Pakistan is fond of its Preferential Trade Agreements (PTA) and Free Trade Agreements (FTA) all in the quest of the as yet elusive exponential increase in exports. Not ones for shying away from chasing big numbers, in eternal optimism our policymakers hope for significant jumps in bilateral trade, especially exports, as they enter round after round of negotiations with our international trading partners.
Case in point is the current FTA with Iran whose second phase of negotiations concluded last week. Pakistan and Iran hope to increase the 2016’s $359 million trade to $5 billion by 2021.
In 2004, Pakistan and Iran signed the PTA which came into effect in 2006. As per data from International Trade Centre, Trade Maps, Pakistan’s bilateral trade with Iran increased from $622 million in 2006 to $1.2 billion in 2009, a 194 percent jump post FTA implementation.
Despite the increase in trade, bilateral trade with Iran composed of just 2.5 percent of Pakistan’s global bilateral trade, with exports to Iran being 1.4 percent of Pakistan’s total exports. The only significant export to Iran was that of rice with 12 percent of Pakistan’s exports finding a market in Iran.
In 2011, sanctions were placed on Iran and trade tapered off, not recovering even when they were lifted in 2013. For bilateral trade to increase to increase from current levels to $5 billion in the next 4 years, the jump needs to be nearly 14 times!
Let us look at the exports to Iran for now. Going through the product lines, the highest potential of increase in trade is of rice exports to Iran. At the peak of Pakistan’s exports in 2009, the top export to Iran was $200 million of rice which comprised of nearly 80 percent of Pakistan’s exports to Iran.
Pakistan produces roughly 700,000 tonnes of rice annually and is a leading producer of Basmati and non-Basmati rice regionally. While Basmati rice is considered a premium high-end rice thereby enabling Pakistan to earn more forex, Iran is also a market for non-basmati rice. Since the decline in non-Basmati variety has caused some concerned, the Pakistan-Iran FTA in the works may give it the much needed boost.
Pakistan’s top export in 2016 was $19 million of paper and paperboard while rice exports have fallen to $8.3 million due to the sanctions placed in 2011. On the other hand, Iran’s rice imports from the world are $517 million, 97% of which were from India, since India circumvented the sanctions by using a barter model of trade that would not suit Pakistan.
Currently, other than rice, we have potential to increase exports of medical instruments (HS Code 901890) since Pakistan’s current exports to Iran are limited to $780 thousand whereas Iran’s imports globally were $147 million in 2016. Given that Sialkot’s surgical good industry is one of Pakistan’s success stories, reduction in tariffs of medical instruments should be negotiated to become a part of the FTA.
Another product that we have potential to export to Iran is cotton fabric. Woven fabrics of cotton (HS Code 520819) are a significant export of Pakistan but exports to Iran are non-existent, whereas Iran’s imports from the world were $42 million in 2016.
Similarly, there is a long list of Pakistan’s exports that we are currently not exporting to Iran but which Iran is importing from other countries. In the past, Pakistan’s exports have been limited to a single top export to Iran but the FTA is an opportunity to increase our basket of exports. However, if we insist on putting all our eggs in one basket as we usually do, the FTA is not likely to give a significant increase in exports, much less reach the naively optimistic goal of $5 billion of bilateral trade.
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