Second Review of the Indonesia–Pakistan Preferential Trade Agreement

This study by the Pakistan Business Council (PBC) titled “Second Review of the Indonesia–Pakistan Preferential Trade Agreement” is part of the PBC’s Market Access Series 2020 — 21.

On 3^rd February 2012, the two countries signed the Indonesia–Pakistan Preferential Trade Agreement (IPPTA) which came into effect from September 2013. The figure below shows bilateral trade between Indonesia and Pakistan since the signing of the PTA.

Major Findings of the Study

• Currently, the IPPTA allows concessional market access to Pakistan on 232 goods (103 zero-rated) and market access to Indonesia on 313 goods (82 zero-rated).
• Palm Oil, which is Pakistan’s largest import from Indonesia, as well as the commodity with the second-largest indicative potential for exports from Indonesia to Pakistan is a part of Pakistan’s concession list for Indonesia.
• Other imports from Indonesia include mineral fuels and oils, vehicles, paper and rubber products.
• In turn, Pakistan largely exports agricultural products and food items such as rice to Indonesia, along with textile products, raw hides and skins, fish, paper, iron and so on. Seven out of the current top 25 exports have been included under IPPTA concessions. Therefore, it is important to note that majority of the top products are those on which Indonesia does not apply a preferential tariff for Pakistan.
• At HS-06 level, Pakistan has an indicative export potential for the top 25 items amounting to $3.2 billion. In 2019, Pakistan actually exported a mere $68.8 million of these high potential products to Indonesia.
• Most of Pakistan’s high export potential commodities fall under Agricultural Products and Foodstuffs (HS-01–24), including edible fruits and vegetables from the horticulture sector. High potential items include Dates, Potatoes, Onions and so on.
• Inputs from relevant stakeholders revealed that the main issues that the face when exporting to Indonesia are those of non-tariff barriers rather than of market access. There is a general lack of awareness of IPPTA, as well as, of Pakistani products. Connectivity is another obstacle which has restricted bilateral trade between the two countries. There also exists a mismatch between Pakistan’s supply and Indonesia’s demand. As for the Indonesian side, businessmen report some issues in the packaging and labelling requirements of Pakistan.

Major Recommendations

• Pakistan needs to negotiate on high potential textile products which consist of cotton items and high-valued added apparel, and high potential food items including fruits and vegetables.
• More trade fairs and marketing of textile goods, especially high value-added products in place of low value-added products (woven fabrics of cotton), will allow Pakistan to tap into this market.
• Potential in the horticulture sector can be realized through increasing awareness, research and development, proper branding, rigorous marketing, trade fairs and promotional activities.
• However, it is also necessary that Pakistan diversifies its exports to Indonesia and does not focus on just horticulture items.
• The lack of awareness issue can be reduced by increasing participation in Indonesian trade exhibitions which are held every year to promote their products. Such expos, exhibitions and meetings should be encouraged and facilitated so that Indonesian businessmen are also made aware of Pakistani products. The platforms of Pakistan Indonesia Business Forum (PIBF) and the Pakistan Embassy in Jakarta can be used to introduce Pakistani brands and products in the Indonesian market.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 86) 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