World Trade Organisation (WTO) member countries establish free trade areas to achieve market access through reciprocal exchanges of trade concessions. Entering a PTA/FTA is partly motivated by the desire to obtain equilibrium in foreign trade. Increased market access on bilateral or plurilateral basis can essentially be achieved through affective market access negotiations under the GATT Article XXVIII bis - Tariff Negotiations. However, potential benefits from any trading arrangement are neither automatic nor guaranteed.
The ability to derive benefits from trading arrangement depends upon inter alia export-oriented strategies, state of domestic industry, standard and quality of products and price competitiveness.
In recent years initiatives for preferential trading arrangement have run parallel to the globalisation process and these twin forces are generally seen to be mutually reinforcing. As of 15 November 2011 (www.wto.org/english/tratop_e/region_e/region_e.htm): some 505 RTAs, counting goods and services notifications separately, have been notified to the GATT/WTO. Of these, 367 RTAs were notified under Article XXIV of the GATT 1947 or GATT 1994; 36 under the Enabling Clause; and 102 under Article V of the GATT. At that same date, 313 agreements were in force. The overall number of RTAs in force has been increasingly steadily, a trend likely to be strengthened by the many RTAs currently under negotiations. Of these RTAs, Free Trade Agreements (FTAs) and partial scope agreements account for 90%, while customs unions account for 10 %. Among the best known regional trade agreements are: the European Union, the European Free Trade Association (EFTA), the North American Free Trade Agreement (NAFTA), the Southern Common Market (MERCOSUR), the Association of Southeast Asian Nations (ASEAN) Free Trade Area (AFTA) and the Common Market of Eastern and Southern Africa (COMESA).
The WTO defines FTA as "agreements among two or more parties in which reciprocal preferences (whether or not reaching complete free trade) are exchanged to cover a large spectrum of the parties trade". Customs unions on the other hand, are PTAs "with a common external tariff in addition to the exchange of trade preferences". Both forms of PTAs can be either bilateral (two parties) or plurilateral, that is, involving three or more countries.
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Table - 2. Bilateral FTAs by Geographic Area, WTO Notification and Status, 2000 and 2011
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BILATERAL FTAs WTO NOTIFIED NOT WTO NOTIFIED TOTAL
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Signed and Signed but Under (FA) Signed Proposed Total Not Notified &
In Effect not yet In Effect Negotiation /Under Negotiation Notified Not Notified
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2000 2011 2000 2011 2000 2011 2000 2011 2000 2011 2000 2011 2000 2011 2000 2011
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Within sub-region
Central and West Asia 2 9 0 0 8 8 0 0 0 0 0 0 8 8 10 17
East Asia 0 2 0 1 0 0 0 0 0 0 0 4 0 5 0 7
South Asia 0 5 0 0 0 0 0 1 0 0 0 2 0 3 0 8
Southeast Asia 1 1 0 0 0 0 0 0 0 0 0 0 0 0 1 1
The Pacific 2 2 0 0 0 0 0 0 0 0 0 0 0 0 2 2
Across sub-region
Central and West Asia + South Asia 0 0 0 0 0 0 0 0 0 0 0 2 0 2 0 2
East Asia + South Asia 0 3 0 0 0 0 0 0 0 0 0 1 0 1 0 4
East Asia + Southeast Asia 0 7 0 3 0 0 0 0 0 0 0 4 0 7 0 14
East Asia + The Pacific 0 4 0 0 0 0 0 2 0 0 0 1 0 3 0 7
Southeast Asia + South Asia 0 2 0 1 0 0 0 1 0 2 0 5 0 9 0 11
Southeast Asia + The Pacific 0 5 0 1 0 0 0 1 0 0 0 0 0 2 0 7
The Pacific + South Asia 0 0 0 0 0 0 0 2 0 0 0 0 0 2 0 2
With Non-Asian Countries
Central and West Asia + Non-Asia 3 13 0 0 6 6 0 0 0 0 0 0 6 6 9 19
East Asia + Non-Asia 0 12 0 4 0 1 0 2 0 4 0 5 0 16 0 28
South Asia + Non-Asia 0 1 0 2 0 1 0 5 0 1 0 8 0 17 0 18
Southeast Asia + Non-Asia 0 6 0 0 0 3 1 8 0 2 2 7 3 20 3 26
The Pacific + Non-Asia 0 2 1 3 0 0 0 1 0 0 0 3 1 7 1 9
TOTAL 8 74 1 15 14 19 1 23 0 9 2 42 18 108 26 182
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(Source: http://www.aric.adb.org/5.php)
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Pakistan has also signed trade agreements with Afghanistan (Pak-Afghan Transit Trade Agreement), Malaysia (Pak-Malaysia Free Trade Agreement), China (Pak-China Free Trade Agreement), Sri Lanka (Pak-Sri Lanka Free Trade Agreement), Iran (Pak-Iran Preferential Trade Agreement), Mauritius (Pak-Mauritius Free Trade Agreement).
