TRADE:

The exchange of goods and services between different areas or countries is called
trade
TYPES OF TRADE:
a- domestic trade:
exchange of goods and services within a country or among the provinces or cities.
b-foreign trade:
exchange of goods and services between different countries.

IMPORTANCE OF TRADE ACTIVITIES:

● Promotes industrialization
● Rise in gnp and gdp of the country
● Helps to attain economies of scale
● Promotes the production of value-added goods
● Transfer of information technology from the advanced countries
● Generates employment opportunities
● Domestic resource utilization
● Helps attaining geographical specialization in production
● Promotes the development of transport and communication within the country
● Inflow of capital goods leads to rising economic growth rate

PARTS OF FOREIGN TRADE:

IMPORTS:
● inflow of goods and services
● outflow of foreign exchange / capital
● expense of a country
● considered as a negative indicator for an economy
● leads to negative balance of trade and payments
ADVANTAGES OF IMPORTS:
● easy availability of good
● improves international relations
● large quantities can be imported in population
● ensures food security for ever increase
● less dependent on local climatic and political condition
● variety of raw-materials
DISADVANTAGES OF IMPORTS:
● loss of foreign exchange earnings
● leads to negative balance of trade
● less capital available for development of infrastructure, health and education
increased international loans or debts
● damaging local industries

EXPORTS:
● outflow of goods and services
● inflow of foreign exchange / capital
● earnings for a country

Page | 1
 ● considered as a positive indicator of an economy
● leads to positive balance of trade / payments
● increased foreign exchange earnings
● leads to positive balance of trade
ADVANTAGES OF EXPORTS:
● increased foreign exchange earnings
● leads to positive balance of trade
● promotes industrialization
● improves international relations
● increased national income
● improved standard of production
DISADVANTAGES OF EXPORTS:
● shortage of products in local markets
● increased prices of products
● trade restrictions or international trade embargos

ECONOMIC GOODS:
An economic good is a physical object or service that has value to people and can be
sold for a price in the marketplace.
CLASSIFICATION OF ECONOMIC GOODS:
A - ON THE BASIS OF THEIR PRODUCTION/EXTRACTION:
1-PRIMARY GOODS
Goods and resources extracted directly from nature such as wheat, fish, timber, cotton
etc.
2- SECONDARY GOODS
goods produced by the manufacturing processing industries such as;
i - processed goods: things which cannot be distilled back to original form such as;
cotton yarn, sugar, juices etc.
il - manufactured goods: things which can be distilled back to their original form such
as; machinery, garments, computers etc.

EXPORT OF SECONDARY GOODS IS MORE PROFITABLE AS

COMPARED TO THE EXPORT OF PRIMARY GOODS BECAUSE:
● IT PROMOTES LOCAL INDUSTRIES
● IT LEADS TO LOCAL RESOURCE UTILISATION
● MORE PROFITABLE EXPORTS
● PROVISION OF EMPLOYMENT
● ENCOURAGING OTHER SECTORS OF ECONOMY
● SUCH AS RAW MATERIAL EXTRACTION,
● TRANSPORT AND COMMUNICATION
B-ON THE BASIS OF THEIR CONSUMPTION/UTILIZATION:
1- CONSUMER GOODS
Economic goods which meant to satisfy the needs and demands of human population
on their consumption or utilisation such as wheat, cloths, shoes, food-stuff, and
perfumes etc.
2- CAPITAL GOODS

Page | 2
Economic goods which are meant to produce more capital on their utilisation such as
mining machinery, tractor, cement mixer etc.
3- RAW MATERIALS
Economic goods or secondary products that are used to make new materials raw-
materials can be classified as;
● RAW MATERIALS FOR CONSUMER GOODS SUCH AS COTTON YARN,
COTTON CLOTH, SYNTHETIC FIBRE, SUGAR ETC.
● RAW MATERIALS FOR CAPITAL GOODS SUCH AS PETROLEUM
PRODUCTS, IRON ORE, COPPERWIRES ETC.

IMPORT OF RAW MATERIALS IS MORE ECONOMICAL THAN THE

IMPORTS OF FINISHED GOODS BECAUSE:
● it promotes local processing and manufacturing industries
● it leads to local resource utilisation
● cheaper to import
● provision of employment
● encouraging other sectors of economy such as transport and communication
PROBLEMS OF EXPORTS IN PAKISTAN:
● narrow export base - high degree of dependency on exportable products are
exported to international market
● export items are relatively low value added products mostly from small scale
and cottage craft industries, cotton, fish
● few trading partners in the international nearly 50% of exports go to just 7
countries of the world
PROBLEMS OF IMPORTS IN PAKISTAN:
● more imports of raw materials poor quality of primary and secondary materials
produced in the country
● high imports of capital goods leading to negative balance of trade
● 14% of total imports comprising consumer goods which are even manufactured
by local industries
● drastic increase in the volume of imports from 1975 to 2008 mainly due:
o ever increasing population with high growth rates
o industrialization and development of consumer goods industries
o unfavourable currency exchange rates against international currencies
o improved standard of living leading to higher levels of consumption
o increased earnings have led to increasing demand of consumer goods

TRADING PARTNERS OF EXPORTS:

U.K. AND GERMANY: RAW COTTON, SPORTS GOODS
EASTERN EUROPE: COTTON CLOTH, READY-MADE GARMENTS
U.S.A.: CARPETS, RUGS, SURGICAL INSTRUMENTS, SPORTS GOODS
MIDDLE EAST COUNTRIES: RICE, SPICES, READY-MADE GARMENTS,
MILK MEAT, FRUITS AND VEGETABLES
CHINA: COTTON YARN
JAPAN: FISH AND FISH PRODUCTS
SRI LANKA: FISH AND FISH PRODUCTS

Page | 3
TRADING PARTNERS OF IMPORTS:
U.K. AND GERMANY: Machinery, Electrical appliances
EASTERN EUROPE:
Machinery, Electrical appliances
U.S.A.: Machinery, Vegetable oil, Wheat
MIDDLE EAST COUNTRIES: Mineral oil
MALAYSIA: Edible oil
JAPAN: Machinery, Electrical appliances
SRI LANKA: Tea
CHINA: Consumer goods

BALANCE OF TRADE: (B.O.T): the difference in the amount of goods exported

and the amount of goods imported by a country at the end of one financial year is
called the balance of trade.
b.o.t = value of goods exported - value of goods-imported
The difference in the amount of earnings and expenditures made by a country, against
the exports and imports, at the end of each financial year is called balance of trade.
BALANCE OF PAYMENT:
The bop is determined by the country's exports and imports of goods, capital, as well
as financial transfers. it reflects all payments and liability (debits) and all payments
and obligations received from foreigners (credit). It is described as the difference in
the amount of goods and services exported and the amount of goods and services
imported by a country, at the end of one financial year
B.o.p = value of goods and services exported end of one year-value of goods and
services imported. If the value of imports exceeds the value of exports, the country
will have a negative balance. Since the last few decades Pakistan's economy is
suffering from a negative balance of trade and payments.
REASONS FOR NEGATIVE BALANCE OF PAYMENTS:
A-LESS EXPORT
● few industries
● lack of capital for industrial development
● fewer industrial estates
● shortage of electricity
● poor infrastructural development
● shortage of industrial workers
● unfavourable government policies
● few exports partner
● most exports are from small scale industries
● poor quality control
● exports comprising raw material and semi-finished goods
B- MORE IMPORT
● high population growth rate leads to increasing demand local industries are
producing low standard products improved standard of living leads to higher
demand
● many consumer goods industries relying on imported raw materials
● increased urbanisation leading to higher demand of imported goods

Page | 4
 ● capital goods are very expensive to import
● most capital goods are imported in pakistan leading to higher import be
● large quantities of fossil fuels are imported to fulfil the local demand
● import of iron ore for steel mill increases imports
● edible oil has to be imported to fulfil local demand of population
● chemical fertilisers are imported to fulfil demand of agricultural sector
HIGHER IMPORT OF SERVICES
● general trend of illiteracy
● lack of technical training centres
● shortage of skilled labour force in the country
● developmental projects in collaboration with other countries such as with uk,
china and usa
EFFECTS OF NEGATIVE BALANCE OF PAYMENTS
● increasing burden of loan and international debts
● economy goes down adversely affected
● economy goes under the control of creditors who exercise influence over
Pakistan’s economic and political affairs
● increased taxation
● increased rate of inflation
● developmental projects curtailed/less money for the development of education,
health and housing facilities, development of roads and railways, development
of agriculture and industries
● privatisation of state owned enterprises...etc.
● lack of capital for new resource exploration and exploitation
● lack of capital for essential imports
MEASURES TO CONTROL THE NEGATIVE BALANCE OF PAYMENT:
INCREASING EXPORTS:
● exporting mainly high value added finished goods
● encouragement of cottage and small scale industries for export purposes
● improving the quality of production
● efforts to increase the variety of exportable goods/widening the export base
● lowering the production cost
● reliable supply of products to the markets
● stable industrial policies by the government
● improved means of communication in the country
● improved political and economic relations with other countries and to sign
trading agreements with them
● better export facilities on sea ports supported by dry ports
● establishment of export processing zones to promote industrialization of export
processing zones

TRADING BLOCS:
It refers to the regional grouping of international economies to allow for greater
economic cooperation and facilitations of free trade activity. Trading blocs involve
low or no economic restrictions between members and strong trade barriers against
non-members. Pakistan is a member of some less important trading blocs including:

Page | 5
1. saarc-south asian association for regional cooperation
2. eco - economic cooperation organisation
3- EU- european union
These trading blocs are not very effective due to political differences between the
member countries.
EUROPEAN UNION:
ADVANTAGES:
● more exports as a result more foreign exchange earnings helping in pay off
● loans, improving trade balance and boosting national economy
● cheaper imports from partner countries
● boosts industrialisation and attracting more foreign investment in these
industries
● fewer trade barriers and lower taxes on imports and exports
● stable market
DISADVANTAGES:
● trade activity can be stopped due to sanctions
● conditions imposed such as ban on child labour or controlling environmental
pollution
● local goods may not be up to export standard
● pakistan production may not be reliable
● Imports from partner countries may compete with local production/industries
● fluctuating currency exchange rates

