The Joint Study on the Feasibility of the Free Trade Agreement between Thailand and Pakistan: Executive Summary I. Background of the Thailand-Pakistan Relations The history of Thailand-Pakistan relations can be traced back over 50 years when in 1951 both countries signed an agreement to establish diplomatic relation. It was in 1956 when the tangible outcome of the diplomatic relation arrived as Pakistan appointed the very first ambassador to Thailand. Consequently, a year later Thailand appointed its first ambassador to Pakistan. Since then the relations between the two countries have been strengthened by the formal visits of the Thai royal family members and key persons from the Thai governments. Among several ties between the two countries, there has been notable cooperation in key areas including the Inaugural Meeting of Joint Economic Commission. All activities have so far confirmed that Thailand and Pakistan have many things to benefit from the increase in strengthening the cooperation in both economic and non-economic realms. Today, the relations between the two countries have evolved to the stage that Thailand s export of chemical product, plastic, auto parts, and etc. to Pakistan and Pakistan s export of textile, yarn, leather, medical equipment and etc. to Thailand are familiar among those who are involved directly and indirectly in Thailand-Pakistan economic ties. And given today s context that increasingly demands the integration of economies between each other bilaterally and among others multilaterally in regional as well as global level to realize the optimal potential of the existing and the would-be more trade in goods and services, the initiative to increase the cooperation between the two countries from both sides has been there for awhile. II. Background and Rationale of the Joint Study One of the most tangible initiatives came in 2005 when the authority from both sides decided to undertake the joint study on the feasibility of Thailand-Pakistan free trade agreement. The rationale underlying the joint study was that Thailand and Pakistan assigned their own research team to conduct independent studies on the subject to examine the existing bilateral trade relations in order to see if there is room to expand trade relations between the two countries within the best interest of both countries. And to an important extent, as the name of the joint study suggests, whether the existing economic cooperation can be expanded to free trade agreement. It is noteworthy to emphasize that the joint hosts of the meetings, the Ministries of Commerce of Thailand and Pakistan have given the researchers full autonomy to state the findings as their studies indicate, so that the results of both studies can be truly utilized for the two countries. But, how the findings of the two studies, compiled as one joint study, lead to further tangible cooperation developments depends on the individual national decision-making systems of the two countries which are beyond the scope of the studies. The initiative of the Joint Study Group on the feasibility of Pakistan-Thailand Free Trade Areas did evolve into several contacts including the 4 official meetings in total, namely, the first meeting held in Islamabad on 24 th November 2005, the second meeting held in Chiang Mai on 1 st and 2 nd February 2006, the third meeting held in Islamabad on 21 st and 22 nd September 2006, and the last meeting held in Bangkok on 29 th, 30 th and 31 st January 2007.
The research team from the Thai side was headed by Dr. Somchai Ratanakomut, a researcher under Chula Unisearch of Chulalongkorn University, Bangkok, Thailand, while the Pakistani research team was headed by Dr. Musleh-ud-Din of Pakistan Institute of Development Economics, Islamabad, Pakistan. The research methodology employed by both research teams is based on the review of bilateral trade figures between the two countries. Additionally, the Thai team relies on BCG (Boston Consulting Group) Model, and CEPII s RCA (The Revealed Comparative Advantage), and analysis of price elasticity, market share tariff rate, while the Pakistani team bases its studies on Balassa s RCA Model. Even though there are different sources of data (where two sets of the data for both countries cannot be found) used in making the investigations, the two studies have been presented to each side in the 2 nd, 3 rd and 4 th meetings, so that they are, where possible, criticized, corrected and then made compatible with each other. Importantly, both teams also pay importance to other factors that may fall beyond the scope of the aforementioned models. The two independent studies which were later compiled together as the joint study are standardized in the same format. And the agreed 9 chapters that constitute the joint study are: Chapter 1: A. Thailand s Present Status of Economy and the Emerging Trends B. Pakistan s Present Status of Economy and the Emerging Trends Chapter 2: A. Thailand s Existing Trade Regime Including Tariff and Non-Tariff Measure in Place B. Pakistan s Existing Trade Regime Including Tariff and Non-Tariff Measure in Place Chapter 3: A. Thailand s Trade in Services Existing Policies and the Commitments Bindings under GATS Signed under the WTO Agreement B. Pakistan s Trade in Services Existing Policies and the Commitments Bindings under GATS Signed under the WTO Agreement Chapter 4: A. Thailand s Investment Regime Existing Policies and the Emerging Trends with Future Outlook B. Pakistan s Investment Regime Existing Policies and the Emerging Trends with Future Outlook Chapter 5: A. Thailand s Trade Diplomacy and Participation in Regional Integration and Bilateral Trade Agreements B. Pakistan s Trade Diplomacy and Participation in Regional Integration and Bilateral Trade Agreements Chapter 6: A. Thailand s Global and Bilateral Trade in Goods and Services B. Pakistan s Global and Bilateral Trade in Goods and Services 2
