By Azam Tariq

A broad preferential trade arrangement, backed by regulatory cooperation, export diversification and stronger business links, could help Pakistan expand its underdeveloped commercial relationship with Australia as bilateral merchandise trade remains below $1 billion, trade experts say.

The issue has gained relevance after the Lahore Chamber of Commerce and Industry (LCCI) called for bilateral trade to be raised to at least $3 billion and proposed negotiations on preferential market access for Pakistani exporters.

According to State Bank of Pakistan figures, bilateral goods trade fell from $973 million in FY2024-25 to $672 million in FY2025-26. Pakistan’s exports to Australia declined from $285 million to $275 million, while imports fell from $688 million to $397 million.

The broader commercial relationship is considerably larger when services are included. Australia’s Department of Foreign Affairs and Trade (DFAT) puts two-way goods and services trade at about A$3.4 billion in 2025, including approximately A$1.4 billion in Australian education-related services exports to Pakistan.

Australia’s main imports from Pakistan include textiles and clothing, while its major goods exports include pulses, oilseeds, coal and fertiliser.

The two countries are also modernising their investment framework. DFAT said negotiations are under way to replace or update the bilateral investment treaty that entered into force in 1998, with both sides working to complete negotiations during 2026.

Experts said preferential market access could help expand merchandise trade, but its effectiveness depends on the breadth of concessions and Pakistan’s ability to overcome regulatory and competitiveness constraints.

They said a preferential trade arrangement would provide a framework rather than a guarantee of higher trade. Its commercial impact depends on the breadth of market access and Pakistan’s ability to diversify exports, meet Australian regulatory requirements and develop stronger investment, services and business-to-business links.

Speaking to Wealth Pakistan, Dr Manzoor Ahmad, former Pakistan Ambassador to the World Trade Organization and member of the Tariff Policy Board, said the present trade volume remains far below its potential and reaching the $3 billion target requires a strategic shift in the bilateral commercial relationship.

He said a preferential trade agreement could provide an important catalyst but warned against a narrowly negotiated arrangement containing extensive exclusions or sensitive lists.

Pakistan had entered preferential arrangements in the past without achieving the expected transformation in trade, he said, arguing that market access matters only when it is broad and predictable enough to change commercial incentives.

Ahmad said Pakistan’s existing exports to Australia are heavily concentrated in textiles, demonstrating both an established competitive base and the need for diversification.

He identified pharmaceuticals, surgical instruments, sports goods, engineering products, processed foods and higher-value agricultural products among sectors where Pakistan could develop a stronger presence.

Preferential tariffs alone, however, would not generate substantially higher exports, he said. Pakistani firms would also have to address regulatory standards, certification, quality requirements and marketing constraints in individual product categories.

The objective should be to identify products in which Pakistan could realistically compete and then address the specific tariff and non-tariff barriers restricting their entry into the Australian market, Ahmad said.

Pakistan’s own tariff regime is also undergoing reform. The National Tariff Policy 2025-30 says the government intends to rationalise tariffs to reduce anti-export bias, improve manufacturing competitiveness and integrate Pakistani firms more closely into global value chains.

Ahmad stressed that the relationship should also be treated as a two-way commercial opportunity. Australian agricultural commodities, machinery, livestock genetics and technology could contribute to Pakistan’s productive capacity, while deeper economic integration should not be judged solely by whether Pakistan maintains a bilateral trade surplus.

He identified services as another largely underused opportunity. Pakistan’s software, business-process, engineering, design, animation and cybersecurity services could be supplied digitally, reducing some of the distance and freight-cost constraints affecting merchandise trade with Australia.

Dr Ayesha Khan, Assistant Professor at the Department of Governance and Public Policy, National University of Modern Languages (NUML), told Wealth Pakistan that preferential access could support Pakistani exports but would not by itself deliver the $3 billion trade target.

She said textiles and apparel could benefit from lower tariffs, while processed foods, leather, surgical instruments, pharmaceuticals, sports goods and selected agricultural products offer opportunities for diversification.

Australian standards, food-safety requirements, certification, logistics and supply reliability would nevertheless remain important determinants of whether Pakistani products could successfully expand their market presence, she said.

Khan said any preferential arrangement should therefore address rules of origin, customs procedures and sanitary and phytosanitary requirements alongside tariff concessions.

She also called for greater private-sector participation and more regular use of the Australia-Pakistan Joint Trade Committee to identify and address practical barriers confronting businesses.

Credit: INP-WealthPk