Russia offered inclusion of Pakistan into Generalised System of Preferences which provides for 25 per cent concession on current MFN Tariff Russia, which is likely to join the World Trade Organization (WTO) this month after at least 18 year long negotiation, may also agree to sign Preferential Trade Agreement (PTA) or Free Trade Agreement (FTA) with Pakistan after the former’s accession to WTO.
Expanding markets: Despite the proposal made by Pakistan to sign the PTA/FTA for enhancing existing bilateral trade, Russia was reluctant to accept the offer expressing its reservations by linking the issue with accessions to WTO which was under consideration. In the absence of such agreements, Pakistan’s share in the huge import market of Russian Federation was no more than 0.07 per cent. According to available data, Pakistani exports had however shown little increase during the last three years as Islamabad has exported $144 million worth of goods in 2010 as compared to $127 million in 2008. Imports from Russia decreased from $583.8 million in 2008 to $156.8 million in 2010 indicating a decrease of 73 per cent during last three years.
Bilateral free trade agreement: Although there were many other issues including lack of liberalised visa regime, banking facility and land route to enhance bilateral trade, PTA and FTA were considered major steps in strengthening trade ties. In order to finalise the deal, Pakistan has proposed the Russian Federation for the initiation of negotiations on a bilateral free trade agreement (FTA) preceded by an early preferential trade agreement (PTA).
Addressing hurdles: In response to Pakistan’s proposal, the Russian counterparts expressed their reservations by linking the issue with their accessions to WTO which is under consideration in WTO since 1995. Pakistan took the following position which was conveyed to department of trade negotiations of ministry of trade of Russian Federation. Keeping in view Russia’s condition of linking FTA with its accession to WTO, Pakistan highlighted the compatibility of 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 WTO regime. Russian department of trade negotiations was further informed that services sector and investments have also been included in regional and bilateral FTAs through General Agreement on Trade in Service (GATS).
The Doha stalemate: Furthermore, after the stalemate in Doha Development Agenda (DDA), FTAs and RTAs have become a preferred mode of trade liberalisation. For instance Pakistan has concluded FTAs with China and Sri Lanka and the USA, which has entered into FTA with Chile, Singapore and Jordan. Russians were further informed that EU is also explicitly indicating its inclination towards FTAs with some Asian economies like China, Korea and India.
Russian accession to WTO: Russians responded by reiterating that negotiations on the proposed FTA should begin only after Russia’s accession to WTO. According to them, in order to meet 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 bulk of trade”. PTA covering selected segments of trade for tariff concessions can be concluded only between the two developing countries. They further explained that agreements between developed and the developing countries with one way concessions (besides the scope of GSP), covered under the “Enabling Clause” provide for differential and favourable treatment and need waiver of WTO, approved by at least three quarters of its members. Russians however, agreed that Russia and Pakistan can enter into a frame work agreement designating only the mechanism of liberalisation without providing the respective positions on market access or any concessions. In the meantime, the Russian side has also conveyed their observations on Draft PTA forwarded by Pakistan. Pakistan provided necessary clarifications to points raised and incorporated references from WTO agreements as required by the Russian side. Revised draft of PTA was forwarded to Russians for their consideration.
Scrutinising economic implications: 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, Russian Authorities offered inclusion of Pakistan into their Generalised System of Preferences (GSP) which provides for 25 per cent concession on current MFN Tariff. Russia also agreed to grant Pakistan initial negotiating rights (INRS) on certain products. Government of Pakistan consented to Russians accession to WTO and our mission in Geneva was authorised to sign the necessary protocol. Russian ministry of trade later informed that they are still in the process of analysing economic consequences of creation of FTA with Pakistan.
Ministry of commerce (MoC) has been requested to analyse Russia’s point of view on the proposed PTA/FTA with regards to their invocation of para-4-10 of article XXIV of GATT as mentioned above. The issue can be taken up during the forthcoming meeting of IGC. However, the leaders of Pakistan and Russia, last month, have expressed willingness to speed up work on the proposed Free Trade Agreement and currency swap arrangement to boost bilateral trade and further strengthen their economic ties. Prime Minister Syed Yusuf Raza Gilani and his Russian counterpart Vladimir Putin, had discussed the whole gamut of relations on the sidelines of 10th Heads of Government meeting of SCO.
