EXPORTS

HISTORICAL EXPORTS ANALYSIS:

Pakistan's export performance can be studied in three separate sections based on time scale:

1. From 1947 to pre 1971 when formerly East Pakistan was forcibly separated.

2. Post separation ending 1976-77.

3. The period beginning from fiscal year 1977-78 and onward.

1-Pre 1971 Export Trend:

Pakistan at the time of Partition in 1947 consisted of two Wings: East Pakistan and West Pakistan. These
two Wings were separate from each other by a thousand miles of foreign Indian Territory. The economies of
India and Pakistan were complementary before Independence. The area which came to the share of Pakistan
was mainly supplying raw material like jute (from East Pakistan, and cotton from West Pakistan) to India and
obtaining manufactured consumer goods in return. This pattern of trade continued for some time after the
creation of Pakistan. India purchased about 60% of the total exports of Pakistan.

There was a trade deadlock with India in September, 1949 when Pakistan refused to devalue her currency.
The sudden refusal of India to purchase Pakistan's raw jute .and cotton at the new par value of Pakistan currency
created difficulties for the Government of Pakistan. It however, accepted the challenge and followed a deliberate
policy of diversifying its exports to other countries like UK Belgium, France, Germany and Italy. The earnings
from commodity exports slightly fell from RS.542A million in 1948-49 to Rs.535.1 million in 1949-50.

The export of Pakistan's raw material suddenly increased due to the Korean War in June, 1950. India also
bowed and recognized the new exchange rate. The export of Pakistan increased to RS.1342.5 minion in 1950-51.
The stimulated demand of Pakistan's raw material was short-lived. The peace talks on Korean War slackened the
pace of stock-piling of goods by the developed world. The demand of Pakistan's staples in the international
market considerably fell down. The export earnings declined from RS.1342.5 million in 1950-51 to RsA91 A
million in 1954-55 partly due to fall in the prices of the raw material in the international market and partly due to
increased consumption of the local raw material in the newly established 'cotton and jute industries in the country.
Pakistan reduced export duties 00 cotton, jute and tea. It abolished export duty on raw wool. The imports were
curtailed and trade under OGL (Open General License) was abolished. These steps were taken to keep the
imports within the limits of the foreign exchange earnings. The Government of Pakistan devalued its currency in
July, 1955 for increasing exports of the raw material, cotton and jute and of the goods processed by the newly
established industries. The exports increased from RsA91 A million in 1954-55 to Rs.742-40 million in 1955-56.
 Then there was a continuous decline in exports and a fall in the foreign exchange earnings due to .higher
consumption of manufactured goods at home, poor harvests, consecutive floods and unfavorable weather etc. The
foreign exchange earnings fell down to a low figure of Rs. 542.9 million in 1961-62.

The Government of Pakistan launched various schemes to promote export of raw materials and the
manufactured goods. These schemes were Export Incentive Scheme(1954), Export Promotion Scheme (1955),
Export Bonus Scheme (1959), Export Credit Guarantee Scheme (1962), Export Promotion Council (1964),
Export Market Development Fund (1966), Pakistan House International (19t)6). For widening of the export base,
it signed multilateral trade agreements. All these measures gave a saluting effect to the exports. The exports
increased from RS.542.9 million in 1961-62 to RS.1998.4 million in 1970-71.

There was a major change in the composition of trade from 1955 to 1970. The share of manufactured goods in
total exports increased from 14% in 1955 to 41.8% in 1970-71. Pakistan also found new markets for its products.
The exports 10 North America increased by 25$ and South America by 16.7. Export to Australia, New Zealand
increased by 19% in 1968-69.

2.De-linking of East Pakistan ending 1976-77 periods:

The delinking of East Pakistan from West Pakistan in December 1971 caused numerous difficulties for
People's Party Government led by Late Mr. Zulfiqar Ali Bhutto. Before 1971, the bulk of trade was carried on
between East and West Pakistan. West Pakistan's exports to East Pakistan consisted of 52% of manufactured goods,
48% of primary commodities, whereas from former East Pakistan, exports to former West Pakistan comprised 80%
of manufactured goods and 20% of raw material. After delinking of West Pakistan (Bangladesh) in December,
1971, the Government of Pakistan revised its export policy. It found new markets for its products and traced new
sources of supply for the products purchased from former East Pakistan. The main measures which the People's
Party Government took to stimulate exports were abolition of Export Bonus Scheme on May 12,1972 (b)
Devaluation of Pakistan rupee to the extent of 131% (c) abolition of multiple exchange rate system. (d) trade
agreements with Muslim countries.

All the measures stated above increased exports from RS.3371.4 million in 1971-72 to Rs. 10161.2 million in
1973-74. In the last years, i.e, upto 1977-78, there was marginal increase in the value of exports, the total exports
for the year 1977-78 stood at Rs. 12980.4 million. The main factors which led to the stagnation in the export sector
were (i)
th'e policy of nationalization of industry (ii) frequent changes in fiscal and monetary measures, (iii) unorganized
efforts to increase exports.

3. Export performance from 1977-78 onward:

Since 1977-81, there was a sustained increase in exports. However, in 1981-82, the increase in exports was
disrupted and the decline was by 17%. The slow down in export earnings-were/are mainly associated with:
(a) Unfavorable global conditions characterized by recession.
(b) Deterioration in terms of trade.
(c) Growing protection tendencies in the developed market.
(d) Decline in the demand for and the prices of major commodities.
(e) The production at home is being mostly consumed rather than saved for exports.

In order to check the decline in exports, the Government took certain measures. The exports increased by 7.4
per annum during 1982-83. However, the exports declined again in 1984-85 by 20% of the target originally fixed for
the year 1984-85. The export shortfall has been contributed by th~ fall both in the quantity exported and decline i,e.
the world prices of major exportables.

Pakistan's exports grew at an annual average rate of 6% in the 1990's. Exports, however, stagnated at 'around
$8 billion. Pakistan's exports have shown increase and have crossed $9.2 billion in 2000-01 against the target of
$10 billion. By the end ofthe year, 2001, the major growth poles of the world slipped into recession. The tragic
events of Sept., 11, 2001 in America, global economic slow down, the fall in prices of Pakistan’s exports,

postponement of shipments from Pakistan, have affected the exports. In spite of all the above
handicaps, Pakistan exported goods worth $12.31 billion during the year 2003-04. The exports were
targeted at $13.7 .billion in the year 2004-05. However, with the best efforts of the government, increase
in the production of cotton, the exports amounted to Rs. 14.4 billion during the year 2004-05 which
shows an increase of 17% over the last year export level. In the Trade Policy 2005-06, the export target is set at
$17 billion and import $21.79 billion forecasting a $4.79 billion trade deficit.
PRESENT EXPORT ANALYSIS:

Pakistan’s export is registering an exponential growth over the last 4 – 5 years. The exports
which were previously stagnating between 8– 9 billion crossed the US$ 10 billion mark for the
first time in the year 2003. Since then, we have not looked back and made all efforts towards
increasing exports to new and previously unattainable levels. In this regard, we had set a target
of US$ 17 billion for the year 2005-06. The export growth which we have achieved so far during
the first five months (July-November 2005) indicates that we will be able to achieve the target.

During the first five months of 2005-2006, exports increased significantly by around 23% to US$
6.6 billion from US$ 5.4 billion during same period of last year thereby registering an increase of
US$ 1.2 billion in absolute terms. Export growth was driven mainly by substantial rise in
volume.

During July-November 2005-06 exports from textile sector have increased to US$ 4.03 billion
from US$ 3.16 billion during same period of last year, registering a remarkable increase of 28.0
per cent. In this sector, export of cotton cloth (33%), readymade garments (72%), cotton yarn
(43%), and towels (12%) increased in value during the period under review.

Export of primary commodities during July-November 2005-06 increased to US$ 553 million
from US$ 437 million registering an increase of 27 per cent. All the major primary commodities
increased in the range of 12% to 45% per cent except raw cotton and fruits which declined by 24
and 7 per cent respectively during the period under review.
 EXPORT OF TOP 20 PRODUCTS FROM PAKISTAN
Val in 000 $

S. COMMODITIES JULY-JUNE 2003-2004 JULY-JUNE 2002-2003 JULY-JUNE 2001-2002 CAGR

NO. EXPORT % SHARE EXPORT % SHARE EXPORT % SHARE VAL

1 COTTON FABRICS 1,711,492 13.90 1,345,650 12.06 1,130,828 12.38 23%

2 KNITWEAR 1,458,736 11.85 1,146,674 10.27 845,943 9.26 31%

3 BED WARE 1,383,334 11.23 1,329,064 11.91 918,558 10.06 23%

4 COTTON YARN 1,126,876 9.15 928,358 8.32 929,691 10.18 10%

5 READY MADE GARMENTS 993,322 8.07 1,092,607 9.79 874,954 9.58 7%

6 RICE 634,457 5.15 555,457 4.98 448,230 4.91 19%

7 SYNTHETIC TEXTILES 470,757 3.82 574,306 5.15 410,029 4.49 7%

8 MADEUPS (Excl. Towels & Bedware) 416,604 3.38 359,775 3.22 350,906 3.84 9%
 9 TOWELS 403,500 3.28 374,839 3.36 267,715 2.93 23%

10 LEATHER GARMENTS 394,378 3.20 289,285 2.59 372,665 4.08 3%

10-A LEATHER GARMENTS (Excl. Gloves) 323,656 2.63 232,316 2.08 321,341 3.52 0%

10-B LEATHER GLOVES 70,722 0.57 56,969 0.51 51,324 0.56 17%

11 SPORTS GOODS 324,751 2.64 335,173 3.00 304,478 3.33 3%

12 PETROLEUM & PET. PRDS 294,461 2.39 248,575 2.23 190,729 2.09 24%

13 CHEMICAL & ITS PRODUCTS 262,957 2.14 260,931 2.34 152,787 1.67 31%

14 LEATHER TANNED 251,693 2.04 234,774 2.10 239,934 2.63 2%

15 CARPETS & RUGS 231,449 1.88 220,899 1.98 249,574 2.73 -4%

16 FISH & FISH PREPARATIONS 152,890 1.24 134,499 1.21 125,642 1.38 10%

17 SURGICAL INSTRUMENTS 132,563 1.08 149,965 1.34 145,046 1.59 -4%

18 FRUITS 102,679 0.83 83,155 0.75 83,089 0.91 11%

19 ENGINEERING GOODS 100,008 0.81 74,087 0.66 51,113 0.56 40%

20 FOOTWEAR 88,833 0.72 85,887 0.77 56,226 0.62 26%

SUB TOTAL 10,935,740 88.81 9,823,960 88.03 8,148,137 77.55 100%

This table can be divided into top and bottom half. It is evident from the table is almost all of
Pakistan’s exports earnings are concentrated in textile industry. Among top ten, rice is the only
export which is not related to textile. The lower ten products are a great opportunity for the
country to improve on these sectors. Pakistan is currently fulfilling a marginal portion of world
demand in these categories which presents tremendous prospect.

