International trade

Presented to:Madam Sumaira Malik

Presented by:Saima Zia

BECO-sp12-021

Improving Regional Trade

to support Pakistan’s Economic Growth

• By Manzoor Ahmed.• Published in The Lahore Journal

of Economics (by Lahore School of Economics) in September 2014.

• Manzoor Ahmed is the Regional Trade Advisor for the USAID Trade Project, Islamabad.

Contents:•Abstract1.Regional Trade in Pakistan’s

context.2.Regional trade in the global

context.3.The way forward.4.Conclusion.

Abstract:

• The main cause of economic success of many countries has been regional trade.• 40% or more trade is made by individual

countries in intra-regional blocs (countries of same region or economic zone), but for Pakistan it is less than 5%.

• Pakistan was a forward looking country until the mid 1960s. After that its policies were not favorable to promote trade and economic development in the country.• Pakistan still relies on import substitution

policies. It needs to revise it’s regional and global trade policies.

Abstract:

Contents: Abstract1.Regional Trade in Pakistan’s

context.2.Regional trade in the global


Regional Trade in Pakistan’s context:

• In 1960s exports exceeded those of Philippines, Thailand, Malaysia an Indonesia combined.• Today, however, Pakistan’s total exports are

only a fraction of the exports of any of these individual countries as explained by the following figure.


• In 1960s trade policies were not favorable. In 1965 it ceased trading with its neighbor country India.• Due to nationalization ( state ownership) of

many industrial and services enterprises which demanded higher protection stagnated the exports.


• At present 40% of the country’s tax revenues are derived from imports, whereas for other competing countries this figure is less than 15%. • Pakistan is located in between energy rich

countries of western and central Asia and the energy demanding countries of south Asia.


• Pakistan’s three sea ports which are Karachi port, Qasim and Gawader ports provide the shortest routes linking Afghanistan, China, Tajikistan and many other countries to the rest of the world.


• At present, however, hardly any transit trade passes through these ports despite the fact that all these countries would benefit greatly from low trade and transportation cost.


• For China, if trade and energy transits through Pakistan from Persian gulf and East African states, it would reduce a distance of about 15,000 km to just 2,500km.

Regional Trade in Pakistan’s context:• Gawadar port could, potentially, become

even more significant than Dubai because it would be able to handle larger cargo S-class ships (superclass ferries) and oil tankers.


Pakistan’s trade agreements

SAFTA (South Asian Free Trade Agreement)

ECOTA ( Economic Cooperation Organization Trade Agreement)


SAFTA:• Formed in 2006.• Trade is not fully liberalized till now where

as other SAFTA members benefited by greatly.

ECOTA:• Signed in 2003 but after 10 years it has yet

to become operational.

Regional Trade in Pakistan’s context:• Reason for the failure of is the poor

implementation of these agreements.• The only operational agreement is the

Afghanistan Pakistan Transit and trade agreement, but since its implementation in 2011 most of the transit now takes place through Iranian ports and borders due to the complexity of the agreement.


• Pakistan has also signed several bilateral preferential or free trade agreements of which Indonesia and Iran are main countries covering less than 5% of tariff lines.• We would have gained much more than just

signing FTAs, especially from the economic powerhouse such as China.


• European Union and Turkey lowered the tariff rate before joining the custom union with Pakistan, whereas Pakistan raised the tariff rate violating the WTO rules.• This made trade diversion among Pakistan’s

importers towards Chinese goods, making it more trade-dependent on its eastern neighbor.


• In the tariff negotiations with China, China exploits 57% of the concessions whereas Pakistan uses mere 5% of it.

Contents: Abstract Regional Trade in Pakistan’s

context.2.Regional trade in the global context.3.The way forward.4.Conclusion.

Regional Trade in the Global context:

• Over the last two decades, the intensification of regional trade has played a powerful role in economic and political integration.• Trade between NAFTA members has grown

from 297 billion USD in 1993 to 1.6 trillion USD.

Regional Trade in the Global context:

• The GDP of the three countries US, Mexico and Canada has almost tripled.

Regional Trade in the Global context:• Similarly, since the formation of the

ASEAN( Association of South East Asian Nations) in 1992 in Singapore, many ASEAN economies have registered miraculous growth rates.

• The area’s inter-regional trade is now over 25%.

Regional Trade in the Global context:• To gain more benefits from trade NAFTA

and ASEAN countries are now negotiating the Trans-Pacific Partnership Agreement for trade.

• While the EU and the US are negotiating the Transatlantic Trade and Investment Partnership Agreement.


context. Regional trade in the global


The way forward:

• Fortunately, the government of Pakistan is now taking some positive actions to improve the situation.• Bilateral trade with India is being normalized

gradually.

The way forward:

• 2010: Pakistan joined the Central Asian Regional Economic Cooperation Program.• 2012 was declared the year of Regional

Trade and Economic Connectivity.• But these policies need to be supplemented

with several regulatory changes and other domestic reforms.

The way forward:

• The 2014/2015 was a good opportunity to take some concrete steps to improve the current situation, but the opposite was implemented instead. Import tariffs were increased further instead of lowering them.

• While the competing countries imposed protectionist trade policy on selective basis to restore liberal trade regimes.

The way forward:

• Heavy taxation causes loss of competitive grounds for local industries and their foreign competitors.• The following table shows the comparison of

industrial tariff rates of Pakistan compared with other countries in some categories of products, the table shows that Pakistan has imposed the highest tariffs on all products.

The way forward:• Pakistan has not eliminated import

substitution policy even after the implementation of the WTO agreement on TIRMs (Trade Related Investment Measures) in 2000.

• In case of automobile industries India, China, Brazil and Indonesia removed import substitution policies within 5 years, whereas Pakistan retained its outdated import substitution policies (next table…).

The way forward:

The way forward:

• In 1980s Pakistan and Turkey had a same volume of exports (approximately 3 billion USD)

• Today Turkey’s exports are over 170 billion USD and Pakistan’s exports have yet to surpass the 25 billion USD mark.

The way forward:

• Turkey’s per capita GDP is about 9000 USD.• While Pakistan’s per capita GDP stands less

than 1000 USD.• Reason for this is that turkey lowered its

external tariffs comparable to that of EU in 1996 and it joined EU which made its situation even better.

The way forward:

• Until late 1970s Chile was one of the most protectionist countries.

• In 1980s it lowered its ad valorem tariff by 10% which made mere 5 billion USD exports in total.

The way forward:

• Chile reduced its import substitution policies over the years which made exports to grow by 25% per year.

• In longer term, it became one of the fastest growing economies in the world with exports valued at 80 billion USD.



context. The way forward.4.Conclusion.

Conclusion:

Pakistan needs to follow or at least consider following points to make trade better:1. Revise regional and global trade policies.

2. Open up more routes for trade with India and Central Asia, as Pakistani ports can provide shortest routes to sea to gain export potential in Central Asian Markets.

Conclusion:

3. Restructure taxation polices and become part of the global supply chain.

4. Pakistan must allow domestic industries and infrastructure to operate in an environment that maximizes its potential.



context. The way forward. Conclusion.

THE END

International trade

Economy & Finance

Transcript of International trade