Chapter 7: A. Thailand s Measures Concerned with Trade and Investment Facilitations B. Pakistan s Measures Concerned with Trade and Investment Facilitations Chapter 8: A. Thailand s Analysis of the Bilateral Trade for the Last Five Years B. Pakistan s Analysis of the Bilateral Trade for the Last Five Years Chapter 9: The Conclusion of the Studies and Joint Architecture/Structure of the Bilateral Agreement Since the first eight chapters were studied by each independent study team from both sides before being compiled into one compatible joint study, it is therefore necessary that each study s findings be summarized before moving to the final part where the joint study concludes. III. The Thai Findings A. Trade The facts from existing bilateral trades between Thailand and Pakistan can be summarized as follow: 1. Pakistan was Thailand s number 32 nd in export and number 50 th in import. 2. During 1999-2004, Thailand exported 2,125 commodities to Pakistan (in HS 6 digits) and imported 852 commodities from Pakistan. 3. Thailand s export to Pakistan in 2004 was at the value of 17,434 million baht, while the import from Pakistan to Thailand was at the value of 2,453 million baht ($1 is approximately equal to 40 baht) 4. The value of Thailand s export to Pakistan shared only 0.5% of total export in 2004, while the value of import from Pakistan shared only 0.1% of total import in 2004. 5. The growth rate of Thailand s export to Pakistan during 1999-2004 averaged at 23% per year, and the growth rate of import from Pakistan averaged at 7% per year. 6. The main Thailand s exports to Pakistan are chemical, plastic, machinery, textile and vehicle. 7. The main Pakistan s exports to Thailand are petroleum products, textile and chemical products. The facts have depicted that Thailand had increased the export especially in chemical products, plastic, machineries, textile products and vehicles. These products altogether shared about 84% of the total export value. Additionally, these products had increased more than 10% per year. In particular, vehicles had grown 71% per year. The commodities that had lower shares and lower growth rates are such as pulp of wood/printing, jewelry and arts. The main items that Pakistan exported to Thailand were, for example, mineral, textile, chemical and animal products as well as rawhides. These products when combined together valued about 93% of the total import value. But their growth rates were different. That is, chemical products had the highest growth rate at 56% per year, 3
textile and animal products had moderate growth rate at 20% per year, rawhides had only 6% per year, but mineral products had negative growth rate at -17% per year. The values of trades between Thailand and Pakistan are still very small; therefore, the impacts of trades on Thai GDPs are low. What s more, the impacts of bilateral trades between Thailand and Pakistan on Thai GDP are mainly from the exports of intermediate and final manufacturing products. Also, for the fact of bilateral trade between Thailand and Pakistan from 1999-2004, it can be said that the value of trades between Thailand and Pakistan are usually low and not stable. Many commodities are traded once every 2-3 years. In sum, Thailand imported 852 products from Pakistan during 1999-2004. The growth rate of import value was at 7% per year, which was lower than the average growth rate 11.4% of the total import from the world. The entire share was only 0.1%. Among these, only 34 products were agricultural products, valuing at only 7.3%. The other 251 products were manufacturing products. Most of these products were intermediate products. There are 5 criteria (namely, (1) market strength, growth, stability in exporting; (2) relevance price elasticity in order to respond to the tariff reduction or else lowering tariff would not materialize; (3) low market share in order to have gap for expansion; (4) comparative advantage in the world market and here the RCA analysis enhances our understanding of world competition; and (5) low tariff rate in order not to disrupt the domestic entrepreneurs) used in determining the level of satisfaction. Each criterion has different levels of satisfaction. The combination of satisfaction in each criterion determines the weight of total satisfaction. For the findings on satisfaction analysis, the studies specify the commodities in HS 6 digits, which Thailand and Pakistan should be satisfied in the negotiation for tariffs reduction. It is found that in all commodities of 2,395 products, there is no commodity that both countries are highly satisfied for tariff reduction, but there are 1,347 products that both countries