Resource Distribution

The factors of production are not evenly distributed throughout the world

Natural resources are more plentiful in some areas (Oil & gas deposits,
water, timber)

Human capital is more skilled in nations with higher literacy rates

Physical capital is deeper in some nations

Better machinery
Better infrastructure allows for goods to be transported easier on new
roads, bridges, etc.

Comparative advantage...the ability for a nation to produce at a lower

opportunity cost

Free Trade?
Many people argue that governments should regulate trade in order to protect
industries and jobs from foreign competition

This is known as protectionism

Many nations set up trade barriers in order to provide protectionism

Govts want to protect their companies from foreign competition

Trade Barriers
Trade barriers...restrictions that prevent foreign products or services from freely
entering a country

Tariffs...taxes on imported goods

Customs duty (tax on goods from abroad)
Used to encourage purchasing of domestic products

Quotas
When a country imposes a limit on the amount of goods being imported or
exported
Might be a specific quantity or a $ value

Limits competition from foreign goods

Allows greater control of supply, and therefore price

 Other Trade Barriers (Informal)

Licenses
High fees or slow processing will act as barriers
Standards of production
Banning of goods produced bec of certain methods

Free Trade Agreements

In general, countries want goods to flow freely for the benefits of their citizens and
businesses
Countries sign agreements stating that when they trade with one another, they will
not use protectionist policies

The Breton Woods Institutions

Formed after WWII by the winners in order to ensure that the global economy
would recover as quickly as possible
Goal is to minimize global trade barriers in order to maximize international trade
One of these institutions was the General Agreement on Tariffs and Trade (GATT)

World Trade Organization

GATT...General Agreement on Tariffs and Trade...founded in 1948

Reduce tariffs & expand world trade

WTOWorld Trade Organization worldwide organization whose goal is freer

global trade and lower tariffs - founded in 1995 to ensure GATT

Acts as a referee for trade agreements

Will negotiate new trade agreements

Free Trade Zones

Areas established by countries to reduce or eliminate trade barriers
Two such Organizations

European Union (EU) (1957)

Set up to market & coordinate trade policies
Euro is used in all 28 countries

North American Free Trade Agreement (NAFTA)

 Eliminates trade barriers in Canada, Mexico & USA

European Union
Regional trade organization made up of 28 member nations
Essentially developed a single market (EEC...European Economic Community) in
Europe (trades w/USA A LOT!)

EU has a parliament, a flag, a council, an anthem, and currency (the euro)

Goal is to create a single economy that rivals the US

Currently the largest trading partner of the US

Canada, Mexico, and Japan are next

NAFTA
Created to eliminate all tariffs and barriers in the region (Canada, Mexico, US)
ratified in 1994
Largest free trade zone in world
Although there has been much controversy, NAFTA has increased trade between
the three nations
Today, NAFTA is working to expand to other countries in Western
Hemisphere

Preferential Trade Arrangement

Agreement where countries join together to form a trade bloc with special
relationships among the members

Types of Trade Arrangements

1. Trade Preference Association: Members lower govt. barriers on goods
from other members only (e.g., Preferred nation designation).
2. Free Trade Area: Members eliminate barriers against other members but
maintain individual barriers against goods from non-members (e.g.,
NAFTA).
3. Customs Union: Members eliminate govt. barriers against members
imports and establish common tariffs against non-members (e.g, EC,
Mercosur).
4. Common Market: Barriers to all transactions removed b/n members, incl.
transfers of labor, capital, & services. Common barriers against nonmembers (e.g., EU).

Free-trade Area (FTA)members

agree to eliminate trade barriers among themselves, but maintain individual
barriers against non-members
(ex., NAFTA).

Customs Union (CU)members remove trade barriers among themselves

and form common barriers among non-members (ex., EU).

Asia-Pacific Economic Cooperation (APEC)

The Asia-Pacific Economic Cooperation (APEC) forum was established in 1989. Its
primary purpose is to facilitate economic growth and prosperity in the region, with the vision of
creating a seamless regional economy.
Asia Pacific Economic Cooperation, or APEC, was formed in 1989 in Australia as an informal forum
in which member nations could discuss free trade and economic cooperation along the Pacific Rim.
From the perspective of the United States, it has been a crucial institution for economic engagement
within the region.

Free-Trade agreement

China (bilateral FTA)

The architecture of the bilateral Free Trade Agreement includes Trade in Goods
and Investments in the first Phase and the leaders of both the countries have
decided to negotiate on Trade in Services during 2007 to enlarge the coverage of
the Free Trade Agreement.
In the overall package Pakistan will get market access at zero duty on industrial
alcohol, cotton fabrics, bed-linen and other home textiles, marble and other tiles,
leather articles, sports goods, mangoes, citrus fruit and other fruits and
vegetables; iron and steel products and engineering goods. China will also reduce
its tariff by 50% on fish, dairy sectors; frozen orange juice; plastic products;
rubber products; leather products; knitwear; woven garments etc
Pakistan has given market access to China mainly on machinery; organic; and
inorganic chemicals, fruits & vegetables, medicaments and other raw materials for
various industries including engineering sector, intermediary goods for
engineering sectors, etc.

