TRADE OF PAKISTAN

Exchange of goods and services between different areas is called trade

Exports and Imports :

 An export is represented by the flow of foreign exchange coming into the

country
 An import is represented by the flow of foreign exchange leaving Pakistan.
Pakistan major exports:

Primary commodities Processed goods Manufactured goods

Raw cotton Cotton yarn Ready-made garments

Fruits Carpets & Rugs

Vegetables Sports goods

Leather Surgical instruments

Fish Leather products

 Initially Pakistan exports consisted of primary commodities or raw
material.1974-75% primary goods accounted for 48% of the total
exports but ratio declined to 10% in 2007-2008.
 With the establishment of industries ,processed or manufactured were
exported and accounted for 78% of the total exports in 2007-08.
Dependence on few exports:
Five categories of exports namely:
Cotton
Leather
Rice
Synthetic textiles
Sports goods
Pakistan majors exports 2008-09
Commodity group Percentage %
Cotton products 53.3

Leather 5.6

Synthetic textile 1.7

Rice 7.4

Sports goods 1.6

Sub total 69.6

Others 30.4

Total 100
Major Exports markets of Pakistan

Country % Share in 2008-09

USA 18.8
Germany 4.1
Japan 0.7
UK 5.6
Hong Kong 2.2
Saudi Arabia 2.2
Sub total 33.6
Other countries 66.4
Total 100
Imports of Pakistan

 Food e.g. Wheat, edible oil .sugar , Pulses etc.

 Machinery e.g. textile, electrical ,construction, mining and agricultural
machinery
 Petroleum and petroleum products
 Textiles e.g. synthetic fibers
 Fertilizers and other chemicals
 Metals e.g. iron and steel
 Vehicles and spare parts
Classification of Pakistan imports

 Capital goods
 Raw material
i. Raw material fro capital goods
ii. Raw material for consumer goods

Capital goods:
goods that are used in producing other goods, rather than being bought by consumers.
Consumer goods:
goods bought and used by consumers, rather than by manufacturers for producing
other goods.
Economic classification of imports
60%

51%
50%

40%
40%

30% 29%
27%
23%

20%
14%

10% 9% 8%

0%
capital goods Raw material for capital Raw material for consumer goods
goods consumer goods

1974-75 2008-09
Major sources of Imports 2008-09
Pakistan
Country % Share in 2008-09
Saudi Arabia 13.6
Kuwait 7.9
USA 4.7
Japan 3.6
Malaysia 4.1
Germany 3.8

UK 2.2
Sub total 39.9
Other countries 66.1
Total 100
 GDP & GNP

GDP
 Gross Domestic Product (GDP) means the total monetary value of all goods
and services produced within a country over a particular time period.
 It focuses on domestic production.
 In case of Pakistan GDP refers to whatever produced within all the five
provinces, whether it is produced by the citizens or by the foreign companies.
 GNP

 Gross National Product( GNP) means the total monetary value of all goods and
services produced by the resources owned by the citizens of the country .
 This production can take place anywhere in the world.
 It focuses on the production by nationals.
 GNP measures anything produced by Pakistanis or Pakistan –owned capital
wherever it may be in the world.
 In other words GNP measures the output produced by the country’s companies
whether theses companies are physically located in that specific country or
not.
 Balance of payment

