Executive Summary
This Policy Brief examines the impact of Free Trade Agreements (FTAs) on Pakistan’s
trade performance. It highlights that, over the years, Pakistan has concentrated on
increasing the number of FTAs. However, there is inadequate empirical evidence to
determine whether these FTAs have improved Pakistan’s trade performance or
contributed to its decline.
This Policy Brief provides empirical evidence regarding the role of FTAs in Pakistan’s
trade performance based on data from the International Trade Centre (ITC). The findings
of this Brief highlight that to place Pakistan on a new economic trajectory of economic
development and stability, it is essential to address trade distortions, introduce strategic
trade interventions, and increase awareness about FTAs.
Furthermore, it highlights that challenges such as low productivity levels, lack of export
diversification, and high production costs have hindered the existing FTAs from delivering
the expected results. Hitherto, the FTAs have not significantly contributed to economic
development in Pakistan and have failed to improve its trade performance. In contrast,
Vietnam, which does not have an FTA with Pakistan, has outperformed Pakistan’s FTAbased trading partners, with a positive trade balance of USD 81 million and a USD 633million trade volume.
To address these challenges, Pakistan may:
Invest in emerging sectors such as sustainable agriculture, Information Technology
(IT), pharmaceuticals, and green technologies to diversify exports, reduce reliance on
traditional exports, and tap into high-value markets.
Encourage industries to move up the value chain by providing incentives for
producing finished goods rather than exporting raw materials.
Negotiate FTAs and secure market access for higher-value and environmentally
friendly goods (like dry fruits) while prioritising sectors with export potential. In doing so,
the agriculture sector can make a significant contribution by exporting organic products
and green technologies. Pakistan’s diverse climate and resource abundance give it a
competitive advantage in this area. This may also contribute positively to challenges
related to climate change and the food security needs of Pakistan.Introduction
A Free Trade Agreement (FTA) is an important trade instrument that eliminates trade
barriers and reduces costs between nations1
. Over the years, FTAs have contributed to
the economic development of countries like Vietnam and China by lowering trade
restrictions and giving consumers access to more affordable goods and services23
. As a
result, FTAs are regarded as an essential tool in international trade.
However, trade openness can also negatively impact an economy. Since trade openness
often leads to import dependency and revenue losses that could be earned through tariffs.
This especially occurs when a country struggles with low industrial production and labour
productivity4
. Moreover, some developed economies have lower trade-to-GDP ratios as
they depend more on their domestic industry. Similarly, landlocked countries often trade
less than those with coastlines.
Pakistan has signed multiple FTAs with various economies worldwide. However, its trade
performance remains in jeopardy 5
. The country faces significant issues with foreign
reserves, while its current account deficit is at a staggering 2% of its GDP6
.
The literature suggests that inaccurately negotiated trade agreements impact
international trade performance negatively7
. Moreover, it indicates that the presence of
an underdeveloped industry, high production costs, and insufficient understanding or the
lack of awareness of the FTA benefits and tariff provisions among the stakeholders can
lead to underutilisation of the FTA by a country8
.
In Pakistan, over the years, the focus has been on increasing the number of FTAs and
tariff reductions without empirical evidence about their performance910. There is a lack of clarity about whether or not these FTAs have led to improvements in Pakistan. This
requires evidence on “how the FTAs and openness to trade affect Pakistan’s international
trade performance as well as an evaluation of how such trade policies are performing.
Based on International Trade Centre (ITC) data, this Policy Brief aims to provide empirical
evidence about the role of FTAs in the trade performance of Pakistan from the years 2004
to 2023. The findings of this Policy Brief highlight that the current FTAs have not
significantly improved the trade performance of Pakistan. Furthermore, it highlights that
challenges such as low productivity levels, lack of export diversification, and high
production costs have hindered the existing FTAs from delivering the expected results.
Hitherto, the FTAs have not significantly contributed to economic development in Pakistan
and have failed to improve its trade performance.
In contrast, Vietnam, which does not have an FTA with Pakistan, has outperformed
Pakistan’s FTA-based trading partners, with a positive trade balance of USD 81 million
and a USD 633 million trade volume.
