A Study on the Feasibility of the Proposed Pakistan- Thailand Free Trade Agreement. No Major Gains Expected for Pakistani Exports

Transcription

1 2015 A Study on the Feasibility of the Proposed - Free Trade Agreement No Major Gains Expected for i Exports

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3 A Study on the Feasibility of the Proposed - Free Trade Agreement November 2015 A Study on the Feasibility of the Proposed - Free Trade Agreement i

4 Acknowledgements Team Leader: Samir S. Amir Lead Researcher: Syed Danish Hyder Disclaimer: The findings, interpretations and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the Board of Directors and Members of the Business Council or the companies they represent. Any conclusions of analysis based on ITC, WDI data are the responsibility of the author(s) and do not necessarily reflect the opinion of the WTO, World Bank, IMF or UN. Although every effort has been made to cross-check and verify the authenticity of the data, the Business Council does not guarantee the data included in this work. All data and statistics used are correct as of 1 July, 2015, and may be subject to change. For any queries or feedback regarding this report, please contact samir@pbc.org.pk or danish@pbc.org.pk. ii A Study on the Feasibility of the Proposed - Free Trade Agreement

5 The Business Council: An Overview The Business Council (PBC) is a business policy advocacy forum, representing private-sector businesses that have substantial investments in s economy. It was formed in 2005 by 14 (now 47) of s largest enterprises, including multinationals, to allow businesses to meaningfully interact with government and other stakeholders. The Business Council is a pan-industry advocacy group. It is not a trade body nor does it advocate for any specific business sector. Rather, its key advocacy thrust is on easing barriers to allow i businesses to compete in regional and global arenas. The PBC works closely with the relevant government departments, ministries, regulators and institutions, as well as other stakeholders including professional bodies, to develop consensus on major issues which impact the conduct of business in and from. The Wbusinesses. It also serves on various taskforces and committees of the Government of as well as those of the State Bank, SECP and other regulators with the objective to provide policy assistance on new initiatives and reforms. The PBC conducts research and holds conferences and seminars to facilitate the flow of relevant information to all stakeholders in order to help create an informed view on the major issues faced by. The PBC s Founding Objectives: To provide for the formation and exchange of views on any question connected with the conduct of businesses in and from. To conduct, organize, set up, administer and manage campaigns, surveys, focus groups, workshops, seminars and field works for carrying out research and raising awareness in regard to matters affecting businesses in. To acquire, collect, compile, analyze, publish and provide statistics, data analysis and other information relating to businesses of any kind, nature or description and on opportunities for such businesses within and outside. To promote and facilitate the integration of businesses in into the world economy and to encourage the development and growth of i multinationals. To interact with Governments in the economic development of and to facilitate, foster and further the economic, social and human resource development of. The PBC is a Section 42 not-for-profit Company Limited by Guarantee. Its working is overseen by a Board of Directors elected every three years by the Membership with the Board being headed by a Non-Executive Chairman. The day-to-day operations of the PBC are run by a professional secretariat headed by a full-time, paid CEO.More information on the PBC, its members, and its workings, can be found on its website: A Study on the Feasibility of the Proposed - Free Trade Agreement iii

6 The PBC s Member Companies

7 The PBC s Member Companies

8 Table of Contents The Business Council: An Overview...iii Executive Summary Study Findings Conclusion Section I: Trade Overview Study Objectives Sources of Data Methodology Comparison of and s Key Economic Indicators and Trade Profiles s Top 10 Export Destinations s Major World Exports at 2 Digit HS Code s Top 10 Sources of Imports s Major World Imports at 2 Digit HS Code s Top 10 Export Destinations s Major World Exports at 2 Digit HS Code s Top 10 Sources of Imports s Major World Imports at 2 Digit HS Code s Trade with at a Glance s Top s Top Imports from Section II: and s Major FTAs Overview of s FTAs Sri Lanka FTA Malaysia FTA Indonesia Preferential Trade Agreement China FTA vi A Study on the Feasibility of the Proposed - Free Trade Agreement

9 Overiew of s Major FTAs Australia FTA New Zealand FTA China FTA India Framework Agreement FTA Japan FTA ASEAN-6 FTA Section III: Analysis of High Potential i s Trade Potential Overview Top 50 High Potential i at 6 Digit HS Code Level Sectoral Overview of High Potential i Bovine Cuts Boneless Buttermilk and Cream Citrus Fruit, Fresh or Dried Wheat or Meslin Vegetable Products Nes Sugar Confectionary Biscuits, Wafers Medicament Mixtures Paints & Varnishes Polymers Plastics Leather Cotton Cotton & Polyester Fabric Apparel Articles Articles of Apparel Made Up Textile Articles Articles of Bedding Footwear Jewellery Articles Pipes and Parts of Structure Air Craft Engines Medical Sciences Instruments Frozen Shrimps and Prawns A Study on the Feasibility of the Proposed - Free Trade Agreement vii