Balance of payment:
 Balance of payments is the overall record of all economic transactions of a
country with the rest of the world.
 These transactions consist of imports and exports of goods, services and
capital, as well as transfer payments such as foreign aid and remittances.
Balance of trade
 Balance of trade is the difference in the value of exports and imports of
goods only during a given period of time.
Balance of trade= value of exports –value of imports
 Why is there a Negative Balance of
Payments?
 Imports of capital goods in order to speed up the process of industrialization
 Capital goods and raw materials for industry accounted for 86% of total
imports in 2011-12.
 Our goods cannot compete in a highly competitive world market as they lack
standardization and efficient quality control.
 Imports of consumer goods is about 14% of total imports ,some of these
product could be made in Pakistan.
 Pakistan is heavily depend on the exports of a few items like cotton , rice,
leather products , sports goods , carpets and rugs. We have unpredictable
weather conditions .
 Some times wheat and other food item have to be imported .That increases
the import bill.
 Imported raw material was 68% of the total imports in 2011-12.These inputs
for industry. More raw material needs to be produced within Pakistan.
 Exports of non-cotton products have increasingly faced trade barriers, as
public opinion in industrialized countries have expressed deep concerns about
child labor, environmental and health standards.
 Pakistan does not belong to any of the major regional organizations. As a
result it finds it difficult to compete with other developing countries
benefiting from access to major world markets through organizations.
 Although we are members of ECO( Economic cooperation organization) and
SAARC but progress has remained slow.
Effects of Negative Balance of payment

 The imbalance of trade has to be filled by taking loans or foreign economic

assistance ,which increases debt.
 Developmental projects have to be curtailed.
 Reliance on foreign assistance increases.
 Incases of non-payment of loans, an economic or trade embargo may be
imposed.
 In order to repay the loans, the assets of the country may have to be sold to
foreign companies.
 Higher taxation limits the purchasing power of the consumer, resulting in
lower demand and less production.
 Business and commercial activity slows down.
Measures to correct the Balance of
Payments
 By increasing exports
 By restricting imports .
 By curtailing imports related to the tertiary sector.
 Question:
The imports of Pakistan consist of three main types of goods;
Capital goods , raw material consumer goods
State the meaning of the terms “capital goods” and “consumer goods”. Name
one example of capital goods imported into Pakistan .
In recent years, changes have taken place in the proportions of these three types
of goods in the import trade of Pakistan. Describe and suggest reasons for the
changes.
 How to increase exports

Steps are being taken to increase

exports
 Exports with a higher value-added elements are being encouraged.
 The development of cottage and small scale industries for exports purposes
is being encouraged, especially those which use local raw material.
 Efforts are being made to increase the variety of export items.
 Reduced taxes are being offered to provide incentive to exporters.
 Export agencies such as the Export promotion bureau have been created to
organize export activities.
 Strict quality control measures are being imposed to ensure the consistent
high standards of goods for exports.
 Export processing zones are being set up in different parts of the country to
promote the setting of the industries to produce goods for export, often with
the help of foreign investors .Landhi (Karachi), Sialkot and Risalpur are
functioning .13 more are to follows.
Export Processing Zones or Free
Enterprise Zone
 Export processing industries were given incentives to relocate through
exemptions to relocate through exemptions from taxes.
 The EPZA was set up in 1980 with authority to plan, develop, manage and
operate the EPZ’s across the country.
 It's first project was at Karachi, which was set up in 1981 on an area of 3300
acres. All the infrastructure services like electricity gas water,
telecommunication services were provided to investors under simplified
procedures called on window operations.
 173 industrial units were approved by the beginning of 1997 for setting up
various manufacturing facilities ware houses, trading units, banks and
insurance companies are working at the KEPZ.
 Employment has been provided directly to over 6000 workers.
 An estimated 167.27 million dollars was invested in these units. The main
industries set up are garments leather good, electrical and electronics light
engineering, chemicals, paper products and fabric products.
 The second EPZ was set up in Jan 1997 at Sialkot. There is a joint venture
between EPZ and the Punjab small industries corporation (PSIC) in association
with the Sialkot number of commercial and industries. It is spend over 133
acres and is located in phase-III of PSIC’s industrial estate.
 Dry Ports. - Some in land cities, which are far from the seaports have
established has dry ports in order to promote foreign trade. - The cities which
act as dry ports help to speed up export and import procedures e.g. by giving
clearance by the custom authorities by checking processes etc
Reasons for development of EPZ both for
sea port and dry port
 To boost industrialization
 To create job opportunities
 To increase the country’s exports by creating facilities for local and foreign
investors to set up export oriented units
 To transfer Hi-tech from the developed world to the developing countries.
Facilities in Export Processing zones

