Research Dept.
June 18 - 24, 2007

In order to protect the domestic producers, the government uses a range of restrictive policies to dampen the imports, regulations to hold down the trade among the nations, tariffs on imported commodities with restrictive quotas. Free trade is totally different from this policy. It's a form of a market in which trade of goods and services among the countries are without any barriers such as tariffs, taxes and quotas.


*Trade of good and services without any trade barriers such as tariffs and quotas
*Labor and capital can move freely between and within the countries.
*An advantage for some firms due to the absence of trade-distorting policies
*Free entry to markets for market information


FTA is a benefit for those countries which are producing highly quality oriented and diversified commodities that create competition in those countries which are producing less quality oriented goods. If they want to sustain under the market of FTA they need to produce quality merchandise. FTA stops the monopoly of those countries that trade under quota's system and creates the opportunities for other nations to increase their trade volume and earn revenue from it.


FTA hurts the domestic producers as local government can't protect them by creating tariffs and quotas on imported commodities which compete with products produced domestically. Those nations which hold an absolute advantage on particular commodities will supply them to markets at any cost in order to remain in the market and maintain market share. Although the FTA opens previously protected economies, the reality is that smaller producers who don't benefit as much from economies of scale are unable to compete with their larger competitors. Previously, small producers had a guaranteed access and market share under the now abolished quota system.


The FTA between Pakistan and Sri Lanka came into existence in June 2005. Under this agreement Pakistan's imports from Sri Lanka have increased by US $ 27 million where as exports to Sri Lanka are a measly $3 million. The main reason behind the lower exports to Sri Lanka is a lack of knowledge of free trade contract by the business community in Pakistan.


Pakistan and China are set to launch the free trade regime under the Early Harvest Programme (EHP) from January 1st, 2006. Pakistan is the second country after Chile to have a bilateral agreement with China. Under this accord Pakistan and China could trade up to $15 billion with in next five years which will improve the economy of Pakistan in longer term.


At present, the total size of trade between Malaysia and Pakistan is less then a billion dollars and both countries will start bilateral trade from next year which will enhance the volume to at least $5 billion in the next five years.

Pakistan's export and imports to Malaysia after bilateral trade are expected to reach $1.5 billion from its $70 million and will rise over to $3 billion from $700 million due to greater imports of palm oil.