10 Section IV: Analysis of High Potential s Trade Potential Overview Top 50 High Potential Thai at 6 Digit HS Code Level Sectoral Overview of High Potential Thai Maize Seed Palm Oil & its Fractions Cyclic & Acyclic Hydrocarbons Polymers Polyester Yarn and Dyed Fabric Mechanical Parts Electric Equipment Mobile Telephones And Cellular Networks Electronic Equipment Automobiles Pneumatic Tyre Electro Medical Apparatus Staple Fibres of Polyester and Viscose Medicaments Reactive Dyes Section V: Prospective Trade Prospective Trade at 6 Digit HS Code Level s Prospective of Top Growth Items at 6 Digit HS Code Level s Prospective of Top Growth Items at 6 Digit HS Code Level Section VI: Conclusion Potentially Low Gains from - FTA Problems of Institutional Capacity Annexure Top 100 High Potential i at 6 digit HS Code Level Top 100 High Potential Thai at 6 digit HS Code Level viii A Study on the Feasibility of the Proposed - Free Trade Agreement

11 List of Tables s Top 10 Export Destinations s Major World Exports s Top 10 Import Sources s Major World Imports s Top 10 Export Destinations s Major World Exports s Top 10 Import Sources s Major World Imports s Top s Top Imports from Top 50 high potential i at 6 Digit HS Code Level Top 50 High Potential at 6 Digit HS Code Level s prospective of Top growth items at 6 Digit HS Code Level s prospective of Top growth items at 6 Digit HS Code Level Table 1. Lists the Top 100 high potential i at the 6 Digit HS Code Level Table 1. Lists the Top 100 High Potential Thai at the 6 Digit HS Code Level A Study on the Feasibility of the Proposed - Free Trade Agreement ix

12 Executive Summary Background In August 2015 and decided on the Terms of Reference (ToRs) and framework for a free trade agreement during a two-day visit of a Thai delegation to. Negotiations on the terms of the FTA are set to commence on 27th September 2015 in. Both governments have expressed their strong interest in the speedy conclusion of a free trade agreement. Feasibility studies carried out by both sides are said to indicate significant scope for bilateral trade expansion between the two countries. A joint statement by the - Business Council reaffirmed these findings and listed various sectors that will be instrumental in raising trade volumes such as food and agriculture, fisheries, auto parts and textiles. It is therefore clear that the - FTA has been fast-tracked and negotiations are to be pursued aggressively by both sides. It is imperative at this point to perform an independent feasibility study to determine whether a - FTA is an advisable move. s past experience with trade agreements and their consequences is reason to proceed with extreme caution where further major free trade agreements are concerned. Previous trade agreements with China, Malaysia and Indonesia among others were characterized by terms that did not grant high potential i items significant tariff concessions while granting access to the trade partner s major export items. As a result many local i industries have buckled under the weight of cheap foreign goods allowed into the country by FTAs. This study attempts to determine whether the - FTA is a feasible proposal. An FTA would be feasible if: It enhances market access for both the countries in a mutually beneficial manner and leads to significant trade complementarities. It results in cheaper imports from the partner country which can help improve the competitiveness of both domestic production and exports. It does not lead to the opening of the domestic market to subsidized and unfair competition from imports from the partner country. x A Study on the Feasibility of the Proposed - Free Trade Agreement

13 s Free Trade and Preferential Trade Agreements has signed FTAs with Sri Lanka, China and Malaysia. With the exception of s trade balance with Sri Lanka, its trade balance with the other FTA countries has been consistently negative following the enforcement of the agreements. In s imports were 450% and 326% higher than its exports from Malaysia and China respectively. -China FTA and China signed an FTA in November 2006 and the agreement took effect in July Since 2010, s exports to China have been gradually increasing. However, exports to China dipped in. On the other hand imports from China increased from USD 5.2 billion to USD 9.59 billion in A closer look at the terms of the Pak-China FTA reveals that failed to secure concessions that make its high potential export items competitive against China s other trade partners, with export items at the 8 digit level such as cotton (HS ), frozen fish (HS ), and leather (HS ) facing tariffs significantly higher than those faced by competing ASEAN countries. s primary exports to China include low value-added items such as cotton yarn, rice and chromium ores. On the other hand, China s top exports to are high value-added goods such as cell phones, tires and portable digital computers. Several local industries have suffered severe harm as a result of the influx of cheap Chinese imports brought on by the FTA. Concerns have been raised by the steel industry, the tile industry, as well as the paper and paperboard industry among others. -Malaysia FTA The Comprehensive Free Trade Agreement (FTA) for Closer Economic Partnership between and Malaysia was signed on the 8th of November 2007 in Kuala Lumpur, Malaysia. The Pak-Malaysia FTA became operational from January 1, Tariff rates were reduced to values ranging between 0 % to 40 % on more than 5,000 Customs Tariff lines. Since 2010 i exports to Malaysia have risen from USD 145 million to USD 234 million. The trade balance has remained in Malaysia s favour following the signing of the FTA. In s imports from Malaysia were 450% higher than s exports to the country. s major exports to Malaysia include rice (which accounted for nearly 50% of exports in ), fish, and cotton yarn. Malaysia s major exports to include palm oil, petroleum, and polyester yarn. once again failed to secure significant concessions on high trade potential items such as HS 61 items (accessories, knitted or crocheted), which face a duty regime of 20% as compared to China and India which face 0 % and 10 % respectively, as well as HS 84 and HS 85 items (gas turbines, vaccum pumps, air conditioners, refrigerators etc), which also face a duty regime of 20% as compared to China and India which face 0% and 10%. There are also a number of high potential HS 39 (Plastics) and HS 48 (Paper and Paperboard) items that have not received concessions from Malaysia. A Study on the Feasibility of the Proposed - Free Trade Agreement xi

