ISLAMABAD, May 28: Malaysia will allow import of Pakistan’s textile products at a zero-rate of duty under a free trade agreement (FTA) which comes into effect on Jan 1 next, Dawn has learnt.

On the other hand, under the FTA, Pakistan will allow import of Malaysian palm oil at a preferential duty.

This would be the Pakistan's third bilateral trade arrangement after similar accords with Sri Lanka and China.

The narrowing down of differences on palm oil and textile products have led to conclusion of the much-awaited FTA at a technical level meeting held in Kula Lumpur last week.

The treaty is estimated to enhance volume of bilateral trade between Pakistan and Malaysia to at least $5 billion in the next five years from the present less than a billion dollars. The bilateral trade will, however, be highly tilted in favour of Malaysia.

Pakistan’s exports to Malaysia are expected to surge $1.5 billion from its current $70 million while the import bill would easily cross $3 billion mark from $700 million because of greater import of palm oil.

A diplomatic source told Dawn that under the treaty, Pakistani textile products will be the major beneficiary as duty on all Pakistani textile products of chapter 52 to 60 will be scaled down to zero per cent within five years, from the current maximum 25 per cent after implementation of the agreement.

Pakistan’s total exports to Malaysia constitute more than 64 per cent of textile exports.

Pakistani textile products are facing a tough competition from Thailand and Indonesia in Malaysian market due to the Asean treaty. For Asean members, customs duty ranges around five per cent while it ranges between 20 and 25 per cent for textile products of non-Asean countries.

Pakistan has agreed to offer 15 per cent reduction in import duty on palm oil within a period of five years.

The five per cent reduction in duty would come into effect with the implementation of the agreement.

The remaining 10 per cent reduction in import duty would be spread at a span of five years with an annual reduction of two per cent.

Pakistan has also committed with Malaysia that Islamabad would not offer this concession to any other country on palm oil imports under any arrangement.

Palm oil constitutes more than 70 per cent share of the Malaysian total exports to Pakistan.

Both sides also agreed to reduce customs duty to zero per cent on fruits and vegetables on a reciprocal basis with the rules of origin wholly produced.

Pakistani fruits, like citrus, mangoes, dates and kinno would get more market access in Malaysia.

Maximum duty on mango can only be reduced to five per cent, while rice would attract zero customs duty under the agreement.

According to the source, plant and machinery has also been exempted from duty under the treaty.

Both sides have placed their auto sectors in the negative list to protect them from any duty cuts. They also concluded chapters of services, rules of origin, trade remedies, investment and dispute settlement.

The prime minister was scheduled to visit Malaysia for participation in World Islamic Economic Forum and Pakistan Malaysia Business Forum, which was postponed at the 11th hour. Had the prime minister visited Kula Lumpur, the agreement would have been signed this year.