are moderately satisfied which are less sensitive for both sides to liberalize. The list of potential products is attached in the studies. Satisfaction levels are weighed on the factors described in paragraph 24. The trade between Thailand and Pakistan during 1999-2004 consisted of 2,395 products in total. Thailand exported 2,125 products with higher growth rate than the average export growth to the world. At the same time, Thailand imported 852 products with lower growth rate than the average. However, both countries competed in exporting 582 similar products or 27.4%, and most of the trades were not stable. The main trading products were manufacturing. It is important to elaborate that these 582 products overlap within the total of 2,395 products. Thailand had more export of plastic and chemical products, while more import was seen in mineral and textile products. Since the value of trade is still very low, there is a large gap for both countries to increase and maximize the trade. Within the 2,395 products that had already witnessed the market base, there is a high potential for trade negotiation. However, there are more than two thousand goods that both countries have traded in the world market, but have never been traded among each other. These goods may also have future potential for trading if there were to be an FTA. 4
The studies make suggestions on the cooperation in commodities trading. That is, Thailand and Pakistan can cooperate to expand their bilateral trade in the following manners. 1. The setting up of commodity s quality standards acceptable by both countries, including the standards related to Islamic/Muslim cultures. 2. The direct investment of Thai investors in the intermediate products industries in Pakistan, in order to link these industries with the manufacturing of final products in Thailand. The examples of these industries are: - The textile industries that link the intermediate products for producing high quality garments, such as under wear, baby clothes, lady s wears and other ready-made clothes that Thailand has advantages in the world market. - The plastic industries that Thailand has skills which Pakistan is increasingly developing competency in the world market. - The rawhides industries that Pakistan has material and skills, but Thailand specializes in making final products. 3. The marketing cooperation in the third market that both Thailand and Pakistan have to compete in the same products. These are, such as, textile products in USA, Jasmine rice and Basmati rice in the world market. The cooperation will increase the mutual benefits of both countries. The proposed complementarities from the Thai findings are based on (1) market strength, growth, stability in exporting; (2) relevance price elasticity in order to respond to the tariff reduction or else lowering tariff would not materialize; (3) low market share in order to have gap for expansion; (4) comparative advantage in the world market and here the RCA analysis enhances our understanding of world competition; and (5) low tariff rate in order not to disrupt the domestic entrepreneurs. If all the 5 criteria are to be satisfied, the complementarities total 81 product items in HS 6 digits. But, if the first 4 criteria are to be satisfied, then there would be 102 product items in HS 6 digits. The following is the result of the study. 1. Vegetable Products (2 items) 2. Animal Products (1 item) 3. Prepared Food (3 items) 4. Products of the Chemical or Allied Industries (23 items) 5. Plastics and Articles Thereof; Rubber and Articles Thereof (19 items) 6. Pulp of Wood or of other Fibrous Cellulosic Material; Waste and Scrap of Paper or Paperboard; Paper and Paperboard and Articles Thereof (4 items) 7. Textiles and Textile Articles (7 items) 8. Base Metals and Articles of Base Metal (2 items) 9. Machinery and Mechanical Appliances; Electrical Equipment; Parts Thereof; Sound Recorders and Reproducers, Television Image and 5
Sound Recorders and Reproducers, and Parts and Accessories of Such Articles(27 items) 10. Vehicles, Aircraft, Vessels, and Associated Transport Equipment (2 items) 11. Optical, Photographic, Cinematographic, Measuring, Checking, Precision, Medical or Surgical Instruments and Apparatus; Clocks and Watches; Musical Instruments; Parts and Accessories Thereof (3 items) 12. Miscellaneous Manufactured Articles (9 items) B. Investment Both Thailand and Pakistan have potential to enhance FDI, but Pakistan has better potential than Thailand to attract capital from foreign countries. Since 2000, Thailand has focused on capital intensive industrial investment to avoid the competition with neighboring countries that have more advantages in labor s wages. Thailand has the potential to invest in Pakistan in service sectors, mining, survey/drilling of oil and natural gas, especially in air transport, hotel, restaurant and traveling. At the same time, Pakistan has opportunities to invest in Thailand in halal food and some construction materials. Moreover, Pakistan is the gateway to Central Asia, hence it is convenient for setting up the distribution and exhibition centers for Thailand s products. C. Services Regarding the potential of international trade in services, the studies find that the travel service sector has the