The analysis of bilateral trade of Pakistan with its FTA/PTAs countries reveals that the volume of bilateral trade has increased since the FTA became operational but the balance of trade before and after the implementation of FTA remains against Pakistan except for Mauritius and Sri Lanka.
Pak-China FTA Since the Pak-China FTA became operational in 2007 bilateral trade is increasing. The volume of bilateral trade between Pakistan and China during 2006-07 (FTA year) was US $4110 million and the balance of trade of US $2958 million was in favour of China.
The current volume of bilateral trade is approximately US $6119 million (Jul-Apr) while the trade gap is of US $3359 million in favour of China. Pak-China trade is unidirectional since long before and after FTA. Although Pakistan export to China before the signing of this FTA was showing an increasing trend but import was increasing significantly almost more than three times the volume of export which was one of the reasons for this wide trade gap of US $2958 million (2006-07). When the Pak-China FTA became operational in 2007 the volume of bilateral trade kept the earlier trend towards expansion. But the signing of the FTA between the two countries did not reduce this trade gap.
It is worth mentioning that, although the theory of balance of trade has become irrelevant under the new phase of global trade but equilibrium in trade has significance when the economy is facing contraction. However, during the expansion of the economy industrial demand for input material needs to be satisfied. Phase-I -- Tariff Reduction Modality of China within five years after entry into force of this agreement:
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Category Track No of %of tariff
No Tariff line at 8
lines digit
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I Elimination of Tariff - three years 2681 35.5%
II 0 - 5 % - five years 2604 34.5%
III Reduction on Margin of Preference of 50% - five years 604 8%
IV Reduction on Margin of Preference of 20% - five years 529 7%
V No Concession 1132 15%
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Total 7550
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PAK-CHINA PATTERN OF TRADE BEFORE AND AFTER FTA Phase-I - Tariff Reduction Modality of China within five years after entry into force of this agreement:
PAK-MALAYSIA FTA
The Pak-Malaysia FTA is Pakistan's first FTA that covers trade in goods, trade in services, investment and economic co-operation. It is Malaysia's first bilateral FTA in South Asia. Analysis of trade pattern between Pakistan and Malaysia before the commencement of FTA shows that volume of bilateral trade has increased more than double to US $1638 million during 2007-08 from US $724 million during 2004-05. But the trade balance which was in favour of Malaysia also widened to US $1449 million during the same period from US $590 million. Pakistan's exports during the period 2004-05 to 2007-08 increased by just US $27 million while imports of Pakistan from Malaysia increased significantly by US $886 million to US $1543 million from US $657 million. Since the Pak-Malaysia FTA became operational Pakistan's exports to Malaysia are showing a slow pace in expansion while the export of Malaysia to Pakistan is increasing swiftly. Volume of Pakistan's exports has increased to US $155 million during three years from US $124 million in 2008-09. Whereas the volume of Malaysia's exports to Pakistan has reached US $1774 million during 2010-11 from US $1604 million in 2008-09. Volume of total trade during 2010-11 between the two countries is US $1928 million and the balance of trade of US $1619 million is in favour of Malaysia.
