TRADE

• The exchange of goods and services between different areas is called trade.

Trade serves many different functions :

• It establishes a link in different activities that depend on each other e.g.

raw cotton is transported to those areas where it is processed into yarn or
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.

Benefits of trade
• Specialization of production

• Utilization of domestic resources for export items.

• Creation of employment opportunities.

• Transfer of Information technology.

• Production of value added products.

• Economies of scale of large scale production.

• May lead to rise in GNP.

• Promote industrialization

Disadvantages of trade
• International trade has adverse effect on home industries and are threat to
the survival of infant industries. Due to foreign competition and
unrestricted imports , the upcoming industries may collapse.
• Excessive exports may exhaust the natural resources. This will cause
economic downfall in the long run.

• Trade can lead to over specialization with workers at risk of loosing their
jobs if world demand falls or when goods for domestic consumption can be
produced more cheaply abroad.

• Certain industries do not get a chance to grow because they face

competition from more established foreign firms.

Major Exports
• Selling of goods to other countries are exports. As a result the flow of
foreign exchange comes into the country.

• Primary commodities :Raw cotton ,fruits, vegetables, leather, rice , fish

• Processed goods: cotton yarn , cotton cloth.

• Manufactured goods: Ready made garments, carpets , rugs, leather goods,

bedding, sports goods, surgical instruments etc.

Major Export Market

1. UK: Raw cotton, Leather, goods, sports goods, fish

2. U.S.A: Carpets , rugs , surgical and sports goods.

3. Germany: Garments, leather goods and sports goods.

4. France: Garments , Leather goods , Sports goods.

5. K.S.A: Spices, rice , garments. hosiery, carpets, fish

6. China: Cotton yarn

7. Japan: Shrimps, leather goods , sports goods, fish, surgical instrument

8. Australia: fruits, sports goods and leather goods.

 Major Imports of Pakistan
• Buying of goods from other countries.

TYPES OF IMPORTS

1. Capital goods : Machinery e.g. textile , electrical , construction, mining,

agricultural machinery.

TYPES OF RAW MATERIAL

Raw material for capital goods: Iron and Steel, Rubber, Plastic, Petroleum
product.

Raw Material for consumer goods: Wheat ,edible oil, oil seeds

2. Consumer goods: Electrical goods, computers, mobile phones, Garments,

Vehicles , Tea.

Major Import Markets

1. U.K: Machinery , Fertilizers , Electrical appliances.

2. Germany: Machinery, Electrical Appliances, Steel, Iron ore.

3. U.S.A: Machinery , Vegetable oil and wheat,

4. K.S.A: Mineral Oil

5. Malaysia: Edible Oil

6. Japan: Machinery , electrical appliances, Cars and computers.

7. Sri Lanka: Tea

8. Australia: Coal, Livestock.

9. China: Machinery, electrical appliances, cars , computers.

 Gross Domestic product
GDP

Total monetary value of all goods and services produced within a country
over a specific period of time.

GDP is a measure of national income, national output, national expenditure

produced in a particular country.

Gross national product

GNP
Total monetary value of all goods and services produced by the resources
owned by the citizens of the country.

 This production can take place anywhere in the world.

 It measures the output produced by the country’s companies whether

located in the country or not.

 GNP= GDP+ net property income from abroad.

 This net income from abroad includes dividends, interest and profit.

Balance of Payment
Balance of payments= Value of exports – Value of imports (goods and services)

Why is there a negative bOP

 More capital goods are imported to speed up industrialization.

 Goods cannot compete world market because of lack of standard and

quality control.

 Consumption oriented society. [People spend on unnecessary things].

Importing more consumer goods.
 Importing more crude oil.

 Narrow export market only dependent upon cotton, rice , leather, sports,
carpets and rugs.

 Cotton is the main export as well rice and the export decreases because of
the weather condition.

 Sometimes wheat has to be imported due to less wheat production.

 Goods facing trade barrier on sports goods, carpet ,rugs and surgical
instruments on issue of child labour.

 Pakistan does not belong to any major regional organization. As a result it

finds difficult to compete with other countries benefiting from access to
major world markets through these organizations.

 Pakistan is a member of ECO and SAARC but countries in these

organizations produce the same goods as we do.

Effects of negative BOP

 Foreign economic assistance which increases debt.

 Development projects have to be curtailed.

 Reliance on foreign assistance increases.

 In the case of non payment of loans trade embargo is imposed.

 To repay loans the assets have to be sold to foreign companies.

 Higher taxation limits the purchasing power of the consumer, resulting in

lower demand and less production.

 Business and commercial activities slows down.

 Measures to Correct the BOP
How to increase exports

 Exports value added goods.

 Cottage and small scale industries which uses local raw material.