It is heartening that the share of primary products, as a percentage of total exports, is undergoing
a slow but steady decline. This can be partly attributed to import of machinery as we will see
later. The need is to promote small scale industry in the country to maintain the trend.

The information given above is very crude and it does not serve the purpose of analyzing the
competitive advantage of the country. Neither does it serve the purpose of strategic planning for
the long term prospects. Hence, we have given a grid on

EXPORT OF TOP 20 COUNTRIES FROM PAKISTAN

S.NO. REGIONS/COUNTRIES %
SHARE
1 USA 23.90
2 UNITED KINGDOM 7.64
3 DUBAI 7.26
 4 CHINA/ HONG KONG 7.07
HONG KONG 4.73
CHINA 2.34
5 GERMANY 4.93
6 AFGHANISTAN 4.00
7 ITALY 3.69
8 SAUDI ARABIA 2.83
9 FRANCE 2.75
10 NETHERLANDS 2.72
11 SPAIN 2.45
12 BELGIUM 2.13
13 TURKEY 1.78
14 SOUTH KOREA 1.64
15 BANGLADESH 1.58
16 CANADA 1.48
17 JAPAN 1.09
18 AUSTRALIA 1.06
19 SOUTH AFRICA 0.99
20 SINGAPORE 0.95

It must be realized that the table is a warning for Pakistan to act immediately to broaden
horizons. Bilateral relations with US and UK are highly troubled almost all the times. This
dependency makes Pakistan foreign policy very reliant (more so if we take into account the aid
received by the country from these nations). There are very few Islamic countries even in the
lower ten which is both surprising and upsetting at the same time.
I MPORTS
 IMPORTS INTO PAKISTAN
( In Descending Order)
VALUE IN '000' DOLLARS
JULY-JUNE JULY-JUNE JULY-JUNE CAGR
ITEMS 2001-2002 2002-2003 2003-2004 VAL
TOTAL 10,339,547 12,220,253 15,591,776 23%
10,339,547 12,220,253 15,591,776
MACHINERY AND TRANSPORT EQUIP 2,203,588 2,942,323 4,220,358 38%
CHEMICALS & RELATED PRODUCTS 1,824,620 2,160,711 2,797,709 24%
Crude Petroleum 1,230,772 1,366,514 1,765,132 20%
Petroleum Products 1,576,235 1,699,922 1,401,419 -6%
Palm Oil 380,334 539,315 612,990 27%
Iron And Steel 336,052 402,342 512,009 23%
Gold. Non-Menetart Not Ore/Concert. 210,414 216,044 467,346 49%
Oil Seds & Oleaginous Fruits 182,702 204,085 250,023 17%
Tea 156,555 172,743 192,517 11%
Paper & Paper Board & Manf. 136,821 131,674 164,375 10%

The negative value for petroleum products implies that we have changed our status from
importers to exporters of petroleum products through our refining industry.

Imports during July-November 2005-06 increased to US$ 11.2 billion from US$ 7.2 billion of
the corresponding period last year, registering an increase of 54.0 per cent. Major contributor to
increase in the import bill were machinery group (US$ 1.08 billion), petroleum group (US$ 1.04
billion), metal group (US$ 322 million) and chemical group (US$ 170 million) in absolute term.
Import of non-food, non-oil items increased by 52% during July–November 2005.

It is heartening to note that the increase has been in those sectors which will give impetus to the
growth in exports. Moreover, increase in imports is an indicator that there is expansion in
economy and ultimately help in achieving a sustainable GDP growth rate.

S.NO. REGIONS/COUNTRIES
I WESTERN EUROPEAN REGION 20%
II AMERICAN REGION 13%
III ASIAN REGION 17%
IV MIDDLE EAST REGION 14%
 V AFRICAN REGION 12%
VI OCEANIA REGION 12%
VII EASTERN EUROPEAN REGION 12%
GRAND TOTAL 100%

It should be noticed that Pakistan’s major export partners are also major imports partners. In one
article, an analyst had remarked that ‘the demand for exports of Pakistan are generated much by
the reciprocity of imports rather than its competitiveness among other producers’, We would like
to point out that the situation could equally be the other way round and there are certain political
factors that support the second view.
TRENDS IN REMITTANCE FLOW INTO PAKISTAN FROM 1972-2005

We are analyzing the flow of remittances in Pakistan after 1971 because

1. Before that the figures included remittances for East Pakistan (Bangladesh) as well.
2. the comparison between two periods was not possible as the amount of remittances being
small was included in invisible account and the separate data was not given in the
economic survey

The graph below shows a constant increase in the worker remittances from 1972-1983, this was
the time when emigration to the Middle Eastern countries gained momentum the flow of petro-
dollars continued because of Pakistani governmental support to the Middle Eastern countries
during Arab Israel war of 1973. But after that there has been a decrease remittances from1983-
1991 reasons for this gradual decline may be due to afghan war and flow of foreign aid because
of which the country experienced a foreign funded economic boom and the altruistic motive to
send remittances declined and due to instability in the region the investment motive was also
reduced due to instability in the region. The remittances stabilized during the nineties but there
was a sharp decrease after 1998 when the government of Pakistan ceased the foreign currency
accounts until the 9/11 when the capital flight reversed due to the instability and change in
international politics against Muslims in general and Pakistanis in particular. After 9/11 the
remittances not only increased at an exponential rate but also helped improve liquidity in
Pakistan and an all time low interest rate with foreign aid, removal of sanctions and PRGF
program of IMF, and local stability lead to another economic boom which could not have been
possible if there were no remittances (stock market and real estate markets also boomed). The
state policy towards remittances also affects the flow of remittances in a country1. The present
government after realizing the importance of remittances in maintaining the balance of payments
and trade deficit of the country has taken steps to promote remittances like making formal
channels easier to use and making their reach to villages which receive substantial amount of
remittances. The flow of remittances also depends on the demand for labor in the host countries
and the attitude of host countries towards the Pakistani labor. The growth in Middle East also
1
Osman Tuncay Aydas, Kivilcim Metin-Ozcan, And Bilin Neyapti “Determinants of Workers’ Remittances The
Case of Turkey”
increased as revenues from oil exports increase (due to increase in oil prices) and so does
demand for labor.

TRENDS OF REMITTANCE FLOW

4500.00
4000.00
3500.00
3000.00
US $ million

2500.00
2000.00
1500.00
1000.00
500.00
0.00
1972-73
1973-74
1974-75
1975-76

1977-78
1978-79
1979-80
1980-81
1981-82

1983-84
1984-85

1986-87
1987-88
1988-89
1989-90
1990-91
1991-92

1993-94
1994-95

1996-97
1997-98
1998-99

2000-01

2002-03
2003-04
1976-77

1982-83

1992-93
1985-86

1995-96

2001-02
1999-2000

2004-05(Jul-Apr)
Year

Historical Flow of Remittances (Source: Economic Survey)

MEDIUM TERM DEVELOPMENT FRAMEWORK

• Balance of payments

In the past, the balance of payments strategy has been a prisoner of simple categorization like
“import substituting industrialization’’ and “export led growth’’. These are misleading depictions
of strategies that are far more complex and require an integrated approach for developing
national technological capabilities to achieve rapid and sustainable economic development. The
key to success is aggressiveness in the international market and the attractiveness of the economy
for the foreign investors.
• Challenges

i) Pure economic performance and well- managed competitive advantages will count more than
ever before. Trade will no longer be regulated by quantitative restrictions and, as a result, there
will be a large and growing market waiting to be captured.
ii) Deterioration in developing countries’ terms of trade is likely to continue as the US, European
and Japan textile and clothing prices have been falling continuously since 1996.
iii) Rationalization of trade in textiles and clothing will continue under complex patchwork of
international trade agreements in which buying countries have been granted specific concessions.
iv) There is likely to be a rise in antidumping and countervailing duty cases, which will pose a
real threat to exporters. Textile and clothing manufacturers are subject to random checks by
customs officials, to ensure that transshipment activities are not taking place.
v) There would be more concerns about child labor, labor standards and environment.
vi) Textile and garment manufacturers from developing countries are increasingly confronted
with the need to adapt to eco-labeling requirements.
• Goals

The main objective of the MTDF is to reduce imbalances in the various components of the
Balance of Payments. Increasing exports at a rate faster than the imports will reduce imbalance
in the trade sector. Invisible balance will be improved by attracting private transfers, especially
workers’ remittances. Capital account will be improved by diversifying sources of financing with
greater recourse to non-debt creating sources of financing.
In physical terms, the objectives and other parameters of the MTDF are as follows:
i. Exports (fob) in nominal dollar terms estimated to increase to $ 28.0 billion, with
major thrust on exports of value added products.
ii. Imports (fob) in nominal dollar terms to grow to $ 33.2 billion, with the assumption
that capital goods imports will increase reflecting revival of economic activities,
coupled with the increase in the POL imports due to increase in POL prices in the
international market. However, imports of wheat and sugar will fall due to increase in
their domestic production.
iii. Workers’ remittances are estimated to increase from $ 4.0 billion in 2004-05 to $ 4.16
billion in 2009-10. Surplus on invisible balance, however, will decrease from surplus
of $ 1.64 billion in 2004-05 to surplus of $ 0.30 billion in the terminal year of MTDF,
largely due to the increased payments.
iv. Current account deficit on the balance of payments is to increase from $ 1.91 billion
(1.75 percent of GDP) in 2004-05 to $ 4.91 billion (2.4 percent of GDP) in the
terminal year 2009-10 of the MTDF.