14 -Indonesia PTA The -Indonesia Preferential Trade Agreement was signed in February Both sides offered concessions on over 200 items at the 8 digit level HS code. In 2013 s exports to Indonesia amounted to USD 144 million, accounting for a mere 0.08% of Indonesia s world imports. s imports from Indonesia in 2013 amounted to USD 1.2 billion, accounting for 2.76% of s total import bill. A study conducted by the PBC found that most i export items at the 8 digit level with high export potential to Indonesia did not receive concessions under the PTA. s primary exports to Indonesia include cotton, rice and mandarins and very few highvalue added goods. Indonesia s exports to include palm oil, nut and coal. s export items face less favourable tariffs than the same items from Indonesia s FTA partners China, Japan, South Korea and India. More precisely, the top 100 items at the 8 digit level possess a trade potential of USD 1.8 billion, of which USD 1.54 billion resides within items not given concessions under the PTA. Further, 80% of the top 50 high potential items are not included in the PTA. High potential items left out of the PTA include three plastic items with total trade potential of USD 140 million and sixteen cotton items with total trade potential of USD 500 million. -Sri Lanka FTA The FTA between and Sri Lanka became operational from 12 June Sri Lanka and agreed to offer preferential market access to each other s exports through significant tariff concessions. Sri Lanka enjoys duty free market access on 206 products in the i market including tea, rubber and coconut., in return, gained duty free access on 102 products to the Sri Lankan market. has consistently exported significantly more to Sri Lanka than it has imported from the country. However, s exports to Sri Lanka were a mere USD 266 million in. While concessions from both sides are extensive and wide-ranging, has been unable to make real inroads into the Sri Lankan market. -Iran PTA signed a Preferential Trade Agreement with Iran on 4th March The agreement became operational from 1st September Under the Agreement, offered concessions to Iran on 338 tariff lines, whereas Iran offered concessions on 309 tariff lines. In s exports to Iran stood at a mere USD 43 million whereas imports from Iran stood at USD 186 million. s primary exports to Iran include paper and paperboard products, rice, and meat. s primary imports from Iran include petroleum gases, ferrous waste and scrap, and sheep and lamb skin. -Mauritius PTA signed a Preferential Trade Agreement with Republic of Mauritius on 30th July The agreement became operational on 30th November s trade with Mauritius is negligible, with exports to Mauritius equaling USD 28 million and imports from Mauritius equaling USD 22 million. This FTA has brought little benefit to, with trade volumes remaining very low. xii A Study on the Feasibility of the Proposed - Free Trade Agreement

15 s Major Free Trade Agreements has signed FTAs and other closer economic partnership agreements with Australia, Japan, New Zealand, Bahrain, Peru, India, and China and ASEAN-6 comprising Brunei, Indonesia, Malaysia, Philippines, Singapore and itself. is looking in its FTAs for greater market access for its primary export goods such as automobiles, electrical parts, agriculture, processed food, boilers, plastics and rubber articles. Since 2010 has been in trade surplus with Australia, New Zealand, Peru, India, Indonesia, Philippines and Singapore and in trade deficit with its remaining FTA partners. -Australia FTA The -Australia Closer Economic Relations FTA (TAFTA) entered into force on 1 st January The total bilateral trade between the two countries has more than doubled since TAFTA came into force. In 2004 exports to Australia were USD 2.46 billion whereas they rose to USD 4.37 billion in 2006 following the signing of the agreement. In Thai exports to Australia were USD 9.29 billion. Imports to from Australia were USD 5.4 billion in and they have been consistently lower than exports to Australia. -China FTA The -China FTA was signed in June 2003 and came into force four months later in October It was an early harvest agreement on farm trade alone, whereby both countries opened their agricultural markets before the broader China-ASEAN FTA came into force in Under the deal, tariffs for 188 types of fruits and vegetables were cut to zero overnight. In 2002 s exports to China were USD 3.5 billion, rising to USD 7.09 billion in 2004 with the signing of the FTA. In s exports to China stood at USD 25 billion. Imports to by China were USD 38.5 billion in and the trade balance between the two countries has been consistently in China s favour. -Japan FTA The Japan- Economic Partnership Agreement (JTEPA) came into effect on 1 November s imports from Japan have consistently outweighed its exports to the country since the signing of the JTEPA. In 2006 exports to Japan were USD 16.5 billion, rising in 2008 to USD 19.8 billion following the signing of the JTEPA. In s exports to Japan stood at USD 21.8 billion. Imports in were USD 35.7 billion. The trade balance between the two countries has consistently been in Japan s favour. A Study on the Feasibility of the Proposed - Free Trade Agreement xiii

