The Agreement
The Free Trade Agreement consists of the following components:

• The Framework Agreement, and
• Annexes A, B, C and D 
   

The complete text of the Agreement ( Agreement signed at Colombo on 1st August, 2002)

The agreement contains the Articles on objectives, definitions, elimination of tariffs, para-tariffs and non-tariff barriers, rules of origin, safeguard measures, settlement of disputes, amendments, annexes etc. Following the signing of the Agreement, the two countries , having conducted several rounds of bilateral negotiations, were able to finalize the annexes to the Agreement in December 2004 and in February 2005, the two governments exchanged Diplomatic Notes, confirming the finalization of the Annexes.

Annexes
 

Annex 'A'
Annex A relates to the No-Concession List (Negative List) and the tariff preferences to be granted by the Government of Pakistan. These are embodied in four different Attachments.
 

Attachment I - Annex – 'A' :

No Concession List of Pakistan (Negative List)

The Negative list of Pakistan consists of 540 HS tariff lines (products) at six digit level. Being on the Negative List, these products will not be entitled to enjoy any tariff concessions, when imported from Sri Lanka

Attachment II - Annex – 'A' :

100% Immediate Concession List

The Immediate Concession List contains a total of 206 HS tariff lines (products) at six digit level and Sri Lanka will receive 100% duty free access for these products in the Pakistan market, immediately.

Attachment III - Annex – 'A' :

Products subjected to Tariff Rate Quota (TRQ)

Tariff Rate Quotas (TRQ) are specific quantities of products, on which the importing country would agree to grant either duty-free access or preferential duty, when imported from the other contracting party to the Agreement. The products imported in excess of the agreed TRQ will be subject to the normal tariffs applied by the importing country for such products.
 

Attachment IV - Annex – 'A' :

List of Products (Tariff Lines) for which Pakistan agreed to Grant a Margin of Preference (MOP) on applied MFN rate

The products listed in the Attachment IV are entitled to receive a preferential duty margin of 20% on the applied MFN duty rate with  no quantitative restrictions.

Annex 'B'
Annex B relates to the No-Concession List (Negative List) and the tariff preferences to be granted by the Government of Sri Lanka. Annex B is embodied in three different Attachments.

Attachment I- Annex – 'B' :

No Concession List of Sri Lanka

The Negative list of Sri Lanka contains a total of 697 HS tariff lines (products) at six digit level and these products will not be entitled to enjoy any tariff concessions, when exported to Sri Lanka.

Attachment II- Annex – 'B' :

100% Immediate Concession List

Sri Lanka has listed a total of 102 HS tariff lines at six-digit level, on which Pakistan will receive 100% duty free access.

Attachment III- Annex – 'B' :

List of Products (Tariff Lines) for which Sri Lanka agreed to grant Tariff Rate Quota – TQR

Sri Lanka has granted Pakistan Tariff Rate Quota for 6,000 m/t of Basmati Rice and 1,000 m/t of Potatoes per each calendar year (January -December) on duty-free basis. However, import of potatoes is permitted only during Sri Lanka 's off season. (2/3 to be imported during June –July and 1/3 during October –November each year).

 

Annex 'C'
Annex C deals with the rules of origin,  which have to be complied with by the exporters of the two countries in order to qualify their products for preferential duty benefits. Based on the origin, the Rules of Origin categorize the products exported under the PSFTA into the following two main segments.

1. products wholly produced or obtained in the territory of the exporting country such as agricultural, fishery and mineral products.

2. products, not wholly produced or obtained in the territory of the exporting country (manufactured products).

All manufactured products falling under the category (b) above should contain a minimum of 35% of Domestic Value Addition of their FOB value in order to qualify for preferential treatments. Further, it is also necessary that all non-originating materials, used by the exporters change their HS codes at six-digit level against that of the final product as a result of the manufacturing process undertaken in the exporting country.

Ministry of Commerce has notified 'Rules of Origin' vide S.R.O.508(1)/2005 dated 6th June, 2005 and Operational Procedure for the issuance and verification of the Certificate of Origin vide notification S.R.O.509(1)/2005) dated 6th June, 2005.

 

Cumulative Rules of Origin:

The Cumulative Rules of Origin encourages exporters to source their inputs from the other contracting country. However, the Domestic Value Addition in the territory of the exporting country shall not be less than 25% of the FOB value of the final product, while the aggregate value addition in both contracting parties should be minimum of 35% of the FOB value. In addition, the respective products should also conform to the Change of HS code requirement (at six digit level) as in the case of the manufactured goods, referred to under category (b) above.

Provision for Change of HS Codes at six-digit level, has made the Rules of Origin of the PSFTA more flexible, compared to most of the other Free Trade Agreements, which stipulate that Change of HS Code should take place at four digit level.

The authority for issuing PSFTA Certificates of Origin is the Export Promotion Bureau as notified by Ministry of Commerce vide S.R.O.510(1)/2005 dated 6ht June, 2005

Annex 'D'
The Annex - D sets out the time-frame for Pakistan and Sri Lanka to phase out tariffs on products other than those in their No Concessions Lists (Negative Lists). It also indicates the percentage of tariff reductions undertaken by each country at the respective phasing out stages

 

Tariff Phasing Out Schedule

 

	PSFTA Determination of Origin of Goods, Rules, 2005 (S.R.O.508(1)/2005)
	PSFTA Issuance and Verification of the Certificate of Origin (Operational Procedure) Rules, 2005 S.R.O.509(1)/2005)
	S.R.O.510(1)/2005 (Designation of EPB as the the authority  for the issuance of Certificate of Origin under PSFTA
	Exemption from customs duty on imports from Sri Lanka notified by CBR, Customs (S.R.O.570(1)/2005)