• Structure of Imports

The projected structure of imports is given in the table below

 • Capital goods
During the MTDF period there will be a change in the composition of imports of machinery with
construction and mining, electrical machinery and apparatus and power generating machinery,
taking higher portion of imports.
• Edible Oils
Potential for increasing domestic production of oil seeds has always remained high. Domestic
production of traditional as well as non-traditional oilseeds is projected to grow rapidly to meet
the domestic consumption requirements. The import bill of edible oils is estimated at $ 1119
million in 2009-10, registering an increase of 9.4 percent. The country at present is importing
around 1.4 million tones edible oils per year.
• POL
Efforts will be made to reduce the domestic use of oil by substituting its consumption by gas,
thus lowering import requirements. However, crude oil import is likely to increase by 7.2 per
cent per annum in nominal terms, from $ 2058 million in 2004-05 to $ 2920 million in the
terminal year of the MTDF mainly due to rise in its international price.
• Fertilizers
Fertilizers import is projected to increase by 6.9 percent during the MTDF period from $ 270
million in 2004-05 to $ 377 million in 2009-10. It is expected that imports of fertilizers will be
contained with the enhanced domestic production resulting from increased capacity utilization of
existing plants and coming into operation of some new units.

• Trade Account

The trade account is projected to be in deficit of $ 5211 million in 2009-10 against deficit of $
3555million in 2004-05. Efforts however, will be made to reduce the import bill by enhancing
production and reducing import of edible oils etc. and by switching over to indigenous fuels or
cheaper alternatives and full exploitation of hydropower potentials.

• Invisible Account

This account includes remittances and other private transfers. Remittances serve two purposes in
our national economy: first, they supplement foreign exchange resources available to the
economy and to that extent reduces the balance of payments constraints; second, the
corresponding domestic resources which are generated can be used to supplement domestic
investment or consumption. The inflow of remittances (including HSS) is projected at $ 4160
million for the terminal year 2009-10 of MTDF on the following assumptions: -
i. Pakistan will gain new markets in the coming years in Malaysia and a large role in the
rehabilitation of Afghanistan
ii. Position of skilled labor will improve in the coming years and will gradually replace
Pakistan’s unskilled labor abroad.
iii. The recent increase in the oil prices will lead to greater economic activity in the oil
producing countries resulting in more demand of workers from Pakistan in the
coming years.
Allowing for other invisibles receipts and payments, the surplus on invisibles account is
anticipated at $ 300 million in 2009-10 against a surplus of $ 1643 million estimated during
2004-05.
• Current account

With a deficit of $ 5211 million on the trade account and a surplus of $ 300 million on the
invisibles account, the current account deficit is estimated at $ 4911 million (2.4 percent of GDP)
in 2009-10 against a deficit of $ 1912 million (1.75 percent of GDP) in 2004-05. The
deterioration in the current account based on significant increase in the trade deficit on account
of higher imports of capital goods, raw materials and increased import bill of POL due to higher
prices of POL in the world market. The other major factors responsible for this worsening are
increased net income outflows in the services account.
 A. Export Development
Over time there has been a shift in the composition of exports with the share of primary
commodities falling and that of manufactured goods increasing. The share of primary
commodities has decreased from 18.7 percent in 1991 to 11 percent in 2002-03 and the share of
manufactured goods has increased from 56.9 percent to 78 percent during the same period.
Increased share of manufactured goods has decreased Pakistan’s export vulnerability to
fluctuations in the international prices of primary commodities.

Pakistan is not a major player in international trade and in fact can be considered under
represented as a trading nation based on its share of world exports and imports when compared
with the other developing countries. It accounted for merely 0.12 percent of the world exports in
2004. Not only this, its share in world exports has declined from 0.26 percent in 1960 to 0.12
percent in 2004 whereas the share of other developing countries has increased manifold. For
example Korea has increased its share in world export from 0.1 percent during 1960s to 2.06
percent in the year 2000.

Steps for Export Promotion

• Consistency in Economic Policies
The foremost pre-requisite for success of any export promotion policy is a sound and consistent
macro economic environment, characterized by low inflation and sustainable fiscal and external
imbalances.
• Product and market diversification
Ten sectors that have been identified by the Export Promotion Bureau, as stage one, need to be
pursued with national alignment and commitment of all stakeholders. Most rewarding amongst
these could be engineering goods, marble and granite, precious and semi precious stones and
jewellery, fisheries, milk products, construction, IT and finance and accounting services and
pharmaceuticals.

