Pakistan has signed three major Free Trade Agreements (FTAs) so far and 10 more are still in the pipeline, however the country has failed to reap potential benefits from these agreements. The government lacked negotiating skills while the private sector fell short of its mark in marketing, as a result domestic markets have now been flooded with imported goods that are giving tough competition to local manufacturers.
A detailed analysis of FTAs with Sri Lanka, Malaysia and China indicate that with the exception of Sri Lanka the other trading partners not only increased their exports to Pakistan but also enhanced their share in Pakistan’s world trade.
Free trade agreement with Sri Lanka
Pakistan signed its first FTA with Sri Lanka and it has been in effect since 2005. It offers duty free market access to 102 commodities, including agricultural goods, rice (with quantity restriction) and engineering merchandise, while it gives duty free market access to Sri Lanka for 206 products, including tea (with quantity restriction), rubber and coconut.
Figures reveal that Pakistani exports to Sri Lanka were hovering around the $150 million mark in 2005 that expanded to $217 million in 2009, while imports from Sir Lanka remained stagnant at around $56 million in the same year. Comparison of pre and post FTA import figures show that imports from Sri Lanka mainly grew due to an increase in rubber, fruit and nuts imports, while tea imports could not grow owing to quantity restrictions. Data shows that rubber, fruits and nuts imports have doubled after the FTA with Sri Lanka.
In 2005, Pakistan imported $12 million worth of rubber and its article; and $4 million worth of fruits and nuts from Sri Lanka, which have swelled to $20 million and $8 million in the year 2009, respectively. However, export data of top five commodities indicate that Pakistan’s major exports to Sri Lanka include cotton; cereals; vegetable roots and tubers; earths, stones and plastering materials; and knitted or crocheted fabrics.
It shows that cotton, yarn and fabric exports to Sri Lanka could not witness a major gain despite FTA. Figures show that cotton exports to Sri Lanka were registered at $84 million, which jumped up to $110 million in 2006, $104 million in 2007, $99 million in 2008 and $87 million in 2009, slightly above 2005 levels.
Free trade agreement with Malaysia
Pakistan-Malaysia FTA took effect from August 2007 and allows Pakistan duty free market access for cotton yarn and fabrics; fruits; and jewellery. In return, Pakistan has offered Malaysia preferential market access on palm oil; industrial machinery; organic and inorganic chemicals; and raw material for various industries. FTA with Malaysia also witnessed the same trend as palm oil imports witnessed a sharp rise after the agreement.
Data shows that Pakistan was importing $436 million worth of palm oil from Malaysia which touched $1.15 billion in 2009. A slight increase was witnessed in petroleum oil, chemicals, plastics, machinery and parts imports. While exports figures show that owing to restriction on textile made-ups, no major change was witnessed in cotton and textile exports.
However, cereal exports showed a healthy trend as Pakistan’s food exports to Malaysia were hovering around $13 million, which have risen to $63 million in 2009. Economic experts term free trade agreements a failure mainly on the part of business community who could not exploit this opportunity. They also blame the government for not being able to negotiate FTAs in more favourable terms. They underscore that without considering the consequences Pakistan opened its borders for foreign merchandise.
In fact several relaxations have been offered to FTA partners, which are working against the interest of domestic trade and industry.
A Free Trade agreement with China
In 2006, Pakistan signed FTA with China, which offered Pakistan duty free access for cotton fabrics; bed linen and other home textiles; marble and tiles; leather articles; sports goods; iron and steel products; engineering merchandise and industrial alcohol. In return Pakistan offered China market access for industrial machinery; organic and inorganic chemicals; and raw material for various industries.
Chinese traders exploited duty free access to Pakistani market and increased their exports to Pakistan from slightly over $2 billion to $3.78 billion, but Pakistan could hardly touch $1 billion mark in exports to China. The share of Chinese merchandise in domestic imports swelled from around nine per cent to 11.97 per cent in 2009. (Massive influx of Chinese products have become a matter of concern for domestic industry after the FTA.
Figures show that electrical machinery imports from china witnessed a steep increase after FTA. In 2005, Pakistan was importing $429 million worth of electrical machinery from China which touched the highest mark of $1.38 billion in 2008 and settled at $981 million in 2009. These products mainly include low price consumer durables. A similar trend has been witnessed in other major importing commodities, including machinery and parts; chemicals; synthetic yarn and fabrics; and articles of iron or steel.)
In exports Pakistan could not post a major increase due to lack of export diversification and competitiveness. Numbers show that cotton, yarn and fabrics exports to China stood at $272 million in 2005, which remained hovering between $358 million and $382 million during 2006 to 2008. Owing to better cotton prices in international markets Pakistan achieved the $701 million mark in cotton exports to China in 2009.