16 Trade 's Trade with USD Millions 's exports to 's imports from 1, Over the past ten years s exports to have gone up from USD million in 2004 to USD 118 million in, whereas its imports from increased from USD million to USD million in the same period. s top exports to at the 2 digit HS code level include fish, aquatic invertebrates, cotton, meat, other products of animal origin and pharmaceutical products. s top exports to at the 2 digit HS code level include fish, aquatic invertebrates, cotton, meat, other products of animal origin and pharmaceutical products. HS 03 (Fish, crustaceans, molluscs, aquatic invertebrates, nes) accounts for about 45% of s total exports to whereas HS 52 (Cotton) accounts for about 23% of s total exports to. The remaining 32% of exports are split up into much smaller shares of several different products. s top imports from at the 2 digit HS code level include vehicles other than railway, petroleum products, machinery, nuclear reactors, boilers, plastics, rubber articles and electrical equipment. HS 87 (Vehicles other than railway, tramway) accounts for 35% of all i imports from. Other major i imports from are as follows: HS 84 (Machinery, nuclear reactors etc), HS 39 (Plastics and articles thereof), HS 55 (Manmade staple fibres), and HS 40 (Rubber and articles thereof) account for 9.6%, 8.2%, 7.6% and 6.5% respectively. Import of vehicles other than railway from increased 15% over the period 2010 to. Thai vehicle imports show a leading share of 19% of total vehicle imports from the world in. xiv A Study on the Feasibility of the Proposed - Free Trade Agreement

17 Study Findings The 4423 i export items with available data other than petroleum products indicate a collective trade potential with of USD 4.35 billion (trade potential amounts to 5.13 billion when petroleum products are taken into consideration). s top 50 high trade potential items at the 6 digit HS code level account for USD 2.8 billion of this potential. The products in which significant trade potential is seen include instrument and appliances used in medical, cotton, pipes, polyethylene, plain weave cotton fabric, apparel and home textile articles, etc. The 4423 Thai export items with available data for products other than petroleum exhibit a collective trade potential with of USD billion (the trade potential amounts to USD 24.3 billion when petroleum products are taken into consideration). s top 50 high trade potential items at the 6 digit HS code level exhibit a collective trade potential of USD billion. The products for which significant trade potential is reported include telephone sets, polypropylene, automobiles with reciprocating engine up to 3000 cc, pneumatic rubber tires, medicaments and polyester staple fibres, etc. s highest exports potential was USD 192 million within instruments and appliances used in medical and veterinary science at the 6 digit HS code level and the tariff rate applied by on this item is already 1%. s other leading export potential items include cotton, medical science instruments and frozen shrimp on which tariffs are not imposed by. Approximately, 38% of the total s high potential items already have lowered tariff rates such as HS (Cotton), HS (Frozen shrimp), HS (Copper waste and scrap) and HS (cellular phones). Products which have significant trade potential for and face higher tariff rates than s FTA partners include apparel and make up articles, footwear, jewelry, vegetable products, citrus fruits, polymers, plastic waste and leather. Sectoral analysis suggests that s highest export potential for products other than petroleum at the 6 digit HS code level is within HS (telephones for cellular networks) with a tariff rate of Rs. 250/set imposed on by. imposes no tariffs on its FTA partners for this item. 82% of s total trade potential for its top 50 high potential export items is covered by polymers, automobiles, mobile telephones and mechanical parts. Tariff rates imposed by are low or exempted for FTA partners within these products with the notable exception of automobiles for which equal tariff rates are imposed on, China, Malaysia and Sri Lanka. In the final section of this report a simulation study has been conducted using World Integrated Trade Solution (WITS) software to calculate prospective trade for both the countries and to approximate the potential gains from a - FTA. According to this study, s highest prospective growth in exports to would be recorded within products such as women/girls/ boys/men cotton trousers and T-shirts, pullovers, make up articles, footwear and vegetables, etc. At the 6 digit HS code level 27 items A Study on the Feasibility of the Proposed - Free Trade Agreement 01