Pak-Malaysia pattern of trade before and after FTA According to the Pak-Malaysia FTA: for trade in goods, Pakistan will eliminate tariff on 43.2% of the current imports from Malaysia by 2012. On the other hand, Malaysia will eliminate tariff on 78% of imports from Pakistan.
Pakistan will reduce tariff on 7 palm oil tariff lines by 15 percent Margin of Preference (MoP) that is 10 per cent in 2008 and an additional 5 per cent in 2010. In trade in services, both countries have provided WTO plus market accesses to each other. In the field of computer and IT-related services, Islamic Banking, Islamic Insurance (Takaful) Pakistan has secured 100% equity in Malaysia. The Agreement also contains a chapter on investment to facilitate entrepreneurs of both countries. The incentives available to both countries will not be available to investors from other countries and the bilateral investment treaty signed by Pakistan will have no impact on the investment provisions under the FTA.
Pak-Sri Lanka FTA The Pak-Sri Lanka FTA became operational on June 12, 2005. Pakistan is enjoying amicable trade relations with Sri Lanka. The volume of bilateral trade after the FTA shows a US $112 million increase during the last six years. Whereas bilateral trade was increased by US $78 million before this FTA, ie US $192 million during 2005-06 from US $114 million in 2002-03. The current volume of Pakistan and Sri Lanka bilateral trade is US $376 million.
Pak-Sri Lanka pattern of trade before and after FTA: According to the trade agreement, the negative list of Sri Lanka contains a total of 697 HS tariff lines at the six-digit level and these products will not be entitled to any tariff concessions when exported to Sri Lanka. Sri Lanka has listed a total of 102 HS tariff lines at the six-digit level, on which Pakistan will receive 100% duty free access.
Pak-Iran PTA The Pak-Iran PTA became operational in September 2006. When this PTA began during 2006, total trade between Pakistan and Iran was US $638 million and was showing an expansionary trend as the Pak-Iran bilateral trade was US $366 million during 2002-03. Although the gap in the trade balance has reduced to US $174 million during the current year, but the volume of bilateral trade has also declined to US $432 million during 2010-11 from US $573 million. Pak-Iran trade is fluctuating increasing in a year and then decreasing.
Pak-Iran pattern of trade before and after PTA Under the agreement, Pakistan offered concessions to Iran on 338 tariff lines, whereas Iran gave concessions on 309 tariff lines. Preferences granted by both countries to each other cover approximately 18% of MFN tariff of both countries.
Pak-Mauritius PTA Pak-Mauritius PTA became operational in November 2007. The volume of bilateral trade between Pakistan and Mauritius before and after the PTA is a negligible US $50 million during 2010-11 and is moving at a snail's pace.
Pak-Mauritius pattern of trade before and after PTA Under the agreement, Pakistan offered concessions to Mauritius on 130 items/tariff lines ie 1.9% of its total existing national tariff lines, whereas Mauritius has given concession on 102 items/tariff lines ie 1.64% of its total existing national tariff lines.
