Pakistan Studies Paper 2/2059, key points of Chapter: Trade

Trade
a) Major exports and imports
Candidates should be able to: name the main exports and imports, describe the changes in the types/amounts/value of goods
exported and imported in recent years, know and understand the meaning of GNP and GDP (Discussed in industries) and the
difference between them.
• explain the effect of changing trends in exports and imports on Pakistan’s balance of trade and economy.
b) Pakistan’s trading partners
Candidates should be able to: name and locate Pakistan’s main trading partners, and name the goods Pakistan exported to them or
imported from them, understand the factors which may promote or hinder trade with other countries, and explain why it is difficult
for Pakistan as a developing country to maintain or increase its share of trade with other countries
• understand the factors that may promote and limit trade, including trading blocs, trade barriers and currency exchange rates.

What is trade?
No country in the world is self-sufficient in all the commodities needed by its people. To provide goods and services an exchange
needs to be done. This exchange of goods and services between different areas is called trade. Trade can be within the country
(internal trade) or with other countries (foreign trade)
Trade serves many different functions: It establishes a link in different activities that depend on each other e.g. raw material, like
cotton, is transported to those areas where it is processed to make cotton yarn and cloth. It helps regions specialize in the
production of different commodities and obtain necessary goods from other regions by exchange. It provides employment as part of
the tertiary sector.
How do we benefit from trade?
specialization of production, promotes industrialization, utilization of domestic resources for export items, employment, transfer of
information technology, may lead to GNP and GDP, production of value-added goods, large scale production
What is the difference between GNP and GDP?
• GNP is the production by nationals both within and outside Pakistan/ measures the output by Pakistan nationals/companies
wherever they are in the world.
• GDP is domestic production from within a country regardless of who produced it/from nationals or foreign companies/the value of
everything that people in a country produce.
Major exports: Cotton clothing, thread, and textiles; raw cotton and rice; petroleum, leather, and fish products. Readymade
garments.
Major imports: Machinery, electrical goods, petroleum products, transportation equipment, metals and metal products, fertilizer,
foodstuffs, electrical appliances. Edible oil, vegetable oil. Tea.
Major trade partners for exports: United States, Hong Kong, Germany, United Kingdom, Japan, United Arab Emirates, Italy, India,
Afghanistan.
Major trade partners for imports: United States, Japan, Kuwait, Saudi Arabia, United Arab Emirates, UK, China, Malaysia, Sri Lanka.
Exports of Pakistan: Following is the list of exports items
Rice, Cotton, Household furnishings and furniture, Cotton cloths, Fabrics and Carpets and Rugs, Textile apparel and household
furnishings, Sport goods, Camping apparel, Footwear and gears, Toys, Bicycles, Fans, Cook wares, House and garden wares, Leather
bags, Chemical, Dates, mangoes, oranges and vegetables, Cement.

Dr Zubair Ahmed Bhatti

 Pakistan Studies Paper 2/2059, key points of Chapter: Trade
Dependence on few export items?
Dawn. Business Urdu edition: 29th august 2012: Indonesia: a honey pot for Pakistani export
Cotton, copper waste and scrap, cotton fabrics, broken rice and fresh fruits especially kinnow were the major items imported
from Pakistan. JAKARTA: Pakistan’s trade with the largest ASEAN (Association of Southeast Asian nations) economy of Indonesia
booked 45 per cent increase in 2011, whereas exports from Pakistan surged by 107.8 per cent amounting to US$206.2 million. The
most important aspect is the continued growth trend for exports from Pakistan keeping in view the swelling of middle class among
the 240 million Indonesians. It was disclosed to the media by Iqbal Tahir, Business Attache at the Embassy of Pakistan, Jakarta. Iqbal
Tahir confirmed that the bilateral trade reached the record high target of $1.2 billion in 2011 which in itself is pathetically low given
the existing trade potential between the two countries. It should have been at least $5 billion.
Pakistan’s imports are also highly concentrated in few items namely, machinery, petroleum and petroleum products, chemicals,
transport equipment, edible oil, iron and steel, fertilizer and tea. These imports accounted for 73% of total imports during 2006-07.
Among these categories machinery, petroleum/petroleum products and chemicals accounted for 53.4% of total imports.
Major Imports of Pakistan: Machinery, Petroleum, Chemicals, Vehicles and spare parts, Edible Oil, Wheat, Tea, Fertilizers, Plastic
material, Paper Board, Iron ore and steel, Pharmaceutical products. Pakistan’s imports are highly concentrated in few countries.
Over 40 percent of them continue to originate from just seven countries namely, the USA, Japan, Kuwait, Saudi Arabia, Germany, UK
and Malaysia. Saudi Arabia is emerging as major supplier to Pakistan followed by the USA and Japan. The shares of USA and Japan,
with some fluctuations, exhibited a declining trend because of the shift in the import of machinery/capital goods and raw materials
to other sources. On the other hand, the share of Pakistan’s imports from Saudi Arabia has been rising due to higher imports of POL
products. Malaysia share has shown rising, as well as, falling trends over the years mainly on account of fluctuations in palm oil
prices. Pakistan imports were worth 3649 Million USD in February of 2012.
Negative balance of payment: Pakistan has always had a negative balance of payment because the value of its imports exceeds that
of its exports. The deficit has been covered by remittances sent by overseas Pakistanis, foreign aid and loans.
Why is there a negative balance of payments?
Reasons: Import capital goods, Export of small variety, Import of food items, Import of luxury items, Lack of quality control, Rise in
oil prices, International restrictions, Hard competition in world market, Loans, maintenance of nuclear arsenals, consumerism,
Export processing zones: An Export processing zone is a specialized industrial bonded estate where special facilities and incentives
are provided to produce goods under one window operation, mainly for export abroad. Thus EPZ is a district physical area where
Customs Tariff is not applied and hence bonded to distinguish from the rest of Tariff area Controls by the Customs under especially
drafted EPZ Customs Rules.
Objectives: To boost industrialization, To increase the country’s exports by creating facilities for local and foreign investors to set up
export oriented units, To create job opportunities, To transfer Hi-Tech from the developed world to the developing countries.
Export Processing Zones in Pakistan: The Export Processing Zones Authority (EPZA) was established in 1980 by the Government with
the mandate to plan, develop, manage and operate export processing zones in Pakistan. The Authority is an autonomous body and
functions under the Ministry of Industries, Production & Special Initiatives and is administered by a Board of Directors headed by a
Chairman. The Authority has since been pursuing an extensive industrial programme for setting up EP Zones in the country. The first
EPZ was established in Karachi, the first phase of which is fully developed & operational, 2nd Phase development is now almost
complete and investors have started construction of buildings in it. One large unit of Y.K.K. Pakistan has started its operation in
Phase II. Many other units are in the pipeline.

