Review of a Potential Pakistan – Australia Free Trade Agreement
This report titled Review of a Potential Pakistan – Australia Free Trade Agreement is part of the PBC’s Market Access...
This report titled Review of a Potential Pakistan – Australia Free Trade Agreement is part of the PBC’s Market Access Series – 2019.
Australia enjoys a longstanding relationship with Pakistan built on strong people-to-people links. Australia’s diplomatic relations with Pakistan date back to the independence of Pakistan in 1947. Australia has had a diplomatic mission in Pakistan since 1948.
A Bilateral Trade Agreement between Pakistan and Australia has been in effect since July 12th, 1990 the stated purpose of which is to “strengthen, facilitate and diversify” trade between both countries. The Pakistan, Australia Joint Trade Committee (JTC) signed an MOU to enhance bilateral trade relations and bolster economic growth in Canberra in December 2017.
Pakistan – Australia Bilateral Trade, 2009–18
Accounting for a mere 0.8 percent, Australia is not a significant trading partner for Pakistan. Bilateral trade has always been in favor of Australia. In calendar 2018, products worth $246.37 million were exported, whereas imports amounted to $389.65 million, resulting in a trade deficit of $143.28 million. Pakistan’s exports to Australia have grown with a CAGR of 8.5 percent, whereas its imports from Australia declined by 3.5 percent.
The top products exported by Pakistan are classified under the categories of ‘Apparel and Home Textiles’ (HS 61-63); ‘Mineral Oils and Fuels’ (HS-27); ‘Cereals (including rice)’ (HS-10); ‘Articles of Iron and Steel’ (HS-73); ‘Articles of Leather’ (HS-42); ‘Surgical Instruments’ (HS-90); ‘Cotton’ (HS-52) and ‘Furniture Equipment’ (HS-94). Top 10 exports accounted for 87.3 percent of total exports, indicating that exports to Australia are highly concentrated.
Pakistan has the potential to export 2,658 product lines to Australia. The overall trade potential within these 2,658 products currently exported by Pakistan to Australia with available data is $5.72 billion. The total trade potential within the top 100 high potential products exported by Pakistan to Australia at the HS-06-digit level is $4.14 billion. In 2018, Pakistan’s actual exports of the top 100 high potential items to Australia amounted to a mere $114.72 million. However, Pakistan’s total actual exports of these same 100 items to the world amounted to $9.40 billion in the same year.
Australia has the potential to export 4,116 product lines to Pakistan. The overall trade potential within these 4,116 products currently exported by Australia to Pakistan with available data is $27.10 billion. The total trade potential within the top 100 high potential products exported by Australia to Pakistan at the HS-06-digit level is $15.30 billion. In 2018, Australia’s actual exports of the top 100 high potential items to Pakistan amounted to a mere $262.23 million. However, Australia’s actual exports to Pakistan in 2018 amounted to $315.49 million.
To assess the potential gains from a potential Pakistan – Australia FTA to both sides; a tariff and trade simulation was conducted using the SMART methodology from the World Integrated Trade Solutions (WITS) for the year 2018. The SMART methodology enables us to determine the impact of a proposed FTA on Pakistan’s exports, where Australia reduced all tariffs for Pakistan to zero. With a 100 percent tariff cut given by Australia, Pakistan’s prospective trade after the application of duty concessions valued at $263.24 million in 2019. Similarly, with a 100 percent tariff cut given by Pakistan, Australia’s prospective trade after the application of duty concessions was valued at $459.47 million in 2019.
While Australia stands to benefit immediately from a reduction in tariffs for its major exports to Pakistan, Pakistan will need time to build capacity, mostly in the textile sector to gain from an FTA. Looking at current bilateral trade patterns, Pakistan would be better off signing a limited Preferential Trade Agreement (PTA) with Australia as opposed to a deep and inclusive Free Trade Agreement (FTA). The Pakistan Business Council recommends that Pakistan seek preferential tariff access for its textile products or at least the same tariffs that Australia applies on these products when imported from China, Bangladesh and ASEAN countries. Once Pakistan has built sufficient presence in these textile categories, negotiations can begin for a free trade agreement.
The PBC is a private sector not-for-profit advocacy platform set up in 2005 by 14 (now 82) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve 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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