Pakistan-ASEAN Free Trade Agreement: Exploring the Scope of Pakistan’s Vision East Policy

The report titled “Pakistan-ASEAN Free Trade Agreement: Exploring the Scope of Pakistan’s Vision East Policy” is part of the Market Access Series 2025-26 published by the Pakistan Business Council (PBC). This report breaks down intra-ASEAN trade and ASEAN’s balancing relationship with its FTA partners with a focus on China and India. It then moves onto bilateral trade with Pakistan and employs the Export Product Dynamics (EPD) matrix to evaluate the success of current exports and identifies potential new exports. IT services, tourism and compliance with non-tariff barriers are also discussed.

Despite being involved in diplomatic missions and cooperation forums since the late nineties, Pakistan’s trade profile with ASEAN has not matured. In a region that has a population of almost 700 million and a combined economy worth 3.9 trillion USD, Pakistan’s exports stood at 2.24 billion USD in 2024 (only 0.12 percent of the global exports going to ASEAN), 60 percent of which comprise cereals, vegetables and mineral fuels. Out of which the export of rice is uncertain in the coming years given Indonesia’s rising self-sufficiency and the Philippines’ protectionist policies, so the current dependance on a single crop should clearly not be Pakistan’s leading export strategy.

Pakistan has also persistently been in a trade deficit with ASEAN that now stands at 4.5 billion USD out of 9 billion USD of total trade. ASEAN’s exports have a high complementarity with Pakistan’s import needs -particularly palm oil imported from Indonesia and Malaysia which makes up 43 percent of the imports- but the converse is not true. The Free Trade Agreement with Malaysia that came into effect in 2008 and the Preferential Trade Agreement with Indonesia that came into effect in 2013, have both been underutilized and as a result have failed to provide the expected export-led growth. Following the traditional textile blueprint is riddled with its own issues as listed below.

Challenges in Textile-led Exports to ASEAN:

• From the demand-side, ASEAN generally speaking is a market that prefers low-cost, medium quality garments and home textiles. The textiles that Pakistan exports to the US and the EU are premium, 100 percent cotton that are unable to fetch the same prices from consumers with a low-cost of living.
• Competition on price by China and other intra-ASEAN textile strongholds like Vietnam and Cambodia, as well as Bangladesh has become incredibly fierce. Undocumented textile trade by China as well as those by fast fashion e-commerce giants like Temu and Shein further hurt Pakistan’s chances to win on customization.
• The high energy costs, labor costs and duties on yarn and fabric through the EFS scheme would cancel out the effect of any tariff concessions.
• Not to mention demand is also evolving towards iron-free, wrinkle-free clothing that come from using synthetic fibers like polyester- a material that Pakistan is falling behind in
• Cotton yarn, denim and fabrics have a strong and stable demand in Vietnam and Cambodia due to their textile value chains and insufficient local supplies. But volatile cotton output and outdated ginning methods have placed the sector in jeopardy for Pakistan.

This report focuses on the missing potential in current exports and explores possible new exports that Pakistan should make inroads to diversify given ASEAN’s market dynamics.

Some Policy Recommendations Include:

• Surpassing the Technical Barriers of Pharmaceutical Exports. The two tariff lines for medicines (HS-300490 and HS-300439) had a combined market size of 43 billion USD in 2024 and is expected to grow given the demand for low-cost, generic medicines. However long booking and inspection periods by ASEAN authorities stand as hurdles and collaboration with Pakistani authorities like DRAP needs to be further facilitated to harmonize regulations between the partners.
• Penetrating Software Designs for Semiconductors. Given the established semiconductor manufacturing industries in Malaysia and other ASEAN members, the demand for this segment in tech-exports should be explored. Networking events between NECOP and the relevant stakeholders in ASEAN should be further pushed to fill in the knowledge gap
• Planning for Continuity in Halal Meat Exports at the beginning of the supply chain by reducing the cost of animal feed and improving cattle genetics for better weight gain will aid in being price competitive with other suppliers like India.
• Investing in the Branding of Surgical Instruments. Pakistan has performed very well in global exhibitions, and given ASEAN’s market size of 8 billion USD, the gap can be further bridged by enhanced packaging and marketing.
• Exploring Opportunities in Heritage Tourism by inviting ASEAN travel and tour companies to Buddhist heritage sites in Taxila and Khyber-Pakhtunkhwa alongside Pakistan’s natural landscapes.
• Investing in Kinnow Exports as Forex Earners by negotiating lower concessions with the Philippines, opening up the necessary air cargo routes so they retain their colour and freshness, and by pushing MRAs to make the certification of SPS standards easier.
• Complying with the SPS Standards of Rice and Maize. Problems of high moisture content, aflatoxin and the khapra beetle do arise in maize consignments. Short-shipments and more than 5 percent broken rice content occur in rice orders and must be monitored.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100+) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk