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Presentation on theme: "BALANCE OF PAYMENT AND TRADE REGIMES"— Presentation transcript:


Prepared By Showzeb Jaffri BBA 5th IIHE

3 Contents Trade Regimes Pakistan’s Foreign Trade Trade Policy 1947-97
Trade Policy and Decade of Development A New County The Beginning of a Liberal Trade Trade Liberalization under Structural Adjustment Conclusion

4 TRADE REGIMES Trade is the most Important factor that affect the industrialization Trade can be influenced by the governmental policies like: The import substituting industrialization of 1950s and 1960s The non-devaluation decisions in 1948 The high tariffs and protection given to domestic industry in 1972 The devaluation decision of the Bhutto government in 1972 The decision by the Zia regime to delink the rupee from the dollar In Pakistan the taxes on the imports constitute more than the half of the total governmental revenue The importance of trade must be realized as it plays a vital role in the nature of development of a country.

5 The objectives of commercial policy
Maintaining equilibrium in the balance of payments and balance of trade Attaining favourable terms of trade. Promoting exports to derive the full benefits of comparative advantage and also to finance the country’s import requirements. Import substitution to protect domestic production Ensuring adequate availability of imported goods for both development and other purposes Keeping the internal and external values of the national currency at desired levels

Pakistan exports in 1948 were dependent upon the five commodities Raw jute Raw cotton Raw wool Hides Tea

7 All the raw jute and tea were came from East Pakistan.
On that period of time Pakistan were just producing those goods as well as exporting. In 1952 primary commodities contributed towards economy 73%. The main trading partners of that time for Pakistan were USA, UK, Germany, Belgium, Italy and Japan.

8 Pakistan Major Exports
1971/2 1980/1 1986/7 1994/5 % of total Textile yarn, fabrics, made-up articles, and related products 29.45 14.24 41.52 52.76 Articles of clothing and clothing accessories - 9.27 15.03 20.51 Leather manufactures Rice 8.13 19.13 8.11 5.58 Cotton 29.14 17.84 12.28 1.55 Vegetables and fruits 1.30 2.64 Fish 2.87 1.74 1.90 Others 29.81 37.20 14.89 11.60

9 Pakistan Major Imports
1971/2 1980/1 1986/7 1994/5 % of total Machinery and transport equipment 30.00 21.65 29.80 28.74 Chemicals and related products 11.13 13.73 17.06 15.26 Petroleum and related products 8.42 28.68 15.12 Wheat 7.72 - 1.30 3.97 Animals and vegetable oil and fats 3.74 5.86 5.41 10.37 Cotton 2.95 Others 38.72 30.05

10 Contribution of East Pakistan
East Wing was very much supportive for the west wing of Pakistan. West Pakistan was facing trade deficit, and was living on the exports of East Pakistan. Jute was the main export of Pakistan and was came form Eastern wing. East wing Provided 18% of West Pakistan total input in 1969.

11 Visible Trade Balance 1960/1 1961/2 1962/3 1963/4 1964/5 1965/6 1966/7
Pakistan -1,387 -1,266 -1,572 -2,131 -2,966 -1,490 -2,186 East Pakistan 244 427 230 -224 -434 186 101 West Pakistan -1,633 -1,693 -1,802 -1,907 -2,532 -1,676 -2,287 Exports 1,259 1,300 1,249 1,224 1,268 1,514 1,668 540 543 998 1,075 1,140 1,204 1,338 Imports 1,015 8,73 1,019 1,448 1,702 1,328 1,567 2,173 2,236 2,800 2,982 3,672 288 3,625

12 TRADE POLICY At the early period Pakistan decided to maintain old exchange rate did not devalue. Traded to USA and India at lower prices The decision was undertaken because the primary goal was to sell raw jute to the Indian Industry. In 1949 more than 50% of West Pakistan and 80% of East Pakistan trade was with India. The Korean War broke out the demand for Pakistani exports Mainly cotton and jute The demand was increased by 109% and the prices became high. It helps balance of payment to show a growing figure. The Korean boom was lasted up to two years, on that point of time the 85% of the import were virtually without license. After the collapse of the Korean was boom government reemployed the trade and foreign controls in 1952, which was the most important cause of the rapid rate of growth of manufacturing in Pakistan. As the high tariffs consumer product raised their domestic prices, and industry become more profitable as an option than trade. It becomes more profitable to shift into the production of these commodities domestically. Government introduced the Export promotion scheme in 1956. The import control system adopted in 1952. Trade restrictions that are imposed determined both the extend and pattern of industrialization that was established in 1950s and that set the trend for latter development.