highest potential for market opening because Thailand has high competitiveness with medium growth rate, while Pakistan has lower competitiveness, but growing market. For communication service sector, Pakistan has better competitiveness than Thailand; however, Pakistan s growth rate is decreasing while Thailand s is increasing. It is also found that this sector has linkages with several sectors in GDP. On the construction service sector, both countries have rather low competitiveness, but Pakistan has much higher growth rate than Thailand. For software/royalties service sector, both countries have high growth rates, but Pakistan has slight edges in competitiveness over Thailand. For maritime transport service sector, both countries have low competitiveness in this sector, while their growth rates increase every year. The possibility of free trade in this sector is low. As a consequence, the freight insurance sector should have low potential. And for air transport service sector, the two countries have good competitiveness and growth rates in the same level. III. The Pakistani Findings A. Trade Pakistan s export earnings increased from US $9,202 million in 2000-01 to US $14,391 million in 2004-05, and its total imports almost doubled from US $10,309 million in 2000-01 to US $20,598 million during the same period. Owing to a faster pace of import growth, the country continued to experience deficit in its trade balance, which increased from US $1,527 million in 2000-01 to US $ 6,207 million in 2004-05. The share of exports in GDP remained almost stagnant at around 13 percent, whereas the share of imports in GDP increased from 15.06 percent in 2000-01 to 18.68 percent in 2004-05. 6
The export structure of Pakistan lacks diversification: about 60 percent of the country s exports consist of products in five broad commodity groups namely cotton (which includes raw cotton, cotton waster, cotton thread, cotton yarn, cotton cloth, ready made garments and hosiery, and synthetic textiles), rice, leather, carpets and rugs, and fish and fish preparations Pakistan s imports are generally confined to a relatively narrow range of products: sixteen commodities/commodity groups accounted for over 80 percent of the country s total imports during 2000-01 and 2004-05 On average, imports of machinery, and petroleum and petroleum products were the two largest product groups in the composition of total imports, constituting respectively 16.51 percent and 24.64 percent of Pakistan s total imports during the period. Pakistan s exports are concentrated in a few markets: during the period 2000-01 to 2004-05, more than half of total exports were destined to the seven major countries (USA, Germany, Japan, UK, Hong Kong, UAE, and Saudi Arabia) during the period On average, around 42 percent of imports originated from only seven countries including USA, Japan, Kuwait, Saudi Arabia, Germany, UK and Malaysia. The volume of bilateral trade between Pakistan and Thailand is quite small with a high degree of commodity concentration. Textiles and textile products dominate Pakistan s exports to Thailand, followed by vehicles and transport equipment, products of chemicals and allied industries, raw hides and skins, live animals and products, and vegetable products. Pakistan s imports from Thailand accounted for 1.9 percent of its total imports in 2004 the share of products of chemicals and allied industries was the highest, followed by vehicles, plastics and rubber articles, textiles and textile articles, and machinery and mechanical appliances. The analysis for 2003 suggests that Pakistan's comparative advantage at six-digit HS classification is indicated in food, live animals, and animal products, mineral products, chemical products, plastics and allied products, leather and leather articles (including footwear), textiles and textile products, base metal and articles, and miscellaneous manufactured articles commodities in these broader groups in which Pakistan s comparative advantage is indicated; and one can thus argue that Pakistan has comparative advantage in quite a few commodities. However, in order to gauge the potential of trade between Pakistan and Thailand, one must also look at the import share of these commodities in Thailand s global imports. The data show that Thailand s import share in these commodities in 2003 was only 4 percent. For textiles and textile products, Thailand s import share was 1.34 percent. Thailand s second highest import share was in food, live animals, and animal products, which stood at 0.69 percent. The number of commodities in which Pakistan s comparative advantage has increased in 2004 is to 657, but the product categories remained broadly the same as in the previous year. The share of these commodities in Thailand s imports declined slightly to 3.92 percent, as also reflected in the falling import shares of textiles and food products the two important commodity groups in which Pakistan has comparative advantage. 7
