CLASS LECTURES

“Trade”
INTRODUCTION:
Trade can be defined as the exchange of goods and services. In early years Trade was
carried out through Barter System but nowadays it is been monitored through WTO (World
Trading Organization) in Dollars as a currency.

Imports and exports of Pakistan:

Imports of Pakistan Exports of Pakistan

Machineries Rice
Auto mobiles (cars and vehicles) Wheat
Mobile phones and accessories Cotton & semi processed cotton goods
Electrical appliances Sugar
Technical gadgets Cement
Crude Oil and other fuel resources like Fertilizer
LPG etc.
Laptops and computers Minerals like Cobalt, Iron Ore and Coal
etc.
Food items (beverages, cereals & Towels & Handkerchief (manufactured
chocolates etc.) cotton goods)
Manufactured cotton goods Fruits
Needle Vegetables
Tobacco / Tea / Coffee Fishes
Technology Sports goods
Cosmetics Surgical instruments
Luxurious items etc. Weapons and Ammunitions

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 Balance of trade

Trade Balance could be easily find out through the mentioned formula.

Value of Export – Value of Import = Trade Balance (BoT)

E.g. 10 Billion $ – 70 Billion $ = – 60 Billion $ (Negative Trade Balance)

Unfortunately in Pakistan, as most of the export consists of raw material therefore, the
value for export is much lesser than the value of imports [Wheat, Oil (Crude & Edible),
Food Items, Steel, Technology, Cement, Machineries, Tea / Coffee etc.] therefore the value
for Trade Balance would come in negative payment.

Balance of Payment
The balance of payments, also known as balance of international payments and abbreviated
B.O.P. or BoP, of a country is the record of all economic transactions between the residents
of the country and the rest of the world in a particular period of time (e.g., a quarter of a
year). These transactions are made by individuals, firms and government bodies. Thus the
balance of payments includes all external visible and non-visible transactions of a country.
It can be calculated through the following formula:

BoP = (Value of Export – Value of Import) + Services + Tax

Balance of Payment usually consist of 4 main components:

 Trading of visible Items (Trade Balance)

 Trading of invisible item (Service)
 Unilateral Transfer (One Sided) for eg. Financial aid etc.
 Capital (Assets) Transfer

Trading Partners of Pakistan

36% of the total trade of Pakistan is carried out with Western Europe, UK, Germany,
Belgium, France and Netherland.

Moreover, we have good trading relations with India, Bangladesh, Afghanistan, Middle
East, Japan and China etc.

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  Gulf States:
23% of the total trade is carried out by Pakistan, UAE and Saudi Arabia; are the
largest trade partners followed by Kuwait, Bahrain, Oman and Qatar. Pakistan
imports a large quantity of crude oil from these countries. Due to heavy charges and
rise in oil prices, Pakistan usually credit it and thus the trading is unfavourable
(Negative Trade Balance)

 United States, United Kingdom and Canada:

16% of the total trade is carried with US and Canada. Pakistan exports cotton goods
(towel, cotton yarn and raw cotton) and thus having a favourable trading relationship
(Positive Trade Balance)

 East Asia
14% of the total trade is carried out by Japan, Hong Kong, China and South Korea.
Pakistan exports fish and fish products to Japan. However, the importing items like
technology and machineries creates a credit balance thus making it an unfavourable
trading relationship (Negative Trade Balance)
 South East Asia:
6% of the total trade is carried out with Malaysia, Singapore, Thailand and
Indonesia. Pakistan imports luxurious items, machineries, minerals, crockery etc.
Again an unfavourable relationship (Negative Trade Balance) is carried out

 South Asia
Only 2% of the total trade is carried out by Pakistan to India, Iran, Sri Lanka,
Bangladesh and Afghanistan. Pakistan exports rice, fruits, fishes and oil seeds to
these countries. However the trading balance is favourable (Positive Trade Balance)

 CAS (Central Asian States) Countries:

Only 2% of the total trade is carried out with CAS Countries i.e. Tajikistan,
Uzbekistan, Turkmenistan, Azerbaijan etc. Pakistan imports minerals and metal
ores (shares) mainly petroleum and gas etc. Hence making it an unfavourable
condition for Trade (Negative Trade Balance)

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 Trade Pattern of Pakistan
Pakistan has bilateral (Bilateral trade is the exchange of goods between two nations
promoting trade and investment.) and Multilateral (Multilateral trade agreements are
commerce treaties among three or more nations.) trade agreements with many nations and
international organizations. It is a member of the World Trade Organization, part of the
South Asian Free Trade Area agreement and the China–Pakistan Free Trade Agreement.