Dr Zubair Ahmed Bhatti

 Pakistan Studies Paper 2/2059, key points of Chapter: Trade
Incentives for investors to set up a unit in EPZs of Pakistan: 100% ownership, No minimum or maximum limit for investment, Duty
free imports, No sales tax on input goods and services, Exemption from import duties and freedom from national import restrictions.
Gwadar is the new EPZ location which is being developed near the newly constructed Gwadar Port. An area covering 100 hectares
of land has already been allocated for the establishment of an EPZ while another 4000 hectares have been reserved for an industrial
zone. Five exclusive projects have also been granted the status of export processing zones: These special EPZs are: Saindak Copper &
Gold Mines, Duddar Lead and Zinc Mines, Reko Diq Metal Mines, Tuwairqi Steel Mill and Khalifa Coastal Oil Refinery.
Export promotion bureau: The export promotion bureau (EPB) was formed by the government of Pakistan for organizing and
regulating export activities. Its functions include: Creating awareness among the manufacturing service sector about potential
exports, Exploring and identifying market opportunities abroad, Assisting Pakistan’s entrepreneurs to secure entries in the
international market.
Trade barriers: Trade barriers exist when the government imposes a set of restrictions that make it difficult for countries to trade
their goods and services effectively and easily. The trade barriers may exist in the form of tariffs (taxes on imports), trade embargoes
(a ban on certain imported products) quotas (these impose restrictions on the physical quantity of goods imported) etc. Such
measures are designed to restrict the inflow of imports into the country.
Advantages: Give rise to greater self-sufficiency thereby reducing foreign dependency, Protect local industries, Create employment,
Improve balance of payments position, Create domestic demand
Disadvantages: Consumer choice is limited to domestically produced goods, Lack of competition, and thus industries will lose
efficiency.
Trade blocs and WTO (world trade organization)
European Union (EU): The EU and Pakistan have strong trade ties with the EU being Pakistan's most important trading partner. The
EU accounted for around 20% of Pakistan's total trade in 2007. EU-Pakistan trade has increased by almost 8% annually between
2003 and 2007. In order to further promote the development of two-way trade between the parties, the EU and Pakistan agreed in
May 2007 to set up a Sub-Group on Trade under the auspices of the EU-Pakistan Joint Commission. Besides discussing trade policy
developments more broadly, the Sub-Group is also aiming to tackle individual market access issues which hamper trade between the
two parties. The EU is assisting Pakistan after the flooding in the country's north in August 2012. As part of the EU's response, in
September the European Parliament voted in favour of introducing emergency autonomous trade preferences for Pakistan. This
means that certain goods from Pakistan can enter the EU duty free or will be subject to certain ceilings (tariff rate quotas). The
measures will enter into force during the autumn of 2012 and will be in place until 31 December 2013.
Understand the factors which may promote or hinder trade with other countries and explain why it is difficult for Pakistan as a
developing country to maintain or increase its share of trade with other countries?
Energy crisis, Terrorism, Political instability, Baluchistan issue, Kashmir dispute.
Explain how trading blocs and currency exchange rates affect Pakistan’s trade. You should develop your answer.
trading blocs:
• members have a free trade agreement/there are low or zero trade restrictions; which encourages trade between member states
e.g., Pakistan is a member of SAARC/so more goods can be exported to member countries by Pakistan;
• since 2014 Pakistan has had preferential access for its exports to EU markets; with low or zero tariffs on most goods increasing
trade;
• Pakistan is a member of ECO/ASEAN; but some trade barriers remain;

Dr Zubair Ahmed Bhatti

 Pakistan Studies Paper 2/2059, key points of Chapter: Trade
• have trade barriers; which hinders trade between non-member states which affects Pakistan if it does not belong to a particular
trading bloc; Etc.
exchange rates:
• determine the cost of imports and the value of exports; therefore, the increase or decrease of the PK Rupee is significant to trade;
• determine the amount of overseas investment; companies/government/ people more likely to invest in Pakistan if the exchange
rate is favorable;
• currency depreciation means that imports are more expensive/exports have lower value; this can reduce trade as Pakistan may
not be able to afford to import as many goods/will earn less from exports;
• currency appreciation means that imports are cheaper/exports have higher value; this can increase trade as Pakistan can afford to
import more goods/will earn more from exports//however Pakistan’s exports may decrease as countries may shop around for
cheaper goods elsewhere. Etc.

Dr Zubair Ahmed Bhatti