PBC says no major gains expected from Pak-Thai FTA



The Pakistan Business Council (PBC), representing big businesses with substantial investments in the country has termed the under-negotiation Pakistan Thailand Free Trade Agreement (FTA) as a non-starter due to the potentially low gains from the proposed treaty.

A research report on the proposed Pak-Thai FTA says that while Pakistan’s imports from Thailand would skyrocket, Pakistan’s exports to Thailand would only show a negligible increase.

It is important to mention that Pakistan’s exports to Thailand were $118 million in 2014, whereas its imports were $876 million. Pakistan’s top exports to Thailand include fish, cotton and meat. Pakistan’s top imports from Thailand include vehicles, petroleum products and machinery.

Under the simulation conducted in the PBC study, Pakistan’s total prospective exports to Thailand after the enforcement of the FTA would rise to $160 million while Thailand’s total exports to Pakistan would rise to $1.71 billion.

The study says Pakistan’s total export potential with Thailand stood at $4.35 billion in 2014, whereas Thailand’s total export potential with Pakistan stood at $10.133 billion in the same year. While trade potential is an admittedly rough measure, the fact that Thailand’s potential for exports to Pakistan is five times higher than Pakistan’s potential for exports to Thailand strongly suggests that the FTA, even assuming fair concessions granted by both sides, will see Thailand penetrate the Pakistani market to a much greater degree than vice versa.

Moreover, Thailand’s high potential exports to Pakistan are not capital goods, while Pakistan’s high potential exports to Thailand are generally not value-added goods. Pakistan’s top 50 high potential export items represent a total trade potential of $2.8 billion and about 38 per cent of these high potential items are already tariff exempted by Thailand.

Therefore, in practice the FTA may not bring as much benefit to Pakistan in terms of concessionary rates as one might expect. Under the simulation study conducted above, following the signing of the FTA Pakistan’s imports from Thailand will rise to $1.71 billion whereas Pakistan’s exports will come to a mere $160 million, resulting in a trade deficit of $1.54 billion.

As already noted, Thailand’s high potential exports to Pakistan are not capital goods, but rather consumer goods, making the potential trade deficit that will come about after the FTA harder to justify.

Furthermore, it is important to note that the National Tariff Commission presently lacks the institutional capacity to fulfill its myriad responsibilities and, therefore, will be unable to address issues having to do with the Pakistan-Thailand FTA.

Thailand is a major exporter and has benefited from several well-negotiated FTAs. Pakistan, on the other hand, has repeatedly done significant harm to its local industry by signing one-sided agreements with major economic powers. Therefore the findings of this report suggest that the Pakistan-Thailand FTA will likely lead to a similar result.

Pakistan failed to secure comprehensive concessions on high potential export items under its FTAs with China and Malaysia and its PTA with Indonesia. It has also failed to make significant inroads into the Sri Lankan market, despite an FTA with Sri Lanka being in place since 2005.

In August 2015 Pakistan and Thailand decided on the Terms of Reference and framework for a free trade agreement during a two-day visit of a Thai delegation to Pakistan. Both governments have expressed their strong interest in the speedy conclusion of a free trade agreement. Pakistan’s past experience with trade agreements and their consequences is a reason to proceed with extreme caution where further major free trade agreements are concerned.