Pakistan is also a member country of SAARC (South Asian Association for Regional
Cooperation), OIC (Organization of Islamic Cooperation), CENTO (Central Treaty
Organization), SEATO (South East Asian Treaty Organization), and WTO (World Trade
Organization).

Being the member of SAARC, Pakistan does not enjoy a great trading opportunity because
of the same physical and climatic conditions which are common in the member countries
of WTO like India, Afghanistan etc.

Trade barriers
Trade Barriers are the limitations / restrictions imposed upon the private industrialists to
benefit the country by exporting more products through government forum. Governments
or public authorities employ trade barriers, such as tariffs, to control the free inflow of
international goods and services. Although these barriers often discourage trade between
nations, they come in handy when a government wants to improve the consumption of local
goods, create local employment, foster national security and increase national revenue.

There are 3 types of trade barriers:

1. TARRIFS: Tax on import / export

2. EMBARGO: Limiting Commerce of Trade with a particular country

3. QUOTAS: Trade restrictions in terms of quantity or time period

Advantages of trade barriers:

Trade barriers protect domestic industry and jobs. Workers in export industries benefit
from trade. Moreover, all workers are consumers and benefit from the expanded market
choices and lower prices that trade brings. Some of the major benefits are listed below:

 Increased consumption of local  Enhanced national security

goods  Enlarged national revenue
 Increased domestic employment  Improved consumer production

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Disadvantages of Trade Barriers:
Trade barriers can limit their ability to export products, leading to loss of revenue and
decreased profit. Trade barriers affect economic growth in developing countries, which are
unable to export goods because of high tariffs, thus limiting their ability to prosper and
expand their operations. Some of the major setbacks in terms of profit are listed below:

 Loss of Revenue  Fewer Jobs available

 Reduced Economic Growth  Higher monopoly power

Economies of scale
A proportionate saving in costs gained by an increased level of production. The simple
meaning of economies of scale is doing things more efficiently with increasing size keeping
the sources fixed.

Economies of scale are cost advantages enjoyed by companies when production becomes
efficient. Companies can achieve economies of scale by increasing production and
lowering costs. This happens because costs are spread over a larger number of goods. Costs
can be both fixed and variable.

Example:

Jamshed starts a business making small wooden airplanes and selling them at Rs. 20 each.

For simplicity lets’ assume that he is the only 1 person who is making these planes (1
employee) and he has a place for which he pays the rents Rs. 1000 on monthly basis with
utilities included. And the resources to make the plane is Rs. 5 per plane.

Now on 1st month he receives only 10 orders.

Revenue: (20 x 10) Rs. 200
Rent: Rs. 1000 Loss of Rs. 850 making the
Variable Costing: (5 x 10) Rs. 50 per plane cost Rs. 105/-
Total Cost = Rs. 200 – (Rs. 1000 + Rs. 50)

Now on 2nd month he receives 500 orders.

Revenue: (20 x 500) Rs. 10,000
Rent: Rs. 1000 Profit of Rs. 6,500/- making
Variable Coasting (5 x 500) Rs. 2500 the per plane cost of Rs. 7 only
Total Cost – Rs. 10,000 – (Rs. 1000 + Rs. 2500)

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How to increase Trade Balance:
The export of Pakistan can be increased by the following steps or factors:

 Increasing the value added products.

 Curtailing (decreasing) the luxurious importing items like LCDs, ACs and
Automobiles etc.

 Increasing the variety of exporting material

 EPZ (Export Processing Zones) should be set near the ports with its branches in
land to attract foreign investment.

 TDAP (Trade Development Authority of Pakistan) / EPB (Export Promoting

Bureau) should be made active to control the quality and standard of import and
export so as to meet the international standards.

Export Processing Zones

Export Processing Zones is a government venture conceived and
designed to increase and improve the exports of the country. Its
main objectives are accelerating the pace of industrialization in the
country and enhancing the volume of exports by creating an
enabling environment for investors to initiate ambitious export-
oriented projects in the Zones which would create job opportunities,
bring in new technology and attract foreign investment.

Trade development authority of Pakistan (tdap)

(Formerly known as EPB – Export Promotion Bureau)

It was setup in 1963 as a joint venture of Ministry of Commerce,
facilitating exporters across the country. Currently known as Trade
Development Authority of Pakistan (TDAP). TDAP has following aims
and objectives to increase and promote the export goods of Pakistan:

 Creating awareness among the manufacturing sector regarding

the possible exports.
 Hunting for international market to sell our export items.
 Providing assistance to Pakistan’s enterprise to set and secure the international
markets.

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