2 BALANCE OF PAYMENT AND TRADE REGIMES Prepared ByShowzeb JaffriBBA 5thIIHE
3 Contents Trade Regimes Pakistan’s Foreign Trade Trade Policy 1947-97 Trade Policy and Decade of DevelopmentA New CountyThe Beginning of a Liberal TradeTrade Liberalization under Structural AdjustmentConclusion
4 TRADE REGIMESTrade is the most Important factor that affect the industrializationTrade can be influenced by the governmental policies like:The import substituting industrialization of 1950s and 1960sThe non-devaluation decisions in 1948The high tariffs and protection given to domestic industry in 1972The devaluation decision of the Bhutto government in 1972The decision by the Zia regime to delink the rupee from the dollarIn Pakistan the taxes on the imports constitute more than the half of the total governmental revenueThe 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 tradeAttaining 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 productionEnsuring adequate availability of imported goods for both development and other purposesKeeping the internal and external values of the national currency at desired levels
6 PAKISTAN’S FOREIGN TRADE Pakistan exports in 1948 were dependent upon the five commoditiesRaw juteRaw cottonRaw woolHidesTea
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 1971/21980/11986/71994/5% of totalTextile yarn, fabrics, made-up articles, and related products29.4514.2441.5252.76Articles of clothing and clothing accessories-9.2715.0320.51Leather manufacturesRice8.13126.96.36.199Cotton29.1417.8412.281.55Vegetables and fruits1.302.64Fish2.871.741.90Others29.8137.2014.8911.60
9 Pakistan Major Imports 1971/21980/11986/71994/5% of totalMachinery and transport equipment30.0021.6529.8028.74Chemicals and related products11.1313.7317.0615.26Petroleum and related products8.4228.6815.12Wheat7.72-1.303.97Animals and vegetable oil and fats3.745.865.4110.37Cotton2.95Others38.7230.05
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.
12 TRADE POLICYAt the early period Pakistan decided to maintain old exchange rate did not devalue.Traded to USA and India at lower pricesThe 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 exportsMainly cotton and juteThe 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 DEVELOPMENTAyub Khan in 1960s introduced Export Bonus SchemeIt helped the new comers to enter in the marketIt shows positive impact on the economy throughout the periodovervalued exchange rateincreased exportsexports of cotton and jute were increasedImport 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 1955/61956/71957/81958/91959/60Consumption goodsEssentials35Semi-luxuries54Luxuries99Raw material for consumption goods26Unprocessed43Raw material for capital goods23Processed38Capital goodsConsumer durables71Machinery and Equip14
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.
16 THE BEGINNING OF A LIBERAL TRADE 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.
17 STRUCTURAL ADJUSTMENT In 1988, in the budget government announced a trade policy in which they focused on improving the tariff structureReduce the number of banned itemsRestricted listBetter set of export incentivesImport s licensing requirementsExemption 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 products6.2Cotton21.1Textile and textile articles48.8Others15.3
19 Pakistan Imports in2002/3 Imports % of total Animals or vegetable oil and fats5.5Petroleum and related products25.8Chemical and related products14.7Plastic and rubber4.9Machinery and transport equipment24.0Others25.1
20 Balance of Trade 2002/3 Total Exports US$ 11,160,300 Total Imports US$ 12,220,300Balance US$ (1,060,000)
21 CONCLUSION54% of the total federal revenue in 1992/3 originated form import taxes.Govt. should encourage the private sector like export promotion scheme in 1956Must focus on agriculture sector.Develop computer or machinery industries in order to reduce importsGovernment must have to reduce trade barriers and tariffs in order to maximize governmental revenueHence, any attempt to change the tariff regime would also have significant effects on revenue generations.