After long-drawn negotiations, Pakistan and Indonesia finally signed a Preferential Trade Agreement, on last Friday. The PTA, which is subject to the approval of the parliaments of both countries is likely to shake up the market for palm oil imports to Pakistan. A similar agreement with Malaysia came in to effect from August 2007. Under the deal, import duties on palm oil from that country were slashed by 15 percent. Industry sources reveal this meant "a difference of about $20-25 per ton on the landed cost of palm oil". The price differential benefited Malaysian palm oil suppliers strongly and as a result, the companys share in the supply of palm oil to Pakistan jumped from 45 percent in 2007 to over 90 percent at present. However, local buyers of the commodity complain that soon after the agreement, Malaysian suppliers started charging higher rates, to capitalise on the price differential created by higher duties on palm oil imports from Indonesia, to Pakistan. They assert that as a consequence, rates quoted to local firms are generally "only lower by about $5-10 per ton, compared to Indonesian suppliers". The PTA between Pakistan and Indonesia will come into effect on January 1, 2012 at which point import duty on palm oil imports from the latter will be slashed by 15 percent. Local palm oil users believe the move will force Malaysian exporters to offer more competitive rates to Pakistani buyers. To that extent, the PTA appears to carry some indirect benefits for the economy. However, in return for lower import duties, Indonesia has expressed interest in importing Kinnows from Pakistan. Local suppliers assert "that will mean additional exports of about $20-25 million per year, at best". In FY11, the countrys exports to Indonesia stood at $68.5 million, according to data compiled by the State Bank of Pakistan. By comparison, Pakistans exports to Malaysia have increased considerably since the implementation of the agreement with the latter; from $67 million in FY05 to $191 million in FY11. If Malaysias share in palm oil exports to Pakistan were to drop by a comparable proportion to the rise that was witnessed after the agreement; the Malaysian government may manoeuvre to redress duties for Pakistans exports in retaliation. Given the fact that the commendable increase in the countrys exports to Malaysia was, in part due to reductions in import duties on these items by the Malaysian government, reversal of these duty cuts could send Pakistans exports to Malaysia hurling downwards. In summation, the PTA with Indonesia is definitely a positive development for Pakistan as it not only opens that market for the countrys Kinnow exports but will likely secure relatively competitive rates for palm oil importers as well. It is however up to the countrys policy makers and diplomats to ensure that their Malaysian counterparts are not irked by this agreement and do not take steps that disturb trade prospects with that country.
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