Pakistan’s Economic Ties with ASEAN: Challenges & Way Forward

ASEAN region is crucial for international trade, food, energy security, and marine biodiversity. Ten countries, including Brunei Darussalam, Myanmar, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand, and Vietnam, make up the Association of Southeast Asian Nations (ASEAN), which was founded in 1967. As of 2024, ASEAN ranks as the third-largest regional economy in Asia and the fifth-largest global economy, with an anticipated nominal GDP of US$3.9 trillion, following the US, China, the EU, and India. ASEAN's economic standing reflects its dynamic expansion and increasing global significance in trade and industry. The insight reviews present economic relations between Pakistan and ASEAN, highlighting collaboration prospects.

Pakistan's trade volume with ASEAN countries reached an all-time high of US$10.3 bn in 2022. Ninety per cent of total Pak—ASEAN trade exists between five ASEAN countries: Malaysia, Philippines, Vietnam, Thailand, and Indonesia. Pakistan’s total trade in 2023 accounted for US$82.8bn, of which trade with ASEAN had approximately a 10% share.

Several formal trade and commerce mechanisms exist between Pakistan and ASEAN, including the Pakistan-ASEAN Framework Agreement on Comprehensive Economic Cooperation (2004), the Pakistan-Malaysia Free Trade Agreement (FTA 2007), and the Pakistan-Indonesia Preferential Trade Agreement (PTA 2012). Pakistan -Thailand Free Trade Agreement is currently being negotiated. Pakistan became a Sectoral Dialogue Partner of ASEAN in 1993 and is also a member of the ASEAN Regional Forum (ARF), which addresses political and security issues but indirectly affects trade by fostering stability and cooperation. Additionally, it has bilateral Joint Economic Commissions (JECs) with several ASEAN countries, such as Malaysia, Indonesia, and Thailand, promoting trade, investment, and technical cooperation.

Pakistan and major ASEAN countries also engage in informal trade and commerce through private sector initiatives, border trade, diaspora networks, trade exhibitions, maritime collaborations, logistics hubs, and small and medium-sized enterprises. Pakistani diasporas contribute to commerce by sending goods and remittances back home.

The past 10 years' export data depict an upward trend in Pakistan’s exports to Malaysia, Vietnam, and Indonesia due to different conducive factors. The bilateral trade with Malaysia, Indonesia, and Vietnam has gained momentum recently. The trade volume with Malaysia and Indonesia reached US$1.5bn and US$3.34bn in 2023, respectively. Correspondingly, Pakistan's exports to Vietnam accounted for US$0.35bn (Graph). The two remaining countries, Thailand and the Philippines have low trade figures. As for Thailand, the FTA is facing a delay, which should be pursued as a priority to address the trade plunge, as shown by the data. There is no formal Free Trade Agreement (FTA) between Pakistan and the Philippines. They have yet to form an FTA to improve trade relations by lowering tariffs and other trade barriers.

Pakistan has excellent agricultural sector potential as the ASEAN strives for sustainable farming methods and food security. All this data suggests pursuing formal economic mechanisms and agreements between the ASEAN region and Pakistan, which is a significant challenge in creating ease of business for both sides.

The economic ties between Pakistan and the ASEAN region face geopolitical challenges, particularly the US-China rivalry and Pakistan's close ties with China, which have influenced ASEAN countries' willingness to strengthen relations with Pakistan. This has contributed to delays in granting Pakistan Full Dialogue Partnership (FDP) status within ASEAN. Lack of ease of doing business, tariff and non–tariff barriers, inadequate infrastructure, and logistical hurdles are a few to mention. Pakistan's high tariff rates and sector-specific tariffs hinder its export competitiveness, as ASEAN countries, like Vietnam and Thailand, benefit from lower intra-ASEAN tariffs, making non-member countries like Pakistan harder to compete. There are also logistical challenges due to weak infrastructure and limited direct shipping routes between Pakistan and ASEAN countries, affecting delivery times and increasing transportation costs, discouraging trade, especially for perishable goods.

The digital trade gap between Pakistan and ASEAN countries is exacerbated by the need for robust e-commerce frameworks and digital trade facilitation mechanisms, particularly in the IT and financial services sectors. Moreover, ASEAN countries enforce technical regulations, often acting as non-tariff barriers (NTBs), like Phytosanitary (SPS) and Technical Barriers to Trade (TBT) Compliance, which are affecting Pakistan's market penetration and increasing compliance costs for Pakistani exporters. This is attributed to the need for trade facilitation agreements and Mutual Recognition Agreements (MRAs) between ASEAN countries and Pakistan. MRAs are formal agreements between countries to recognise each other's conformity assessments, reducing the need for duplicate testing and certification.

To overcome these challenges, Pakistan would have to invest in better trade logistics gradually, negotiate better terms for market access, and try to harmonise regulatory standards with ASEAN nations to get beyond these obstacles. Improving trade flows can also be significantly aided by lowering non-tariff obstacles like SPS and TBT Compliance expenses. In this regard, Pakistan and ASEAN countries should work towards Mutual Recognition Agreements (MRAs) to align their standards for SPS and TBT, simplifying compliance. Trade Facilitation Agreements can streamline procedures, share compliance infrastructure costs, and collaborate with ASEAN regulatory bodies and the private sector to tackle compliance challenges, underscoring the urgency and importance of these measures.

On the diplomatic front, ASEAN plays a significant role in the Asia Pacific region, influenced by the US-China rivalry. Pakistan's relationship with China, a major regional player, affects its engagement with ASEAN countries. Some ASEAN countries have troubled relations with China, influencing their willingness to strengthen ties with Pakistan. Resultantly, efforts to upgrade Pakistan to Full Dialogue Partner status have faced objections, causing delays as it requires approval from all ten member nations.

To summarise the argument, Pakistan-ASEAN economic relations have significant potential for growth, diversification, and international market standing. Pursuing these ties can enhance export revenue, reduce trade imbalance, improve the balance of payments and diversify the economy, inspiring both Pakistan and ASEAN to work towards a mutually beneficial economic future.