On geographic basis, Pakistan’s exports are very low in South America, Africa, Easter Europe
(now a part of European Union), Central Asian Republics (CARs), Russia and Oceania. All these
regions combined account for less than 8.0 percent of our 2003-04 exports. With focused
attention we need to achieve greater market access in these regions followed by aggressive
market development by the Export Promotion Bureau. Among these, the most rewarding could
be CARs, Russia, Africa and Eastern Europe to start with. Regional countries such as Iran, Sri
Lanka, Bangladesh, Afghanistan and India offer excellent opportunities as well.
• Competitiveness
There are two principal means to achieve competitiveness: price and quality. Better quality of
products coupled with the affordable rates is a guarantee for more exports.
• Cluster development
A cluster is a sectoral and geographical concentration of small and medium enterprises (SMEs)
producing related goods. Individually, due to their limited resources and high cost of production,
these enterprises find it difficult to exploit market opportunities. Cluster development, however,
enables these SMEs to complement each other’s resources and expertise and achieve collective
efficiency through economies of scale and specialization. This gives the enterprises competitive
advantage and helps them capture markets beyond their individual capacity.
• Brand development
Despite the fact that Pakistani companies have a strong export base in textiles they have not
invested in developing their own brands and labels. The highest level of value addition occurs
when products are sold under a brand name.
• Packaging
Poor packaging of country’s exports, particularly fruits and vegetables and other perishable items
is also a serious constraint on export promotion, which needs to be remedied. Private sector
businessmen have to make investment to improve packaging to make export products more
attractive.
• Export and Import Bank
A separate bank is required to be established for the purpose. The bank should provide export
finances/loans/credit on soft terms along with other services to the exporters for rapid growth of
exports.
• Agricultural and Mineral Based Products.
Special attention should be given to increase export of agro-based products through better
processing and value addition. Government should provide infrastructural facilities like agro
processing zones and incentives for modernization of processing industries. Product like fish,
dairy, poultry, vegetables, fruits, flowers and non-traditional crops need particular attention.
Pakistan is rich in natural resources, which need to be exploited and exported after value addition
in the form of finished precious stones, gems and jewelry. Mineral processing technologies need
to be made available to areas of mineral deposits.
• Joint Ventures
While many of its competitors have been collaborating with foreign partners and are forming
joint ventures and are reaping the benefits of transfer of technology and marketing expertise,
Pakistani companies have not taken advantage of this opportunity.
• Human Resources Development
There is a need to develop human resources in the fields of export marketing, quality control and
general skill enhancement. There is also a need to train people in international fashion to keep in
touch with the ever changing trend and to cater to the clothing needs of the developed nations.
• Focus on Specialized Units
The textile industry’s set up is based on vertically integrated units. If there were specialized units
handling one process of the value chain, such as knitting, weaving, dyeing, finishing etc, there
would be more room for flexibility and ability to cater to demand of the international buyers as
well as newer markets.
• Standards (Quality/Environment/Social)
There have been concerns in the past that have restricted Pakistani exports. In order to ensure
that quality, environmental and social problems cease to persist, there has to be an across the
board drive to meet the international standards. Exporters should get ISO 9000, IS0 14000
certification in order to assure the importers that international standards have been met.
• Export Processing Zone’s Role
The export processing zones (EPZs) need to cater to the needs of the companies that are
operating in its zone. They should provide subsidized services to the businesses to encourage
export growth. There should also be investment in infrastructural development in the EPZs.
• Image Building
As a textile supplier, Pakistan’s image has been that of a low quality, low price, inconsistent and
unreliable supplier. This image needs to be changed.
 • Role of Trade Commissioners
Pakistan is one of the very few countries in Asia Pacific where its Trade Promotion Organization
(EPB) does not have its representation and offices abroad.
Trade Policy 2005-06
The government of Pakistan is currently following a rapid export growth strategy (REGS) whose
pillars are:
i. Improved market access through trade diplomacy, and new FTAs/PTAs with selected
priority countries.
ii. Focusing on neglected Regions and countries like Africa, Latin America, Eastern
Europe, Central Asia and the Far East.
iii. Strengthening of trade promotion infrastructure of the Government including the EPB
and the trade offices abroad.
iv. Improving skill development and productivity through provision of large scale
training.
v. Provision of state of the art physical infrastructure by the government to spur
investment and FDI.
Export Projection for 2005-06
Export target of US$ 17.0 billion is proposed to be fixed for 2005-06.
EXPORT STRAEGY
Following measures will be implemented during 2005-2006.
• Garment Skill Development Board
To provide support to the Textile Garments Sector, and to implement the initiative of skill
development and training of workers, it has been decided to create a “Textile Garments Skill
Development Board”.
• Envoys’ Conferences’ Recommendations
In order to achieve effective utilization of marketing resources, the Ministry of Commerce, in
consultation with all stakeholders devised the strategy to prioritize in these regions the markets
and the products for focused and concerted efforts to promote the country’s exports. Envoy
Conferences were organized in Latin America, Africa, and Central Asian Republics, and China
for this purpose.
• Pakistan USA trade
Presently, Pakistan along with South Asia is positioned as a low speed supplier to USA as
compared to East Asian countries. Our export strategy for USA would consist of a program to
overcome the supply side constraints and to improve Pakistan’s image as a reliable and efficient
supplier. At the same time, a trade lobbying firm will be hired in the USA to enhance Pakistan’s
exports and market access.
• Pakistan-EU Trade
The EU is our largest and most important export market. It has assumed even greater
significance after its recent enlargement from 15 to 25 countries. In view of the unique nature of
the EU, a special focus is required for enhancing exports to this region.
• Trade Competitiveness Indicators
The Ministry of Commerce during this year will work on developing trade competitiveness
indicators. In the design of these indicators the factors impacting upon competitiveness will be
considered such as financial, regulatory, and business environment.
• Internal Commerce
Traditionally, our main focus has been on the export sector, and not enough attention has been
paid to internal commerce. Unless this sector functions efficiently, we cannot realistically hope
for rapid export growth, since internal commerce is the key to economic growth and
development of value added products.
• Incentive for Pharmaceutical Exports
In addition to existing incentives announced in Trade Policy 2004-05 several more incentives are
being provided in this policy to increase the competitiveness of pharma exports.
• Establishment of new Customs Station on Afghan Border
To facilitate exports to Afghanistan from Balochistan, it has been decided to open a new land
custom station at Qamarud- Din Karez.
• Promotion of Organic Cotton
Government will hire services of a consultant of international repute for developing best
practices for production of organic cotton in Pakistan. Government will arrange training of
interested farmers. Farmers producing organic cotton will be ensured a guaranteed procurement
price through TCP.
• Promotion of Exports of Minerals / Marble and Precious Stones
Mines in FATA and Balochistan have tremendous potential. Therefore to assist the local industry
in these areas, it has been decided to arrange a consultant of international repute through EPB for
modernizing practices in mining / quarrying.
 • Facilitation of Leather Garment Exports
To encourage export of leather garments it has been decided that exporters may send 100
samples in a year as against 50 samples allowed earlier.
• Package for Gems and Jewelry Sector
Four-point package has been announced for this sector.
• Awareness Campaign on Trade Agreements
The government is pursuing the objective of increased market access through multilateral &
bilateral trade agreements. In order to create greater awareness among general public and
stakeholders, the Ministry of Commerce and EPB will launch a campaign to publicize detailed
information about FTAs and PTAs via the official websites of the Ministry of Commerce and
EPB.
• Promotion of Pakistani Trade Marks
To encourage promotion of Pakistani quality products in foreign markets, it has been decided
that Pakistani exporters who register their products with Pakistani Trade marks in foreign
countries for export purposes will be provided subsidy equal to 50% of official fees of such
registrations.
• Development of Footwear Sector
Footwear sector, being labor intensive, has good potential in Pakistan.
• Strategy for Export of Services
The services sector is the fastest growing component of international trade. Thus studies will be
conducted and areas identified to promote export growth in this sector.
• Assistance for Quality Standards Certification
Since export of agriculture products to EU will be facilitated by certification of EUREPGAP; It
has been decided that 50% subsidy on cost of certification of EUREPGAP may also be allowed
in addition to the various other certifications like ISO –14000, ISO – 17025, HACCP
Certification, WRAP Certification and ECO Labeling.
• Reducing cost of Freight Forwarding
For the growth of Pakistan’s trade it is desirable that freight costs be reduced as much as
possible.
• Capacity Building on WTO and FTAs
The Ministry of Commerce will enter into partnership arrangements with reputed Universities
and think tanks in the country so as to encourage the creation of such expertise on a sustainable
basis.
• National Tariff Commission (NTC)
In view of the emerging global scenario, the structure and functioning of the National Tariff
Commission will be reviewed.
• Assistance for Mandatory Certifications
75% of the cost of accreditation will be borne by EDF.
• Support to Textile Garments Exports
This package includes R&D support and new labor legislation.
• Concessional Rate of Withholding Tax for Export Services
Services of Stitching, Dying, Printing , Embroidery and washing, provided to exporters and
export houses by various enterprises are presently not treated as deemed exports. On the
recommendation of Ministry of Commerce, CBR has agreed to treat the above services as
deemed exports.
IMPORT STRATEGY
Pakistan’s Import regime has been reformed, restructured and liberalized over the years to meet
the economy’s ongoing structural shifts. Our import strategy consists of three parts:
1. FACILITATION
This includes dispensing with the condition of obtaining prior recommendation from the
Regulatory Authority for import of machinery, specialized equipment, and specialized vehicles
etc and widening the scope of temporary import facility for equipment and materials of people
working in media.
2. REGULATION
Import of Pressure Horns Parts will be banned and as far as import of Precursors (Chemicals) is
concerned policy will be amended to bring it along the lines of UN convention against illicit
traffic in Narcotic Drugs and Psychotropic substances 1998. As per existing policy, 2/3 wheeler
auto vehicles are allowed without any condition of standardization. To harmonize conditionality
of import with the prevalent international practices, it is proposed that the remaining shelf life of
edible products may be reduced to 50%.As per existing import policy, waste, parings and scrap
of styrene poly vinyl chloride and other plastics are importable subject to certification from
exporting countries that the scrap being exported does not contain hazardous substances as
defined under the Basel Convention.
3. LIBERALIZATION
Import of Vehicles has been liberalized and several new items have been included in the gifts
category. Import of Used Fork-lifters of more than 5 tones capacity is allowed
In consultation with the Engineering Development Board, it has been decided that a list of used
machinery will be allowed for import. This will help to reduce the cost of doing business.
Main causes of unfavorable balance of trade of Pakistan.

The following are the main causes of disequilibrium in BOP with reference to Pakistan:

1. Narrow export base. Our exports during the last five years are increasing. However, it is not growing
to the desired extent. The reason is that our export base is narrow. It is mainly concentrated on cotton
group (60% of total exports).

2. Import oriented industries. Most of the import substitution industries which have been set up in
Pakistan are importing inputs and technology. The import of industrial raw materials in the aggregate
import is placed at 50% which is eating away the precious foreign exchange earnings of the country.

3. Consumption oriented society. Pakistanis are mostly consumption oriented. Due to the rapid rise
in population and increased consumption habits, the domestic manufactured goods are mostly consumed
in the country. The exportable surplus is, therefore, on the decline.

4. Less modernization of machinery. Since 1970's there has been less modernization, balancing and
replacement of machinery in. the private industrial sector. The fall in production and deterioration in
the quality of products has adversely affected exports. From 1990 onward, an amount of $5 billion
have been spent on modernization of the textile sector.

5. Increase in the sick industrial units. The number of sick industrial units has gone up, mainly due
to nationalization of industries. It is on record that the performance of most of the industries in the
public sector is not satisfactory. They are not producing goods according to their full capacity. The
decline in production of semi-manufactured and manufactured goods reduces the exportable surplus
and adversely affects the volume of trade. .

6. Less production of value added goods. The share of industry in the GDP is hovering round 18%
for the last over many years. The share of value added goods must increase to earn foreign exchange and
turn the trend of adverse balance of payment.

7. Political uncertainty. The political uncertainty over staffing, and labor unrest in theindustrial
units have considerably affected the efficiency of the industries. The fall in
the volume of production, particularly in the manufacturing value added sector, has reduced export
earnings. '
8. Depreciation. The repeated depreciation of rupee against USA dollar has not helped in the
increase of exports. It has made the imported inputs more costly. The demand for our goods in the
international market is elastic. As such, the use of depreciation as a tool for boosting exports is futile
and counter productive.

9. Tough competition in the international market. Stiff competition in the foreign market particularly
of our value added goods is affecting the volume of foreign trade in Pakistan.

10. Rise in freight rates. The rapid rise in the air and sea freight rates has adversely affected the trade
balance.

11. Propaganda about exploitation of child labor. The adverse propaganda about the use of child
labor, anti-dumping duties in the importing countries are important factors causing imbalance in the
trade.

12. Increase in prices of inputs. The increase in the prices of fuel, electricity, high capital costs of
imported machinery utility, rates downward exchange rate etc have inflated the costs of both
.imported capital goods and industrial raw material on which domestic industry is heavily
dependent. The inflationary impact of the rise in the prices of inputs is not helping in achieving the
export targets set in each financial year.

13. Technical barriers. The advanced countries of the world have imposed technical barriers such as
'Patent Copyright', Trade Marks and Designs etc. on their imports. Pakistan will have to upgrade the
standard of hygiene, and quality to compete

14. Slow growth of Production. In the case of industrial production, the considerable
scope for increasing production and exportable surpluses through better utilization of
existing capacity.
15. Fiscal Policies. The fiscal policy has been a serious obstacle to the expansion of
Pakistan’s exports. The import duties on raw materials required for the production are
very high which increase the cost of production and make the exports uncompetitive.

16. Tariffs: The import and export tariff of Pakistan are by-and-large revenue-oriented.
These need a thorough revision from the point of view of minimizing the tax element in
the cost of production.

17. Trade restriction by DC’s: Anti-dumping duties imposed by EU hamper our home-
textile exports.

18. Import substitution policy of Pakistan. Our emphasis has been on ISI and not on
export expansion which results in higher prices for consumers and inefficient production
facilities.

19. Heavy import of food grain. Population is increasing at a higher rate than
agricultural productivity which has been a hindrance in achieving our goal of self-
sufficiency in food, which was there in the Second Five Year Plan.

20. Export of primary commodities: Exporting primary commodities makes our ToT
vulnerable to external shocks. We should try to change the composition to value-added
manufactures.

