.07 pc. Though there are many other issues including lake of liberalised visa policy, banking facility, land route hindering besides the high import duties in Russia, Pakistan was considering FTA or PTA with the foreign country to enhance it share in huge import market of Moscow. Pakistan’s textile sector could benefit the most after the agreement as Russia would be cutting import tariffs and opening up its key sectors of economy to foreign investors.

According to sources at Ministry of Commerce (MoC) as such agreements between a member and non-member of WTO always face technical/procedural hindrances due to bindings with rule of the international organisation; Russia was also reluctant to go into any agreements with Pakistan.

Trade between Russia and Pakistan has the potential of substantial expansion. In order to get it realised, Pakistan had proposed to the Russian Federation the initiation of negotiations on a bilateral FTA preceded by an early PTA.

In response to Pakistan’s proposal, the Russian side expressed their reservations by linking the issue with accessions to the WTO which was under consideration in the WTO since 1995. The Pakistan side took the following position which was conveyed to the department of trade negotiations of the ministry of trade of the Russian Federation.

Keeping in view Russia’s condition of linking the FTA with its accession to WTO, Pakistan highlighted the compatibility of the FTAs with article XXIV of General Agreement on Tariff and Trade (GATT), the Russian side was informed that the above article provides for the contracting parties to establish customs unions and FTAs for trade liberalisation under the WTO regime. The Russian department of trade negotiations was further informed that service sector and investments have also been included in regional and bilateral FTAs through the General Agreement on Trade in Service (GATS).

Furthermore, after the stalemate in Doha Development Agenda (DDA), the FTAs and Regional Trade Agreements (RTAs) have become a preferred mode of trade liberalisation. Russian side was further informed that EU is also explicitly indicating its inclination for FTAs with some Asian economies such as China, Korea and India.

However, the Russian responded by reiterating that the negotiations on the proposed FTA should begin only after Russia’s accession to WTO. According to them, in order to meet the requirements of para-4-10 of the Article XXIV of the GATT, "the contracting parties must extend symmetric concessions to each other which should cover practically whole of trade". The PTA covering selected segments of trade for tariff concession can be concluded only between the two developing countries. They further explained that the agreements between the developed and the developing countries with one way concessions (besides the scope of GSP), covered under the "Enabling Clause" provide for differential and favourable treatments and need waiver of WTO, approved by at least three quarters of its members.

The Russian, however, had agreed that the two countries could enter into a frame work agreements designating only mechanism of liberalisation without providing the respective positions on market access or any concessions. They have shown readiness to agree on a bilateral working group for discussion on the basic principles and contents of the proposed agreements.

In the meantime, the Russian side has also conveyed its observations on the Draft PTA forward by Pakistan. The Pakistan side provided necessary clarifications to the points raised and incorporated references from WTO agreements as required by the Russian side. The revised draft PTA was forwarded to the Russians for their consideration.

Simultaneously, as a part of the process of accession to WTO, Pakistan had requested Russia for tariff concessions on certain items of exports to Russia against Pakistan’s support to Russia’s accessions to WTO. In return, the Russian Authorities offered inclusion of Pakistan into their Generalised System of Preferences (GSP) which provides for 25 percent concession on current MFN Tariff. Russia also agreed to grant Pakistan the initial negotiating rights (INRS) on certain products. The Government of Pakistan consented to Russians’ accession to WTO and our mission in Geneva was authorised to sign necessary protocol. Russian Ministry of trade later informed that they were still in the process of analysing the economic consequences of creation of FTA with Pakistan.

MoC had been requested to analyse Russia’s point of view on the proposed PTA/FTA with regard to their invocation of para-4-10 of article XXIV of GATT as mentioned above.

However, the leaders of Pakistan and Russia, this year expressed the willingness to speed up work on the proposed FTA and currency swap arrangement to boost bilateral trade and further strengthen their economic ties. Former Prime Minister Syed Yousuf Raza Gilani and Russian Prime Minister Vladimir Putin, who had a frank discussion, had discussed the whole gamut of relations on the sidelines of the 10th Heads of Government meeting of the SCO.

Pakistan has negative trade balance with Russia. Islamabad’s major exporting products to Russia are cotton, fruits, cereals, manmade staple fibers, textiles, leather products, sports goods, surgical, ores, slag and ash etc. Our major importing products from Russia are fertilisers, iron and steel, rubber and articles thereof, paper and paperboard, machinery, nuclear reactors, boilers, copper and articles thereof, edible vegetables, manmade staple fibers, organic chemicals, lead and articles thereof etc.