Expanding Horizons: Pakistan’s Strategic Trade Partnerships and FTAs

The hurdles faced in trading with these regions and provides strategic recommendations to boost trade relations, enhance competitiveness, and stimulate economic growth.

Hasan Abbas
Hasan Abbas 7 Min Read
Expanding Horizons: Pakistan's Strategic Trade Partnerships and FTAs

The Gulf Cooperation Council (GCC) and the Central Asian Republics (CARs) represent crucial potential markets for Pakistan, with Sri Lanka and Malaysia already established as Free Trade Agreement (FTA) partners.

Major Hurdles in Trade

Pakistan’s trade with the GCC, the CARs, Sri Lanka and Malaysia is hampered by several issues. To maintain long-term economic growth and actualize trade potential, these issues must be resolved by the relevant authorities.

Hurdles with the GCC, the CARs, and Malaysia

The author has identified important issues in Pakistan’s trade with the GCC and Malaysia through his work at the Pakistan Business Council (PBC) and the Policy Advisory Board (PAB), FPCCI. According to the Pakistan Business Council (PBC), the country also faces significant challenges in trade with the CARs. The author’s work also provides policy recommendations in the subsequent sections.

Pakistan faces trade challenges with these regions to varying degrees. Logistics issues and related high costs of containers, language barriers, banking restrictions, payment transfer issues, foreign exchange regulations, unfair trade practices, and inefficient trade dispute resolution mechanisms are some of these obstacles.

Hurdles with Sri Lanka

The Pakistan Business Council (PBC) published a report, ‘Third Review of the Pakistan-Sri Lanka Free Trade Agreement (PSLFTA)’ in Fiscal Year 2022. This report identified major issues in trade, and the policy recommendations will be discussed in the subsequent sections, taking into account the financial crisis in Sri Lanka.

Challenges in trade between Pakistan and Sri Lanka include informal trade, regulatory obstacles, unilateral tariff changes, import-substitution policies, limited product certifications, different design preferences, container shortages driving up costs, frequent disputes, coordination issues, lack of trader awareness, logistical issues, the need for investment incentives, and the need for expanding the free trade agreement (FTA) to strengthen economic ties.

Recommendations for Increasing Trade

Strategic policy interventions are essential in the context of Pakistan’s increased commerce with the Gulf Cooperation Council (GCC), the Central Asian Republics (CARs), Sri Lanka, and Malaysia. These recommendations function as actionable steps meant to tackle important issues, take advantage of new opportunities, and maximize the benefits of current trade agreements. These ideas open doors for establishing strong trade relations, stimulating economic growth, and advancing regional collaboration by giving stakeholders and policymakers a clear road map. Essentially, policy recommendations serve as grounds to fully realize the potential of trade alliances, promoting wealth and sustainable development among member states.

1. Pakistan-GCC Trade:

  1. Signing the Pakistan-GCC FTA: The Government of Pakistan (GOP) is advised to prioritize the signing of the proposed Pakistan-GCC FTA to maintain competitiveness in the region, despite potential revenue losses from ‘Mineral Fuels’ (HS-27) imports with FBR on board.
  2. Bilateral Engagement: Pakistani authorities are advised to engage bilaterally with Qatar and Oman while negotiating the Pakistan-GCC FTA, leveraging the independent trade relationships of the countries in question.
  3. Harnessing Qatar’s Strategic Geography: Pakistan may utilize Qatar as a gateway to African markets, capitalizing on Doha’s logistics hub status and strong African ties.
  4. Creating Awareness on GATS: Raise awareness among Pakistani stakeholders about service FTA schedules under the General Agreement on Trade in Services (GATS).

2. Pakistan-Central Asia Trade:

  1. FTA with the Eurasian Economic Union: The GOP is advised to prioritize signing an FTA with the Eurasian Economic Union (EAEU), which includes Kazakhstan and Kyrgyzstan, for long-term benefits.
  2. Logistics Plan for CARs: Pakistan’s Ministry of Commerce (MOC) and the Trade Development Authority of Pakistan (TDAP) are advised to develop a comprehensive logistics plan for efficient goods transportation to the landlocked CARs.
  3. Transit Trade Agreement: The MOC is advised to expedite the signing of the Afghanistan, Pakistan, and Tajikistan Transit Trade Agreement (APTTTA) to enhance transit trade with Tajikistan.
  4. Support for Tajikistan’s QTTA Membership: The GOP is advised to support Tajikistan’s membership in the Quadrilateral Traffic in Transit Agreement (QTTA) with China’s involvement, utilizing Tajikistan as a storage hub for exporting to the Commonwealth of Independent States (CIS).
  5. Access to Gwadar Port and CPEC: Pakistani authorities are advised to ensure CARs have access to facilities like Gwadar Port and the China-Pakistan Economic Corridor (CPEC) to facilitate their exports to South and East Asian countries.
  6. Banking Incentives: The SBP, with GOP collaboration, is advised to incentivize Pakistani banks to establish subsidiaries and desks in the CARs to facilitate payments via formal channels.

3. Pakistan-Sri Lanka Bilateral Trade:

  1. Transparency in PSLFTA Concessions: The GOP is advised to request the Sri Lankan Government to publicly disclose tariff line concessions under the Pakistan-Sri Lanka Free Trade Agreement (PSLFTA).
  2. Dedicated Desks for Trade Issues: Establish dedicated desks within the MOC and TDAP to address frequent changes in Sri Lanka’s tariff structure and CESS.
  3. Coordination on Tariff Changes: Improve coordination between authorities to manage unilateral tariff changes.
  4. Factory Establishment Incentives: The GOP is advised to incentivize Pakistani entrepreneurs to set up factories in Sri Lanka, aligning with local product preferences.
  5. Barter Trade System: Develop a barter trade system to navigate the forex crunch, focusing on sectors like ‘Mineral Fuels’ (HS-27) and ‘Tea’ (HS-0902).
  6. Local Partnerships and Legal Support: Pakistani exporters should seek local partners in Sri Lanka to streamline exports efficiently, leveraging the support of the Sri Lankan government and the legal system for domestic traders.
  7. Enhancing Export Competitiveness: The MOC and TDAP are advised to facilitate Pakistani exporters in establishing a robust distribution network and offices in Sri Lanka to enhance export competitiveness.
  8. Ensuring Certificate of Origin Compliance: The GOP is advised to ensure that imports from Sri Lanka meet Sri Lankan origin standards as per the certificate of origin requirements, maintaining regulatory compliance, and fostering trust in trade relations between the two countries.

4. Pakistan-Malaysia Bilateral Trade in Services:

  1. Renegotiation of MPCEPA: The GOP is advised to carefully renegotiate the services under the Malaysia-Pakistan Closer Economic Partnership Agreement (MPCEPA), similar to Phase II of CPFTA, with the Policy Research and Advisory Council (PRAC) on board.

These strategic recommendations aim to enhance Pakistan’s trade relations and economic integration with the GCC, CARs, Sri Lanka, and Malaysia, fostering growth and cooperation across these regions.

The author is an aspiring economist and policy analyst, currently pursuing Masters in Economics at IBA, Karachi

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