18 exhibit a prospective growth rate of 1%. According to the simulation s exports to would grow by only 32% for high potential items at the 6 digit HS code level following the reduction of all tariffs to zero. s highest prospective growth in exports to is within products such as automobiles of 1000 cc plus category, motorcycles with more than 50cc engine capacity and for static converters, etc. At the 6 digit HS code level 37 items exhibit a prospective growth rate that is greater than 1%. s exports to would grow by 128% within high potential items at the 6 digits HS code level. Under the conducted simulation s total prospective exports to would rise to USD 160 million and s total exports to would rise to USD 1.71 billion. 02 A Study on the Feasibility of the Proposed - Free Trade Agreement

19 CONCLUSION s top 50 high potential export items represent a total trade potential of USD 2.8 billion and about 38% of these high potential items are already tariff exempted by. Therefore in practice the FTA may not bring as much benefit to in terms of concessionary rates as expected. Under the simulation study conducted above, following the signing of the FTA s imports from will be elevated to USD 1.71 billion whereas exports will increase by a mere USD 160 million, resulting in a trade deficit of USD 1.54 billion. Furthermore, s high potential exports to are not capital goods, but rather consumer goods, making the potential trade deficit that will come about after the FTA harder to justify. Under the simulation study conducted s highest growth items are apparel and home textile articles but their actual export value will grow only from current USD 1.4 million to USD 6.1 million. Moreover, has historically failed to negotiate favourable FTA terms for its export products, with several high potential export items receiving no concessions under the China and Malaysia FTAs and the Indonesia PTA. Until the root causes of these missteps are identified and addressed it seems inadvisable to sign another major FTA. It is important to note that the National Tariff Commission presently lacks the institutional capacity to fulfill its myriad responsibilities, such as setting safeguard measures, performing trade research and tariff rationalization, and therefore will be unable to address issues having to do with the - FTA. The NTC also currently faces a number of legislative hurdles to its effective functioning which are yet to be addressed. Previous FTAs have led to the i domestic market being flooded with cheap foreign goods and significant harm has been done to local industry. Given no improvement of institutional capacity the - FTA may very well lead to a similar result and a worsening of the already dire situation. A Study on the Feasibility of the Proposed - Free Trade Agreement 03

20 04 A Study on the Feasibility of the Proposed - Free Trade Agreement

21 Section I: Trade Overview A Study on the Feasibility of the Proposed - Free Trade Agreement 05

22 Study Objectives The aim of this study is to assess the feasibility of a - FTA. The following points will be discussed to this end: Key economic indicators of both countries. Trading patterns and tariff exemptions and eliminations for the countries current FTA partners. Top 50 high export potential items for both countries at the 6 digit HS code level. Prospective trade growth under the - FTA. Sources of Data The data for this study has been taken from ITC Trademap for the period ended, which bases its data on UN Comtrade, maintained by the United Nations Statistics Division (UNSD). Equivalent ad valorem tariff rates are drawn from Trademap and checked against the terms of FTAs signed by relevant countries available on their government websites. The key economic indicators data was collected from World Development Indicators (WDI), which is the primary World Bank collection of development indicators, compiled from officiallyrecognized international sources. The Trains data set, taken from World Bank web site, is used for simulation study conducted using software of World Integrated Trade Solution (WITS) to calculate prospective trade and approximate the potential gains from FTA. Methodology Trade Potential Intuitively, trade potential is the theoretical extent to which trade of a given item can be expanded, which suggests the actual scope for growth in trade of that item. For instance, if exports USD 124 million worth of Kinnow to the world, and imports USD 93 million worth of Kinnow from the world, and exports USD 3 million worth of Kinnow to, then trade potential is USD 90 million, since has the capacity to export USD 90 million worth of Kinnow to given s import requirements. Trade potential is given by the following equation: 06 A Study on the Feasibility of the Proposed - Free Trade Agreement

23 Trade Potential = ( s imports from the world of X s current exports to of X) if {( s exports to the world of X) ( s imports from the world of X)} > 0 And ( s exports to the world of X s current exports to of X) if {( s imports from the world of X) ( s exports to the world of X)} < 0 Trade potential is a useful way to limit an analysis of trade items to those items that already have established production capacity in the exporting country and healthy demand in the importing country. It should be kept in mind that this measure therefore does not strictly tell us about items whose production capacity in the exporting country could be developed for exports, and whose demand in the importing country could emerge. Compound Annual Growth Rate (CAGR) Intuitively, the Compound Annual Growth Rate is the rate at which a value would have grown over a certain period if it had grown smoothly. CAGR is the geometric mean of the individual annual growth rates during a period. It therefore gives you the growth rate that would have gotten our initial value to our final value had the value grown smoothly over the relevant period. It is given by: A Study on the Feasibility of the Proposed - Free Trade Agreement 07