Role of EPB
 The EPB is performing an important role in increasing exports which in the year 2005 has crossed 16
billion dollars. The seven point strategy of increasing exports by Export Promotion Bureau is as follows:

(1) Raising World Market Shares. At present Pakistan is exporting goods mainly to 10 countries of the
world. The principal buyers of our exports are America, Dubai and United Kingdom. The new
strategy is to explore 10 more countries for penetration of exports.

(2) Value addition. Efforts are to be made to achieve value addition and increasing competitive strength
of our goods in the world market.

(3) Export diversification. In-order to achieve a strong competitive edge in the world market, Pakistan
should not rely on a few selective commodities for exports. The export diversification can develop export
opportunities.

(4) Geographic expansion. The products for exports should be explored from different areas of the
country.

(5) Women entrepreneurship. For developing Pakistan's export capabilities and potential, women
entrepreneurship is to be energized.

(6) Bilateral trade enhancement. The countries with which Pakistan has close relationship, the
bilateral trade agreements should be entered for increasing of exports.

(7) International trade block. Pakistan can enhance exports by entering. in existing trade blocks and
on bilateral trading arrangements.

Services provided by EPB

The main services provided by Export Promotion Bureau are:

 (i) market research

(ii) holding of fairs and exhibitions at local and international level

(iii) sending of trade delegations for exploring international market

(iv) Making overseas publicity to create brand I country I product awareness

(v) Holding of local exhibitions

(vi) Conducting seminars I workshops to create awareness about export related issues

(vii) Establishment of training institutes for capacity development in sectors like textiles, leather,
surgical etc.

(viii) Helping industry to adopt ISO 9000 and 14000, standards.

In the trade' policy 2003-04, the role of the EPB has been strengthened and enlarged. The EPB has
been asked to engage consultants for identifying, advising and assisting into joint ventures in foreign
countries on 50, 50 cost sharing. The EPB also has a role in educating Pakistani manufacturers and
exporters about WTO trade rules operative from January 1, 2005. The EPB has created a cell to cater the
needs of importers now. It will introduce, import Management Service in EPB for guiding importers in
affective cost effective imports.

Factors Contributing towards adverse balance of payments:

The main factors which are contributing towards persistent adverse balance of payments on current account are
as under: '

1. Import of capital goods. At the time of Partition in 1947, Pakistan, in Rostow's term was a traditional society.
Age old customs determined organization and production members. Science and technology had little impact on the
economy. The industrial base was almost negligible. In order to build up the economy and raise it to preconditions
stage, Pakistan had to import and is importing capital goods for rapid industrialization of the country. The heavy
import of machinery, technocrats etc, has considerably increased the import bill and has adversely affected the
balance of payment on current account.

2. Rise is oil prices. The sharp rise in the prices of oil particularly In 70's and also in the beginning of 1980's and
1990's and from 2003 onward is taking a big chunk of the foreign exchange earnings. The Gulf crisis further
worsened the situation.

3. Increase in import payments for fertilizers etc. Due to increase in the prices of fertilizers, machinery,
petroleum, edible oil etc., there is a sharp increase in the import payments to the outside world. The balance of
payment has, therefore, been adversely affected.

4. Consumption oriented society. The Pakistanis as a whole are consumption oriented. The import of
consumer goods is about 16% of the total imports. Most of the consumer goods imported from abroad can be
easily manufactured in the country and can ease the situation in the balance of payments.

5. Import of industrial raw material. Most of the industries which were established for achieving the twin
objective of earning and saving foreign exchange have been eating away roughly 31% of the aggregate import bill.
The excessive import of industrial inputs is a strain on the balance of payments on current account.

6. Deterioration in terms of trade. In Pakistan, the import unit values are higher than the export unit values
for the last over three decades. A decline in term of trade causes imbalance in the balance of payments.

7. Higher payments for freight insurance. Pakistan has to make higher payments for non-factor services such as
freight, insurance, transports, travel etc.

8. Cotton-rice led growth. Pakistan is heavily depending on the exports of two primary commodities cotton
and rice and textile manufactures. If Nature is kind, the per-hectare yield of crops increases. In case weather is
unsuitable, production of crops drastically goes down. Pakistan is then not left with surplus of primary
commodities. It directly affects the manufacturing sector also. The decline in exports causes an imbalance on
the current account.
9. Domestic developments. A number of domestic developments like political uncertainty, floods, droughts;
nationalization of industries, shortage in availability of credit to private sector, labour, unrest, inefficient
handling of vessels and cargo at Karachi Airport, have cut down industrial production, reduced exports and
have enlarged the import bills. All these and other factors singly and jointly have contributed in making a
persistent deficit in the balance of payments.

10. Global economic slow down. The events 9/11 in America, the global economic slow down, economic
sanctions etc. have also contributed to the adverse balance of payments. .

Measures for correcting the Adverse Balance of Payments:

Pakistan cannot afford to run a persistent deficit in the balance of payments on current account as it does not have
unlimited reserves of gold and foreign currencies. It can neither persistently borrow from the rest of the world. There
is, after all, a limit of accumulation of debt which may be for the development purpose.
The adverse balance of payments can be decreased in three ways:
(i) The foreign earnings should be increased by export led growth.
(ii) The imports should be curtailed to essential items only.
(iii) The expenditure on invisible imports should be minimized.

Export Led Growth:

Export plays an important role in the growth of the economy. It is regarded a key factor in the economic
development. As regards Pakistan, it has rich manpower and real resources. If they are properly exploited and
utilized, there can be significant improvement in exports and foreign exchange earnings. The following measures
need to be adopted for increasing exports and alleviating the balance of payments problems:

(1) Promotion of labor-intensive industries. Pakistan has to give priority to the development of those
industries which are labor intensive. The cheap labour compared to many other developing and developed
countries of the world can give a comparative advantage in the production and export of commodities. The export
earnings, therefore, can increase and help in restoring equilibrium in the persistent adverse balance of payments of
the country.

(2) Diversification of exports. Pakistan's exports since Independence have been showing heavy concentration
on a few primary commodities. If there is a recession in the international' market for cotton and rice or Nature is
not kind, the production declines and exports are greatly reduced and have a damaging effect on the balance of
payments. We shall, therefore, have to diversify our exports and produce value added goods for gaining
competitive strength in the international market.

(3) Development of industries having low capital output ratio. Pakistan with low foreign exchange
earnings cannot afford to import heavy machinery. If Pakistan like China, Korea, Taiwan; Hong Kong,
Singapore, takes up lines of production having a low capital output ratio, it can lead to fast growing export. The
exports of carpet and rug industry, cigarettes industry, sports industry, leather industry, etc., have considerably
increased the export earnings of Pakistan in the past few years and have decreased strain on the balance of
payments.

(4) Decrease in consumption. In spite of rapid rise in prices, there is a greater increase in national consumption 6f
various commodities product at home and imported from abroad. The higher consumption of locally
manufactured goods is reducing the exportable surplus and consequently the foreign earnings to the country.
People shall have to be motivated to adopt simple living and austerity for bridging the resource gap.
(5) Restoration of sick industries. The sick industries in the nationalized public sector should be transferred to
their owners. The private sector has the capacity to reactivate the dying industrial units and increase production
for use at home. It can thus increase exports to earn the much needed foreign exchange.

(6) Reduction in export duties. Reduction in export duties, publicity of locally manufactured goods in the
foreign markets and adequate provision of credit to the private sector for development of industries can greatly
help in increasing export earnings and relieving the pressure on balance of payments.

(7) High quality goods. In order to capture foreign markets, it is necessary that high quality goods at minimum
cost should be produced in the country.

(8) Pricing of goods. For increasing exports, it is necessary that goods should be produced under optimal
conditions and offered at competitive prices in the international market.

(9) Packing. For promoting exports, high quality packing is essential. If packing is not attractive and durable, it will
not capture foreign markets.

(10) Creation of export agencies. For break through in exports; export agencies should also be created in the
private sector, following suit of China and other recently industrialized countries.

(11) Joint ventures. The exports can also be pushed up by establishing industries with joint ventures of foreign
investors. The products of these industries can be sold in the foreign markets and the country can earn sizeable
foreign exchange.
 Current Account Balance

4000

3000

2000

1000

0
1974-75 1979-80 1984-85 1989-90 1994-95 1999-2000 2004-05

-1000

-2000

-3000

-4000

-5000
Y ears

The only reason the current account balance has come into the positive is because of the role of
remittances after 9/11. The level of remittances rose sharply due to the insecurity of non-resident
Pakistanis in keeping their hard-earned money abroad. So, this increased the amount of
remittances entering into the country. This is why there is a steep curve in the years after 2001.
However, the increase in the level of imports and the huge rise in the trade deficit offset this
increase in remittances in the recent years. The increase in imports has largely been due to the
imports of machinery and oil for the country.
 Trade Balance
0
1974-75 1979-80 1984-85 1989-90 1994-95 1999-2000 2004-05

-500

-1000
Trade Balance(US $ Million)

-1500

-2000

-2500

-3000

-3500

-4000
Years

The trade balance has remained negative in the past 32 years. By-and-large, it is due the factors
already highlighted above such as the narrow export base, export in primary products,
concentration in exports, and reliance on foreign products in the technology-oriented products.
Pakistan and WTO

This section contains articles related to WTO and Pakistan. The articles which we review for this
section were mostly by Pakistani writers and were published in Newspapers lately. We found that
most of the authors were critical of WTO implementation but the overriding theme was that
WTO regime is nevertheless inevitable and Pakistan is currently in a dormant state. Under
present circumstances it is Pakistan itself that has to be blamed for not taking the initiative to
anticipate and be flexible to change.

The WTO regime was meant to devise a set of universally applicable rules for trade negotiations
among countries from both the developed and developing world, and getting these implemented
in letter and spirit, of course with certain exceptions in favor of less developed countries.

In Pakistan, almost every second businessman appears to be suffering from an unknown fear of
the World Trade Organization and expecting, anytime during 2005 or later, some kind of
calamity to visit his manufacturing facility or his export consignment.

