MALAYSIA, PAKISTAN SECURE FTA

Malaysia and Pakistan finalised a free trade agreement (FTA) on 5 November, according to Pakistani news sources. Pending formal approval, it will enter into force on 1 January 2008.

The FTA had been in the works for about three years. One of the biggest sticking points has been the depth of Pakistan's tariff cuts on palm oil, one of Malaysia's main exports. Malaysia ultimately agreed to terms under which Pakistan to reduce its import duty by 10 percent by 1 January 2008, and an additional 5 percent on 1 January 2010.

In a multi-stage process, tariffs on some goods are set to be eliminated by 2009, and those on others by 2012. The long list of sensitive products has been broken down into three categories. Duties on some will be brought to 5 percent by 2011 (with some exceptions for Pakistan), while others may retain 20 percent duties at the end of this period. Duties on the third category will be cut to 10 percent by 2014.

Malaysia is eliminating tariffs on almost 80 percent of its current imports from Pakistan, while Pakistan has done so for 23 percent of products going in the other direction.

There appears to be little concern from Pakistan about meeting the "yarn forward" rule of origin for textiles, under which fibres can be imported, but spinning, weaving and finishing must occur in a partner country) and the requirement that at least 40 percent of the value-added of a manufactured good must come from a partner country.

The agreement also expands trade in services beyond either country's obligations at the WTO, and strengthens protections for foreign investors. Pakistan and Malaysia also agreed that cooperation on sanitary and phytosanitary measures would help boost bilateral trade.

ICTSD reporting; "FTA with Malaysia finalized," BUSINESS RECORDER, 5 November 2007.