The analysis for 2004 shows that Thailand s comparative advantage is across a broader range of commodities as compared with Pakistan; and these include, for example, 146 products in the machinery and electrical appliances group, 89 products in metals and base metals group, 38 products in articles of stone etc. In sum, there are 1,060 commodities in which Thailand has comparative advantage, with an import share of these commodities in Pakistan s global imports at above 20% (see attached Table). There is, therefore, substantial scope for Thailand to enhance its exports to Pakistan through a free trade regime between the two countries. Based on global trade of Pakistan, it is shown that Pakistan has comparative advantage in textile, raw-hides, miscellaneous manufactured article, vegetable and animal products, and prepared food. Roughly the same pattern emerges when RCA indices are looked at from the bilateral trade perspective. It may be noted that RCA indices using CEPII methodology are not much different from RCA indices based on Balassa s approach. Revealed Comparative Advantage (CEPII Formula) RCA Pak-World RCA Pak-Thai Animal Products 0.62 1.60 Vegetable Products 1.11 0.78 Animal/Vegetable Oils -2.08-0.02 Prepared Food 0.45 0.44 Mineral Products -9.49 5.11 Chemicals -6.80-2.57 Plastics -1.88-5.39 Raw Hides 2.71 1.66 Wood -0.09-0.21 Pulp -0.75-0.40 Textiles 29.97 5.16 Footwear 0.32-0.09 Glassware -0.18-0.44 Jewellery -1.11 0.09 Metals -2.66-0.84 Machinery -8.27-4.15 Vehicles -3.12-0.93 Optical -0.05 0.27 Arms 0.03 0.00 Misc. Manufactured Articles 1.27-0.06 Art 0.00 0.00 B. Investment The Government of Pakistan has been pursuing a liberal and market oriented policy that provides equal investment opportunities to both domestic and foreign investors. All sectors of the economy are open to FDI up to 100% equity. No sanctions are required from the Government. The attractive policies introduced by the Government, coupled with active follow-up and implementation, have restored the investor confidence. The overall macroeconomic stability and the liberal investment policy environment have resulted in a remarkable increase in the FDI inflows over the past two-years (2004-06) The attractive policies introduced by the Government, coupled with active follow-up and 8
implementation, have restored the investor confidence. The overall macro-economic stability and the liberal investment policy environment have resulted in a remarkable increase in the FDI inflows over the past two-years (2004-06). The Entrepreneurs from both the countries are finding good opportunities of interaction for investment in each other s countries individually as well as through joint ventures. Proposal for joint venture in the fields of Auto Parts, Computers Software, Fisheries, Ship Building, Household Appliances, Textile Industry and Motorized three-wheelers are also under active consideration at appropriate level of the Boards of Investment of the two countries. C. Services Pakistan s existing investment policy has opened up all sectors for investment, including services. In general, investment in services is permitted where the amount of foreign equity investment meets specified criteria. Foreign investors are allowed to hold up to 100 percent equity with full repatriation of profits. The rules and regulations regarding licensing, special business form, minimum equity requirement etc in vogue would still apply in sectors wherever it has been announced i.e. banking, insurance, telecom etc. Services covered by this policy include transportation, audio-visual services, sporting services, social sector services, environment, and agricultural services. Information technology services, including software development, and tourism, however have been defined as industries by the investment policy. This means that these industries can enjoy benefits announced by the Government and exempted from minimum equity requirements. As per Pakistan s GATS commitments, 51% equity is allowed on horizontal basis. However in the specific sectoral commitments like construction services the equity is 40%. In Financial and Telecom Services the regulatory and licensing requirements are also highlighted. In the initial offers of Pakistan the horizontal equity has been increased to 60% with a probability of increasing it up to 70% in the revised offers. For the mode-4 commitments, Pakistan has defined various categories of persons falling under this mode i.e. businessmen, intra-corporate transferees, services sales persons and independent service providers. The work visa/permit to be granted to above-mentioned categories varies from 180 days to 5 years with further extension possible. So far Pakistan s experience in opening three important services sectors (telecommunications, banking and franchise/distribution) to Foreign Service Providers has shown a net beneficial result in attracting FDI, creating employment and technology/skill transfer as well as improving the quality of services offered to Pakistani consumers. With 51% of the GDP composed of the services sector employing nearly 37% of the work force and which showed a strong growth of 7.9% in FY 2004-2005, Pakistan has an inherent advantage in liberalizing the services sector as it has advantages of low cost labor, a regulatory framework that is predictable and transparent as well as English language being the medium of official/business communication. Therefore, liberalizing all the sectors and most of the sub-sectors will have a positive impact on the economy, specially the ones that 9