The rest of the Brief is organised as follows: Section 2 briefly summarises the theoretical
literature on the role of FTAs. Section 3 discusses the methodology, its reliability, and the
data set used in this brief. Section 4 reports the results and provides a detailed discussion
pertaining to the results and challenges in international trade in Pakistan. Finally, section
5 concludes and provides recommendations.
Theoretical Literature
The traditional theories of trade, for example, Ricardo (1817) and Heckscher-Оhlin (1919),
state that trade significantly aids economic development. It emphasises the role of FTAs
in international trade. It argues that open economies with lower tariff rates perform better
than closed economies with high tariff rates or trade barriers11
.
However, Slaughter (1997) criticised the traditional trade theories and termed them
unrealistic. In the context of international economics, the study argues that developed
economies tend to benefit more than developing economies from FTAs. They benefit from
Economies of Scale as they are more diversified economies that trade with more
countries. In contrast, developing countries primarily rely on the export of low-value goods raw materials, and natural resources, lacking significant trade diversification. This
argument is based on the “Dependency Theory”, which suggests that free trade can
sometimes lead to economic dependency when a country relies on low-value products.
Likewise, Karim (2020) stated that countries should protect their less competitive
domestic industries from foreign competition by employing trade barriers such as tariffs,
subsidies, etc. The argument is that free trade can negatively impact emerging industries
that are not yet competitive on the international stage due to high production costs. This
concept is rooted in the “infant industry argument”, which suggests that free trade can
lead to job losses and hinder domestic economic development, as seen in many
developing countries. This situation arises when one country exports high-value products
while the other country either does not export or only exports low-value goods. As a result,
the trade balance of the trading partners results in negative numbers12
.
The contemporary theoretical literature on regional integration finds that trade
agreements lead to both higher incomes and economic dependency. On one hand, trade
agreements enable member countries to exploit comparative advantages, reduce trade
barriers, and achieve greater market access, resulting in improved economic welfare and
enhanced productivity (Viner, 1950). This theory further aligns with theory of, which posits
that regional integration replaces inefficient domestic production with more efficient
imports from member countries. Such integration can also stimulate foreign direct
investment, foster technology transfer, and create economies of scale.
On the other hand, the proponents of the dependency theory critique this optimistic view,
arguing that trade agreements can exacerbate disparities among member nations.
Peripheral economies often become reliant on importing high-value goods from core
economies while exporting low-value primary goods, leading to unequal terms of trade.
For instance, as observed in Pakistan’s FTAs, the influx of intermediate and finished
goods from China has hindered the development of domestic industries, creating a
dependency on imported goods and eroding local production capabilities (Ahmed et al2020).
Moreover, trade agreements may not uniformly benefit all sectors. Not all industries
develop or are underdeveloped with trade. Industries that are not globally competitive can
12 Salvatore (2019). International-economics. John-Wiley&Sons.
struggle to survive amidst reduced protection, leading to job losses and socioeconomic
challenges.
Similar findings in the global context indicate that nations with robust industrial policies
and export-oriented growth strategies, such as Vietnam, benefit more significantly from
free trade agreements (World Bank, 2022).
In summary, in Pakistan, over the years, the focus has been on increasing the FTAs and
tariff reductions without empirical evidence about their performance. There is a lack of
research and empirical evidence on “which theory persists in the international trade of
Pakistan” and which theory the Government of Pakistan should follow.
Methodology
This Policy Brief aims to present empirical evidence about Pakistan’s trade performance.
It examines trade trends in Pakistan from 2004 to 2023, during which the country entered
into multiple FTAs. To fully understand these trends, it’s essential to consider the specific
trade dynamics of Pakistan. Over the years, Pakistan’s trade performance has shown
considerable variability. Therefore, it is important to assess whether any growth (ordecline) in trade is simply a continuation of existing trends prior to the FTAs or if the FTAs
played a significant role in this improvement.
To address this issue, this Brief employs two counterfactuals to examine the impact of
multiple FTAs on Pakistan’s trade performance.
1) The first counterfactual investigates import and export trends to identify any significant
changes due to the signing and implementation of any FTA. By analysing the average
trade growth rate, these pre- and post-FTA trend analyses ensure comparability and
reliability.
