Contrary to popular perceptions, Pakistan's trade with the regional powerhouse Malaysia has never really hit the roofs. The highest share of Malaysia in Pakistan's exports and imports was achieved way back in FY12, when the Pakistan Malaysia Free trade Agreement (FTA) was fresh. The share in total trade with Malaysia had touched a peak of 3.67 percent in FY12 - at $2.38 billion. That was also the only time when the yearly trade flows with Malaysia had crossed $2 billion.
Ever since, the share has been consistently falling, having come down to just 1.35 percent of total trade in FY18 to $1.09 billion. In the last four years, the total trade with Malaysia has hovered around just $2 billion. The trade balance too has not shifted much in Pakistan's favour after the FTA. In fact there has not been a considerable change in the trade balance, before and after the FTA.
For every dollar exported to Malaysia, Pakistan imports goods worth $8 from Malaysia. Pakistan's imports from Malaysia have been predominantly focused on Palm Oil, which is the biggest import item for Pakistan in the food category. The Palm Oil imports from Malaysia have more than halved in five years from over a billion dollars in FY13 to less than $450 million in FY17, according to the SBP trade statistics.
Malaysia, which had a share of 56 percent in Pakistan's total Palm Oil imports, now has a share of 25 percent and shrinking. The share was first grabbed by Indonesia, as Pakistan entered a Preferential trade Agreement with Indonesia back in FY14. Later, Singapore filled in the gap, now having the highest share in Pakistan's Palm Oil imports at 42 percent and growing.
Reduced share of Palm Oil from Malaysia is single handedly responsible for the massive slide in bilateral trade - as most other trade goods have shown no significant change over the years. Recall that Malaysia had managed to receive tariff concessions for its top export to Pakistan that is the Palm Oil.
On the other hand, Pakistan's exports to Malaysia do not read a rosy picture. The highest that Pakistan ever managed to export to Malaysia was in FY12 at just $229 million. Even the exports have witnessed a downward trend ever since, average no more than $145 annually in the last three years. The share of exports to Malaysia in Pakistan's total exports is not even 1 percent, and that too has been on a gradual decline since FY12.
The Pakistan Business Council in a study aimed at Pakistan Malaysia trade had earlier highlighted the fact that the reason for such marginal increase in Pakistan's exports to Malaysia is the inability to get concessions on exportable items of Pakistan's interests. Those that are part of the concession list, are difficult to translate into numbers, as the competitors in most cases enjoy much better tariffs than Pakistan. The case of India and China is a prime example, where the respective FTAs offer much lower tariffs for both these countries in comparison to Pakistan.
That said, the trade potential between the two countries is huge, if the FTAs are negotiated with better research and keeping the interests upfront. As per a PBC study, Pakistan's export potential to Malaysia is no less than $4.6 billion. If Pakistan is able to tap even half the potential, it would serve the interest well.
The authorities must work closely with the export oriented industry, and create linkages with the Malaysian industries to better understand the needs of the market, as the future lies in value addition. Here is hoping the friendship between the two countries, translates into much more prosperous pores and strong trade and economic ties.