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.


% SHARE EXPORT % SHARE EXPORT % SHARE 13.90 11.85 11.23 9.15 8.07 5.15 3.82 3.38 1,345,650 1,146,674 1,329,064 928,358 1,092,607 555,457 574,306 359,775 12.06 10.27 11.91 8.32 9.79 4.98 5.15 3.22 1,130,828 845,943 918,558 929,691 874,954 448,230 410,029 350,906 12.38 9.26 10.06 10.18 9.58 4.91 4.49 3.84

1,711,492 1,458,736 1,383,334 1,126,876 993,322 634,457 470,757 416,604



3.28 3.20

374,839 289,285 232,316 56,969 335,173 248,575 260,931 234,774 220,899 134,499 149,965 83,155 74,087 85,887 9,823,960

3.36 2.59 2.08 0.51 3.00 2.23 2.34 2.10 1.98 1.21 1.34 0.75 0.66 0.77 88.03

267,715 372,665 321,341 51,324 304,478 190,729 152,787 239,934 249,574 125,642 145,046 83,089 51,113 56,226 8,148,137

2.93 4.08 3.52 0.56 3.33 2.09 1.67 2.63 2.73 1.38 1.59 0.91 0.56 0.62 77.55

23% 3% 0% 17% 3% 24% 31% 2% -4% 10% -4% 11% 40% 26% 100%

323,656 70,722 324,751 294,461 262,957 251,693 231,449 152,890 132,563 102,679 100,008 88,833

2.63 0.57 2.64 2.39 2.14 2.04 1.88 1.24 1.08 0.83 0.81 0.72 88.81

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


7.07 4.73 2.34 4.93 4.00 3.69 2.83 2.75 2.72 2.45 2.13 1.78 1.64 1.58 1.48 1.09 1.06 0.99 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.


IMPORTS INTO PAKISTAN ( In Descending Order)
VALUE IN '000' DOLLARS JULY-JUNE JULY-JUNE JULY-JUNE CAGR 2001-2002 2002-2003 2003-2004 VAL 10,339,547 12,220,253 15,591,776 10,339,547 12,220,253 15,591,776 2,203,588 2,942,323 4,220,358 1,824,620 2,160,711 2,797,709 1,230,772 1,366,514 1,765,132 20% 1,576,235 1,699,922 1,401,419 380,334 539,315 612,990 336,052 402,342 512,009 210,414 216,044 467,346 182,702 204,085 250,023 156,555 172,743 192,517 136,821 131,674 164,375

ITEMS TOTAL MACHINERY AND TRANSPORT EQUIP CHEMICALS & RELATED PRODUCTS Crude Petroleum Petroleum Products Palm Oil Iron And Steel Gold. Non-Menetart Not Ore/Concert. Oil Seds & Oleaginous Fruits Tea Paper & Paper Board & Manf.

23% 38% 24% -6% 27% 23% 49% 17% 11% 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.



20% 13% 17% 14%



12% 12% 12% 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 petrodollars 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 from19831991 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

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.

4500.00 4000.00 3500.00 3000.00 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 1999-2000 2003-04 1976-77 1982-83 1992-93 1985-86 1995-96 2001-02 2004-05(Jul-Apr)

US $ million

Historical Flow of Remittances (Source: Economic Survey)

• 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. ii. Exports (fob) in nominal dollar terms estimated to increase to $ 28.0 billion, with major thrust on exports of value added products. 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. ii. iii. Pakistan will gain new markets in the coming years in Malaysia and a large role in the rehabilitation of Afghanistan Position of skilled labor will improve in the coming years and will gradually replace Pakistan’s unskilled labor abroad. 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. ii. iii. iv. v. Improved market access through trade diplomacy, and new FTAs/PTAs with selected priority countries. Focusing on neglected Regions and countries like Africa, Latin America, Eastern Europe, Central Asia and the Far East. Strengthening of trade promotion infrastructure of the Government including the EPB and the trade offices abroad. Improving skill development and productivity through provision of large scale training. 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

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


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 hometextile 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 selfsufficiency 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) (ii) (iii)

market research holding of fairs and exhibitions at local and international level sending of trade delegations for exploring international market Making overseas publicity to create brand I country I product awareness Holding of local exhibitions Conducting seminars I workshops to create awareness about export related issues Establishment of training institutes for capacity development in sectors like textiles, leather, surgical etc.




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. 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




0 1974-75 -1000










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 -500 1979-80 1984-85 1989-90 1994-95 1999-2000 2004-05

Trade Balance(US $ Million)









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


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 (JulyJune).


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 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.

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.

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.

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.

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

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 nontariff barriers as well as expand the list of commodities for preferential treatment.

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 2. Bangladesh 3. Belarus 4. Belgium 5. Canada 6. China 7. Denmark 8. Finland 9. France 10. Germany 11. Greece 12. Hungary 13. India 14. Indonesia 15. Iran 16. Ireland 17. Italy 18. Japan

19. Jordan 20. Kazakhistan 21. Kenya 22. Republic of Korea 23. Kuwait 24. Lebanon 25. Libyan Arab Republic 26. Malaysia 27. Malta 28. Mauritius 29. Netherlands 30. Nigeria 31. Norway 32. Oman 33. Philippines 34. Poland

35. Qatar 36. Romania 37. Saudi Arab 38. Singapore 39. South Africa 40. Sri lanka 41. Sweden 42. Switzerland 43. Syria 44. Thailand 45. Tunisia 46. Turkey 47. Turkmenistan 48. U.A.E 49. U.K 50. U.S.A 51. Uzbekistan

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

Name of Country
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. Germany Sweden Kuwait France South Korea Netherlands Uzbekistan China Singapore Tajikistan Spain Turkmenistan United Kingdom Turkey Portugal Romania Malaysia Switzerland Kyrgyz Republic Azerbaijan Bangladesh U.A.E. Iran

Signing Date
25.11.1959 12.03.1981 17.03.1983 01.06.1983 25.05.1988 04.10.1988 13.08.1992 12.02.1989 08.03.1995 13.05.2004 15.09.1994 26.10.1994 30.11.1994 15.03.1995 17.04.1995 10.07.1995 07.07.1995 11.07.1995 23.08.1995 09.10.1995 24.10.1995 05.11.1995 08.11.1995

S. No.
24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44.

Name of Country
Indonesia Tunisia Syria Belarus Mauritius Italy Oman Sri Lanka Australia Japan Belgium Qatar Philippines Yemen Egypt OPEC Fund Lebanon Denmark Morocco Bosnia and Herzegovina Kazakhstan

Signing Date
08.03.1996 18.04.1996 25.04.1996 22.01.1997 03.04.1997 19.07.1997 09.11.1997 20.12.1997 07.02.1998 10.03.1998 23.04.1998 06.04.1999 11.05.1999 11.05.1999 16.04.2000 24.10.2000 09.01.2001 18.7.1996 16.04.2001 04.09.2001

08.12.2003 23.04.2004 27.04..2004

45. 46.

Laos Cambodia

Comparison of Pakistan and Sri Lanka
GDP (US $bn) Current-account balance (US$ bn) Current-account balance (% of GDP) Exports of goods fob (US$ bn) 62.9 -3.2 5.1 10.2

16.4 -0.4 -2.5 4.8

Imports of goods fob (US$ bn) External Debts (US $ bn) Import Partners

-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%

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

Import Commodities

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%

Export Partners

Export Commodities

Textiles (garments, bed linen, cotton cloth, and yarn), rice, leather goods, sports goods, chemicals, manufactures, carpets and rugs

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 exportspecific 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.


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




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

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

CIA – World Factbook