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Pakistan and Regional Trade

SCHEME OF THE PRESENTATION

• Part-I
• Historical background of International Trade
• Basis of Trade
• Benefits of International Trade
• Purpose of Trade Policy
• Trade Policy of Pakistan
• Salient Features of Strategic Trade Policy 2015-19
• Challenges and Opportunities for trade relations
with regional clusters specially India

• Rol of RTAs its economic/political consideration • Part-III • Regional Trade Dynamics and Pakistan • Focus of Regional Market with Special References to India.SCHEME OF THE PRESENTATION (Cont) • Part-II • Regional Trade with perspective of WTO • Background. ASEAN. SAARC. Iran. • Concept of Regional Trade • Effects of RTAs. Afghanistan. China. FTAs and PTAs. CAR • Evolving regional trade dynamics of Pakistan • Enhancement of trade • Key enablers • Four pillars .

HISTORICAL BACKGROUND OF INTERNATIONAL TRADE Part-I .

• European established colonies to earn more gold- restricted imports • 19th century.gains from trade maximized if trade occurred without restrictions . HISTORICAL BACKGROUND OF INTERNATIONAL TRADE • Trade between nations has occurred through out history • Much of the world was discovered and explored by the traders(Arab and European Traders) • Mercantilist valued trade for gold.

• International trade driven by economy of scale rather comparative advantage ( new concept) . BASIS • Trade gain if specialize in which comparative.

Trade provide protection from lobbying and monopoly • Promote good governance. Benefits • Trade raises income generate employment • Improved Efficiency • Int. reduction in cost of production. • Expansion in Market lead Division of labour. .

enjoy economies of scale. . Benefits (Contd.) • Revolution in Transport companies and growing facilities generally facilitated economy growth. • International Trade produce Foreign Exchange which can be used in break through of Poverty Trap. • Industries producing on large scale. • The National Income of a country increase with expansion in scale of production.

• Economic development gains • Institutional gains. • Social gains. • Globalization (GATT – WTO – regionalism ) • International peace and order. • Technological (Specialization) gains. . GAINS FROM INTERNATIONAL TRADE • Consumption gains. • Investment gains. • Production gains. • Exchange rate gains.

. 1950. in exercise of the powers conferred by sub- section (1) of section 3 of the Imports and Exports (Control) Act. The Trade Policy in Pakistan is formulated by the Federal Government. TRADE POLICY A Trade Policy (also referred to as a commercial policy or international trade policy) is a governmental policy governing import and export with other countries.

SALIENT FEATURES OF STRATEGIC TRADE POLICY 2015-19 • Mark-up support for future import and purchase of machinery . . • Export finance scheme for selected export sectors. • Promotion of regional trade especially trade with China. • Establishment of Export Import Bank (EXIM Bank) to increase exports and make them competitive with regional competitors such as India and Bangladesh. • Promotion of service sector through institutional arrangements. • Mobilization of new investment in export oriented industry with establishment of Special Economic Zones. Iran and Afghanistan. • Ad hoc relief at 3%of Freight on Board (FOB) to offset the impact of high cost of utilities in selected sectors.

CHALLENGES FOR INTERNATIONAL TRADE •Economic downturn in our major markets •Consumer confidence erosion in USA •Economic slowdown •Buyers’ perception of Pakistan as a supplier of low quality products and inability to deliver in bulk and in time •Negative travel advisories .

Challenges for International Trade (Internal) • Large Scale Manufacturing growth declined • Long term structural issues • Rapid change in monetary policy • Competition in export market • High cost of finance • Law and Order • Energy Crisis (Electricity and Gas) • Lack of International Competitiveness • Investment declined .

building stones. gems & jewelry. light engineering) • Growing Services Sectors . leather. cement. OPPORTUNITIES FOR TRADE • Favorable market access owing to bilateral 19 trade agreements • Potential of doubling the value.addition of cotton products • Pakistan is the 4th largest producer • Strong resource base in many sectors (food. rice.

Regional Trade with perspective of WTO Part-II .

Regional Trade with perspective of WTO • Trade one of the key enablers for development important role in reducing poverty • WTO its rules are to provide enabling environment • WTO deals with global rules of trade between the States • main function to ensure trade flows smoothly predictably and freely .

• By estimation. • Since the birth of the WTO in 1995. the total number might well exceed 400 if the RTAs that are being negotiated. are taken on board. The Development of Regionalism Background • Regional trade agreements have become a very important feature of multi-lateral trading system in recent years. those at the proposal stage. • During the GATT years between 1948 to 1994. Some are signatories to twenty or more! . • There is a surge in regional trade agreements since 1990. approximately 511 new RTAs have been notified. • Up till now presentaly. and the ones signed but not yet in force. 511 RTAs notified to the WTO 585 are enforced. • Nearly all WTO members have notified participation in one or more RTAs. the number of RTA notifications was 124.

