BALANCE OF PAYMENT AND TRADE REGIMESPrepared ByShowzeb JaffriBBA 5th

IIHE

ContentsTrade RegimesPakistan’s Foreign TradeTrade Policy 1947-97Trade Policy and Decade of

DevelopmentA New CountyThe Beginning of a Liberal TradeTrade Liberalization under

Structural AdjustmentConclusion

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 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

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.

The objectives of commercial policyMaintaining 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 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’S FOREIGN TRADEPakistan exports in 1948 were

dependent upon the five commodities◦Raw jute◦Raw cotton◦Raw wool◦Hides ◦Tea

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.

Pakistan Major Exports1971/2 1980/1 1986/7 1994/5

% of total % of total % of total % 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

Pakistan Major Imports1971/2 1980/1 1986/7 1994/5

% of total % of total % of total % 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 15.26

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 - 2.95

Contribution of East PakistanEast 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.

Visible Trade Balance1960/1

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

East Pakistan

1,259 1,300 1,249 1,224 1,268 1,514 1,668

West Pakistan

540 543 998 1,075 1,140 1,204 1,338

Imports

East Pakistan

1,015 8,73 1,019 1,448 1,702 1,328 1,567

West Pakistan

2,173 2,236 2,800 2,982 3,672 288 3,625

TRADE POLICY 1947-97 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.

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.

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 35 35 35 35

Semi-luxuries 54 54 54 54 54

Luxuries 99 99 99 99 99

Raw material for consumption goods

26 26 26 26 26

Unprocessed 43 43 43 43 43

Raw material for capital goods

Unprocessed 23 23 23 23 23

Processed 38 38 38 38 38

Capital goods

Consumer durables

71 71 71 71 71

Machinery and Equip

14 14 14 14 14

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.

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.

STRUCTURAL ADJUSTMENT 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.

Exports % of total

Vegetable Products 8.6

Leather related products 6.2

Cotton 21.1

Textile and textile articles 48.8

Others 15.3

Pakistan Exports in2002/3

Pakistan Imports in2002/3Imports % 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

Balance of Trade 2002/3

Total Exports US$11,160,300Total Imports US$12,220,300Balance US$ (1,060,000)

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 revenue

Hence, any attempt to change the tariff regime would also have significant effects on revenue generations.

QUESTION & ANSWERS

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