Negotiating trade agreements

Ministry of Commerce officials and the general public may have a different definition of the words “major success”. Pakistan and Indonesia re-negotiated their PTA this week with Pakistan being the beneficiary of concessions on 20 tariffs lines. Rice, ethanol, textiles, mangoes and kinnows are among the products that received concessions for which the ministry lauded itself.

Pakistan has a trade deficit of nearly $1 billion with Indonesia, the bulk of which is due to palm oil imports. Pakistan is among the top palm oil importing countries in the world since every good quality banaspati ghee in Pakistan has palm oil in it.

It is unlikely that the food loving nation of Pakistan will decrease its edible oil imports. Neither is it likely that Pakistan’s domestic edible oil production will increase substantially in the near future. Not only does Pakistan have limited patches of land with suitable conditions for palm oil cultivation, this sector also requires much further research as well as investment in mills for extraction.

Increasing exports to Indonesia could address the trade deficit; currently Pakistan’s exports to Indonesia are around a paltry $100 million, not even accounting for one percent of Indonesia’s $136 billion imports. Therefore, negotiating better tariffs for Pakistan’s exports to Indonesia would appear to be a step in the right direction.

Analyzing the products that Pakistan has gotten tariff concessions on tells a different story however. True, Indonesia is one of the top rice importing countries in the world to which Pakistan’s basmati rice exports are negligible. But Pakistan is not likely to be able to compete with Thailand and Vietnam from whom Indonesia imports rice from since they all belong to the strong trading bloc ASEAN and are neighbours.

Pakistan’s kinnow exports are $1.1 million to Indonesia whereas its imports from the world are $51 million so on the face of it there is substantial potential to increase exports. However, under the existing PTA, Pakistan already enjoys 0 percent tariff on the mandarin variety that Indonesia imports. This begs the question as to why Pakistan is not exporting more oranges to Indonesia currently if tariff concessions alone can increase exports.

Tariff concessions on mangos and ethanol exports are particularly interesting. Indonesia’s total mango imports in 2016 were $14,000 and it is a net exporter of ethanol thus there is not a lot of room for increase in exports of either goods.

All in all, the tariff concessions are unlikely to impact the current trade deficit with Indonesia.

One wonders at the usage of valuable time and resources in re-negotiating tariff concessions that clearly have little utility. Is it the dearth of information available to officials or lack of sense that renders Pakistan incapable of negotiating trade agreements that are in its favour. Far from being a “major success”, the re-negotiated tariff concessions only underline the futility of Pakistan’s trade agreements in increasing its exports.