• The United States began to explore the preferential approach to trade. Regional Trade Agreements • The surge of RTAs began in the 1990s. • The bleak prospects for progress on the multilateral trading system caused by the inconclusive 1982 GATT Ministerial Meeting. but the seeds were sown in the 1980s. • It signed its first FTA with Israel in the mid-1980s. followed by a FTA with Canada in 1988 and the NAFTA in 1994. The current negotiations on free trade for the America (FTAA) include two continents and over 30 countries. . • More recently Asian countries have also departed from exclusive reliance on MFN-based trade. • Western Europe was continuing its moves towards deeper and broader regional integration.

Transition economies contributed the large share of recent RTAs (about one third of the new RTAs in force since the 1990s) •RTAs among developing countries accounted for 30-40 percent of all RTAs currently in force. •The number of RTAs signed between developed and developing countries has also increased over the years. HOW SIGNIFICANT IS RTAS IN WORLD TRADE? –43 PERCENT OF WORLD MERCHANDISE TRADE TAKE PLACE UNDER RTAS IN 2000. . –The European Union has played a major role in this respect. –BY ESTIMATION THE SHARE WILL INCREASE FURTHER BY 2016.

4 51.2 43.6 5 Middle East 19.7 67.ROLE OF RTAs IN WORLD TRADE S.6 3 North America (Including 41.0 2 Transition Economies 61.6 Mexico) 7 Asia 5.1 6 Latin America (Excluding 18.6 Mexico) 4 Africa 37.3 63.2 38.6 63.2 .6 16. AREA YEAR 2000 YEAR 2016 1 Western Europe 64.NO.

Definitions & Concepts

Regionalism vs Multilateralism
Regionalism “action by Govt. on regional basis to
liberate and facilitate trade through FTAs, Custom
Unions, PTAs
WTO context
Agreement concluded between countries not
necessarily belonging to same geographical area.
In specific terms WTO provision relates to PTAs

Difference between Multilateralism and
Regionalism

•Multilateralism based on GATT

• In Regionalism countries lower trade barriers only for
small group of partners and discriminates against others.

• EU and NAFTA are two examples of FTA & Custom
Union
• Preferential Treatment Agreements are accorded by
developed countries on the basis of MFN and reciprocity in
accordance with GATT Para 2(c) permits system of
preferences. PTA is the first stage of economic integration.

• In Preferential Treatment Agreements developed
countries do not expect reciprocity from developing
countries, usually based on political reasons, unilateral.

• PTA or GSP give product coverage by the interest of
donor country, e.g; EU excluded agricultural product from
GSP

• PTA & GSP gives marginal benefits

Integrate them into global economy • It was adopted when it was a high tariff on imports for developing countries 25 .Generalized System of Preferences legal basis of GSP • Legal basis. which was a decision on deferential and more favorable treatment adopted 1979 which is called enabling clause. decision of fuller participation of developing countries. which forms a part of WTO • Purpose was to give preferential treatment to developing countries .

e. almost on industrial and selected agricultural products. i. • Under GSP imports are allowed on preferential basis by developed country either duty free or on preferential basis. Caribbean countries import enjoy GSP by USA 26 .• Developed countries wanted developing countries to follow policy of export led growth instead of import substitution.

27 . It is the second stage of economic integration. NAFTA is an example of FTA. PTA FTA CU NAFTA EU Free Trade Agreement (FTA) • Free trade is ability for countries to import and export products without restrictions and paying additional cost like tariff free trade is a better solution for trading community • FTA is the form of PTA which is an agreement between countries that agrees to eliminate tariff & quotas on most of the goods traded between them. Forms Of Different Preferential Treatment Agreements When two more countries agree to establish PTA. • It can be bilateral or multilateral • Goods shipped to other countries without tariff but countries can set tariff outside world independently. Helps to strengthen business climate by eliminating and reducing tariff rates. they can do so by two ways.

EU is an example of CU their ultimate aim to achieve level of economic integration.Custom Union (CU) • It is a agreement between two or more countries. FTA is the second stage and CU is the third stage. • PTA is the first stage of economic integration. 28 . Tariff of members countries are harmonized and applied to import outside countries on uniform basis • Purpose of Custom Union is to increase economic efficiencies and to establish closure political ties.