24 Comparison of and s Key Economic Indicators GDP $ B $ B $ B $ B GDP Growth 2.8% 5.4% -2.3% 0.7% GDP per Capita $ $ $ $ Population 166 M 185 M 66 M 67 M Trade Surplus/Deficit $ B $ B $ 26.2 B $ 26.7 B Current Account Balance $ -3.9 B $ -3.5 B $ 21.9 B $ 13.4 B FDI, net inflow $ 2.3 B $ 1.8 $ 4.9 B $ 12.8 B 1 All data from World Bank database. 08 A Study on the Feasibility of the Proposed - Free Trade Agreement

25 and Trade Profiles s Top 10 Export Destinations s exports have grown from USD billion to USD billion from 2010 to. USA is s leading import market with exports to USA amounting to USD 3.65 billion. China has emerged as s second largest export market, having paid USD 2.25 billion for i products in. is not among the top ten export destinations for. Figures in USD Billions PAKISTAN S TOP 10 EXPORT DESTINATIONS Importers Exported value in 2010 Exported value in 2011 Exported value in 2012 Exported value in 2013 Exported value in World United States of America China Afghanistan United Kingdom United Arab Emirates Germany Spain Italy Bangladesh Netherlands A Study on the Feasibility of the Proposed - Free Trade Agreement 09

26 s Major World Exports At 2 Digit HS Code s major export earnings come from items such as cotton, articles of apparel, home textile articles, etc. Since 2010 cotton exports have grown by 18% whereas salt and sulphur have grown by 35%. Figures in USD Billions PAKISTAN S MAJOR WORLD EXPORTS HS Code Product label Exported value in 2010 Exported value in 2011 Exported value in 2012 Exported value in 2013 Exported value in 52 Cotton Other made textile articles, sets, worn clothing etc Articles of apparel, accessories, knit or crochet Cereals Articles of apparel, accessories, not knit or crochet Articles of leather, animal gut, harness, travel goods Salt, sulphur, earth, stone, plaster, lime and cement Mineral fuels, oils, distillation products, etc Raw hides and skins (other than furskins) and leather Sugars and sugar confectionery A Study on the Feasibility of the Proposed - Free Trade Agreement

27 s Top 10 Sources of Imports s imports increased from USD billion to USD billion from 2010 to. Over 50% of its total imports continue to originate from just five countries, namely China, United Arab Emirates, Saudi Arabia, Kuwait and Indonesia. UAE is emerging as a major supplier to, followed by Saudi Arabia and Kuwait. China emerged as the leading source of imports to in with imports amounting to USD 9.59 billion. is not among the top ten sources of imports for. Figures in USD Billions PAKISTAN S TOP 10 IMPORT SOURCES Exporters Imported value in 2010 Imported value in 2011 Imported value in 2012 Imported value in 2013 Imported value in World China United Arab Emirates Saudi Arabia Kuwait Indonesia India United States of America Japan Malaysia Singapore A Study on the Feasibility of the Proposed - Free Trade Agreement 11

28 s Major World Imports At 2 Digit HS Code s imports are highly concentrated in a few items such as mineral fuels, oils, distillation products, machinery, electrical equipment, iron, steel, organic chemicals, and vehicles. Figures in USD Billions PAKISTAN S MAJOR WORLD IMPORTS HS Code Product label Imported value in 2010 Imported value in 2011 Imported value in 2012 Imported value in 2013 Imported value in 27 Mineral fuels, oils, distillation products, etc Machinery, nuclear reactors, boilers, etc Electrical, electronic equipment Iron and steel Animal,vegetable fats and oils, cleavage products, etc Organic chemicals Plastics and articles thereof Vehicles other than railway, tramway Fertilizers Oil seed, oleagic fruits, grain, seed, fruit, etc, nes A Study on the Feasibility of the Proposed - Free Trade Agreement

29 s Top 10 Export Destinations s exports declined from USD billion to USD billion between 2012 and. China is the leading export destination for as exports to China rose to USD billion in. United States was the second largest market as it paid USD billion for Thai products, followed by Japan with USD billion. is not on the list of top ten export destinations for. THAILAND S TOP 10 EXPORT DESTINATIONS Exported value in Importers Exported value in Exported value in 2012 Exported value in 2013 Figures in USD Billions Exported value in World China United States of America Japan Malaysia Hong Kong, China Singapore Indonesia Australia Viet Nam Philippines A Study on the Feasibility of the Proposed - Free Trade Agreement 13

30 s Major World Exports At 2 Digit HS Code s major export earnings come from machinery, nuclear reactors, boilers, electrical equipment, vehicles other than railway, rubber and plastics articles. Since 2010 machinery and nuclear reactor exports have grown by 15% and the highest exports recorded have been for organic chemicals, plastics and vehicles which have grown by 51%, 46% and 40% respectively. Figures in USD Billions THAILAND S MAJOR WORLD EXPORTS HS Code Product label Exported value in 2010 Exported value in 2011 Exported value in 2012 Exported value in 2013 Exported value in 84 Machinery, nuclear reactors, boilers, etc Electrical, electronic equipment Vehicles other than railway, tramway Rubber and articles thereof Plastics and articles thereof Mineral fuels, oils, distillation products, etc Pearls, precious stones, metals, coins, etc Meat, fish and seafood food preparations nes Organic chemicals Cereals A Study on the Feasibility of the Proposed - Free Trade Agreement

