PAKISTAN TRADEPOLICY Group Members: Atika Fatima Waleed Ahmed Saima Malik Salman Qamar
Introduction Trade policy is a collection of rules and regulations which pertain to trade. Every nation has some form of trade policy in place, with public officials formulating the policy which they think would be most appropriate for their country. The purpose of trade policy is to help a nations international trade run more smoothly, by setting clear standards and goals which can be understood by potential trading partners. In many regions, groups of nations work together to create mutually beneficial trade policies. Things like import and export taxes, tariffs, inspection regulations, and quotas can all be part of a nations trade policy. Some nations attempt to protect their local industries with trade policies which place a heavy burden on importers, allowing domestic producers of goods and services to get ahead in the market with lower prices or more availability. Others abstain from trade barriers, promoting free trade, in which domestic producers are given no special treatment, and international producers are free to bring in their products.
Trade Policy of Pakistan In order to address the challenges confronting Pakistan on the economic fronts, Ministry of Commerce has launched a comprehensive three years Strategic Trade Policy Framework (2009- 12) document. It would provide the reference to different trade measures by the Ministry of Commerce and other ministries from time to time. The overall objective of the STPF is to achieve sustainable high economic growth through exports with the help of policy and support interventions by the government, industry, civil society and donors.
Purpose of the Strategic Trade Policy Framework The Strategic Trade Policy Framework sets out the policy guidelines and identifies the principle action areas Need for developing and effectively implementing a national export competitiveness program. To provide the reference to different trade measures by the Ministry of Commerce and other ministries from time to time. To achieve sustainable high economic growth through exports with the help of policy and support interventions by the government, Industry, civil society and donors. For active collaboration of the Pakistan Institute of Trade and Development (PITAD) within a short span of time.
Other factors include:For growth with EquityFor greater Opportunities for gainful employmentFor sound macro-economic framework for trade environmentFor concern with poverty eradication and environmental protectionFor investing in Human resourcesFor targeting Poverty alleviationFor promoting private sector as engine of growthFor focus on small scale sector particularly in agriculture
Strategic trade policy framework 2009-12The following measures may affect international commerce: To strengthen export competitiveness, the government seeks to compensate inland freight cost to exporters of "cement, light engineering, leather garments, furniture, soda ash, hydrogen peroxide, sanitary wares including tiles, finished marble/ granite/ onyx products." To help designated sectors receive higher prices for their goods, the government will support brand development activities for "surgical instruments, sports goods & cutlery" with grants worth 25 percent of cost. To support the textile industry, import duties on sizing chemicals may be abolished. To promote the export of live sea food, the government has decided to grant 25 percent of freight cost to such products exported by air. To support exports of processed foods, the government wants to compensate exporters partially for necessary research and development investments. This reimbursement could amount to 6 percent of export value. To allow its exporters to enter Muslim markets, the government plans to set up a Halal Certification Board. The cost of certification shall be subsidized with up to 50 percent of expenditure.
To increase international market access for electrical appliances, the government decided to bear half the cost of certification through Underwriters Laboratories. In an attempt to increase overall competitiveness, the government promised to "zero rate" exports completely. As the elaboration of such a measure will take time, the government has decided to provide "interim relief to the sectors of tents & canvas, electric machinery, carpets, rugs and mats, sports goods, footwear, surgical/ medical/ veterinary/ beauty care instruments, cutlery, onyx products, electric fans, furniture, auto parts, handicrafts, jewelry and pharmaceuticals. To reduce the cost of doing business in Pakistan, the government will ease import restrictions on designated specialized machinery, transport equipment as well as spare parts in the construction, waste disposal, oil and petroleum industry. To allow improved development of pharmaceutical and engineering services, the government plans to ease export restrictions on the industries. To provide lower income citizens with computers, the government has decided to allow the import of used computers. However, to allow for the development of national television industry, used cathode ray tube monitors may only be imported along with used computers. To encourage local vaccine production, the government plans to restrict imports to World Health Organization-approved plants only.
Objectives to be obtained Enhance the competitiveness of Pakistan’s exports Reducing Cost of Doing Business Protection and promotion of SMEs Focus on products with higher sophistication potential Promote agricultural development through exports Enable Pakistani exporting companies overcome the negative effects of global demand contraction.
Market Access Initiatives (Regional)ECOTA (Economic Cooperation Organization Trade Agreement)• ECO member countries are: • Pakistan, Iran, Afghanistan, Turkey, Azerbaijan, Kazakhstan, Tajikistan, Turkmenistan, Kyrgyzstan and Uzbekistan.• Agreement was signed - July 2003.• Initial Agreement = reduction of maximum tariff slab to 15% within 8 years.• On a fast track initiative, reduction of tariff to 10% on all traded items in 5 years. • 3rd Ministerial meeting of ECO states was held in July, 2005.