Difference between Custom Union & FTA FTA 1) No tariff between member countries or common tariff between member countries 2) MC have their own tariff rates with NMC UK 5% Italy 3% Germany 9% Pakistan Holland 6% Custom Union 1) No tariff between member countries or common tariff between member countries 2) MC have common external tariff rates with NMC UK Italy Germany 5% Pakistan Holland .

Effects of FTA’s and PTA’s RTA’s When country opens its market for free trade or PTAs or RTAs it enjoys static gains trade will lead both consumption and production within country which will effect the economy. Whereas. consumption distortion loss means when consumer consume too little • Free trade agreements eliminates these distortion and increase national welfare 30 . • Free trade agreements eliminates Distortion loss and consumptions loss • Production distortion loss means when domestic producer to much of the good.

31 . • Trade creation: Trade created by formation of Custom Union and FTAs. Effects of RTAs FTAs & Custom Union have two effects on trade • Trade diversion: Means trade is diverted towards more efficient export to less efficient by formation of FTAs.

Allowed group to negotiate rules and made commitment that was beyond multilaterally. Article XXIV of the GATT allow derogation from MFN principles and permit FTA and RTA. 8. article V of the GATS provides for economic integration agreements in services. 32 though they entail a departure from MFN principles. Intellectual Property Rights. Closure to economic integration that reduce trade barriers. 2. Investment & Competition. Whereas. 5. If these RTAs make contribution to multi-lateral trading system. Helpful though seen contradictory but actually support multi-lateral trading system. 4. rule XXIV emphasis if free trade and Custom Union not create hindrance or barriers for all sectors of trade in the group are permissible. Environment Standards. 3. 7. 6. . acceptable. Some rules paved way for agreement in WTO like Services. Establishment of regional trade agreement committee to assess the progress which are consistent with WTO rules. How RTAs frustrate & hinder multilateral goals (Critical Analysis) 1.

Regional Dynamics of Trade Pakistan Part-III .

Afghanistan. SAARC. CARs. Regional Dynamics of Trade South Asia • Despite immense potential region of south and central less integrated (lesser trade upto 5%) due to: • High cost (infrastructure missing links) • Lack of transit agreement • Increase share in regional trade • Enhancing access to regional trade markets as ASEAN. .

Central Asia by opening more routes • Pakistani ports can provide Central Asian shortest route to sea • Extreme potential of export • Must restructure taxation system to integrate comparative 35 . Intra Regional Trade share more than 40% whereas. • Must revisit its regional / global policies. • Must trade with India. Till 60’s Pakistan forward looking manufacture exports higher. Pakistan share in trade is 5%. Pakistan strategic location is greatest asset but not utilized. Regional Trade / Economic Growth Regional Trade an important factor in economics success of many countries.

• Resolution of outstanding issues in Pak-Afghan transit trade agreement • Early conclusion of APTTTA • Effective implementation of TIR • Re-activation. Regional Trade Dynamics of Pakistan • Pakistan develop to achieve shared property through better connectivity and transit trade • Initiatives. QTTA (Quadrilateral transit agreement) • Economic integration (Pak Afghan Central Asia Republics) .

Regional Markets Pakistan traditionally liberalized trade uni-laterally and multi-laterally. It has also benefited from GSP with EU in combating drug trafficking. Pakistan formed preferential trade agreement under GATT. . PTAs & BITs with different countries of the world. • Ensuring level playing field for Pakistani’s exporters • Pakistan actively participated in DDA negotiation. Now is focusing on regionalism which means action by government to facilitate and liberalize trade on regional basis. •Pakistan became member of WTO in 1995 since than it has made efforts to have market access negotiation with various trading partners for seeking maximum market share. key interest to seek market access and to remove tariff barriers • For this Pakistan has signed different FTAs.

Regional Markets • GSP PLUS STAUS • EU granted GSP to Pakistan in Dec 2013 to increase access to EU Market import effect from 1st January 2014 • EU is largest trading partner 12% remittance come from EU • Under GSP eliminated or reduce import tariff will boost competitiveness • Through this GSP Plus Status Pakistan has been granted 40% waiver of trade tariff but exports should be minimized from EU and regional trade should be preferred .

Trade Policy of Pakistan is based on Foreign relations with other countries and regional organizations rather than on economic indicators and financial implications which creates inconsistencies because of ever changing political scenario of this region of the world • The biggest opportunity Pakistan can avail through WTO is improvement in Textile Industries after expiry of MFA in 2005 • Restructuring of Textile Industries with valued added products should be manufactured . Regional Markets • Currently.

