Positioning Pakistan for Integration with Regional Comprehensive Economic Partnership (RCEP)
The Regional Comprehensive Economic Partnership (RCEP) is a mega trade deal which includes 10 members of the Association of Southeast...
The Regional Comprehensive Economic Partnership (RCEP) is a mega trade deal which includes 10 members of the Association of Southeast Asian Nations (ASEAN) and five regional ASEAN partner countries i.e., Australia, China, Japan, New Zealand, and South Korea. T RCEP is an extension of ASEAN’s existing trade deals with the 5 non-ASEAN members aiming to establish and deepen mutually beneficial economic partnerships.
RCEP does this by harmonizing trade rules led by the elimination of customs duties on 90% of goods over a 20-year period. Beyond tariff-based market access, the deal is designed to eliminate trade barriers, improve logistics, and reduce non-tariff barriers across the region. By its very membership profile, RCEP creates a free trade zone connecting a third of the world’s population, 30% of world GDP and will potentially generate gains estimated to add $500 billion to global trade over a decade.
Pakistan’s exports have remained fairly stagnant, concentrated in low-value agro-based goods and textiles where most value-addition occurs. Pakistan is a very small player in the global market, having signed several trade deals with countries such as China, Malaysia, and Indonesia but not realizing the full potential of such deals. The country exports to a few specific markets where market access exists such as the European Union (EU) where Pakistan enjoys unilateral preferential duties under the GSP plus. However, in order to become a competitive global player, Pakistan has to improve the diversity and complexity of its’ export basket and gain entry into regional and global value chains (GVCs).
The venerable entry into RCEP (hitherto known as ASEAN+5) would require Pakistan to first sign an FTA with ASEAN which itself is a heavily integrated region. In pursuit of the goal to gain access to the RCEP market, this PBC study has the following findings:
Many of these products have negligible existing exports to ASEAN+5 countries, but there is ample demand for them in those markets. Pakistan also possesses the capability to export them as demonstrated by its existing exports to other countries.
Policy Recommendations | |
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1. Significantly cutting down on trade costs including overhauling transport and logistics infrastructure, reducing excessive documentation, and streamlining regulatory processes | 2. Provide trade facilitation to businesses, especially SMEs, to build their level of “preparedness”. That means:
i. Helping firms understand market demand abroad and build firm-to-firm linkages so products and production processes can be re-tuned to demand. ii. Eliminating information asymmetries related to rules of origin, non-tariff market specific requirements, market-specific/ product-specific licensing and quality regulations, and technical restrictions. |
3. Move away from unconditional and indefinite concessions and subsidies. Policies offering incentives must be linked to performance indicators such as: quality benchmarks, standards, and volumes, and subject to rigorous impact evaluation. They must be backed with a data collection and monitoring & evaluation system. | |
4. Conduct evaluation of costs and potential benefits by sector experts and economists when negotiating trade deals. There is a critical need for sectoral expertise among policymakers to design regulations and policies to assess efficacy. | 5. Resolve documented distortions and issues within tax policies. Reduce and eliminate tariffs on inputs, capital goods, and intermediates so backward linkages can be developed. |
The PBC is a private sector not-for-profit advocacy platform set up in 2005 by 14 (now 98) of Pakistan’s largest businesses including multinationals. PBC’s research-based advocacy supports measures which improve the Pakistani industry’s regional and global competitiveness. More information about PBC, its members, objectives, and activities can be found on its website: www.pbc.org.pk
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