2) The second counterfactual examines the overall trade performance of Pakistan during
the same period. It also compares Pakistan’s trade performance with that of a non-FTA
country. Here, Vietnam is taken as a control group, providing a baseline for analysis.
This will inform whether the trade performance is largely consistent with the trends
observed before the FTA or if the FTA had any significant impact on trade performance.
Globally, the Trend-break analysis (TBA) and Difference-in-differences (DiD) model are
used in such analysis. However, this study follows a digression from such statisticaltechniques. This is due to the unavailability of data and the failure to establish the
prerequisites of such models, such as the parallel trend assumption (PTA)13
.
Data:
Data related to Pakistan’s international trade with its trading partners is provided by the
International Trade Centre (ITC). For the analysis, it is, however, important to differentiate
between countries with FTAs and Pakistan’s other trading partners. The Ministry of
Commerce (MOC) gives detailed information on the FTAs that Pakistan has signed. The
FTA countries viz. China, Malaysia, and Sri Lanka were chosen based on the details
provided by the MOC. According to the MOC, Pakistan has maintained long-standing
trade relations with these countries.
Trade Indicators Used
Internationally, multiple indicators such as import, export, re-export, re-import, trade
volume, trade balance, and trade as a per cent of GDP are used to track a country’s trade
performance. Among them, the import and export data are considered one of the most
reliable empirics14
.
Import data are generally used to see the performance of an economy. Such data is kept
in track by customs authorities as they frequently apply duties, taxes, and other regulatory
controls on the goods coming into the border of an economy. On the other hand, export
data is utilised more frequently, as exports are the primary driver of contemporary
economies. Hence, exporting countries are strongly incentivised to track their economic
growth by reporting segregated export data. More importantly, the rationale for selecting
import and export data is that these two empirics are the foundation for all international
trade statistics, which is why they are widely used15
Results and Discussion
Figure 1: Growth in Pak-China Exports and Imports
Table 1: Pakistan’s trade with China
Pakistan’s Exports to China Pakistan’s Imports from China
Years Value USD thousand Growth Years Value USD thousand Growth
2005 435682 0.52 2005 2349395 1.06
2006 506642 0.16 2006 2914926 0.24
2007 613759 0.21 2007 4164230 0.43
2008 726711 0.18 2008 4738055 0.14
2009 997854 0.37 2009 3779769 -0.20
2010 1435944 0.44 2010 5247713 0.39
2011 1678959 0.17 2011 6470653 0.23
2012 2619944 0.56 2012 6687566 0.03
2013 2652223 0.01 2013 6626323 -0.01
2014 2252900 -0.15 2014 9588418 0.45
2015 1934926 -0.14 2015 11019005 0.15
2016 1590858 -0.18 2016 13680153 0.24
2017 1510410 -0.05 2017 15404325 0.13
2018 1829435 0.21 2018 14599749 -0.05
2019 2042893 0.12 2019 12423997 -0.15
2020 1867755 -0.09 2020 12504581 0.01
2021 3042838 0.63 2021 20705497 0.66
2022 2561413 -0.16 2022 16343912 -0.21
2023 2762635 0.08 2023 11777695 -0.28
Average Growth: 15% Average Growth: 17%
Ave. Growth(2019-2023): 12% Ave. Growth (2019-2023): 1%
Source: ITC (2024
Based on the stated methodology, country-wise results regarding the trade performance
of Pakistan are provided here.
China Pakistan FTA
In 2007, Pakistan and China signed an FTA. Since 2004, Pakistan’s exports to China
have increased by 14%, while imports from China have grown by 17% (as shown in Table
1). As a result, Pakistan has a trade deficit.
In 2018, Pakistan renegotiated the FTA. Consequently, from 2019 to 2023, Pakistan’s
exports to China increased by 12%, and Pakistan’s imports from China increased by 1%.
From 2019 to 2023, the trade between the two countries, on average, increased by 1%.
However, overall, the trade deficit increased. In 2021, it was USD 17.66 Billion.