 100 % ownership rights

 No minimum or maximum limit for investment
 Duty free imports of machinery , equipment's and material
 No sales tax on input goods and services including electricity & gas bills
 Concession in mark up an loans
 Concession on custom’s duty and sales tax.
 Labor is easily available (Skilled and unskilled)
 Infrastructure facilities.
 Power is available.
 Raw material is easily available
 Spare Parts and machinery parts are available
 Land is available for establishment of new factories.
 To increase the flow of exports
 Improve standard of management
Infrastructure required for the EPZs

 Should be developed near the seaport.

 Consistent Government policies help to bring stability in the investment
climate of a country.
 Adequate air travel facilities
 Adequate transport facilities should be available for marketing of products
 Efficient transport links to raw material sources
Export Promotion zone

 EPB was formed by the government of Pakistan for organizing and regulating
export activities. It functions include:
 Creating awareness among the manufacturing sector.
 Service sector about potential exports
 Exploring and identifying market opportunities abroad
 Assisting Pakistan’s entrepreneurs to secure entries in the international
market.
The Potential of Establishing EPZs on the
Makran Coast
 Sea transportation is the cheapest mode of transportation in the world.
 A foreign investor will feel more comfortable in setting up industrial unit at or
near a seaport.
 The arrival and dispatch of goods between two countries can be organized
better at port city rather than at an inland city.
Strategic geographical situation of
Gwadar
 Gwadar’s location between Karachi and UAE ( Via the sultanate of Oman and Iran)
on the one hand, and on the door-step of the Central Asian states suitable for EPZs
due to a number of factors:
 Foreign investment along with Hi Techs for EPZs could be attracted to Gwadar and
Omara being port cities with access and exposure to the CAS.
 The port of Gwadar can serve as a “Regional Trade Hub” with the recent geo-
political development.
 The port of Gwadar ,when developed , will be in position to cater for the
requirements of the trade the UAE , Oman ,Saudi Arabia and Qatar besides serving
as a gateway to the land locked countries of Central Asia .
 The Deep water port and EPZs can be developed simultaneously .100 hectares area
allocated for establishment of an EPZ
 4000 hectares areas for industrial zone.
 Infrastructure facilities such as transport links, water resources from Dasht
River and Mirani Dam , Desalination plants and power generation through
WAPDA Plant a
 Pasni, could be arranged by the government.
Trade routes

 Trade is great potential for foreign trade through: Land and sea
 Pakistan is surrounded by land on three sides and ( north, east and west)
 Pakistan land routes have not been developed due to difficult terrain to the
north, north –west and south –west.
Factors which inhibit land routes can be identified as:
To the east ------------vast territory of India. Politically India and Pakistan are not
on good terms .
To the north-west ……………lies the mountainous terrain of Afghanistan.Not an
adequate road linking Pakistan with Central Asian Republics through Afghanistan.
Few historical passes e.g. Khyber pass, Kurram pass ,Kojak …..not developed
 Some improvement in recent years to make trade easier between Pakistan
and Afghanistan such as road between Quetta and Chaman has been
improved.
 There is some security along border and better facilities have been provided
to deal with natural hazards such as landslide and avalanches resulting from
heavy rainfall.
 The north …………linked to China through the Silk Route .KKH Karakoram
highway
 To the South-west , a land route , the RCD Highway ( Regional Cooperation for
Development Highway (RCD Highway), goes to Iran and Turkey. Very little
trade is carried out through this route as it is narrow and not properly built
Sea Route

