LAHORE

There is enough potential for trade between Pakistan and Indonesia to justify fast-tracking negotiations for a comprehensive Free Trade Agreement (FTA) between the two. While concessions on Kinnow are a step in the right direction, Pakistan has the ability to export several other items to Indonesia on which it currently faces higher tariffs than Indonesia’s other FTA partners.

“While Kinnow was among the highest potential products at the 8-digit level HS code (with a trade potential of over $90 million), Pakistan failed to secure concessions in several other high potential products, such as cotton products which have over $500 million in trade potential within 19 items at the 8-digit level.

A report, compiled by the Pakistan Business Council, analyses the trade potential of selected export and import items between Pakistan and Indonesia at the 8 digit HS code level. Intuitively, trade potential is the theoretical extent to which trade of a given item can be expanded, which suggests the actual scope for growth in trade of that item, the report stated.

Pakistani exports to Indonesia are shown to possess a trade potential of $2.3 billion, with $1.0 billion of this potential residing within 50 individual items at the 8 digit HS code level. Sectors with notable trade potential include Kinnow, cotton products, articles of apparel, plastics and pharmaceutical products. Tariffs imposed by Indonesia on its FTA partners are provided in a later section for comparison with the rates offered to Pakistan under the PTA.

The Pakistan-Indonesia Preferential Trade Agreement (PTA) was signed in February 2012 and was formally activated by the two countries in September 2013. Major items that stood to benefit from the PTA were Kinnow exports from Pakistan, which were granted full concession by Indonesia, and palm oil imports from Indonesia, which were granted a 15pc margin of preference over the standard tariff rate by Pakistan. Pakistan’s exports to Indonesia grew from $47 million in 2003 to $144 million in 2013, whereas its imports from Indonesia rose from $266 million in 2003 to $1.2 billion in 2013. Major Pakistani exports to Indonesia include cotton, rice and corn, whereas major imports from Indonesia include palm oil, staple fibres and edible nuts.

This study shows that Pakistan has offered more favourable terms to high potential Indonesian items than Indonesia has offered to high potential Pakistani items relative to the countries’ other FTA partners. If concessions are not sought on high potential Pakistan export items such as cotton, articles of apparel, plastics etc., which collectively represent hundreds of millions of dollars of trade potential, the Pakistan-Indonesia FTA will remain a token arrangement with little real-world benefit for Pakistan. The terms of the current PTA do not offer concessions or preferential treatment on many high potential items identified at the 8 digit HS code level in this Study. The FTA will require significant refocusing and renegotiation of the PTA’s terms if it is to be expected to deliver results for Pakistan.

Pakistan’s total exports to Indonesia in 2013 amounted to $144 million, up 115pc from $67 million in 2009. However, despite significant growth Pakistan’s 2013 exports to Indonesia accounted for a mere 0.08pc of Indonesia’s total world import value of $187 billion that year.

Pakistan’s top exports to Indonesia at the 2 digit HS code level include cotton, cereals, leather and fruit. Percentage increases in major exports over the period 2009-13 are misleadingly high in several cases as a result of negligible exports to Indonesia in 2009.

While the past few years have seen Pakistan establish a trade relationship with Indonesia, it still claimed very small percentages of Indonesia’s total imports in 2013 within the top 20 export HS codes.

Pakistan’s total imports from Indonesia amounted to $1.2 billion in 2013, up by 85pc from $653 million in 2009. Pakistan’s major imports from Indonesia include palm oil, coal, rubber and manmade staple fibres.

Indonesian exports account for a major proportion of Pakistani world imports of a number of HS codes, such as animal and vegetable fats and oils (36pc), manmade staple fibres (19pc), paper and paperboard (47pc) and edible fruits (17pc).

Overall, Indonesia accounts for 2.76pc of Pakistan’s total world imports, a relatively small fraction but considerably higher than Pakistan’s 0.08pc share of Indonesian world imports.

This along with Indonesia’s significant penetration in a number of HS codes suggests that Indonesia has been able to capitalize on its trade of relationship with Pakistan to a far greater extent than Pakistan.

The first round of meetings discussing the Pakistan-Indonesia trade agreement were held in August 2003 but stalled due to disagreement on duties to be levied on palm oil (a significant Indonesian export to the world) and Kinnow (a significant Pakistani export to the world).

It took eight rounds of talks to iron out the details of the agreement and the PTA was signed in February 2012. However, problems relating to non-tariff barriers on Kinnow exports to Indonesia resulted in further delays, and it took till September 2013 for the terms of the PTA to come into effect.

Pakistan offered Indonesia full concession on 81 items including desiccated coconut and sweet potatoes, whereas Indonesia offered full concession on 100 items including oranges and certain pharmaceutical products.

Pakistan also cut custom duties to 5pc on 53 items, to 9pc on 24 items, and to 16pc on 48 items. Indonesia cut custom duties to 5pc on 110 items and to 9pc on 17 items. Pakistan offered some level of concession on a total of 287 items and Indonesia offered the same on 216 items.

It is worth noting that under the terms of the PTA Indonesia granted full concession to oranges, a Pakistani export to the country that possesses significant potential. Pakistan reciprocated by offering a 15pc Margin of Preference on the standard tariff rate to Indonesia palm oil products, which also have good potential for capturing the Pakistani market.