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S.No Country Operational Before FTA/PTA After FTA/PTA
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on Period Export Import Total Balance Period Export Import Total Balance
Trade of Trade Trade of Trade
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1 2 3 4 5 6 7 8 9 10 11 12 13
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1 China(FTA) 1-Jul-07 2002-03 244.59 839 1083.59 -594.41 2007-08 684.793 4688.239 5373.032 -4003.45
2003-04 255.595 1142.788 1398.383 -887.193 2008-09 701.043 4086.736 4787.799 -3385.69
2004-05 281.982 1528.274 1810.256 -1246.29 2009-10 1,210.76 3283.84 4494.6 -2073.08
2005-06 412.212 2,010.638 2422.85 -1598.43 2010-11 1380 4739.00 6119.00 -3359
2006-07 575.9.3 3533.794 4109.697 -2957.89 (Jul-Apr)
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Period Export Import Total Balance Period Export Import Total Balance
Trade of Trade Trade of Trade
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2 Sri-Lanka(FTA) June 12, 2005, 2002-03 76.1 38.243 114.343 37.857 2006-07 200.605 63.377 263.982 137.228
2003-04 86.823 42.004 128.827 44.819 2007-08 214.582 61.274 275.856 153.308
2004-05 142.753 43.886 186.639 98.867 2008-09 189.694 65.346 255.04 124.348
2005-06 132.895 59.285 192.18 73.61 2009-10 283.142 49.244 332.386 233.898
2010-11 321.45 54.1 375.55 267.35
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Period Export Import Total Balance Period Export Import Total Balance
Trade of Trade Trade of Trade
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3 Iran (PTA) Sep-06 2002-03 63.19 302.643 365.833 -239.453 2006-07 167.54 405.62 573.16 -238.08
2003-04 55.218 146.790 202.08 -91.572 2007-08 218.56 551.74 770.3 -333.18
2004-05 116.188 100.890 217.78 15.298 2008-09 399.619 921.971 1321.59 -522.352
2005-06 188.07 450.08 638.15 -262.01 2009-10 207.187 1017.1 1220.9 -813.3
2010-11 128.935 302.83 431.765 -173.895
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Period Export Import Total Balance Period Export Import Total Balance
Trade of Trade Trade of Trade
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4 Malaysia(FTA) 2008 2004-05 66.925 656.997 723.922 -590.072 2008-09 124.378 1603.621 1727.999 -1479.24
2005-06 63.097 637.146 700.243 -574.049 2009-10 191.290 1270.971 1462.261 1079.68
2006-07 72.64 945.304 1017.94 -872.664 2010-11 154.62 1773.71 1928.33 -1619.09
2007-08 94.388 1543.351 1637.74 -1448.96
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Period Export Import Total Balance Period Export Import Total Balance
Trade of Trade Trade of Trade
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5 Mauritius (PTA) 30,Nov 2007 2002-03 27.719 3.29 31.009 24.429 2007-08 42.497 0.381 42.878 42.116
2003-04 40.700 3.408 44.108 37.292 2008-09 31.293 0.918 32.211 30.375
2004-05 40.059 1.970 42.029 38.089 2009-10 41.772 8.917 50.689 32.855
2005-06 33.86 1.28 35.14 32.58 2010-11 43.67 6.72 50.39 36.95
2006-07 36.04 0.59 36.63 35.45
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Pakistan trade before and after FTA/PTA Besides the above PTA/FTA Pakistan is also negotiating bilateral trade arrangements the Pak-Singapore FTA, Pakistan-Indonesia PTA, Pakistan-Turkey PTA, and Pak-GCC FTA.
Pakistan's direction of trade According to the Economic Survey of Pakistan (2010-11): Pakistan's exports have been concentrated in a few export destinations like USA, UK, Germany, Hong Kong, the UAE and Afghanistan. The US continues to be the most favourite export destination with a 16.1 percent share in overall exports. While Pakistan's imports are concentrated in a few markets and the chunk of imports originates from UAE, Saudi Arabia, Kuwait, Malaysia, Japan, Germany, the US and the UK. These markets account for approximately 50 percent share in the overall import of the country. Further analysis suggests that within these import origins, the highest share came from UAE, followed by Saudi Arabia and Kuwait during July-March 2010-11.
None of the countries that have trading arrangements (FTA/PTA) with Pakistan are major trading partners. The establishment of a feasible free trade area is a complex legal and economic process that requires strategic planning. Before beginning FTA negotiations, economic, political, and legal objectives should be considered keeping in mind the state of the domestic industry, product standards and quality and cost competitiveness. Analyse the present economic conditions, needs and performance of various sectors. The most important is the consultation process with the industry and trade associations, and other stakeholders. Examine the trade relations within and outside the region and the trade pacts of the counterparts within and outside the region and the WTO obligations. Conduct cost benefit analysis to evaluate the potential gains and losses from the FTA, and to design an appropriate negotiating plan. Constitute a monitoring body comprising experts from associations, chambers and other stakeholders. Signing of PTAs/FTAs without production of competitive goods conforming to the products' standards laid down in terms of the WTO's agreements will not help sell the products abroad and may only result in one-sided trade.
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