Improved access to letters of credit (L/Cs) for trade between Pakistan and China is being stalled as the two countries struggle to reach agreement on tariff reductions.

The treatment of tariffs is seen as a critical issue for the two countries to resolve before Islamabad and Beijing sign a free trade agreement (FTA).

Disagreement

China is holding out for an irrevocable 90 per cent reduction in tariffs in the latest round of FTA talks.

Pakistan is concerned about this and is insisting on an option to revert to today's tariffs if the reduced rates impact negatively on the country's key industries.

Banking progress

The two sides have however made good progress towards establishing closer banking ties, with China recently agreeing to reduce the capital required to U$15 billion from US$20 billion for Pakistani banks to open branches in China.

Once Pakistan's banks are able operate in China on a renminbi basis, they will be able to offer superior L/C services.

Rather than L/Cs being routed through foreign banks as they are now for Sino-Pakistani trade, once each country has banks established in the other, L/Cs will be available on a direct basis.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.