 To the south of Pakistan are the warm waters of the Arabian sea.
 Why trade by the sea routes is preferred:
 The land route to Europe is long, expansive and heavily taxed by the
respective governments. The sea route is shorter around the Arabian
Peninsula and linked to Europe though Suez canal. Transportation charged are
also comparatively low. The same route is further linked to the USA and
Canada.
 Karachi and port bin Qasim provide modern facilities for handling container
vessels and bulky cargo.
 Countries of the middle East are easily accessible by sea.
 Karachi is warm water port that is open throughout the year whilst land
routes could be blocked by snow or landslide.
 Trade barriers:
“A government imposed restriction on the free international exchange of goods or services.”
 Trade barriers exist when the government imposes a set of restrictions that make it difficult
for countries to trade their goods and services effectively and easily.
 The trade barriers may exist in the forms of :
 tariffs ( taxes on imports ) they are sometimes also referred to as duties.
 Trade embargoes ( a ban on certain import products)
 Non-tariffs are barriers that restrict trade through measures other than the direct
imposition of tariffs. This may include measures such as quality and content
requirements for imported goods. By establishing quality and content requirements the
government can restrict imports, because only products can be imported that meet certain
criteria. More often than not, these criteria are set to benefit local producers. In addition to
that, the government can grant subsidies, i.e. direct financial assistance to local producers in
order to keep the price of their goods and services competitive.
 Quotas ( these impose restrictions on the physical quantity of goods imported ) etc. Quotas
are restrictions that limit the quantity or monetary value of specific goods or services that
can be imported over a certain period of time. The idea behind this is to reduce the quantity
of competitive products in local markets which increases demand for local goods and
services. This is usually done by handing out government issued licenses that allow companies
or consumers to import a certain quantity of a good or service.
 Such measures are designed to restrict inflow of cheap imported goods (e.g.
China ) threatens domestic industries.
 It often result in high levels of unemployment when uncompetitive domestic
industries are forced to shut down. Therefore, in order to protect domestic
industry, the government may impose trade barriers (e.g. on Chinese goods)
Trade barriers Advantages

 Give rise to greater self-sufficiency thereby reducing foreign dependency

 Protect local industries and create employment opportunities
 Improve the balance of payment position
 Create domestic demand that leads to greater exploitation of local resources
Trade barriers disadvantages:

 Consumer choice is limited to domestically produced goods.

 Local industries become complacent due to lack of international competition
, and thus lose efficiency.
 Goods which the country produces inefficiently and at high cist would need to
be produced.
 Exchange rates

 “An exchange rate refers to the price of one currency in terms of another
currency.”
 Exchange rates are very significant in determining the cost of imports and
price of the exports.
 DEPRECIATION: “a decrease in the value of a currency relative to other
currencies”.
 An exchange rate is said to depreciate when one unit of that currency buys
fewer and fewer units of another currency.
 Currency depreciation makes import expensive in terms of domestic currency
and exports cheaper in terms of foreign currency.
 APPRECIATION: Currency appreciation is an increase in the value of
one currency regarding another currency.
 Appreciation of the exchange rate takes place when one unit of a currency
can buy a greater value another currency.
 Appreciation of the exchange rate makes imports cheaper and exports more
expensive.
Trading blocs:

 “Regional groupings of international economies to allow for greater economic

cooperation and facilitation of free trade.”
 Trading blocs involve lower or zero trade restrictions between members and
strong trade barriers against non-members.
 Pakistan is a member of :
 SAARC (South Asian Association for Regional Cooperation)
 ECO ( Economic Cooperation Organization)
 These organizations have not been very effective due to political differences
between the member countries.
WORLD TRADE ORGANIZATION (WTO)

 It came into being in 1955.