Pak-Malaysia FTA
The Comprehensive Free Trade Agreement (FTA) for Closer Economic Partnership
between Pakistan and Malaysia was approved by the Cabinet on 6th November,
2007. It was signed on 08-11-2007 at Kuala Lumpur Malaysia.

This Agreement is Pakistans first comprehensive FTA incorporating trade in goods,

trade in services, investment and Economic Co-operation and Malaysias first
bilateral FTA with any south Asian country.
For trade in Goods Pakistan will eliminate tariff on 43.2% of the current imports from
Malaysia by 2012. On the other hand Malaysia will eliminate tariff on 78% of imports
from Pakistan.
Pakistan will reduce tariff on 7 palm oil tariff lines by 15 per cent Margin of Preference
(MoP) that is 10 per cent in 2008 and an additional 5 per cent in 2010. There will,
however, be no reduction on the rates of sales tax / Federal excise duty levied at 15%
and withholding tax charged @ 2% on the imported palm oil.

Pak-Sri Lanka Free Trade Agreement

Free Trade Agreement (FTA) between Pakistan and Sri Lanka is operational from June
12, 2005. Under the Free Trade Agreement, Sri Lanka and Pakistan have agreed to
offer preferential market access to each others exports by way of granting tariff
concessions. Sri Lanka would be able to enjoy duty free market access on 206
products in the Pakistani market including tea, rubber and coconut. Pakistan, in
return, would gain duty free access on 102 products in the Sri Lankan market. These
products include oranges, basmati rice and engineering goods.

PTA BETWEEN PAKISTAN AND IRAN

Pakistan signed a Preferential Trade Agreement with Islamic Republic of Iran on 4th
March 2004. The Cabinet ratified the agreement on 25th May 2005. As mutually
agreed the agreement has become operational from 1st September 2006.
2. Under the Agreement, Pakistan offered concessions to Iran on 338 tariff lines,
whereas Iran gave concessions on 309 tariff lines. Preferences granted by both
countries to each other cover approximately 18% of MFN tariff of both countries.

PTA BETWEEN PAKISTAN AND Indonesia

PTA Pak Mauritius Trade Agreement
Pakistan signed Preferential Trade Agreement with Republic of Mauritius on 30th July 2007 at
Port Louis Mauritius. The Cabinet ratified the agreement on 30th October 2007. As mutually
agreed the agreement has become operational since 30th November 2007. 2. Under the
Agreement, Pakistan offered concessions to Mauritius on 130 items / tariff lines i.e. 1.9% of its
total existing national tariff lines, whereas Mauritius has given concession on 102 items / tariff
lines i.e. 1.64% of its total existing national tariff lines.PAK-Mauritius Preferential Trade
Agreement (PTA)

Pak- Afghan (Transit Trade agreement)

The AfghanistanPakistan Transit Trade Agreement (also known as APTTA) is a
bilateral trade agreement between Pakistan and Afghanistan has been renegotiated
several times.[1] The treaty, signed in 1950, gave Afghanistan the right to
import duty-free goods through Karachi.[2]
Pakistan and Afghanistan signed the APTTA 2010 on October 28, 2010 and this
agreement replaced the previous Transit Trade Agreement of 1965. The APTTA 2010
was operationalized on June 12, 2011.

South Asian Free Trade Area (SAFTA)

The South Asian Association for Regional Cooperation (SAARC) was established on
December 8, 1985.The SAARC Charter was adopted by Governments of Bangladesh,
Bhutan,India,
Maldives,
Nepal,
Pakistan and Sri Lanka with a aim to accelerate the process of economic and social
development
in Member States.The Agreement on South Asian Free Trade Area (SAFTA) was signed
at Islamabad during the Twelfth SAARC Summit on 6 January 2004. The ratification
of SAFTA by all the member countries is major achievement of SAARC mandate.
Under Article 7 of the Agreement tariff reduction Modality is defined as Trade
Liberalisation Programme (TLP) in the first phase, India, Pakistan and Sri Lanka
will
bring
down
their
customs
tariff
to
20% by 1st January 2008. As far as the LDC Member States i.e. Bangladesh, Bhutan,
Maldives
and
Nepal
are concerned, they would reduce their customs tariff to 30% . First tariff reduction
would be effected on 1st July 2006 by all Member States with the exception of Nepal
which would do so on 1st August 2006.
Article-7 of the Agreement contains modalities of tariff reduction under TLP, which
are as follows:

No tariff reduction on items in theSensitive List.

Non-LDCs (Pakistan, India, Sri Lanka) shall reduce tariff to 0-5% for LDCs
(Bangladesh,
Bhutan,
Nepal, Maldives) within three years (2009)

Summary of Sensitive Lists

Countries

No of tariff lines

Percentage of total
lines

Bangladesh

1254

24%

Bhutan

157

3%

India

884

16.9%

Maldives

671

12.8%

Nepal

1310

25.5%

Pakistan

1183

22.6%

Sri
Lanka

1065

20.3%