 Increase the variety of exports items.

 Reduce taxes for exporters.

 Strict quality control to ensure consistent high standards of goods.

 More EPZ to produce goods for Exports.

Restrictions on Imports

 Most of the consumer goods imported are luxury items. And some could
easily be manufactured in Pakistan. The reduction in imports of these goods
can reduce the deficit gap.

Reduction in imports related to tertiary sector.

 A trend is to hire skilled personnel from other countries in higher salaries.

This is an extra burden on the foreign exchange resources. The solution is
to train our own people according to the standard required by companies
and institutions operating in the tertiary sector.

Export processing zone (EPZ)

 Reserves areas for industries which manufacture products for export
potential.

Types of Industries
 Garments , leather goods, electrical . Light engineering, chemicals, Paper
products.
 Location of EPZ’s
 Sialkot EPZ ; Surgical , sports and leather goods

 Risalpur EPZ ; Trading and warehousing , furniture

 Gujranwala EPZ ; Sanitary fittings, Cutlery, Garments, And light engineering.

 Saindak EPZ ; Extraction of Blister , Copper and gold

 Karachi EPZ ; high value garments , Gems , and jewelry.

Characteristics or features of EPZ

 Close to other companies. Industrial linkage.

 Highly accessible.

 Good transport connection to sea ports , Air port, dry port.

 Good infrastructure e.g. assured power supply.

 Good security. 100% ownership of land.

 Prestigious to Govt.

Importance and reasons for their Development

 Promote industrial development.

 Increase Pak exports.

 To increase foreign exchange.

 To ensure quality of products.

 To create job opportunities.

 To encourage the use of modern technology

 How do Govt attract investors to invest in EPZ’s
 100% ownership rights.

 No limit for investment.

 Duty free imports of machinery, equipment and materials.

 No sales tax on input goods and services including electricity and gas bills.

 Exemption from Import duties and freedom from National import

restrictions.

Why increase exports of engineering goods from EPZ’s

 These are high value added goods compared with many of Pakistan’s
traditional exports which increases the possibility of reversing the negative
BOP by earning a higher rate of foreign exchange which can be used to pay
off the foreign debt as well as money earned can be invested in
development projects such as roads, rail and capital goods, industrial
machinery so economy can flourish.

 Good /pucca / metalled /wide

 Street lighting

 Electricity supply

 Trees/greenery

 Modern/good quality buildings

 Planned and straight roads.

 Types of trade barriers
 Tariffs (taxes on imports)

 Quotas (restrictions on the physical quantity of goods imported)

 Embargoes (a ban on certain imported products)

Advantages of trade barriers

 Give rise to greater self-sufficiency there by reducing foreign dependency

 Protect local industries and create employment opportunities

 Improve the balance of payments position

 Create domestic demand that leads to greater exploitation of local

resources

 Sometimes barriers are imposed on goods which are not desired by the
local people due to religious or cultural or historical reasons

 For example a muslim country will discourage pork imports (religious

reasons), while a hindu country will discourage beef imports on the same
grounds

Disadvantages of trade barriers

 Consumer choice is limited to domestically produced goods

 Local industries become self-satisfied due to lack of international

competition. Thus lose efficiency.

 Even those goods which the country produces inefficiently and of high cost.
Would need to be produced.

 They keep producing inferior goods and never become competitive.

 Domestic consumers pay higher prices for inferior goods.

 Trading blocs
 A trade bloc is a type of intergovernmental agreement, often part of a
regional intergovernmental organization, where barriers to trade (tariffs
and others) are reduced or eliminated among the participating states.

 Refers to regional grouping of international economies

 Allows greater economic corporation

 Allows free trade

 Involve lower or zero trade restriction between members and strong trade
Barriers against non-members.

SAARC
 The south Asian Association for regional Corporation is the regional
intergovernmental organization and geopolitical union of states in South
Asia.

Member States

Afghanistan

Bangladesh

Bhutan

India

Maldives

Nepal

Srilanka

Pakistan
 ECO
 Economic corporation organization is an inter-government regional
organization for sustainable social-economic development of the member
states.

 Afghanistan, Azerbaijan, Islamic Republic of Iran, Kazakhstan, Kyrgyzstan,

Pakistan, Tajikistan, Turkey, Turkmenistan and Uzbekistan.

 Pakistan is a member but these organizations have not been very effective
due to the political difference between the members.

Pakistan and European Union

 EU consists of 28 member states. Its purpose is to promote peace, establish
a unified trade and monetary system break down barriers to trade,
encourage technological developments.

 Members of EU are free to trade with other members at no additional

taxation.

Advantages of trade with EU

 More exports so can pay all debt

 Improve BOP

 Better availability of goods

 Increase industries so more factories will be built.

 Fewer trade barriers.