31 s Top 10 Sources of Imports s imports increased from USD billion to USD billion from 2010 to. Over 50% of total imports continue to originate from just five countries, namely China, Japan, United States of America, Malaysia and UAE. China emerged as the top source of imports for in, followed by Japan and USA. The shares of UAE, Republic of Korea and Indonesia declined from 2013 to. is not among the top ten sources of imports for. Figures in USD Billions THAILAND S TOP 10 IMPORT SOURCES Exporters Imported value in 2010 Imported value in 2011 Imported value in 2012 Imported value in 2013 Imported value in World China Japan United States of America Malaysia United Arab Emirates Korea, Republic of Singapore Saudi Arabia Taipei, Chinese Indonesia A Study on the Feasibility of the Proposed - Free Trade Agreement 15

32 s Major World Imports At 2 Digit HS Code s imports are highly concentrated in a few items, namely mineral fuels, oils, distillation products, machinery, electrical equipment, etc. Cotton, yarn and apparel articles are not among the list of major world imports. Figures in USD Billions THAILAND S MAJOR WORLD IMPORTS HS Code Product label Imported value in 2010 Imported value in 2011 Imported value in 2012 Imported value in 2013 Imported value in 27 Mineral fuels, oils, distillation products, etc Electrical, electronic equipment Machinery, nuclear reactors, boilers, etc Iron and steel Pearls, precious stones, metals, coins, etc Vehicles other than railway, tramway Plastics and articles thereof Articles of iron or steel Optical, photo, technical, medical, etc apparatus Organic chemicals A Study on the Feasibility of the Proposed - Free Trade Agreement

33 s Trade with at a Glance s Top s exports to amounted to USD 118 million in, 46% higher than the exports of USD 81 million reported in However, s exports to accounted for a mere 0.05% of total Thai imports from the world in. s top exports to at the 2 digit HS code level include fish, aquatic invertebrates, cotton, meat, other products of animal origin and pharmaceutical products. HS 03 (Fish, crustaceans, molluscs, aquatic invertebrates, nes) accounts for about 45% of s total exports to. HS 52 (Cotton) accounts for about 23% of s total exports to. The remaining 32% of exports are split up into much smaller shares of several different products. s percentage share of total Thai world imports of cotton was only 2.76% despite the fact that cotton is s major export product. A Study on the Feasibility of the Proposed - Free Trade Agreement 17

34 Figures in USD Billions PAKISTAN S TOP EXPORTS TO THAILAND HS Code Product label 's % Growth in % CAGR in 's Imports from world Equivalent ad valorem tariff applied by to % of Total Imports TOTAL All products , Fish, crustaceans, molluscs, aquatic invertebrates nes , Cotton Meat and edible meat offal Products of animal origin, nes Raw hides and skins (other than furskins) and leather Pharmaceutical products , Lead and articles thereof Beverages, spirits and vinegar Optical, photo, technical, medical, etc apparatus Meat, fish and seafood food preparations nes , Articles of iron or steel , A Study on the Feasibility of the Proposed - Free Trade Agreement

35 HS Code Product label Other made textile articles, sets, worn clothing etc Toys, games, sports requisites Vegetable, fruit, nut, etc food preparations Articles of apparel, accessories, knit or crochet Albuminoids, modified starches, glues, enzymes 's PAKISTAN S TOP EXPORTS TO THAILAND % Growth in % CAGR in 's Imports from world Equivalent ad valorem tariff applied by to % of Total Imports Cereals Salt, sulphur, earth, stone, plaster, lime and cement Oil seed, oleagic fruits, grain, seed, fruit, etc, nes Articles of leather, animal gut, harness, travel goods , A Study on the Feasibility of the Proposed - Free Trade Agreement 19

36 s Top Imports from s imports from amounted to USD 730 million in, 16% lower than the exports of USD 872 million reported in Imports from accounted for a mere 1.54% of total i imports from the world in. s top imports from at the 2 digit HS code level include vehicles other than railway, machinery, nuclear reactors, boilers, plastics, rubber articles and electrical equipment. HS 87 (Vehicles other than railway, tramway) accounts for 35% of all i imports from. Other major i imports from are as follows: HS 84 (Machinery, nuclear reactors etc), HS 39 (Plastics and articles thereof), HS 55 (Manmade staple fibres), and HS 40 (Rubber and articles thereof) account for 9.6%, 8.2%, 7.6% and 6.5% respectively. Import of vehicles other than railway from increased 15% over the period 2010 to. Thai vehicle imports showed a leading share of 19% of total vehicle imports from the world in. Rubber articles imports have also grown significantly: by 21% during A Study on the Feasibility of the Proposed - Free Trade Agreement

