Malaysia signs FTA with Pakistan

Malaysia and Pakistan have signed a trade pact, Malaysia’s first bilateral free trade agreement (FTA) with a member of the Organisation of Islamic Conference (OIC).

The Closer Economic Partnership Agreement (CEPA) was signed on 8 November 2007 and will come into force from 1 January 2008. It will further strengthen trade and investment and bilateral economic and industrial cooperation on a long term basis between Malaysia and Pakistan.

Both countries concluded talks in October 2005, and began implementing in January last year an Early Harvest Programme (EHP) for trade in goods comprising Malaysia’s offer of tariff cuts on 140 tariff lines and Pakistan’s offer of tariff cuts on 124 tariff lines.

For trade in goods, both Malaysia and Pakistan will progressively reduce or eliminate tariffs on agricultural and industrial products.   

Modalities for Reduction and Elimination of Tariffs

  • Fast Track (FT) -  Duty elimination by 2009

  • Normal Track (NT) – Duty elimination by 2012

  • Sensitive Tracks (ST) – Duty deduction to 5%(ST1)  10% (ST2) respectively by 2014. Duty reduced to 20% by 2011 for products under ST3.

  • Highly Sensitive List (HSL) – No duty concession offered

  • Exclusion List – Products exempted from tariff reduction

Malaysia will eliminate import duty by 2012, on 74.5 per cent of tariff lines, comprising 77.3 per cent of imports from Pakistan with a value of RM152.7 million in 2006; and reduce import tariffs over a period of five to seven years, on 18 per cent of tariff lines with a value of RM5.95 million in 2006.

In turn, Pakistan will eliminate duties by 2012, on 43.2 per cent of tariff lines involving agricultural and industrial imports from Malaysia worth RM633.7 million in 2006.

Rules of Origin (ROO) 

To ensure that no circumvention takes place and preferential tariff is applied on the goods originating from the respective FTA partners, the provisions of Rules of Origin of the agreement would be followed by both the countries. 

Under MPCEPA, products from Malaysia or Pakistan eligible fro preferential tariffs must comply with the following criteria : 

  • Goods are wholly obtained or produced entirely in Malaysia and Pakistan;

  • For goods not wholly obtained or produced

    • Not less than 40% of content originate from Malaysia and Pakistan;

    • Total value of materials, parts or produce originating from outside these countries do not exceed 60% of FOB value; and

    • Final product undergoes a change of tariff heading (CTH).

    • The final process of manufacturing shall be performed within the territory of the exporting party

  • Goods with cumulative ROO, namely, goods  which are used in the territory of the country of a party as material for a finished good; and

  • Goods that satisfy the product specific rules.

For most textiles and textile products, the Rules of Origin will be change of tariff heading (CTH) or 40% RVC (regional value content i.e. 40% local content from any or both parties), while some specific lines (e.g chapter 50 & 51) will applied under the product specific processed rule. Please refer to MITI or MKMA websites on the reduction schedules and the ROO guidelines and procedures. 

Last year, Malaysia’s total trade with Pakistan amounted to RM3.306 billion comprising exports worth RM3.089 billion and imports RM217 million.

Trade during January to September 2007 amounted to RM3.243 billion comprising exports of RM3.016 billion and imports RM227.3 million.

Major exports to Pakistan last year were palm oil and products, chemical products, electrical and electronic products, machinery and parts, and textiles and clothing.

Meanwhile, major imports from Pakistan in 2006 were textiles and clothing, fresh and frozen seafood, cereals including rice, electrical and electronic products and chemicals and chemical products.

Pakistan has gained market access for their core products like cotton yarn, cotton textiles, bed linen, home textiles, jewellery, mangoes, some engineering goods, leather products and minerals etc.

Cumulative Malaysian investments in Pakistan as at 2006 amounted to RM651 million which include investments in power generation, property development, construction, telecommunications, palm oil processing, and oil exploration.

Meanwhile, Pakistan’s cumulative investment in Malaysia in manufacturing projects as of August 2007 totalled RM49.2 million and are mainly in food processing, textiles and textile product, wood and wood products, chemicals and chemical products, transport equipment and rubber products. 

The pact provides Pakistan 100 percent equity in Malaysia in the field of computer and IT related services, Islamic banking and Islamic insurance (Takaful). Pakistan will be the first country, which has been offered 100 percent equity in these sectors by Malaysia.

Both countries will review the MPCEPA every five years.  

Pakistan will authorise Trade Development Authority of Pakistan (TDAP) to issue certificate of origin to the exporters. In the case of Malaysia, the certificate of origin shall be issued by Ministry of International Trade and Industry (MITI).

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