An Assessment of the Pakistan – Malaysia Free Trade Agreement

The Malaysia Pakistan Free Trade Agreement (FTA) formally known as – The Malaysia Pakistan Closer Economic Partnership Agreement (MPCEPA) came into effect in 2008. It aims to promote bilateral trade between the two countries by giving tariff preferences on various items. The FTA is one of the most comprehensive agreements Pakistan has signed and covers trade in goods, services, investment and economic cooperation.

Though there is an FTA, Pakistan’s exports to Malaysia have never exceeded 1.5% of Pakistan’s exports. Pakistan’s exports to Malaysia have only marginally increased since the signing of the FTA. One reason for this failure lies in the fact that the items which have the highest potential for exports are either not part of Malaysia’s concession list or where they are a part, competitors enjoy better tariff rates than Pakistan. In contrast even though Malaysia’s exports to Pakistan amount to only 0.52% of its world exports of $234 Billion, Malaysia has managed to get concessions for its most important export to Pakistan i.e. Palm Oil.

The top 10 items amounted to 86% of Pakistan’s total exports to Malaysia in 2014. These top items consisted mainly of Cereals (Rice), Cotton, textiles and articles of apparel and Fish. Meanwhile, the top 10 items imported by Pakistan from Malaysia contributed to 85% of total imports from Malaysia. These consisted mainly of Palm Oil (52% of total imports), Machinery (7.82% of total imports) and Mineral fuels (7.31% of total imports).

The imports of Palm Oil by Pakistan from Malaysia had been increasing since the Malaysian FTA came into effect in 2008. This trend however was reversed in 2013 when Pakistan signed a PTA with Indonesia. Once again without extracting any significant concessions, this time from Indonesia. Pakistan granted the same duty preference as Malaysia for palm oil imports from Indonesia.

This study conducted at the HS 06 level shows that Pakistan’s top potential trade items continue to be largely agriculture based. A comparison of Malaysia’s FTA with India and China indicates they have overall lower tariffs than Pakistan especially on items of Pakistan’s export interest.

Furthermore the study identifies that Pakistan has a potential to export $4.6 Billion worth of items to Malaysia. These items comprise of mainly of Portland Cement, Articles of apparel and clothing accessories, Machinery, Mechanical Appliances and Electrical Appliances and Pharmaceutical products.

While acknowledging that agriculture is the backbone of Pakistan’s economy, the study recommends that a long term trade strategy needs to be put in place that aims to promote the export of manufactured goods as opposed to the current strategy which aims to boost the export of primary agricultural commodities.