Pak Indonesia Trade
Pakistan and Malaysia signed an FTA in 2009. When Pakistan offered concessions to
Malaysia, being a trade partner of Indonesia, the country aligned its trade terms with those
of Indonesia. In 2013, Pakistan signed a preferential PTA with Indonesia.
From 2004 to 2012, the average export growth rate was 30%. But, from 2013 to 2023,
the average export growth rate came down to 17%. From 2004 to 2023, Pakistan’s
average exports to Indonesia were at 19%. Meanwhile, its imports from Indonesia
increased by 20%. As a result, the trend remained the same between the two countries.
(See Annexure 1 for the respective trade tables).
Pak Srilanka FTA
In 2005, Pakistan and Sri Lanka signed an FTA. During this period, Pakistan’s exports toSri Lanka increased by 8%, while Sri Lanka’s exports to Pakistan grew by 3%. Hence,
the pendulum of trade resulted in favour of Pakistan. (See Annexure 1 for the respective
trade tables).
Pak Malaysia FTA
In 2007, Pakistan and Malaysia signed an FTA. From 2004 to 2023, Pakistan’s exports to
Malaysia increased by 13%, while its imports from Malaysia increased by 4% during the
same period.
However, Pakistan has never achieved a trade surplus. The lowest trade deficit was in
2019 of $725 million. (See Annexure 1 for the respective trade tables).
Discussion:
The analysis reveals that Pakistan’s FTAs with China, Sri Lanka, Malaysia, and Indonesia
have had mixed outcomes. There are some positive trends. However, they are minimised
or outpaced by significant challenges.
The Pak-China FTA led to an average annual growth of 15% in exports as well as 17%
increase in imports (see Figure 1). This shows an increase in trade volume. However, the
significant challenge of the trade deficit still persists. Especially after the renegotiation in
This underscores structural imbalances in Pakistan’s international trade structure.
The literature suggests that the rise in imports is of intermediate and finished goods. This
has adversely impacted Pakistan’s domestic industries by creating dependency on
imported goods and suppressing local production capabilities. On the other hand,
Pakistan has lost a significant amount of tariff-related revenues.
As discussed in the literature, contemporary trade theories (such as Slaughter (1997))
hold in the Pak-China FTA case. A country like Pakistan, which trades with a larger
developed economy of China, benefits relatively less. Pakistan relies on trade based on
agriculture and natural resources (minerals) exports). Meanwhile, China exports more
high-tech and finished/final goods to Pakistan.
In trade with Sri Lanka, Pakistan experienced a favourable trade balance, with an 8%
increase in exports compared to a modest 3% rise in imports. However, overall trade
volume remained stagnant, as Pakistan continues to trade with Sri Lanka primarily in
traditional goods such as unprocessed rice. This indicates that the FTA did not bring
diversification or improvement in the trade performance of Pakistan, nor did it create
significant new market opportunities. It also highlights Pakistan’s limited integration into
Sri Lanka’s supply chains.
Nonetheless, Sri Lanka’s economic crisis and global factors resulted in a significant depreciation of the Sri Lankan Rupee (LKR). As a result, Pakistan emerged as the main
beneficiary in terms of net welfare from trade.
The FTA with Malaysia led to a 13% growth in exports for Pakistan, compared to a 4%
increase in imports, which is a positive sign. However, Pakistan has consistently faced
trade deficits. This indicates challenges in competing with Malaysia as well as highlights
the difficulties of leveraging FTAs for economic gains.
Following the signing of the 2013 Preferential Trade Agreement (PTA) with Indonesia,
Pakistan experienced a 19% growth in exports, but this was overshadowed by a 20%
increase in imports. This imbalance suggests that the agreement did not provide Pakistan
with substantial economic advantages.
The disparity occurred because Pakistan granted duty concessions on edible oil to
Malaysia without considering Indonesia’s interests. Indonesia is a major producer of palm
oil and a key competitor to Malaysia. Eventually, similar favourable terms were provided
to Indonesia. However, neither country could offer more favourable tariffs than those they
arranged under the ASEAN pact. ASEAN countries agreed to reduce tariffs on intraregional products to no more than 5% or eliminate them altogether. In contrast, Pakistan’s
average tariff rate remains above 10%16
.