SAFTA (South Asian Free Trade Area)• SAFTA was signed on 6 January 2004 at Islamabad.• The Agreement shall come into force on 1st January 2006.• Tariff Reduction to 0-5%: vulnerable sectors protected through Sensitive List• Non-Least Developed Countries (Non-LDCs) • India – Pakistan - 7 years (2013) • Sri Lanka – 8 years (2014)
Preferential Trading Arrangement (PTA) with D-8 (Bangladesh, Egypt, Indonesia, Iran, Malaysia, Nigeria, Pakistan, and Turkey) • Two meetings held • Next meeting due Trade Preferential System (TPS) with OIC • Negotiations initiated • Slow progress due to divergent views in a large membership of OIC Gulf Cooperation Council (GCC) • Agreement signed in August 2004 envisaging establishment of Free Trade Area with Pakistan • Pakistan has requested G.C.C. for initiation of negotiation. First round is expected in September, 2005
Market Access Initiatives (Bilateral) Sri Lanka The FTA with Sri Lanka was signed in June 2002. Operational since 12 June, 2005. Tariff on items (other than NCL) will be eliminated:
China PTA signed with China in November 2003 is operational since 1st January 2004. In December 2004 during the official visit of the Prime Minister to China it was announced to initiate extension of PTA, Joint Feasibility Study on FTA and to negotiate an Early Harvest Program. Following achievements made during visit of the Chinese Premier On 5th April 2005:- Completion of Joint Study and commencement of FTA negotiations; and Early Harvest Program was finalized. Pakistan’s Products Bed-linen, table linen & other home textiles, towels, cotton & blended fabrics, mangoes, oranges, dates, tarpaulin and marble articles like tiles, surgical goods, sports goods & cutlery etc. China’s Products Some organic chemicals & machinery for textile, leather production, etc.
INDIABilateral trade between India and Pakistan is extraordinarily low—less than1 percent of their global trade. Their volatile political relationship hasoverwhelmed attempts to encourage trade between the two countries, andhas also impacted economic integration in the South Asian region as awhole. There are both political and economic obstacles to expanding tradebetween the two countries. Greater economic co-operationcould, however, provide mutual economic benefits, such as lower prices forconsumers, much-needed revenue for the governments, and cost-effectivegas import to India via Pakistan. Perhaps most importantly, it couldgenerate new linkages between the two business communities, therebynurturing constituencies for peace in the region.
Benefits to Pakistan:— low cost capital and consumable inputs which would help to cover theshort fall in agricultural produce;— labor wages in Indian manufacturing sector are two-thirds those inPakistan with better productivity;— superior technology;— Indian engineering goods are 30-35 per cent cheaper thancorresponding Pakistani products. While an Indian scooter sells at Rs20,000 which is one-third the price of a Pakistani scooter which is priced atRs 65,000; a car costs Rs 4.5 lakh compared to Rs 6 lakh.— India licence produces Swiss and German textile machinery whichPakistan imports at higher costs from other sources.• Issue of MTN status.
USA Pakistan signed a Trade and Investment Framework Agreement (TIFA) with USA in June 2003. The First round of TIFA Talks was held on 28-30th September, 2004 at Washington. Bilateral Investment Treaty negotiations initiated: Draft BIT discussed at London (7th -11th Feb, 2005) Second Round due in Islamabad (2005) U.S was requested to start FTA negotiations.
Review of Export CompetitivenessIt is not only in agriculture that we have excelled in; Pakistan has a reasonably strong industry base. Inmany areas, our industry not only fully meets the local requirements but also earns valuable foreignexchange for our country. Textile Products. Our textile products are famous world wide which account for more than 50% of our total exports. There are over 500 Textile Mills producing high quality textile products. Majority of our textile industry is based in Faisalabad while units do exist in other parts of the country also. Fertilizers Industry. Pakistan is one of major exporters of fertilizers with one of the world’s biggest fertilizer plant in recently constructed our country. Being an agricultural country the consumption of fertilizers is a direct indicator of the growth of the agricultural sector. Overall industry capacity is approx 7.5million tons per annum.
Cement Production. Total of 30 cement industrial units are meeting the local and regional requirements and contributes approx 30 billion Rs in the form of taxes. Our cement industry has a production capacity of 20 million tons out of which we exported approx 11 million tons of cement which earned 700 million US$ of foreign exchange. More than 150,000 people are employed in cement sector. Sports Goods. Located in Sialkot our sports goods industry has earned very good name for the country as well as foreign exchange. Our exports in year 2009 were than 35 million US$. Made in Pakistan footballs, soccer balls, gloves are famous all over the world.
Leather Products. Leather good are the second major export items of Pakistan after textiles. Pakistan exports are approximately 700million US$ annually. Italy is a major importer of our leather jackets, gloves and handbags. Surgical Instruments. Based in Sialkot, our surgical industry has a history of more than 100 years. In 2009 Pakistan exported nearly 250Million US$ worth of surgical instruments to the world.
Marbles and Tiles. Our natural onyx marbles and art crafts as well as synthetic tiles are other exportable items. We have large natural reserves of high quality marbles and granite. Our local labor force is trained and expert to produce tiles and other related products using the well established infra structure. Electrical Appliances. Our industries in Gujrat, Gujranwala and Shiekhupura are producing good quality electrical appliances like fans, room coolers, air conditioners, washing machines etc. These are export quality products which have established good reputation over a period of time. These appliances are exported to regional and other friendly countries.