One reason is obvious: lack of knowledge and awareness among the middle class traders about
the WTO, its functioning, its rules and its key objectives. Another reason is the uncertainty that
free trade can bring in its wake. Pakistan's trade bureaucracy has, of late, realized the necessity of
imparting some basic information to the trading and manufacturing community after having been
frequently accused of evading this vital duty and under-performing its essential functions.

Is it true that the new stricter quality and other standards will be imposed by the WTO and those
Pakistani products will not be allowed entry into foreign countries and markets? The answer is:
In 2005, the WTO will not impose any new stricter quality or other standards for Pakistani
exports since it is not the WTO's function and, in fact, it seeks to help our exporters by requiring
all countries to ensure that their standards are not stricter than necessary.

Another question placed in an ad is: Will the WTO harm Pakistan's agriculture by requiring
agricultural products to be imported duty-free. The answer is: In 2005 the WTO does not require
Pakistan to reduce any import duty. First of all, the idea of duty-free imports and that too of farm
products is ridiculous even as a query. That stage has not arrived yet.

One misunderstanding mentioned is that the WTO is only concerned about commercial interests,
not development. In its explanation which is quite weak, it says that freer trade boosts economic
growth and hence supports development.

In that sense, commerce and development are seen well for each other. But, whether or not,
developing countries gain enough from the system is a subject of continuing debate in the WTO.

Another misunderstanding, the WTO says, is that it dictates to governments on issues such as
food safety, and human health and safety. Some of the agreements, it says, do deal with product
standards and with health and safety for food and other products made from animals and plants.
The purpose is not to dictate but to defend governments' rights to ensure the safety of their
citizens. As an example, it quoted a WTO dispute ruling which imposed a ban on asbestos
products and said that WTO agreements do give priority to health and safety over trade.

Another common view is that small countries are powerless in the WTO. It argues that small
countries would, in fact, be weaker without the WTO as it increases their bargaining power. In
recent years, developing countries have become considerably more active in WTO negotiations,
had submitted an unprecedented number of proposals in the agriculture talks, and worked
actively on the ministerial declarations and decisions issued in Doha. Another complaint is that it
is a tool of powerful lobbies. Not so, it claims, the WTO system, in fact, offers governments a
means to reduce the influence of narrow vested interests.

Then, the WTO also faces the charge of being undemocratic. It defends itself by saying that its
decisions are generally taken by consensus. In principle, that's even more democratic than
majority rule, claims the WTO, because no decision is taken until everyone agrees. But the facts
are contrary to that because not every country has the same bargaining power.

If one of the major developed nations opposes a proposal by one of its counterparts, then the
proposal cannot go forward without extensive negotiations, deal-making and compromise.
Developing countries have been sidelined in this consensus building process.

If the WTO is to become more democratic in practice, the majority will need to insist that the
institution's structure of "one country, one vote" be realized in key decisions.

Then there is the issue of transparency. There is lack of openness in the process of rule making
and dispute settlement in the WTO. Complaints that the WTO is non-transparent are routinely
coupled with criticism that the WTO is not participatory.
Responding to critics, the WTO has through its website and forums started providing more
information about its internal process to the public, NGOs, and member governments, although
there is still much dissatisfaction, particularly among NGOs and developing countries which
believe that decision-making occurs in cloakroom discussion among the major trading nations.

The hard fact is that the WTO is essentially designed to protect the vital interests of the core
capitalist states, such as the US, Britain and Japan. It will definitely accommodate the developing
capitalist states' essential interests to the extent that these do not come into conflict with the
former's. If it happens, the latter states, such as Pakistan, will have to make a retreat and suffer to
that extent.

Many of the low-income developing countries have not been able to expand and diversify their
exports due to differential treatment extended to their counterparts in the same geographic
regions.

Within the South Asian region, Pakistani exporters of textile apparel have been suffering a lot
due to preferential treatment extended by US and EU countries to Bangladesh for export of the
same items. However it is now a matter of satisfaction that in terms of text released on
conclusion of the Hong Kong ministerial conference, Pakistan’s apparel and other textile
products will also enjoy the same access as Bangladesh and Cambodia have to developed
markets. Still, there is a need to address other similar remaining constraints.

Almost all the developing countries desire to do away with discriminatory trade preferences and
instead adopt a new approach to preferential treatment in the form of ‘trade aid’ from developed
countries, coupled with strengthened grant-based financing: in other words, financial assistance
for low-income developing countries to improve trade supply capacity and competitiveness of
local firms, upholding one of the basic objectives of the WTO, that is redistribution of gains from
trade liberalization and creating an enabling environment for developing countries to streamline
integration into the WTO mechanism.

The developing countries, including low-income countries, have more or less complied with the
requirement of removing trade barriers by altogether removing or reducing subsidies provided to
their farmers. However their chances of getting access to trade capacity measures remain in
oblivion. The steps, to be undertaken by developed countries with a development supportive
approach, are still being overlooked.

Under the WTO regime, rich countries are required to provide service visas to skilled and
unskilled workers of developing countries on a non-discriminatory basis, but still quite a number
of low-income developing countries of South Asia, including Pakistan, are being discriminated
against on this count.

In the ministerial conference at Hong Kong, 110 less developed countries took a strong stand for
gaining access to rich countries’ markets and for the removal of agriculture subsidies by rich
counties on an immediate basis. They succeeded in availing better protection for LDCs relating
to the exports of textiles and also getting the timeframe slashed for removing agriculture
subsidies.

However, members of this newly formed bloc must remain united and insist on getting this
timeframe further shortened and also to get export subsidies totally removed and most
importantly, to have greater market access for export of their non-agriculture products during the
next round of talks to be held in Geneva next year.
History of free trade

The history of free trade is a history of international trade focusing on the developments of open
markets.

It is known that various prosperous world cultures throughout history have engaged in trade.
Based on this, theoretical rationalizations as to why a policy of free trade would be beneficial to
nations developed over time. These theories were developed in its academic modern sense from
the commercial culture of England, and more broadly Europe, in the past five centuries. In
opposition to free trade, a policy of mercantilism was developed in Europe in the 1500's and
persists in various form to this day. Early free trade theorists who were opposed to mercantilism
were David Ricardo and Adam Smith. Free trade theorists offered trade as the reason why certain
cultures prospered economically. Adam Smith, for example, pointed to increased trading as being
the reason for the flourishing of not just Mediterranean cultures such as Egypt, Greece, and
Rome, but also of Bengal (East Indies) and China.

Free trade policies have battled with mercantilist, protectionist, isolationist, communist, and
other policies over the centuries. Wars, such as the Opium Wars, have been fought primarily over
trade.

All developed countries have used protectionism, but usually reduced it as they gained more
wealth. Some critics say that having more wealth guarantees that the country would benefit from
free trade, although the majority of scientists think that also poor countries would benefit from
free trade. The most notable critic, the economist Dani Rodrik claims, "the only systematic
relationship [between tariffs and economic growth] is that countries dismantle trade restrictions
as they get richer."
Overview of Pakistan-Sri Lanka Free Trade Agreement

Salient Features
1• Establishment of a Free Trade Area through complete or phased elimination of tariffs.
2• The FTA does not remove all tariffs on all goods at once.
3• Negative Lists to protect national interests of both countries.
4• The Rules of Origin (ROO) criteria to ensure a minimum local content.
5• Adequate safety clauses to protect domestic and national interests of both countries.
6• Review and consultation mechanisms to ensure the smooth operation of the Agreement.

Pakistan’s Commitment (for duty concessions)

1• Pakistan’s Negative List (No Concession List) contains 537 HS tariff lines at six-digit level
2• Granting 100% duty free access for 206 at six-digit HS tariff lines.
3• Pakistan has granted Tariff Rate Quota (TRQ) arrangements to Sri Lanka for exports of tea,
betel leaves and garments.

4
Tea: Granting duty free access for a total quantity of 10,000 MT of tea for
every financial year (July-June).
 Betel leaves : Granting preferential market access of 35% on the applied MFN
rate for a quantity of 1,200 MT for every financial year (July-
June).

Garments: Granting preferential margin of 35% on the applied MFN rate for a
quantity of 3 million pieces of garments for every financial year
(July-June) for 21 HS Tariff Lines at six-digit levels.
• Grating preferential duty margin (MOP) of 20% on applied MFN duty rate for five ceramic
items at six-digit level HS Tariff lines, with no quantitative restrictions.
• Items referred in TRQ & MOP are included in Pakistan’s Negative List.

Sri Lanka’s Commitments (for duty concessions)

1• Sri Lanka’s Negative List (No concession list) contains 697 HS Tariff Lines at six-digit
level.
2• Granting 100% duty free access for 102 tariff lines at six-digit level.
3• Sri Lanka has granted Tariff Rate Quota (TRQ) arrangements to Pakistan for exports
of Basmati Rice and Potatoes.
4
Basmati Rice : Granting duty free access for a total quantity of 6,000 MT of
Basmati Rice for every calendar year (January to
December).

Potatoes : Granting duty free access for a total quantity of 1,000 MT of

potatoes for every calendar year (January to December).

However, import of potatoes is permitted only during the off-season period in Sri Lanka
in the following manner.
2/3 of the quota during June-July
1/3 of the quota during October-November

Phased-out list
Pakistan

Pakistan will phase-out its tariffs on respective products as per the schedule appended
below;

1• Upon entering into force not less than 34%

2• At the end of the second year not less than 67%
3• At the end of the third year not less than 100%

(At the end of the third year, the applicable tariffs will be zero)

Sri Lanka

Sri Lanka will phase-out its tariffs on respective products as per the schedule appended
below.