International Trade Performance of Pakistan
This segment explores whether Pakistan’s exports have declined overall or only the FTA
countries have seen a decline or a constant trend. From 2004 to 2023, on average, a 2%
decrease in exports has been observed in Pakistan. However, it has faced a 9% increase
in its overall imports. This shows a trade imbalance that reflects both weaknesses in the
FTAs and structural issues within Pakistan’s economy. The rise in imports suggests that
foreign goods are more competitive. Pakistan is grappling with high production costs,
energy shortages, and outdated technology. The overall decline in exports also indicates
the failure to capitalise on FTA tariff concessions. It moreover shows dependency on lowvalue goods/lack of diversification or trade creation.
Nonetheless, the FTAs’ experiences of other regional partners, such as Bangladesh and
India, stand in contrast to Pakistan’s experiences. They have strategically utilised their
FTAs, which helped them to uplift trade performance. Hitherto, Pakistan’s export-to-GDP
ratio is only 8.4pc (in 2023), whereas in Bangladesh, it is 15%, and in India, it is 19%.
The experiences of regional partners demonstrate the missed opportunities Pakistan has
faced by concentrating on the number of FTAs rather than enhancing its domestic
industries, productivity, and economic structure. China is the top trading partner of
Pakistan. Currently, the top exported goods of Pakistan is semi-milled rice, with no highvalue industrial goods making the top of the product list. Conversely, the top importedgoods consist of high-value petroleum products and smartphones. Additionally, Pakistan
imports photovoltaic cells from China, while its exports to China predominantly include
low-value cotton.
In this Brief, the final yardstick employed in the FTA debate is to assess whether
Pakistan’s trade has improved compared to a non-FTA country or whether all countries
face the same declining trend. To determine this, the benchmark country viz. Vietnam was
taken in this Brief (since Vietnam has a similar economic structure, which is why it is
chosen for comparison17). Vietnam, with no FTA, has outperformed the trade statistics
with the Pakistan’s trading partner. Figure 2 shows the trade performance of the PakVietnam tradeAlignment with trading partners’ demands significantly influences trade. This acted as a
key driver behind the Pak-Vietnam trade. Vietnam’s economy is more oriented towards
services and industrial sectors. Over the years, this has resulted in a complementary
trade relationship where each country benefits from the other’s strengths and resulted in
alignment with trading partners’ demands.
In 2023, Pakistan exported maize worth USD 1.75 billion to Vietnam, making up 50% of
its total exports to Vietnam. Simultaneously, Pakistan, having an underdeveloped
industrial structure, imports electronic goods, including smartphones, from Vietnam,
further solidifying trade ties.
However, these statistics also raise important questions about the effectiveness of FTAs.
Despite their intended purpose to enhance trade, the current data suggests that the
agreements have not significantly improved trade figures. Moreover, Pakistan faces the
challenge of losing considerable tariff revenues due to the concessions offered under
these agreements.
Challenges Grappling Pakistan Trade
International Trade of Pakistan faces several critical challenges that have hindered its
ability to benefit from the FTAs. The existing challenges and the questionable impact of
multiple FTAs must be addressed to strengthen and optimise this partnership for the
future. This section provides an overview of the challenges.
Persistent Trade Deficits
Despite FTAs, Pakistan consistently faces current account deficits with its trade partners,
such as China, Malaysia, and Indonesia. This shows structural imbalances in its trade
framework, such as an over-reliance on imports of intermediate and finished goods Low Export Diversification
Low value agriculture products or raw materials are Pakistan’s main exports. Hence,
exports remain heavily concentrated in low-value goods. For example, agricultural
products and textiles in the case of Vietnam and China. The lack of diversification restricts
the country’s access to global high-value markets. In 2023, Pakistan exported maize
worth USD 1.75 billion (50% of the export to Vietnam). Moreover, exports of raw materials
or semi-processed goods, rather than finished products, reduce the economic benefits of
trade. This reliance on low-value goods limits growth opportunities in sectors requiring
innovation and advanced manufacturing.