37 PAKISTAN S TOP IMPORTS FROM THAILAND HS Code Product label Value in 2010 s Imports from Value in 2011 Value in 2012 Value in 2013 Value in % Growth in Imports from % CAGR in Imports from s Imports from world Equivalent ad valorem tariff applied by to % of Total Imports TOTAL All products Vehicles other than railway, tramway Machinery, nuclear reactors, boilers, etc Plastics and articles thereof Manmade staple fibres Rubber and articles thereof Organic chemicals Electrical, electronic equipment Miscellaneous chemical products Manmade filaments Paper and paperboard, articles of pulp, paper and board Iron and steel Cereals Furniture, lighting, signs, prefabricated buildings Glass and glassware Coffee, tea, mate and spices Articles of iron or steel Tanning, dyeing extracts, tannins, derivs,pigments etc A Study on the Feasibility of the Proposed - Free Trade Agreement 21

38 HS Code Product label Soaps, lubricants, waxes, candles, modelling pastes Inorganic chemicals, precious metal compound, isotopes Footwear, gaiters and the like, parts thereof Value in 2010 PAKISTAN S TOP IMPORTS FROM THAILAND s imports from Value in 2011 Value in 2012 Value in 2013 Value in % Growth in Imports from % CAGR in Imports from s Imports from world Equivalent ad valorem tariff applied by to % of Total Imports A Study on the Feasibility of the Proposed - Free Trade Agreement

39 Section II: and s Major FTAs A Study on the Feasibility of the Proposed - Free Trade Agreement 23

40 Overview of s FTAs has Free Trade Agreements in place with China, Malaysia and Sri Lanka. It has also signed preferential trade agreements with Indonesia, Iran and Mauritius. It is currently considering further free trade agreements with Turkey and. has historically failed to negotiate optimal terms in its FTAs and PTAs and has witnessed relatively lackluster growth in its exports to its partner countries. China received concessions on many of its major export items under the -China FTA, whereas by and large did not secure significant concessions on most of its major export products. also failed to negotiate significant concessions on a number of high potential exports to Malaysia under the -Malaysia FTA. While the terms of the -Sri Lanka FTA are favourable, has failed to capture a significant portion of the Sri Lankan market in all but a few items. s PTA with Indonesia also suffers from the afore-mentioned problem of insufficient concessions on high potential i export items. The institutional capacity issues and lack of resources that have marred s previous attempts to draft beneficial FTAs still persist and will likely continue to have a negative impact on the negotiation and terms of future FTAs. For this reason it is necessary to accurately identify and decisively address these problems before signing any further major FTAs. 24 A Study on the Feasibility of the Proposed - Free Trade Agreement

41 -Sri Lanka FTA The FTA between and Sri Lanka became operational on June 12, Sri Lanka and agreed to offer preferential market access to each other s exports through significant tariff concessions. Sri Lanka enjoys duty free market access on 206 products in the i market including tea, rubber and coconut., in return, gained duty free access on 102 products to the Sri Lankan market. has consistently exported significantly more to Sri Lanka than it has imported from the country. However, s exports to Sri Lanka were a mere USD 266 million in. While concessions from both sides are extensive and wide-ranging, has been unable to make real inroads into the Sri Lankan market. 's Trade with Sri Lanka USD Millions Exports Imports A Study on the Feasibility of the Proposed - Free Trade Agreement 25

42 -Malaysia FTA The Comprehensive Free Trade Agreement (FTA) for Closer Economic Partnership between and Malaysia was signed on the 8th of November 2007 in Kuala Lumpur, Malaysia. The Pak-Malaysia FTA became operational from January 1, Tariff rates were reduced to values ranging between 0 % to 40 % on more than 5,000 Customs Tariff lines. Since 2010 i exports to Malaysia have risen from USD 145 million to USD 234 million. The trade balance has remained in Malaysia s favour following the signing of the FTA. In s imports from Malaysia were 450% higher than s exports to the country. s major exports to Malaysia include rice (which accounted for nearly 50% of exports in ), fish, and cotton yarn. Malaysia s major exports to include palm oil, petroleum, and polyester yarn. once again failed to secure significant concessions on high trade potential items such as HS 61 items (accessories, knitted or crocheted), which face a duty regime of 20% as compared to China and India facing 0% and 10% respectively, as well as HS 84 and HS 85 items (gas turbines, vaccum pumps, air conditioners, refrigerators etc), which also face a duty regime of 20% as compared to China and India facing 0% and 10%. There are also a number of high potential HS 39 (Plastics) and HS 48 (Paper and Paperboard) items that have not received concessions from Malaysia 's Trade with Malaysia 2.73 USD Billions 's Exports 's Imports A Study on the Feasibility of the Proposed - Free Trade Agreement