Chinas Approach to FTAs with Other

Countries: What Can Sri Lanka

Expect?

Janaka Wijayasiri-Sep 03, 2014
IPS trae econo!ists "anaka Wi#a$asiri an %harshani
Pre!aratne ar&ue that i' Chinas FTAs with other countries are an$
inication( Sri Lanka can expect a )exi*+e an co++a*orati,e 'ree
trae a&ree!ent( *ut there are -,e ke$ areas that nee tack+in& in
the FTA ne&otiation.
In a previous article on the proposed Sri Lanka- China Free Trade Agreement (FTA), we
looked at the potential to epand !ilateral trade" Since then, the two countries have
#nali$ed a %oint Feasi!ilit& Stud& on '' (arch )*'+" As epected, the stud& reported
that the FTA would !ring su!stantial economic and trade !ene#ts to the two countries,
with !oth governments epressing hope that the deal will !e implemented at an earl&
date" ,iven that series o- negotiations are likel& to !egin to hammer out an agreement in
the near -uture, it is worth looking at the main -eatures o- China.s eisting FTAs with
other countries to get a sense o- what a possi!le FTA with China would look like"
China.s FTA /egotiations
Though China was a latecomer to regional trade agreements, it has !een activel&
pursuing FTAs with various countries over the past two decades" China has concluded
FTAs, or entered into negotiations, with almost ever& ma0or region in the world,
including 1urope, America, (iddle 1ast, A-rica, 1ast Asia, Southeast Asia, South Asia, and
Australasia" 2& %une )*'+,China had !ecome a part& to eleven !ilateral trade
agreements and one regional trade agreement 3 AS1A/ ()**+), 4ong 5ong ()**+),
(acao ()**+), Chile ()**6), 7akistan ()**8), /ew 9ealand ()**:), Singapore ()**:),
7eru ()**;), Costa <ica ()*'*), Taiwan ()*'*), Swit$erland ()*'+) and Iceland ()*'+)"
As stated in its ')th Five-=ear 7lan, China intends to accelerate the implementation o-
its Free Trade Area Strateg&, strengthen economic linkages with ma0or trading partners,
and deepen cooperation with emerging markets and developing countries" Currentl&, it is
in the process o- negotiating eight more FTAs> with the ,ul- Cooperation Council (,CC),
Australia, /orwa&, Southern A-rican Customs ?nion (SAC?), 5orea, India and o- course,
Sri Lanka"
A ,radual Approach to Trade Li!erali$ation
China has adopted a gradual approach in negotiating with trading partners 3 #rst,
striking an agreement in trade in goods, then services and investment, -ollowed !& a
comprehensive FTA package" The AS1A/-China FTA, China-Chile FTA, and China-
7akistan FTA -ollowed such an approach" 2oth the China-AS1A/ FTA and China-
7akistan FTA were preceded !& an @1arl& 4arvest 7rogramme., which was !ased on tari--
reductions, -ollowed !& -urther negotiations on goods, services and investmentA'B" For
eample, the li!erali$ation o- trade in goods with 7akistan was started with the signing o-
the Agreement on 1arl& 4arvest 7rogramme in April )**C, with the Agreement on Trade
in Services signed -our &ears later (Fe!ruar& )**;)" Similarl&, the agreement on trade in
goods with AS1A/ was signed in /ovem!er )**+ while the agreement on services was
signed in %anuar& )**8" In contrast, China-/ew 9ealand, China-Singapore, and China-
7eru FTAs were more comprehensive in scope at the time o- signing"
Coverage o- ,oods
For most o- China.s FTAs partners, the agreements have eliminated tari--s and allowed
pre-erential market access to China, to a great etent" For eample, in its agreements
with Chile, 7eru and /ew 9ealand, China committed to eliminate duties on ;+"6D to
;8")D o- the tari-- lines, which corresponded to :: 3 ;;"'D o- its !ilateral imports -rom
these trading partnersA)B" The onl& eception to this is the China-7akistan FTA" Tari--s
and trade under it have not !een li!erali$ed to a su!stantial level even a-ter its -ull
implementation in )*')> duties on EC"+D tari-- lines were eliminated, corresponding to
++"+D o- China.s imports -rom 7akistan" 7akistan too has committed relativel& low levels
o- tari-- elimination in the agreement"
China.s /egative Lists
China.s FTAs take into account the sensitiveness o- !oth countries and contain /egative
Lists, which eclude a num!er o- products -rom tari-- li!eralisation" 1cept with
Singapore, China maintains a negative list with all the other FTA mem!ers, aimed at
protecting its domestic industries" A num!er o- vegeta!le products, animal and
vegeta!le -ats and oils, prepared -ood, chemicals, wood products, pulp and paper, and
tetile categories are protected !& China" In almost all o- the agreements, China has
placed pulp and paper in its negative list" /evertheless, almost all o- the agreements
cover a su!stantial num!er o- tari-- lines and trade, with the eception o- FTA with
7akistan" There are no products eclusions in the FTA with AS1A/ mem!ers" 4owever,
AS1A/ and China maintain a Sensitive List -or which tari--s are !eing lowered
incrementall& !etween )*') and )*':"
7re-erential <ules o- Frigin
<ules o- origin, which are used to determine the countr& o- origin o- a product in
pre-erential trade agreements, tend to var& -rom agreement to agreement in the case o-
China" Sometimes the& are across product groups, which add to the compleit& o-
China.s import regimeAEB" <ules o- origin criteria -or China.s FTAs with AS1A/, Chile,