demonstrated strong growth such as finance and banking, wholesale and retail trade and transport and communication sectors. Work towards countering the uniform benchmarks/model schedules proposals with the menu approach, i.e., a list of non-contentious sectors such as tourism, distribution, transportation, business services, etc be agreed upon and then selectively liberalized on the basis of consensus or we can present a non-standardized tool approach. That is, whatever tool is being negotiated to assess offers it should not be uniform as the service economies of WTO member countries are diverse and if a tool is to be devised, then three separate tools would be required to measure and assess offers based on the current nomenclature of classification of the member countries into developed, developing and least developed countries, i.e., separate tools for separate categories of countries. IV. The joint study s observation, recommendation and conclusion Even though the studies from both sides are quantitative studies based on the existing bilateral trade between the two countries, their trade potentials with the world, and the would be opportunities for both if they expand trade, the two studies do not ignore the importance of non-quantitative factors (though not included in the joint study) which could enhance the bilateral trade relations. For example, both findings accept that the increase in trade between the two countries could have spill-over effects on cooperation in other areas. This may include people to people relations between the two countries. For the other factors, both studies findings suggest that expansion in trade relations between the two countries should also take into account the importance of geographical advantages of both countries. Thailand s geographical advantage is her gateway to ASEAN member countries and especially to the ones that neighbor Thailand in the Southeast Asia mainland which include Myanmar, Laos, Vietnam, Cambodia, and Malaysia. Thailand s all sides of border have seen increases in trade with her neighbors. The border trades combined with political cooperation have now progressed to the extent that roads, bridges, and other kinds of infrastructure are now ready to transport both passengers and goods across the mainland of Southeast Asia. In fact, glancing through the Sub-Mekhong Region will also provide hindsight that the commercially viable route to and from China is now being realized. For Pakistan s geographical advantage, she is a gateway to South Asia, Central Asia, and East Asia. Thanks to the temporary peace agreement between Pakistan and India, many have now witnessed the increase in border trade between Pakistan and India along side the opening of some transportation routes. Even though it is a fact that Thailand has FTA agreement with India, the expansion in trade could mean easier trade transaction for certain areas of India. Empirical evidence has also suggested that people settling along side the country s border can make significant impacts on trade for a number of goods. Afghanistan is another country worthy of note. Many international development agencies have intervened and continuously poured in money to help reform the country and it is now improving a great deal economically and politically. Last but not least, Pakistan s geographical access to Central Asia and China is of huge benefits. The countries in Central Asia are now witnessing unprecedented economic and political transformations. In this context, both studies 10
agree that expanding bilateral relations between Thailand and Pakistan can be a vital factor contributing to the strengthening of regional economic cooperation. The Joint Study Group (JSG) noted the high degree of complementarities between the economies of Pakistan and Thailand. It was observed that the exporters of both the countries were facing tariff barriers due to preferential tariff regimes maintained by both the countries in favor of their respective FTA partners. It was further observed that after the conclusion of Pakistan-China FTA and other similar Arrangements with other ASEAN countries: the exports of Thailand to Pakistan were likely to decline. Accordingly, it was concluded that a level playing field was necessary to realize the potential of bilateral trade The JSG assessed that there would be substantial benefits to both countries from liberalizing trade in goods, services and attracting investment. It would increase economic growth, trade, investment and employment in both countries. It would also foster structural reforms and improve productivity. Consumers, including businesses that use the products and services as inputs to their production, would also benefit. Both sides explained in detail their sensitivities and concerns on the potential impact of tariff reduction or elimination, and handling of sensitive products. The JSG suggested for flexibility to be negotiated to address those sensitive products. The JSG suggested that Customs cooperation plays an important role to facilitate legitimate trade flows, while also ensuring effective enforcement at the border. Since there is a high degree of complementarities, there should be appropriate rules of origin to facilitate expansion of trade, instead of restricting trade between the two countries. The JSG suggested