Weak Infrastructure
Infrastructure is crucial for the operation of any country. Trade needs roads for
transporting goods, as well as ports and airports for exporting industrial products to
international trade partners. Pakistan’s infrastructure is relatively poor by international
standards, significantly affecting its international trade18. Pakistan reportedly loses about
4 to 6 percent of its GDP, which amounts to roughly $6 billion, due to inefficiencies in logistics. These challenges elevate the cost of producing goods by around 30 per cent.
This situation is crucial, especially as Pakistan is situated at a strategic location. It
competes vigorously with countries such as India and China in the export market.
Lack of Sustainable Trade Practices
Pakistan’s lack of sustainable trade practices has also hindered its export potential. For
instance, the EU has banned Pakistan’s seafood exports multiple times due to poor
sanitary standards. Over 55 interceptions19 of shipments, mainly mangoes with fruit flies
and untreated rice by the EU this year20. This has cost the industry significant revenue.
Exporting green technologies and adhering to international environmental standards is a
significant challenge in Pakistan’s international trade.
High Production Costs
Domestic industries in Pakistan are facing significant challenges due to high production
costs driven by energy shortages, outdated technology, and inefficient manufacturing
practices. As a result, Pakistani goods are struggling to compete in international
markets.
Currently, production costs in Pakistan are higher than those in India and Bangladesh,
putting considerable financial pressure on businesses and negatively impacting trade. For
households, electricity rates in Pakistan are 45.1% of the global average and 84.5% of
18 SBP (2024).
https://www.sbp.org.pk/departments/ihfd/InfrastructureTaskForceReport.pdf?utm_source=chatgpt.com
19 Refers to cases where shipments of items are stopped, inspected, and potentially rejected.
20 Abbas (2023). https://profit.pakistantoday.com.pk/2023/10/27/noncompliance-of-eu-export-standards/
the Asian average. However, business electricity rates are considerably higher, standing
at 110.1% of the global average and an alarming 154.3% of the Asian average21
.
Geopolitical Challenges
Geopolitical dynamics, particularly sea or oil-related that increase the cost of trade, often
create challenges for the trade prospects of Pakistan. Global factors like the China-U.S.
trade war have added complexity. Pakistan is trying to navigate economic alignments
between its key partner, China, and the U.S., a traditional ally. For example, Pakistan’s
reliance on China for trade and investment through CPEC aligns it more closely with
Beijing. Pakistan is facing sanctions and potentially limiting trade options via Free Trade
toward high-value Western markets.
Regulatory and Bureaucratic Barriers
Inefficient regulatory processes, excessive bureaucracy, and slow customs procedures
deter exporters and importers, raising transaction costs and reducing trade efficiency. The
name suggests that the FTA means free trade agreements however in reality these trade
agreements still face both financial and non-financial barriers. Nonetheless, they are
called FTA but still the duty on these agreements is higher. Some goods in the Pak-China
FTA face 16% tariff rates.
Special Economic Zones (SEZ)
Special Economic Zones (SEZs) exist in multiple countries to facilitate trade. These zones
aim to enhance value addition in exports, generate employment, encourage import
substitution, and mobilize foreign exchange to support the balance of payments. Both
developing and developed economies have established SEZs, with approximately 5,400
located in 150 countries worldwide.
There are 425 approved SEZs in India, of which 270 are operational. In Pakistan, the SEZ
Act was established in 2012. In contrast, a few SEZs near Karachi and Lahore are
currently functioning in Pakistan. Among only 27 notified SEZs in Pakistan, no significant
economic activities related to exports, imports, or investments are directly attributable to
these zones22
.
21 Israr Khan (2024). https://www.thenews.com.pk/printFail to tap in its Geographical Proximity
Unlike regional peers such as India and Bangladesh, Pakistan has not stretigically
leveraged its geographic location to enhance trade performance.
Low Labour Productivity Levels
Pakistan’s labour productivity growth has lagged behind regional competitors, further
reducing its global competitiveness. A World Bank report states that Pakistan’s labour
productivity lagged behind that of its trading partners. It has increased only from about
USD 3,200 to USD 4,700 in the last two decades. However, in Vietnam, it increased from
USD 1,200 to USD 6,000 (in the same time period).