1• Upon entering into force not less than 20%

2• At the end of first year not less than 30%
3• At the end of the second year not less than 40%
4• At the end of the third year not less than 60%
5• At the end of the fourth year not less than 80%
6• At the end of the fifth year not less than 100%
7
(At the end of the fifth year, the applicable tariffs will be zero)
 FTAs with other Countries

Singapore:

In the official visit of the Prime Minister Shaukat Aziz in May 2005, the two sides noted
with satisfaction that negotiators from Pakistan and Singapore successfully concluded
exploratory discussions on an FTA in Islamabad in February 2005 and planed to
commence with the first full round of FTA negotiations in June 2005. The two leaders
reaffirmed their commitment to conclude a high standard FTA as soon as possible.

Thailand:

In the official visit of Thailand by President Pervez Musharraf in June 2005, the two
countries moved closer for establishing an agreement on the topic of FTA. It was decided
to cooperate and try to finalize the FTA between the two countries as soon as possible.

Gulf Corporation Council (GCC):

The government of Pakistan had decided to sign FTA with the GCC as a trading block in
2004, and a trade research study was initiated to facilitate the government to prepare the
draft agreement. A consultant was appointed to carry out a study in this connection that
has completed his task by October 2005.

The trade research study has proposed to the government that Most-Favored Nation
status be offered to the GCC on a reciprocal basis. There should be an implementation
commission to implement the FTA among the signatories. If any dispute arises it
should be resolved through the appointment of a Dispute Settlement Panel consisting
of officials from contracting states. FTA with the GCC member countries would benefit
Pakistan as the distance between the contracting states was short resulting in reduced
cost of imports and export under the proposed FTA. At present Pakistan is importing a
good amount of raw materials, semi-finished goods and oil from the GCC countries
and the FTA would reduce the cost of the imports. As a result of the FTA, Pakistan
would be in a position to increase its export under the tariff concession to be available
to Pakistani exporters. The agreement would provide an opportunity to Pakistani
exporters to tap the demand for goods in the GCC countries under the reduced tariff in
the first phase and without tariff in the long term.

SAFTA:

The cabinet approved a proposal to ratify the South Asia Free Trade Area (Safta)
agreement. Except for Pakistan and Sri Lanka all other Saarc member countries have
already ratified the treaty. The cabinet meeting presided over by Prime Minister Shaukat
Aziz approved the ratification of Safta which came into effect retrospectively from
January 1, 2006. However, a cut in tariffs along with the rules of origin would come into
force from July 1, 2006. Commerce Minister Humayun Akhtar Khan, however, said that
bilateral trade with India would continue through a positive list approach even after the
implementation of Safta.

Bangladesh:

According to Bangladesh’s Foreign Minister Morshed Khan, Bangladesh and Pakistan

will soon start formal negotiations on bilateral free trade agreement (FTA) in a bid to sign
the deal by September 2006.

Pakistan had agreed to give a duty-free access to 73 Bangladeshi items under nine
categories, and it would be easier with a bilateral FTA in place. But as an early harvest,
some more Bangladeshi items may get duty-free access. Trade position between the two
countries always remains in favour of Pakistan. Bangladesh suffered a trade deficit of Tk
142.64 crore with Pakistan during the first quarter of fiscal year 2005-06 with
Bangladesh's exports totaling Tk 64.29 crore and imports amounting to Tk 206.93 crore.

Bangladesh exports raw jute, jute goods, chemical, plastic and tea to Pakistan while its
major imports included textile and textile chemical, machinery and vehicle.

Malaysia:

Pakistan has concluded Early Harvest Agreements with Malaysia which is a first step
towards the full implementation of FTA between Malaysia and Pakistan.

China:

Pakistan has also concluded Early Harvest Agreement with China, and negotiations are
underway for the FTA.

Other Countries:

Bilateral negotiations are underway with, Indonesia, Turkey, Kazakhstan, Tajikistan,

Morocco and Mauritius.
 Preferential Trade Agreement
(PTA)

Iran and Turkey:

A MoU was concluded in 1992 establishing a Preferential Tariff Arrangement between

Pakistan, Iran and Turkey. It provides for 10% reduction in tariffs on a list of specific
items. Within its framework, it is being endeavored to gradually reduce tariffs and non-
tariff barriers as well as expand the list of commodities for preferential treatment.

Brazil:

The Ambassador of Federal Republic of Brazil to Pakistan Fausto Godoy has underscored
the need for enhancing trade between Brazil and Pakistan. According to him negations
were being made on PTA between Pakistan and MERCOSUL countries.

Other Countries:

As far as regional bodies are concerned, we are working out preferential access
arrangements in SAARC, ECO, OIC, D-8, and GCC.
 General Agreement on Trade in Services (GATS)

The General Agreement on Trade in Services (GATS) is a trade agreement that

established a credible and reliable system of international trade rules (for the services
sectors), ensuring fair and equitable treatment of all participants stimulating economic
activity through guaranteed policy bindings; and promoting trade and development
through progressive liberalization. It covers all services sectors with the exception of
services supplied in the exercise of governmental authority and measures affecting air
traffic rights and services.

It imposes on its Members basic obligations to accord to the services and the service
suppliers of all Members' treatment no less favorable than that accorded to like services
and service suppliers of any other country (most-favored-nation or MFN treatment), and
to publish all measures of general application and establish national enquiry points
mandated to respond to other Members' Information requests (transparency).

GATS requires each Member to have a schedule of specific commitments which

identifies the services for which the Member guarantees market access and national
treatment and any limitations that may be attached. Developing countries are given
flexibility for opening a smaller number of sectors, liberalizing fewer types of
transactions and progressively extending market access in line with their development
situation.

The Services Agreement, which forms part of the Final Act, rests on three pillars. The
first is a Framework Agreement containing basic obligations, which apply to all member
countries. The second concerns national schedules of commitments containing specific
further national commitments, which will be the subject of a continuing process of
liberalization. The third is a number of annexes addressing the special situations of
individual services sectors.

Part 1 of the basic agreement defines its scope - specifically, services supplied from the
territory of one party to the territory of another; services supplied in the territory of one
party to the consumers of any other (for example, tourism); services provided through the
presence of service providing entities of one party in the territory of any other (for
example, banking); and services provided by nationals of one party in the territory of any
other (for example, construction projects or consultancies).

Part 2 sets out general obligations and disciplines. A basic most-favored-nation (MFN)
obligation states that each party "shall accord immediately and unconditionally to
services and service providers of any other Party, treatment no less favorable than that it
accords to like services and service providers of any other country". However, it is
recognized that MFN treatment may not be possible for every service activity and,
therefore, it is envisaged that parties may indicate specific MFN exemption. Conditions
for such exemptions are included as an annex and provide for reviews after five years and
a normal limitation of 10 years on their duration.

The agreement contains obligations with respect to recognition requirements (educational

background, for instance) for the purpose of securing authorizations, licenses or
certification in the services area. It encourages recognition requirements achieved
through harmonization and internationally agreed criteria. Further provisions state that
parties are required to ensure that monopolies and exclusive service providers do not
abuse their positions. Restrictive business practices should be subject to consultations
between parties with a view to their elimination.

While parties are normally obliged not to restrict international transfers and payments for
current transactions relating to commitments under the agreement, there are provisions
allowing limited restrictions in the event of balance-of-payments difficulties. However,
where such restrictions are imposed they would be subject top conditions; including that
they are non-discriminatory, that they avoid unnecessary commercial damage to other
parties and that they are of a temporary nature.

Part 3 contains provisions on market access and national treatment, which would not be
general obligations but would be commitments made in national schedules. Thus, in the
case of market access, each party "shall accord services and service providers of other
parties treatment no less favorable than that provided for under the terms, limitations and
conditions agreed and specified in its schedule". The intention of the market-access
provision is to progressively eliminate the following types of measures: limitations on
numbers of service providers, on the total value of service transactions or on the total
number of service operations or people employed. Equally, restrictions on the kind of
legal entity of joint venture through which a service is provided or any foreign capital
limitations relating to maximum levels of foreign participation, are to be progressively
eliminated.

The national-treatment provision contains the obligation to treat Foreign Service

suppliers and domestic service suppliers in the same manner. However, it does provide
the possibility of different treatment being accorded the service providers of other parties
to that accorded to domestic service providers. However, in such cases the conditions of
competition should not, as a result, be modified in favor of the domestic service
providers.

Part 4 of the agreement establishes the basis for progressive liberalization in the services
area through successive rounds of negotiations and the development of national
schedules. It also permits, after a period of three years, parties to withdraw or modify
commitments made in their schedules. Where commitments are modified or withdrawn,
negotiations should be undertaken with interested parties to agree on compensatory
adjustments. Where agreement cannot be reached, compensation would be decided by
arbitration.

Part 5 of the agreement contains institutional provisions, including consultation and

dispute settlement and the establishment of a Council on Service. The responsibilities of
the Council are set out in a Ministerial Decision.

The first of the annexes to the agreement concerns the movement of labor. It permits
parties to negotiate specific commitments applying to the movement of people providing
services under the agreement. It requires that people covered by a specific commitment
shall be allowed to provide the service in accordance with the terms of commitment.
Nevertheless, the agreement would not apply to measures affecting employment,
citizenship, residence or employment on a permanent basis. The annex of financial
services (largely banking and insurance) lays down the right of parties, not withstanding
other provisions, to take prudential measures, including for the protection of investors,
deposit holders, and to assure integrity stability of the financial system. However, a
further understanding on financial services would allow those participants who choose to
do so to undertake commitments on financial services through a different method. With
respect to market access, the understanding contains more detailed obligations on, among
other things, monopoly rights, cross border trade (certain insurance and reinsurance
policy writing as well as financial data processing and transfer), the right to establish or
expand a commercial presence, and a temporary entry of personnel. The provisions on
national treatment refer explicitly to access to payments and clearing systems operated by
public entities and to official funding and refinancing facilities. They also relate to
membership of, or participation in, self-regulatory bodies, securities or future exchanges
and clearing agencies.

