A

fter long negotiations, Indonesia and Pakistan have signed an agreement on preferential trade that will go into force in January.

Indonesian Deputy Trade Minister Mahendra Siregar said the agreement, the product of seven rounds of discussions, would bring advantages to both nations and serve as a foundation for more solid economic and trade cooperation.

“We are upbeat that this [agreement] will open ways to raise the volume of our bilateral trade, which will benefit both of us and can be realized soon,” he said late Friday after signing the preferential trade agreement (PTA) at his office in Jakarta.

Mahendra added that the deal would also help Indonesia anticipate future developments in a more-challenging global economy and diversify its export markets to increase its resilience amid the current economic slowdown.

Talks on the PTA, which started in 2005, were delayed as Indonesia and Pakistan could not find a common ground on tariff reductions for several commodities, including for both nation’s principal export commodities: Indonesian palm oil and Pakistani kino oranges.

Zafar Mahmood, the secretary of Pakistan’s Ministry of Commerce, said he expected that Pakistani businesses would increase exports to Southeast Asia’s largest economy under the PTA, including textile
exports.

“We want [Pakistan; businesses] to look towards Indonesia and the East, because most of their exports are now to the European Union and to America. We want them to concentrate more on Asian countries because these are the future markets.”

Mahmood said that he expected to take a further step to broader economic integration by beginning talks with his Indonesia on a free trade agreement (FTA) in early 2012.

Fadhil Hasan, chairman of the Indonesian Palm Oil Producers Association (Gapki), said he welcomed the agreement, expecting that palm oil exports would rebound under the PTA to their pre-2007 level of around US$560 million, when Indonesian palm oil had a commanding 55 percent market share in Pakistan.

“With the PTA, our palm oil will be more competitive and we’ll be able to raise our market share. Although it may take time to build our networks again and penetrate the market,” Fadhil told The Jakarta Post over the telephone on Sunday.

Pakistan currently levees a tariff of 9,500 to 10,800 Pakistani rupees (US$123) per metric ton of Indonesian palm oil, about 15 percent higher than tariffs on palm oil from Malaysia, which already has a PTA with Pakistan.

The higher duty led to sharp decline in Indonesian exports to Pakistan, which were comprised mostly of palm oil. Indonesian exports to Pakistan were $665.29 million in 2009, down 28 percent from $929.65 million in 2007.

Meanwhile, Indonesia imposed a 15 to 20 percent import duty on Pakistan kino oranges, said to make them less competitive than similar products, especially Mandarin tangerines, which had no import duties under the ASEAN-China FTA implemented since 2010.

Under the PTA, Indonesia will have to enjoy a similar tariff to Malaysia for palm oil while Pakistan’s kino orange will enjoy no import duty.

Last year, Indonesia’s exports to Pakistan were valued at $688.19 million, while overall bilateral trade was $787.42 million. Indonesia exports a wide range of commodities, such as coal, palm oil, cacao, rubber, tea, yarn and paper and imports, among others.

Paksitan exports cotton, copper, finished leather, woven fabrics, kino oranges and fish products.

— JP/Linda Yulisman