Recommendations:
Pakistan may:
Prioritise competitiveness, domestic industrial development, and export
diversification. Without these foundational reforms, FTAs may continue to yield
suboptimal outcomes, further exacerbating the country’s trade imbalances. It may
encourage industries to move up the value chain by providing incentives for
producing finished goods rather than exporting raw materials. Address energy
shortages and modernise infrastructure and manufacturing technology to lo
Invest in emerging sectors such as sustainable agriculture, IT, pharmaceuticals,
and green technologies to reduce reliance on traditional exports and tap into
high-value markets.wer
production costs and improve competitiveness. Then, re-negotiate and
strengthen trade ties with neighbouring countries and regional blocs by
negotiating mutually beneficial trade agreements and aligning with regional trade
practices.
Invest in education, vocational training, and technology adoption to improve
workforce skills and productivity, matching the pace of regional competitors like
Vietnam, India, and Bangladesh. Moreover, traders and the general public need
to be aware of FTAs to get more into trade and earn foreign reserves.
Simplify customs procedures, reduce bureaucratic hurdles, and adopt digitisation
s in FBR and Custom institutions to enhance trade efficiency and transparency.Emphasise the negotiation FTAs that secure market access for higher-value
goods and environmentally friendly goods (like dry fruits) while prioritising sectors
with strong export potential. The agriculture sector can make a significant
contribution by exporting organic products and green technologies. Pakistan’s
diverse climate and resource abundance give it a competitive advantage in this
area. This will also contribute positively to challenges related to climate change
and the food security needs of Pakistan.
Not prioritise importing manufacturing items like solar panels and EV batteries
that it can produce domestically. Greater emphasis should be placed on
importing intermediate goods to help the economy, uplift the industry, and
improve the trade balance.
Conclusion
This Brief highlights that a trade agreement can benefit domestic manufacturing by
offering reduced-duty inputs. However, it can also negatively impact domestic industries
when finished goods from countries like China where producers enjoy scale and unit cost
advantages, face low or no duties. Pakistan is currently grappling in such a policydilemma.
Pakistan’s FTAs have largely failed to deliver the anticipated benefits. There have been
instances of export growth, but the overarching trend has been a consistent increase in
trade deficits due to the focus on low-value goods in the absence of trade creation. These
agreements, moreover, have often resulted in trade-offs, including lost revenue due to
tariff concessions and weakened domestic industries unable to compete with cheaper
imports.
If Pakistan can reduce the inefficiencies, it could gain trade advantages from the FTAs
and use them to capitalise on its strategic geographical position. Pakistan also must
enhance its infrastructure, streamline customs procedures, and improve logistics. By
doing so, not only will it benefit from increased trade volume, but it will also foster
economic ties with its regional partners.
Such a policy will ultimately result in a more robust and prosperous economy for all
involved. Hitherto, these FTAs may not place a burden on Pakistan’s economy, but
they are certainly not acting as a bridge in its economic development.About the authors
Dr. Aneel Salman holds the distinguished OGDCL-IPRI Chair of Economic Security at
the Islamabad Policy Research Institute (IPRI) in Pakistan. As a leading international
economist, Dr Salman specialises in Monetary Resilience, Macroeconomics, Behavioural
Economics, Transnational Trade Dynamics, Strategy-driven Policy Formulation, and the
multifaceted challenges of Climate Change. His high-impact research has been widely
recognised and adopted, influencing strategic planning and policymaking across various
sectors and organisations in Pakistan. Beyond his academic prowess, Dr Salman is a
Master Trainer, having imparted his expertise to bureaucrats, Law Enforcement Agencies
(LEAs), military personnel, diplomats, and other key stakeholders, furthering the cause of
informed economic decision-making and resilience.
Mr. Muneeb Shah is a Research Associate at the OGDCL–IPRI Chair Economic Security
at the Islamabad Policy Research Institute (IPRI). His areas of expertise include the blue
economy, international trade, monetary policy, the Balochistan economy, the informal
economy, and national accounts compilation. Mr. Shah also has strong expertise in
quantitative and data-driven policy analysis, with his work involving the application of
advanced econometric techniques to support evidence-based decision-making. He can
be reached at shah.muneeb@outlook.com
.