 The world trade organization is an international institution to allow “Free
trade” between its member countries by reducing or abolishing certain
restrictions imposed by the government of these countries on their exports
and imports.
 After December 2004 Pakistan’s economy was exposed to new challenges
relating to international trade .
 WTO calls for tariff reduction in free international trade.
Opportunities and Challenges of WTO’S
membership for Pakistan.
 After December 2004 Pakistan’s economy was exposed to new challenges
relating to international trade, as a result of Pakistan being one of the
signatories of WTO along with 146 countries.
 WTO calls for tariff reduction in free international trade.
 After joining the WTO, Pakistan’s accessibility into international markets
would be on the basis of its competitiveness.
 This ,therefore, puts Pakistan’s foreign trade on level with other countries.
The opportunities and challenges of
WTO’S membership for Pakistan are :
 Cotton textile industry this has to be reoriented to produce better quality cotton
yarn, fine cloth and value added products. The strong position in textiles must be
maintained through modernized and replacement of out dated industrial
machinery
 Pakistan’s agriculture is not ready to cope with the WTO regime because it is
highly subsidized and not fully modernized. This may reduce our exports and
government’s revenue. In order to cope with the WTO standards. We have
i.to open the domestic market for foreign agriculture producers.
ii. To eliminate the domestic support on agricultural products
iii. To withdraw the export subsidies.
Because of an inflow of cheap imports and decreased export of agricultural products,
there could be devastating effects our rural population and domestic industry. It may
lead to increased unemployment and reduction of revenue for the government.
 The service sector will make quite a few adjustment as it is already
competing with international players.
 Public administration should work as a partner with the private sector to
provide a suitable industrial environment.
 Import duties have to be reduced/fixed according to WTO rules and may
effect domestic industry negatively due to competition with imported goods
which are produced at a very low cost.
 Small scale and medium scale industry will face a tough competition with
imported goods because of high cost production and lack of standardization.
Measures to handle the upcoming
situation
 Despite all opposition , it is a fact that, as a signatory of WTO , Pakistan has
to follow up the agreements that have been agreed upon, and we will have to
face the aftermath of WTO agreements.
 The government, NGOs and other institutions should all aim to educate the
public in general , and private sector in particular , about the WTO ,its
implications, benefits and threats ,and how to cope with the situation.
Measures:

 The only way forward is to modernize the production process. Training and
education is the only key to modernize the production process.
 Building up the infrastructure
 Research in agriculture
 International quality standards
TRADE DEVELOPMENT AUTHORITY OF
PAKISTAN ( TDAP)
 TDAP has formally replaced the EPB
 Reasons for replacing EPB with TDAP:
 EPB was unable to play role in the international trade
European Union Countries

 The EU was a formally established in 1993 to enhance political, economic and

social cooperation within member states.
 The EU is an economic and political group and a trading bloc of 27 member
states that are located primarily in Europe.
 The EU has evolved as a single market that allows the free circulation of
goods, capital ,people and services within the EU.
 Inside the EU goods and services are not subject to custom duties, and import
quotas. However, such restrictions do exist when EU countries trade outside
the EU.
Pakistan and European union countries
 Pakistan exports mainly:
i) textiles
ii) medical equipment
iii) leather products to partners in the EU and
Pakistan imports mainly:
 Mechanical and electrical equipment
 Chemical and pharmaceutical products from these countries.
Advantages and disadvantages of developing
trade agreements with Partners in the EU

The advantages include:

 Expansion in the export market and more foreign exchange earning thus
improving the balance of payments.
 Development of the export oriented industries to promote industrialization
 More investment in industry by local and foreign investors.
 More employment opportunities in trade related activities
 EU countries have comparatively fewer trade barriers so access is easier.
 EU countries are politically and economically stable so fewer changes in
market trends are expected.
Disadvantages of developing more trade agreements with EU countries :
 Pakistan may face sanctions due to increasing terrorism and declining law and
order conditions.
 Pakistan exports face restrictions due to environmental concerns and child
labor issues.
 Products of cottage and small scale industries lack standardization .They may
not be approved by the EU countries.
 Trade agreements with the EU countries may be affected due to Pakistan’s
trade agreements with other countries. For example, Pakistan imports a lot of
low price consumer goods from China that meet the local demand. Imports
from EU countries may not be able to compete with low-price Chinese goods
in the local market.
 Pakistan exports are mainly agro-based industries and agricultural production
is unreliable due to dependence on natural factors.
 Trade agreements may not be followed due to frequent change in government
policies and growing political instability.