that provisions addressing non-tariff measures (NTM) and technical barriers to trade (TBT) would have merit in liberalizing trade in goods between the parties. These provisions could facilitate trade by committing both governments to provide certainty and minimize transaction costs, and to arrangements that contribute to closer cooperation in the regulatory field, building on existing levels of cooperation. The JSG noted that Pakistan and Thailand s FTAs with other countries have addressed NTMs and TBT in a similar way. These agreements have included provisions reaffirming the WTO Technical Barriers to Trade Agreement, encouraged cooperation in regional bodies, established contact points, and provided for the establishment of a sub-committee on TBT issues. The JSG suggested on the importance of SPS, and emphasized the necessity for a science-based approach consistent with the WTO SPS Agreement. The JSG suggested that strengthening cooperation and exchange of information on SPS issues was desirable and discussed appropriate ways for this purpose. The JSG suggested to identify the most appropriate approach, including within the framework of trade cooperation, to work together to find solutions for issues of mutual interest between Pakistan and Thailand. The JSG noted the close investment relationship between Pakistan and Thailand and the levels of investment by both in third countries. The evidence indicated that current 11
levels of investment were lower than they could be in both directions, but particularly FDI from Thailand to Pakistan. A trade cooperation, which liberalized and facilitated investment, would attract more investment in both directions and be consistent with each side s objective of promoting inward FDI and contribute further for the economic growth. The JSG noted both countries had derived significant gains from bilateral investment and would benefit from its further growth. Recently Thailand investors have taken advantage of new investment opportunities in Pakistan. These investments have increased tourism to Pakistan, contributed to economic development in Pakistan s regional areas, and helped build a closer relationship between the two countries. The JSG concluded that in the context of trade cooperation there was merit in Pakistan and Thailand for considering measures that would liberalize, facilitate and protect bilateral investment. Such measures would serve to ensure that both sides reaped the full economic benefits of any trade cooperation, which would include economic growth, structural reforms, and expanded trade and investment opportunities. In the realm of investment and bilateral flow of FDI, there were opportunities for profitable investments and joint ventures for both the countries. In order to institutionalize and provide protection to the investors of the respective countries, the JSG was in favor of a bilateral initiative on this account. The JSG assessed that liberalization and facilitation of trade in services, measures to improve business mobility and addressing recognition of qualifications would create new opportunities for Pakistan and Thailand s services exporters. These measures would increase trade in services and economic growth in Thailand and Pakistan and foster structural reforms in both countries. The JSG noted that enhanced business mobility, recognition of professional qualifications and increased services trade would increase two-way investment and people-to-people links. Investment liberalization would also promote growth in services trade and greater exchange among people. The JSG noted that Pakistan and Thailand were actively engaged in services negotiations in the WTO and in FTAs with others. As regards trade in services, it was noted that both countries had tabled their respective offers at the WTO, which would become binding at the multilateral level only after the conclusion of Doha Round of negotiations. Immediate conclusion of these negotiations, however, is not insight. These offers were made in consultation with the respective stakeholders of both the countries. It was accordingly felt that both the countries can enter into an agreement to provide the market access in trade in services on the bilateral level, keeping into the consideration their initial offers in WTO. The JSG was of the view that it was now up to the two Governments to develop a roadmap for determining a time frame and strategy to move forward to create a desired linkage between the economies of both the countries 12
The trade relationship between Thailand and Pakistan has progressed to a certain extent under the Trade Agreement signed in 1984. The trade agreement is undoubtedly an important start of any given trade relationship. But as both countries realized that the trade relationship between the two countries need to expand for more, in accordance with Thailand s Look West and Pakistan s Look East policy, both countries in 2005 joined one another to conduct the Joint Study Group on the Feasibility of Pakistan-Thailand Free Trade Areas. The studies from both sides have concluded that there is potential in trade expansion between the two countries. The architecture of the bilateral Agreement should address Trade in Goods, Trade in Services, Investment and Economic Cooperation. 13