The annex on telecommunications relates to measures, which affect access to and use of
public telecommunications services and networks. In particular, it requires that such
access be accorded to another party, on reasonable and non-discriminatory terms, to
permit the supply of a service included in its schedule. Conditions attached to the use of
public networks should be no more than is necessary to safeguard the public service
responsibilities of their operators, to protect the technical integrity of the network and to
ensure that Foreign Service suppliers do not supply services unless permitted to do so
through a specific commitment. The annex also encourages technical cooperation to
assist developing countries in the strengthening of their own domestic
telecommunications sectors. The annex on air-transport services excludes from the
agreement's coverage traffic rights (largely bilateral air-service agreements conferring
landing rights) and directly related activities, which might affect the negotiation of traffic
rights. Nevertheless, the annex, in its current form, also states that the agreement should
apply to aircraft repair and maintenance services, the marketing of air transport services
and computer-reservation services. The operation of the annex would be reviewed at least
every five years.
 Other Trade Related Agreements

Avoidance of Double Taxation

Countries Having Agreement with Pakistan for Avoidance of Double Taxation

1. Austria 19. Jordan 35. Qatar

2. Bangladesh 20. Kazakhistan 36. Romania
3. Belarus 21. Kenya 37. Saudi Arab
4. Belgium 22. Republic of 38. Singapore
5. Canada Korea 39. South Africa
6. China 23. Kuwait 40. Sri lanka
7. Denmark 24. Lebanon 41. Sweden
8. Finland 25. Libyan Arab 42. Switzerland
9. France Republic 43. Syria
10. Germany 26. Malaysia 44. Thailand
11. Greece 27. Malta 45. Tunisia
12. Hungary 28. Mauritius 46. Turkey
13. India 29. Netherlands 47. Turkmenistan
14. Indonesia 30. Nigeria 48. U.A.E
15. Iran 31. Norway 49. U.K
16. Ireland 32. Oman 50. U.S.A
17. Italy 33. Philippines 51. Uzbekistan
18. Japan 34. Poland
 Bilateral Investment

List of Countries / Organizations with which Pakistan has Bilateral Investment Agreements

Name of Country Signing Date S. No. Name of Country Signing Date

1. Germany 25.11.1959 24. Indonesia 08.03.1996

2. Sweden 12.03.1981 25. Tunisia 18.04.1996
3. Kuwait 17.03.1983 26. Syria 25.04.1996
4. France 01.06.1983 27. Belarus 22.01.1997
5. South Korea 25.05.1988 28. Mauritius 03.04.1997
6. Netherlands 04.10.1988 29. Italy 19.07.1997
7. Uzbekistan 13.08.1992 30. Oman 09.11.1997
8. China 12.02.1989 31. Sri Lanka 20.12.1997
9. Singapore 08.03.1995 32. Australia 07.02.1998
10. Tajikistan 13.05.2004 33. Japan 10.03.1998
11. Spain 15.09.1994 34. Belgium 23.04.1998
12. Turkmenistan 26.10.1994 35. Qatar 06.04.1999
13. United Kingdom 30.11.1994 36. Philippines 11.05.1999
14. Turkey 15.03.1995 37. Yemen 11.05.1999
15. Portugal 17.04.1995 38. Egypt 16.04.2000
16. Romania 10.07.1995 39. OPEC Fund 24.10.2000
17. Malaysia 07.07.1995 40. Lebanon 09.01.2001
18. Switzerland 11.07.1995 41. Denmark 18.7.1996
19. Kyrgyz Republic 23.08.1995 42. Morocco 16.04.2001
20. Azerbaijan 09.10.1995 43. Bosnia and Herzegovina 04.09.2001
21. Bangladesh 24.10.1995 44. Kazakhstan 08.12.2003
22. U.A.E. 05.11.1995 45. Laos 23.04.2004
23. Iran 08.11.1995 46. Cambodia 27.04..2004

Comparison of Pakistan and Sri Lanka

Pakistan Srilanka
GDP (US $bn) 62.9 16.4
Current-account balance (US$ bn) -3.2 -0.4
Current-account balance (% of GDP) 5.1 -2.5
Exports of goods fob (US$ bn) 10.2 4.8
Imports of goods fob (US$ bn)
External Debts (US $ bn)
Import Partners
Import Commodities
Export Partners
Export Commodities
-11.0
33.4
UAE 11.2%, Saudi
Arabia 10.9%, China
7.3%, Japan 6.6%,
Kuwait 6.4%, US 6%,
Malaysia 4.6%, Germany
4.4%, Singapore 4%
Petroleum, petroleum
products, machinery,
plastics, transportation
equipment, edible oils,
paper and paperboard,
iron and steel, tea
US 23.1%, UAE 9.4%,
UK 7.1%, Germany
5.1%, Hong Kong 4.6%
Textiles (garments, bed
linen, cotton cloth, and
yarn), rice, leather goods,
sports goods, chemicals,
manufactures, carpets
and rugs
5.7
9.6
India 13.3%, China
7.3%, Singapore
7.1%, Hong Kong
5.9%, Japan 5.5%,
South Korea 4.9%,
Taiwan 4.6%, UAE
4.5%
Textile fabrics,
mineral products,
petroleum, foodstuffs,
machinery and
transportation
equipment.
US 33.4%, UK
11.6%, Germany
4.4%, Belgium 4.1%,
India 4.1%
Textiles and apparel;
tea and spices;
diamonds, emeralds,
rubies; coconut
products; rubber
manufactures, fish
Suggestions:

The deficit in BOP is one of the major problems confronting Pakistan. Pakistan is facing
a persistent deficit in its BOP. The recent devaluation instead of correcting the imbalance
further worsened the deficit by increasing the import bills without increasing the export
receipts.
Our ability to overcome the BOP depends on sound macroeconomic management,
implementation of structural reforms in the key trade related sectors, and the adoption of
a more aggressive export-led growth strategy. Rapid and sustained improvements in
export performance combined with efficient import substitution will be needed to be
supported by policies which help restructure and re-orient growth towards a more
dynamic export sector. This will be essential to finance the required increase in
investment and essential imports while maintaining prudent external debt levels.

There are broadly four areas where action will be needed to achieve our objectives:

• First, in Agriculture, a substantial improvement in yields, product quality,

marketing efficiency and the development of a complete support system for the
power to exploit fully, the potential for exports of high-value agricultural
commodities will be required;
• Second, in Industry, the enactment of a more efficient set of pricing and trade
incentives aimed at fostering greater competitive efficiency will be necessary.
This will call for a re-orientation of the structure of incentives towards exports,
combined with measures aimed at improving the domestic policy environment
through further de-regulation and reductions in sanctioning requirements so as to
stimulate internal competition and create a more flexible and resilient industrial
structure;
• Third, in Energy sector, rationalization of domestic energy prices and intensified
conversion efforts should take place so as to provide incentives for the exploration
and development of domestic energy resources while containing the demand for
energy and oil imports; and
• Fourth, in the are of Trade Policy, an active exchange rate policy guided by the
need to accelerate the flow of exports and diversify its composition and restrain in
essential imports, combined with establishment of a “Free Trade” status for
exporters and the extension of these incentives to indirect exporters, is called for.
Suggestions to improve the BOP Position:

Reaffirming the efficient export-led growth can make a significant contribution to

reducing Pakistan’s trade deficit and external financing needs, the measures which
government should adopt are:
1. Highest priority to improvements in export unit values and export quality through
enhanced fiscal concessions, the development of technology institutions, and trade
houses;
2. a more effective and comprehensive system of export compensation;
3. a fundamental change in export quota policy for textiles so as to maximize value
addition;
4. a significant casing of access to imported raw materials and modern machinery to
facilitate quick modernization and technical upgrading of export industry, as well as
improving quality standards;
5. improve access to credit for exporters through the establishment of an Export Credit
Wing in the State Bank of Pakistan, greater emphasis of product design and
marketing strategies by enhancing financial resources of the Export Market
Development Fund;
6. Special steps to accelerate the development and modernization of power-loom sector;
simulating export competition through the induction of the private sector in the export
of rice and cotton;
7. Removal of all restrictions on the textile sector including permission for the free
import of high quality yarn;
8. Forging a closer link between export and import flows through trade diplomacy and
special incentives for the export of engineering goods;
9. Establishment of efficient mechanisms for implementing and monitoring export-
specific measures.

Further recommendations could be as follows:

• There should be coherence in government policies such that they should not
contradict each other. And the policies of all ministries should be aligned to
overall macro objectives.
• While liberalizing imports and exports one should not forget the pricing
mechanism of free exchange rate regime which balances the balance of Payments
 deficit or surplus but SBP has virtually maintained a fixed exchange rate at the
cost of loss in external competitiveness.
• The unchecked import of consumer imports and high promotion of consumerism
in the economy must be curbed through prudent trade policies and care should be
taken that the elite is not taking undue advantage of the liberal policies.
• Not enough emphasis ahs been given to building strong brands. Pakistan with 50
years of producing and exporting huge amounts of textiles does not have strong
brands even locally let alone international brands.
• Country branding is the need of the hour. It is the consumer confidence in the
country of origin that sells. “The judgment of products and brands on the world
market is in close correlation with the fact where do they come from. The
marketing literature defines this as “country of origin effect”, but many experts
use the “made in marketing” or the “made in label” terms too”2.
• The government is taking the trade deficit too lightly which might lead to
problems if remittances fall or privatization proceeds are delayed.

2
Sell the Country, Sell the Product!(The Role of Country of Origin Effect in the Global
Competition)by Árpád Ferenc Papp-Váry; PhD Candidate, University of West Hungary, Faculty of
Economics, Sopronp; Managing Director, Advice President Kft., Budapest
References:

• Economic survey

• http://www.mopd.gov.pk/mtdf.htm

• http://www.intracen.org/menus/countries.htm

• http://www.epb.gov.pk/epb/jsp/epbdocs2004/TradePolicy2005-06.pdf

• Khawaja Amjad Saeed; Economy of Pakistan; 2005, Oxford University Press

• M. Saeed Nasir; Economics of Pakistan; 2005-06; Nasab Printers

• CIA – World Factbook