ISLAMABAD, April 20: Pakistan has the lower potential in the Asia Pacific region for exploiting the increasing export opportunities to China despite the fact that the two countries have a preferential trade arrangement for the last couple of years, says a UN report.

The report came at a time, when the two countries are ready to implement a comprehensive free trade agreement (FTA) covering trade in goods and investment to be effective from July 1, 2007. The services sector, which is being under negotiation, will also be made part of the agreement.

According to the UN report on “Economic and Social Survey of Asia and the Pacific-2007” released recently, the high and middle-income regional economies have great opportunities to export to China.

This increase in potential for export is measured by a complementarity’s index that shows the overlap between a country’s export profile and China’s import profile. A high index level indicates a higher potential for trade.

The highest overlap is for Japan, the Republic of Korea and Singapore, followed by the middle-income ASEAN economies of Thailand and Malaysia. The lowest overlap is for Mongolia and Pakistan, followed by Indonesia.

Pakistan was the second country after Chile to sign a FTA with China. No other countries of the world have even so far thought about to have an FTA with China because of the cheap labour and high subsidised market of China.

Analysts described the FTA with China a political decision as it did not involve any economics because Pakistani products are not capable to compete with those coming from other countries of the region or with the local Chinese products.

According to the report, China has emerged as a major importer of natural resource related and agriculture products. Major resource exporters include Indonesia, Mongolia and the Russian. Agriculture is a major export for countries such as Thailand, and Indonesia as well as for many low income countries such as Pakistan in the region.

China is still not specialised in sophisticated hi-tech products, for which the high income economies of Japan, Korea and Singapore are the largest exporters and are, therefore, best placed to benefit.

According to the report Pakistan’s exports and imports continued to grow at double digits rates. The trade deficit widened to a record $8.4 billion in 2006, with 45 per cent of the increase due to a higher import bill for crude oil and petroleum products.Imports of raw material and machinery also increased sharply. Even so, the current account continued to benefit from large remittances from the expatriate workers, estimated at $4.6 billion in 2006. On the financial account, foreign direct investment, at $3.5 billion in 2006, was the highest ever recorded.