Indonesia will see its crude palm oil (CPO) exports to Pakistan freed from import duty starting on Sunday, as the two countries have signed a preferential treatment agreement on bilateral trade.

In exchange, Indonesia will open its main port, Tanjung Priok in North Jakarta, for Pakistan'€™s Kinnow oranges.

The Mutual Recognition Agreement (MRA) was signed on Friday by Pakistani Ambassador to Indonesia Sanaullah and Banun Sri Harpini, head of the quarantine agency with Indonesia'€™s Agriculture Ministry.

Tanjung Priok Port bars the entry of horticultural commodities, including Kinnow oranges, of which Pakistan is one of the world'€™s largest producers. The restriction was put in place due to lack of capacity at the country'€™s busiest port.

'€œThe accord also grants the recognition of pest-free areas for horticultural imports from the country, which is necessary for Pakistan'€™s oranges to enter the port. The recognition will be renewed annually to prevent possible pest and fungal outbreaks as a safety measure,'€ Banun said after the signing ceremony.

In return, Pakistan will exempt Indonesia, the world'€™s largest CPO producer, from paying 10 percent in import duty on the commodity.

The MRA is a follow up to a preferential trade agreement (PTA) inked by the two countries last year, which removed 25 percent import duty on Kinnow oranges and allowed Indonesia'€™s CPO to penetrate Pakistan'€™s market.

The agreement should have taken effect this year, but has been delayed for months mainly because of the ban on Kinnow oranges entering Indonesia via Tanjung Priok.

'€œAlthough the PTA was signed last year, Pakistan had yet to remove its import duty on our CPO exports. With the various requirements Pakistan had to meet to get through our quarantine procedure and to have our CPO facilitated to enter their market, the MRA was needed,'€ Banun explained.

With a series of regulations issued by the agriculture and trade ministries, the government has tightened horticultural imports by reducing entry gateways for imports via only four ports '€” excluding overloaded Tanjung Priok '€” and introducing importer licenses and rules on cold storage facilities for fruit and vegetables.

Banun said the PTA would benefit Indonesia in competing with Malaysia to provide CPO to Pakistan, whose demand for the commodity averages 1 million tons annually. Indonesia'€™s CPO exports to Pakistan lost ground in 2007 when Pakistan inked a PTA with Malaysia.

Indonesia'€™s imports of Kinnow oranges from Pakistan, on the other hand, totaled only 5,000 tons last year.

Sanaullah said in a release that the trade potential between the two countries was huge and was likely to increase further, bearing in mind the growing middle classes in both countries.

He pointed out that for certain Indonesian products, Pakistan could serve as an entry point to Central Asian nations and western China.

'€œIndonesia would not only be catering to a market of 180 million people, but consumers from at least six other countries including Afghanistan, Tajikistan, Uzbekistan and China,'€ he said, adding that Pakistan'€™s need for CPO, pulp and paper and rubber were not likely to decline.

Separately, Deputy Trade Minister Bayu Krisnamurthi said the PTA was expected to result in a wider market in Pakistan for other Indonesian products such as garments, footwear, paper and coal.

'€œThe deal will only take effect in September, after which we expect the PTA to generate an additional trade income of US$100 million to $200 million for the rest of the year. Next year, however, we expect to reap $1.5 billion to $2 billion as Pakistan helps pave the way for us to enter other South Asian markets,'€ Bayu said on Friday

Bilateral trade between Indonesia and Pakistan amounted to $1.65 billion last year, up 44.74 percent from 2011, with Indonesia exporting $1.38 billion worth of goods and importing $273.22 million worth.

'€” Linda Yulisman contributed to the story

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