Pakistan's economy heavily relies on its export sector, contributing 10.55% of the country's total Gross Domestic Product (GDP) in 2022, according to Trading Economics. Yet, it contends with a persistent trade deficit where the scale of imports far outweighs exports.
This imbalance stems from a complex web of – frequent shifts in economic policy, political instability, and heightened production costs linked to rising energy prices. Such factors constrict export growth, making it difficult for Pakistani businesses to compete in international markets.
To navigate these turbulent waters, the strategic pursuit of Free Trade Agreements (FTAs) becomes imperative. But what exactly is a Free Trade Agreement?
An FTA is a pact between two or more countries to eliminate or reduce trade barriers like tariffs and quotas, facilitating the free flow of goods and services. This gives Pakistani businesses critical leverage by lowering trade barriers, directly enhancing their ability to export more competitively.
Furthermore, these agreements often include protections that encourage foreign investment. By making the business environment more stable and predictable, FTAs can attract foreign businesses to invest in Pakistan, thereby boosting the country's economy and making local businesses more competitive on the global stage.
To help businesses capitalise on these agreements, we’ve outlined comprehensive insights into the different Free Trade Agreements of Pakistan with other countries to enhance your international shipping operations.
Key Free Trade Agreements Facilitating Pakistan's Global Trade
As Pakistan seeks to enhance its economic footprint globally, understanding its engagement with various Free Trade Agreements is crucial. These agreements are vital links in the network of Free Trade Agreements in the world, each uniquely boosting Pakistan’s trade capabilities.
Below is a list of significant Free Trade Agreements of Pakistan with other countries:
1. China-Pakistan Free Trade Agreement (CPFTA)
The China-Pakistan Free Trade Agreement (CPFTA), enhanced in its second phase (CPFTA-II) from 2019 to 2024, significantly benefits Pakistan by reducing tariffs and restrictions on 6,711 product lines, including key exports like textiles, seafood, agriculture, and minerals. CPFTA-II notably eliminates tariffs on an additional 313 Pakistani export products, expanding trade opportunities.
This phase, integrated with the China-Pakistan Economic Corridor (CPEC), leverages improved connectivity via the Khunjerab Pass to bolster Pakistan’s export potential to China.
2. Agreement Between Tajikistan and Pakistan on Transit Trade (ATPTT)
The Agreement between Tajikistan and Pakistan on Transit Trade (ATPTT) grants Pakistan access to vital land routes through Tajikistan for exporting goods, complemented by standardised customs, vehicle permits, and driver licences. This FTA enhances Pakistan's connectivity to Central Asia, expanding its market reach and trade potential.
3. Pakistan-Türkiye Trade in Goods Agreement
The Pakistan-Turkey Free Trade Agreement (FTA) significantly reduces tariffs on 261 items, promoting Pakistan’s exports in leather, rice, sports goods, and more. It aims to increase bilateral trade to US$5 billion, strengthening economic relations and providing Pakistani products with better access to the Turkish market.
4. Trade and Investment Framework Agreement (TIFA) Between Pakistan and the USA
The recent relaunch of the Trade and Investment Framework Agreement (TIFA) between Pakistan and the United States aims to further bolster trade and economic ties.
By addressing trade barriers and expanding market access, this initiative emphasises enhancing specific bilateral agreements, such as those related to textiles, agriculture, and technology.
5. Malaysia-Pakistan Free Trade Agreement
Established in 2008, the Malaysia Pakistan Free Trade Agreement or the Malaysia Pakistan Closer Economic Partnership Agreement, facilitates enhanced trade relations through significant tariff reductions. Under this agreement, Malaysia offers concessions on approximately 10,593 tariff lines. This reduction benefits Pakistan by enhancing export opportunities, particularly in high-potential agricultural sectors such as rice, vegetables, fruits, and meat.
The agreement also opens significant avenues in textiles and pharmaceuticals, sectors where Pakistan enjoys zero-duty access to the Malaysian market.
6. Agreement on South Asian Free Trade Area (SAFTA)
This regional trade treaty among South Asian Association for Regional Cooperation (SAARC) countries like India, Nepal, Sri Lanka, Bangladesh, Bhutan, and the Maldives aims to reduce customs duties on nearly all traded goods to zero.
By diminishing trade barriers, SAFTA helps Pakistan enhance its trade volumes with neighbouring countries, particularly in sectors such as textiles, pharmaceuticals, and agricultural products, fostering greater economic stability and integration across South Asia.
Leveraging Free Trade Agreements
Leveraging the Free Trade Agreements discussed above provides significant opportunities for some of Pakistan's economic sectors. These FTAs facilitate enhanced competitiveness in international business operations.
Here’s a closer look at which specific sectors can benefit from the mentioned FTAs:
Agriculture
Malaysia-Pakistan Free Trade Agreement: Reduces tariffs on agricultural products, notably rice and fruits, which allows Pakistani exporters to sell these goods more competitively in Malaysia.
China-Pakistan Free Trade Agreement (CPFTA-II): Offers zero-tariff entry for various agricultural products into China, including key exports like fruits, vegetables, and cotton, significantly benefiting Pakistan's farmers and enhancing their market reach in China.
Information Technology
Trade and Investment Framework Agreement (TIFA) with the USA: While primarily a platform for bilateral dialogue, TIFA facilitates engagements that could lead to more favourable conditions for tech exports, including software and emergent tech products, fostering growth in Pakistan’s burgeoning tech sector.
How Pakistani Businesses Can Begin Leveraging FTAs
Here are quick, practical steps to begin exploring and reaping the benefits of Free Trade Agreements:
- Identify relevant FTAs: Start by identifying which FTAs are most relevant to your business sector and target markets.
- Compliance and documentation: Ensure your business meets the origin criteria and other compliance requirements stipulated by the FTAs. Proper documentation and compliance are critical for taking advantage of tariff reductions and avoiding delays.
- Seek expert advice: Consult with trade experts, legal advisors, and freight forwarders specialising in international trade. These professionals can provide guidance on the strategic use of FTAs, compliance, logistics, and market entry strategies.
- Implement a strategy: Develop a strategic plan that includes market development, pricing strategies influenced by reduced tariffs, and marketing campaigns tailored to new markets.
By following these steps, Pakistani businesses can effectively leverage FTAs to expand their market presence globally, enhance competitiveness, and contribute positively to the country’s trade balance.