For this industrial sector must be prioritize in distribution of energy • Granting MFN status to different countries because countries are concerned about bound tariff rather than applied rate • Public awareness should be created before granting status of MFN in case of India because India is one of the rapidly growing economy of the world . Regional Markets • Export finished and semi finished goods rather than raw materials • Pakistan should fully utilize the trade quota which it is unable to utilize because of energy crises.

Thus. Regional Markets India • India granted MFN status to Pakistan in 1996. Pakistani exporter are unable to access Indian markets • Trade with India will be productive if Pakistan resolves its energy crises and resolve trade barriers on textile and agriculture on equal grounds . however no substantial advantage has been achieved because of the high tariff in India for agriculture and textile sector.

leather. Remote areas like USA and European countries . garments and pharmaceutical sectors and manufacturers before finalizing negative list in order to protect domestic industries from any damage • Machinery and semi finished products can be imported from India at lower cost as compared to other options eg. automobile. Regional Markets India • Before granting MFN status to India Government should concern textile.

Regional Markets India • Trade with India will be cost effective in field of rate and time consumption • Further. India and China) . it will document the economy by overcoming smuggling from adjacent Gulf region • Granting of MFN status to different countries is important for full utilization of trade quotas • Pakistan activities in WTO should based on regional alliances in trade rather than political alliances. Russia. trade relations with BRIC (Brazil. For this Pakistan should have a regiona.

Regional Market India • Currently Modi adopted tough approach because • Closer tie with Arab Estates • India interest in Iran after lifting of sanctions • Tie between Afghanistan/Pakistan continued fry • Positive close relations with China • Modi developing closer tie with America lobbying against Pakistan • Putting blame on Pakistan • Violation of firing at LOC at eastern border • Internal disturbance in Baluchistan attack on Police Training Center /Shah Noorani Mazar • After CPEC .

Regional Markets Russia • Trade relations with Russia has not been established on full potential because of Pakistan inclination towards the USA • Fostering trade relations with Russia is an important aspect of trade diplomacy as Russia holds key position is various regional trade associations like SCO • Great opportunity for Pakistan to enter into an FTA/ PTA with Russia which will result 25% of trade concession for Pakistani exports .

bilateral banking cooperation and construction of land route (New silk road connecting Central Asia through this Pakistan can become an exporter to Russia and Central Asia at cheaper cost after FTA/ PTA association . Regional Markets Russia • Pakistan should relax its visa policy.

Regional Markets China Pakistan is the biggest trading partner of China but • Large imports from China Adversely affected the local manufacturing industries because of cheaper prices of imported goods • Checks should be made on imported items • Negative list should be maintained • Extensive visits to China should be arranged for Pakistan manufacturers and exporters for exploring the Chinese markets .

• Supplement narrow over crowded Malacca straits for carrying Chines goods energy input • Stimulate greater economic activity in both Pakistan/Afghanistan .• After operationalization of CPEC provide rout through Gawadar Port to Arabian Sea/oil rich.

• Attract also land locked states of CARs • Mutuality of interests independent of Indian factor not depend on India • India sees China project attempt to extend influence in South Asia • Fear of Encirclement India (Gawadar Navy base chines Army) • CPEC consolidate Pak-China strategic partnership • Fear Iran deciding to make use of economic corridor to promote its gas exports (Alarming Scenario) .

Bhutan . Bangladesh. cement and electronic items to these countries as these countries have the advantage of lower prices and cheaper logistics though Pakistan has got FTA/ PTA with Srilanka. Nepal. Regional Markets SAARC • SAARC countries excluding India and particularly Bangladesh and Srilanka provide great potential to Pakistani exporters since these countries are overly populated having limited agriculture base to feed their large population • Pakistan can export agricultural goods.

Regional Markets Bangladesh • Pakistan / Bangladesh have maintained Paranoi / anger since 71 prosecuting those for war crime who were in support of Pakistan security force BNP/Jamat-e-Islami • Two countries withdrawing their diplomat referred to come in SAARC Conference supposed to held in Nov. 2016 Islamabad • Main threat remain i. India-Pakistan policy Pakistan want Pro Pakistan anti India Afghan ground .e.

Regional Markets Iran . Agreement have already been made with Turkmenistan • Pakistan should take leading role for trade cooperation in the region and initiate the idea of new silk road running thorough Afghanistan to Central Asian states . Afghanistan & Central Asian States • These countries offers largest market in the region for Pakistani exporters • Pakistan has advantage of its long shared border with Afghanistan and Iran • Pakistan can also import cheaper energy resources from Central Asian states.