Pakistan’s Evolution and structure of Trade Pakistan Trade Balance Stats
Geographical Distribution of Trade
External Trade Statistics
POSITIVE ASPECTS OF TRADE POLICY Monitoring and evaluation method:The Pakistan institute of trade and development Islamabad, an independent policythink tank of the ministry of Commerce, would undertake a systematic evaluation ofthe impact of Trade Policy 2009-12 on the trade performance of Pakistan Insurance cover for visiting buyers:Complete Insurance cover for buyers coming over to Pakistan for buying. Research and Development:A fund is planned to be dedicated to support these activities named Technology,Skill and Management Up-gradation Fund of Rs. 3 billion is being established. Brand Development:It has been decided that surgical instruments, sports goods and cutlery sectorwould be granted 25% support on brand development activities.
CHALLENGES Trade policy 2009-10 would face many challenges. The problems being faced by the economy involves infrastructure deficit, severe energy shortage, poor innovation and technological infrastructure, low labor productivity, low levels of manufacturing value addition. Furthermore, there is little foreign direct investment in manufacturing and exportable sectors, lack of surplus, absence of economies of scale in the production processes. All these challenges may make the desired targets difficult to achieve.
External Factors: Economic downturn in our major markets: Consumer confidence erosion in USA and its ripple effects in EU; 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.Internal Factors: Long term structural issues Rapid change in monetary policy Competition in export market. High cost of finance Energy Crisis (Electricity and Gas) Law and Order Lack of International Competitiveness Investment declined to 19.7% of GDP as against 22.0% of last year Large Scale Manufacturing growth declined by 7.7% (Jul-Mar) as against increase of 4.8% in 2007-08.
Reaction of Business Community Many businessmen rejected the trade policy 2009-10,terming it directionless and flawed. Some termed it wishful list. Other labelled it insufficient. Many chambers of commerce interpreted it differently. But majority showed their deep concerns about its different measures, concessions and mechanism. Federation of Pakistan Chambers of Commerce and Industry president said that the trade policy seems a medium-term policy framework for the next three years. Some said that the problems of foreign exchange reserves, higher trade deficit and consequently low investment, unemployment and low GDP growth will continue. It is the second time that import targets were not mentioned in the trade policy. The government has fixed export growth target of 6 percent for2009-10 and 2010-11 and 13 percent for each of the successive years. Pakistan Tanners Association (PTA) appreciated the governments initiative for launching comprehensive leather and leather products export plan in consultation with the major players of the leather sector.
IMPORTANCE OF EU MARKETS FOR PAKISTAN TRADE The European Union remains Pakistan’s largest trading partner. Receiving 27.4% of Pakistan’s exports and providing 17% of its total imports. The overall volume of trade between the EU and Pakistan was worth euro 5.06 billion (equivalent to Rs 303 billion) in the year 2002 with a trade surplus of euro 765 million (equivalent to Rs 46 billion) in Pakistan’s favor. Pakistan’s trade with the EU is mainly composed of textiles, which account for over 60% of the total Pakistani exports to the EU, followed by leather products, which account for 13% of the total Pakistani exports. The imports from the EU to Pakistan mainly comprise finished products like mechanical and electrical machinery, which accounts for over 35%, followed by chemical and pharmaceuticals for 10% of the total EU imports to Pakistan. Trade with Europe is clearly in Pakistan’s favor.
EU INVESTMENTS IN PAKISTAN EU is the second largest investor in Pakistan and desires to further promote trade and economic ties and cooperation with Pakistan. Pakistan has one of the most attractive foreign investment regimes in South Asia. Foreign companies can invest in all three key sectors of the economy namely Agriculture, Industry and Services. The industry sector where foreign equity investment up to 100% is permitted in most cases is the most open. Major investors in the country come from the UK, the Middle East and the US, each contributing 25% of FDI. China has traditionally had a strong presence in the country, mostly through infrastructure development and supply of low cost goods and equipment. As far as the inflows of foreign direct investment into Pakistan are concerned, the USA, the UK, and the UAE are the three major sources of foreign direct investment (FDI) in the country. The UK and Pakistan have an Investment and Promotion Agreement that has recently been extended to cover the Isle of Man, Jersey and Guernsey
Conclusion ―No books it sounds all nice and great, but problem lies in the implementation stage where our government fails.‖ After going through the whole trade policy of Pakistan, we conclude that it covers almost each and every aspect of trade. Policy making is directly linked with implementation of those policies, and this is the place where our government fails to graduate from. Some of the trade targets were too optimistic, the ministry failed to understand the condition of the local industry. Increased decline in manufacturing because of lack of energy like electricity and gas has affected the industry on the whole. Therefore increasing the trade targets means that they won’t be able to achieve those trade targets. Also because of poor law and order situation, the local industries mainly textile industry has suffered a lot, and now shifting to Bangladesh and other countries. Therefore, law and order situation should be improved in order to save the remaining industries.