 Stable market.

 Lower taxes

 Increase the foreign currency.

 Good relations.

Disadvantages of trade with EU

 Pak may face Sanctions

 Restrictions imposed due to child labour

 Due to lack of standardization Pak goods may not be reliable.

 Imports may compete with local production.

 May affect agreement with Iran and china.

 Fluctuating currency rates.

World Trade Organization

 WTO is an international institution to allow free trade between its member
countries

 It reduces or abolishes certain restrictions imposed by the governments of

these countries on their exports and imports

 General agreement on tariffs and trade (GATT) was signed in 1947 and
lasted until 1994, when it was replaced by the WTO in 1995

 WTO calls for tariff reduction. Tariff is a tax imposed on imported goods

 After joining WTO, Pakistan’s accessibility into international markets would

be on the basis of its competitiveness

Opportunities and challenges of WTO’s membership for Pakistan

 Pakistan’s accessibility into markets would be on basis of its
competitiveness

 Cotton industry has to be reoriented through replacement of outdated

machinery

 Have to produce value added goods to compete international market

 Agriculture has to cope with WTO standards

 Pakistan has to open its market for foreign agriculture producers

 Pakistan has to eliminate support on agriculture products

 Has to withdraw the export subsidies

 Government should work with the private sector to provide suitable

industrial environment

 Import duties have to be reduced according to WTO rules

 Small scale and medium scale industries are facing major challenges

Effects on Pakistan’s economy

 Rising prices of raw material

 High costs of electricity

 Out dated machines

 Lack of hygienic controls

 Low investment due to low profits

 Inflow of cheap imports and decrease exports of agricultural products will

lead to unemployment and reduction of revenue for the government

 Pakistan’s cotton exports has been restricted due to health and hygiene
due to excessive use of pesticides on cotton

 Pakistan has to comply with high quality standards which will increase
production

Pakistan’s tertiary sector and WTO

At present Pakistan’s telecommunication and banking sector is fulfilling

WTO requirement such as Telenor, Warid, Mobilink and Meezan bank.
 Measures to handle the upcoming situation
 Modernize the production process by training and education in agriculture
and cotton textile

 Building up infrastructure

 Research in agriculture

 Cost efficient business environment

 Match international quality standards

 Respond to global trends in production and exports

 A flow of information between government and exporters

Trade route
LAND ROUTES

 To the East is Indian border and politically India and Pakistan are not on
good terms so trade is limited.

 To the SW lies the mountainous terrain of Afghanistan. The road links are
poor. The historical passes like Khyber, Kurram and Khojak passes are also
not developed. However the road between Quetta and
Chaman(Afghanistan) has been improved.

 To the north Pak is linked with China previously through Silk route and
currently through KKH, which has strengthen the trade relations between
the two countries.

 To the SW the RCD highway goes to Iran and Turkey. But very little trade is
carried out due to narrow and under developed route.
 SEA ROUTE

 To the south lies the warm water of Arabian Sea.

 The land route through Europe is long and heavily taxed.

 The Sea route is shorter around Arabian Peninsula and linked to Europe
through Suez Canal and its much cheaper and it further links to USA and
Canada.

 Karachi and Port Qasim provides modern facilities for handling Cargo.

 Countries of the Middle East are easily accessible by sea.

 Karachi is a warm water Port that is open throughout the year unlike land
routes blocked by snow and landslides.

How has trade between Pakistan Afghanistan been affected by the physical
features of Baluchistan and KPK?

 Made difficult by mountain ranges e.g Hindukush , Tobakakar.

 Ranges Parallel to border

 Wide ranges 100-250km

 Very few Passes and are high.

 Deep Narrow Valleys , Gorges

 Fast flowing rivers especially in the north.

 Steep slopes, rugged Terrain.

 Snow and Ice in winters.

 Avalanches , Landslides
What has been done in recent years to make trade between Pak and
Afghanistan easier?

 Some roads and passes have been metaled, widened, improved e.g. Khyber
Pass.

 Greater Security along passes.

 Protective measures against snow, avalanches and landslides.

 Development of air transport, improvement of major roads throughout Pak

helps this trade.

 Afghan transit trade agreement, Trade delegations, and good relations.

How and why has the sea ports of Karachi benefited from trade with
Afghanistan?

Why:

 Afghanistan is landlocked.

 Karachi is the closest port to Afghanistan.

 Metaled road access via Bolan Pass, Quetta Khojak pass.

 Sea port handles imports, exports for Afghanistan.

 Goods are heavy, bulky, and not valuable enough to be carried by air.

 Afghanistan transit trade agreement.

How: (Benefit for Karachi from this trade)

 Revenue, foreign exchange from charges for services.

 Increased employment.

 Boost service industries.