Regional Markets Iran • Iran Pakistan enjoy common geographical boarder • Member of ECO • Shared faith and believe and internal value of Islam • Old trade relations (border trade) • RCD 1964 completed several project completed latter converted into ECO several bilateral trade agreement signed but progress marginalized • Iran with other member of ECO block have potential for bilateral trade .

Regional Markets Iran • Visit of Hassan Rohani after lifting of sanctions • An Iranian angle to the arrest of Kulboshen Yadev revealed all not well in bilateral relationship • Iran accessed his cooper • Gawader will emerge as competitor to the port of Chah Bahar in South East Iran (Port developed by India) to open rout to land locked Afghan for increasing diplomatic / economic pressures .

Regional Markets Afghanistan • Ashraf Ghani showed leniency to towards Pakistan against his Cabinet/ opposition • Announcement of Mullah Akhter killing in Karachi rise in • Pakistan accused of providing safe sanctuaries to militant • Mullah Akhter Mansoor Killed on Pakistan soil • Better relation US Military engagements winding up • Pakistan accused of providing sanctuaries to Haqqani network • When talk fail always raise finger against Pakistan • Relationship under stress since past three months • Pakistan relations gone worse Torkham Border Killing .

Afghanistan & Central Asian States • Gwadar port can be utilized by Central Asian states by earning large amount of foreign exchange as transit fee • Trade with Iran can be beneficial by exporting cheap agricultural products or getting cheap fossil fuels for solving energy crises • After conclusion of Iran nuclear deal International sanctions has been removed. Regional Markets Iran . . IN this context regional economic cooperation can yield much better results for Pakistan economy.

since the implementation of GATTS there is a large market for services in least developed countries • Improvement in security situation be done to invite foreign investors • Value addition be done for exports articles. telecommunication and software can be exported to Africa and South Asia. finished product be preferred rather than on raw and semi finished goods .e. CHALLENGES AND OPPORTUNITIES FOR TRADE RELATIONS WITH REGIONAL CLUSTERS SPECIALLY INDIA Recommendations for improvement in volume of trade • Promotion of export of services i.

For this purpose research and development institutes should be established by Ministry of Commerce • Proper legislation should be carried out for IPR and Copy rights for inviting FDI • Consistency in trade policy be maintained . CHALLENGES AND OPPORTUNITIES FOR TRADE RELATIONS WITH REGIONAL CLUSTERS SPECIALLY INDIA Recommendations for improvement in volume of trade • Trade policy should be based on the principle of trade liberation and regional cooperation • The quality of goods be improved.

Evolving Regional Dynamics of Pakistan • Emergence of favorable regional dynamics • Operationalization of CPEC • Clearance of foreign military sale by USA (Helli Fire II Missile. • Lower oil price prove to be a real boom . Viper Attack Helicopter) • Pak-Russian Defence Agreement Procurement of M-135 Helicopter • Prudent avoidance of direct Military involvement in Yemen crises is likely paid off Pakistan in long term • Afghanistan rationalized foreign policy towards Pakistan brought respite in Karzai era cross border attack • If p5+1 and Iran seal the nuclear deal Pak-Iran gas pipeline become reality.

Evolving Regional Dynamics of Pakistan • US-Pak arm sale delivered a strong message to India if countries to shop elsewhere then America sell arms to other countries • India source of regional instability India also realize its dependencies on Pakistan in context trade transit facilities it endeavors to extract concession through arm twisting • Through there is renewed talk of India-Iran deal to develop the Chah Bahar port India lost comparative advantage after conclusion of CPEC agreement • China has already economic presence in Afghanistan • It will concentrate now energy rich Iran that shall emerge stronger after its nuclear deal recent unraveling in middle east .

Evolving Regional Dynamics of Pakistan • Russia emerging a regional player develop understanding with China successful 3000 missile deal with Iran • Afghanistan desire to make land graveyard of terror which require help from India Pakistan and other neighbors after close strategic tie with China India losing influence India disappointed Afghanistan many time in providing high tech military equipment for India it is require to join existing Afghan Pakistan trade and transit agreement for freely flow of goods by land from Afghanistan to eastern India back • CPEC indicates land to convert this region into economic integration from which Afghanistan would benefit substantially • Pakistan need to follow prudent policy to capitalize the advantage time bound effort require for benefit from transient to comprehensive stage .

• Key enablers • Competitiveness • Compliance to standard • Efficient dispute mechanism • Four Pillars • Product sophistication and diversification • Market access • Institutional straightening • Business standardization and regulatory measures . Evolving Regional Dynamics of Pakistan • Enhancement of trade upto 35 billion • Competitiveness • Transition from factor driven economy to efficient driven economy • Increase share in regional trade.