7akistan, and Singapore are Local Galue Addition (+*D o- total content) and <egional
Galue Content (6*D o- the value o- the product)" The criteria -or 7eru, /ew 9ealand and
Costa-<ica are Change o- Tari-- Classi#cation (4S )-+ digit level) and <egional Galue
Content (+*-6*D o- the value o- the product)"
Services Li!eralisation
Hhile the Agreements on Trade in ,oods have taken a /egative List approach, China.s
Trade in Services Agreements have taken a 7ositive List approach, in line with HTFs
,eneral Agreement on Trade in Services (,ATS)" Interestingl&, in China FTAs with
AS1A/, Chile, and 7akistan, the Agreement on Services is a separate document and
-ollows the Agreement on ,oods, while in the case o- other partner countries (/ew
9ealand, 7eru, Singapore, Costa <ica), the FTA agreement was more comprehensive in
coverage and included not onl& trade in goods !ut also services"
Cooperation 2e&ond Tari--s
Iue to their -ocus on li!erali$ing markets and -acilitating trade, agreements !etween
China and other developing countries aimed at reducing tari--s and non-tari-- !arriers to
trade" (oreover, China was reluctant to includeissues such as environment protection,
competition polic&, and la!our standards as part o- the FTA package" 4owever, China has
shown some willingness to !roaden its -ocus and include these issues over time" For
eample, China.s agreements with developed countries such as /ew 9ealand and
Singapore in )**: incorporate issues such as intellectual propert& rights, trade
-acilitation, la!our standards, and competition polic&"A+B /onetheless, China has taken a
cautionar& approach and chosen not to include them in the main agreement o- the FTA
!ut as stand-alone agreements or (F?s"ACB China has recentl& taken a more
comprehensive approach to FTAs in the agreements with Iceland and Swit$erland signed
in )*'E" China is now demonstrating a greater willingness to engage in deeper level o-
li!erali$ation o- trade, shi-ting -rom the previous narrow strateg& o- -ocusing on trade in
goods to a !roader -ocus on other issues" /evertheless, China.s FTAs are not as
comprehensive in terms o- coverage and depth compared to FTAs among other
countriesJgroups like the ?S, %apan and 1?"A6B
Five Focus Areas in the /egotiations
Firstl&, considering the as&mmetries in si$e o- the econom& and production capacit&
!etween Sri Lanka and China, Sri Lanka needs to negotiate receiving similar (or higher)
concessions that were granted to other countries that hold pre-erential treatment in
accessing China" The negotiations on pre-erential market access to China must ena!le
Sri Lankan eports to !e as competitive as those -rom China.s other FTA partners"
Secondl&, rather than agreeing on a general rules o- origin criterion, the negotiations
should -ocus on achieva!le product-speci#c rules o- origin reKuirements, as the
reKuirements di--er -rom product to product" Thirdl&, the sensitivities o- domestic
industries to imports -rom China also need attention when -ormulating and negotiating
Sri Lanka.s negative list"
Fourth, Sri Lanka must remem!er that since provisions made under China.s FTAs are
!ased on the principle o- reciprocit&, the potential !ene#ts o- allowing pre-erential
market access to Sri Lanka must !e assessed care-ull&, and domestic interests and
sensitivities must !e accommodated in the roadmap towards #nali$ing the FTA" This
would reKuire a closer consultation !etween the government, and other stakeholders in
the econom& including the private sector, and civil societ& o- the countr&" Finall&, to
achieve a more comprehensive !ilateral cooperation !etween the two countries, the
FTA should graduall& move !e&ond trade in goods to cooperation in other areas such as
investment, services and trade -acilitation at a later date to !uild on a negotiated trade
agreement"
Flei!ilit& Hill 2e A 2onus
A cursor& look at China.s eisting FTAs indicates that the countr& does not -ollow one
template or model in its agreements, !ut tailors them to the pre-erences o- the partner
countr&" ?nlike the ?S, which has a standard model (together with enhancements) that it
more or less adheres to in negotiating FTAs, China.s FTAs di--er widel& -rom one
agreement to anotherA8B" China appears to !e less stringent and more Lei!le> each
agreement is made in colla!oration !etween China and partner countries" As 9hao and
He!ster ()*'') assert, the @greatest de#ning -eature o- Chinese FTAs is their
mallea!ilit&." This no dou!t serves China.s interest as well those o- Sri Lanka"
A'B 9hang, =" 1conomic and Social Impact o- Li!erali$ationM A Stud& on 1arl& 4arvest
7rogram under China-AS1A/ FTA, 2ei0ingM Social Sciences Academic 7ress
A)B HTF ()*')) NTrade 7olic& <eviewM China 3 <eport !& SecretariatO"
AEB I!id"
A+B 9han, =unling ()*''), 7eople.s <epu!lic o- China, in Asia.s Free Trade AgreementsM
4ow is 2usiness <espondingP (ed") (" 5awai Q ," Hignara0a, 1dward 1lgar 7u!lishing,
pp"'*8-'*;"
ACB ,ao, 4" ()*''), NChina.s Strateg& -or Free Trade AgreementsM 7olitical 2attle in the
/ame o- TradeO"
A6B I!id
A8B 9hao, %" Q He!ster, T" ()*''), Taking StockM China.s First Iecade o- Free Trade,
Posted by Thavam