Potential: PBC’s report on Pakistan-Indonesia trade

Report highlights imbalance of trade; lack of reciprocity in terms of PTA.

KARACHI: Pakistan and Indonesia have healthy appetite for each other’s goods but, this trade potential would go to waste if the current Preferential Trade Agreement (PTA) were to serve as a blueprint for the future Free Trade Agreement (FTA), stated the Pakistan Business Council (PBC) in its latest research report.

The study, ‘An analysis of the Pakistan-Indonesia PTA and a framework for negotiating the Pakistan-Indonesia FTA’ concluded that more work was needed to identify high potential items on which Pakistan must obtain favourable terms, with concessions granted to more manufactured goods and not just primary commodities.

Pakistan-Indonesia PTA was signed in February 2012 and both sides offered concessions on over 200 items at the 8-digit level HS code.

In 2013, Pakistan’s exports to Indonesia amounted to $144 million, accounting for a mere 0.08% of Indonesia’s total imports. On the other hand, Pakistan’s imports from Indonesia in 2013 amounted to $1.2 billion, accounting for 2.76% of Pakistan’s total import bill.

The study finds that most Pakistani export items at the 8-digit level with high export potential to Indonesia did not receive concessions under the PTA. They also faced less favourable tariffs compared to Indonesia’s FTA partners namely; China, Japan, South Korea and India.

More precisely, the top 100 items at the 8-digit level possess a trade potential of $1.8 billion, of which $1.54 billion resides within items not given concessions under the PTA. Furthermore, 80% of the top 50 high potential items are not included in the PTA.

High potential items left out of the PTA include three plastic items with trade potential of $140 million and 16 cotton items with trade potential of $500 million.

Most notably, Indonesia granted full concession to oranges whereas Pakistan offered a 15% Margin of Preference (MOP) on the standard tariff rate to Indonesian palm oil products, the report added.

Pakistan total orange exports in 2013 were of $124 million out of which Indonesia imported oranges worth $93 million, while out of Indonesia’s total palm oil exports of $8.3 billion, Pakistan imported oil worth $1.6 billion in 2013.

A similar analysis done for Indonesian export items to Pakistan finds that the selected items largely faced tariff rates consistent with or more favourable than those applied by Pakistan on its FTA partners. Therefore, there seems to be a marked lack of reciprocity in terms of the PTA, despite Indonesia’s much larger economy, the study says.

Published in The Express Tribune, May 19^th,  2015.

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