13 DECADE OF DEVELOPMENT Ayub Khan in 1960s introduced Export Bonus Scheme It helped the new comers to enter in the market It shows positive impact on the economy throughout the period overvalued exchange rate increased exports exports of cotton and jute were increased Import of raw material and machinery also become easier. The bonus voucher accounted for 72% of the effect of incentives on exports. That government was also supported by the large amount of foreign aid more than 40% of the imports of the government were financed by the foreign aid components.

14 Rate of duty on imported goods by types of commodity 1955-60
1955/6 1956/7 1957/8 1958/9 1959/60 Consumption goods Essentials 35 Semi-luxuries 54 Luxuries 99 Raw material for consumption goods 26 Unprocessed 43 Raw material for capital goods 23 Processed 38 Capital goods Consumer durables 71 Machinery and Equip 14

15 A NEW COUNTRY 1971 was the year of the PPP government in Pakistan.
In these years Pakistan was struggling from the loss of East Pakistan. The main exports of Pakistan were raw jute and jute textile from Eastern part. Bhutto government decided to abolish the import licensing system, multiple exchange rate system as well as Export Bonus Scheme and import of all luxury items was banned. The rule of PPP was the devaluation of Rupee which fell down at Rs. 11 as per USD 1. The government encourages exports and imports by the devaluation and also collected additional revenue by imposing export taxes. Those years can be say bad luck years following my recession in developed countries, bad crops due to floods and pests and other natural factors affected cotton and rice. Pakistan overcomes these factors due to the arrival of a new market in Middle East. In terms of labor and commodity exports, the new Middle East market was able partially to compensate for the loss of East Pakistan exports.

When Zia come in to the power he reduce the number of banned goods and lifting other restrictions, from 1977 to 1983 the number of items on the free list was increased from 438 to new 91 items. Importing commodities was sleek and much easier. Some other measures were also taken to boost exports. These measures included export rebates, concessionary credit for exports and income tax and import facilities for exporters. The most important policy was to delinking the Pakistani rupee from dollar and introduction of a flexible exchange rate. In 1988 Pakistan’s nominal tariff rates for manufacturing industries were still among the highest in the word. The World Bank felt that the trade regime that existed then still seems to be biased in favor of import substituting production. Domestic markets are insulted from foreign competition through non-tariff barriers and high tariffs.

In 1988, in the budget government announced a trade policy in which they focused on improving the tariff structure Reduce the number of banned items Restricted list Better set of export incentives Import s licensing requirements Exemption on the exports of luxury cars and alcoholic beverages. The change affects to 400 items mostly the consumer goods. They reduced the duty rates on imported raw materials. IMF suggested the government to remove tariff on the items from 400 to 80 leaving only those on account of religion, security, reciprocity and international agreements.

18 Pakistan Exports in2002/3 Exports % of total Vegetable Products 8.6
Leather related products 6.2 Cotton 21.1 Textile and textile articles 48.8 Others 15.3

19 Pakistan Imports in2002/3 Imports % of total
Animals or vegetable oil and fats 5.5 Petroleum and related products 25.8 Chemical and related products 14.7 Plastic and rubber 4.9 Machinery and transport equipment 24.0 Others 25.1

20 Balance of Trade 2002/3 Total Exports US$ 11,160,300
Total Imports US$ 12,220,300 Balance US$ (1,060,000)

21 CONCLUSION 54% of the total federal revenue in 1992/3 originated form import taxes. Govt. should encourage the private sector like export promotion scheme in 1956 Must focus on agriculture sector. Develop computer or machinery industries in order to reduce imports Government must have to reduce trade barriers and tariffs in order to maximize governmental revenue Hence, any attempt to change the tariff regime would also have significant effects on revenue generations.



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