EXPORT PROCESSING ZONES: (EPZ's)

these are the areas reserved for the development of industries to manufacture with
export potential
AIMS AND OBJECTIVES
● to promote industrialization in the country
● to increase exports by facilitating the local and foreign investors
● to create employment opportunities in the country
● to transfer high-tech industries and new IT advancements from the advanced
countries to pakistan
FEATURES OF LANDHI EXPORT PROCESSING ZONE, KARACHI:
● GOOD/PUCCA/METALLED / WIDE ROAD
● STREET LIGHTING
● ELECTRICITY SUPPLY
● TREES/GREENERY
● MODERN/ GOOD QUALITY BUILDINGS
● PLANNED/STRAIGHT ROADS
EXPORT PROCESSING ZONES IN PAKISTAN
EPZ KARACHI, EPZ SIALKOT, EPZ LAHORE, EPZ FAISALABAD, EPZ
GWADAR. THE GOVERNMENT IS TRYING TO ESTABLISH MORE EXPORT
PROCESSING ZONES IN OTHER INLAND CITIES PAKISTAN TO FACILITATE
PRODUCTION AND EXPORTS AND VALUE ADDED GOODS.
FEATURES OF EXPORT PROCESSING ZONES:
● government offers financial and regulatory incentives

Page | 6
 ● infrastructure is already put in place including roads, railways and dry ports
● attract foreign and private investment by providing favourable conditions for
industrialization
● attracts new foreign technologies which comes along new foreign investments
● improves quality of production to fulfil the demand of international market
● better marketing facilities are provided to local exporters in international
market
IMPORTANCE OF EXPORT PROCESSING ZONES
● good quality goods/export quality/to international standards
● can increase economy/income/exports/foreign exchange
● better infrastructure/power/water supply / road etc.
● good working conditions
● modern buildings
● incentives e.g. tax holidays, easy loans with low markups
● attracts investors/entrepreneurs
● promotes growth of small-scale/ cottage industries
● employment/igds opportunities
● government helps with marketing events/trade fairs/ exhibitions

MEASURES TO ATTRACT FOREIGN INVESTMENTS IN THE COUNTRY:

● development of industrial estates - sindh industrial trading estate
● tax exemptions on imported machinery can help development of industries
● tax holidays on foreign investments
● simplified procedures for imports and industrial development
● attractive measures for private power stations - hub power project
● better infrastructure - roads, railways and airways
● efficient dry ports to provide security and encourage exports
● agencies and organisations to help investors providing infrastructure inc
● water, electricity, telephone, roads to industrial estates
● providing land for housing, commercial and social facilities near industrial e
● stable government with consistent industrial policies
● attracts multinationals

NEED TO INCREASE FOREIGN EXCHANGE

● negative balance of payments / trade
● reduce foreign debt
● investment in agriculture
● Industrialization
● named infrastructure improvements
● better housing/resettle squatters
● cost of foreign expertise
● Urbanisation

TRADE DEVELOPMENT AUTHORITY OF PAKISTAN (TDAP)

● it has formally replaced epb
● epb was responsible for the export promotion for pakistan

Page | 7
 ● it is involved in the planning and development of different sectors of economy
and linking them with the international trade requirements
● it is responsible to bring the development of primary, secondary and tertiary
sectors according to the international standards
● providing opportunities to new industries for exports to other countries

TRADE BARRIERS:
Trade barriers are measures that governments or public authorities introduce to make
imported goods or services less competitive than locally produced goods and services.
Barriers to trade are often called "protection" because their stated purpose is to shield
or advance particular industries or segments of an economy. It is a set of restrictions to
limit or stop foreign trade activity (particularly imports) such barriers include; import
tariffs, price subsidies, trade embargoes and import quotas.
TYPES OF TRADE BARRIERS:
TARIFFS: The most common barrier to trade is a tariff which is a tax on imports.
Tariffs raise the price of imported goods relative to domestic goods (goods produced
at home).
SUBSIDY: Another common barrier to trade is government subsidy to a particular
domestic industry. subsidies make those goods cheaper to produce than in foreign
markets. This results in a lower domestic price. Both tariffs and subsidies raise the
price of foreign goods relative to domestic goods, which reduces imports.
EMBARGOES: Yet another barrier to trade is an embargo- blockade or political
agreement that limits a foreign country's ability to export or import.
QUOTA: An import quota is a limit on the quantity of a good that can be produced
abroad and sold domestically, it is a type of protectionist trade restriction that sets a
physical limit on the quantity of a good that can be imported into a country in a given
period of time. If a quota is put on a good, less of it is imported. quotas, like other
trade restrictions, are used to benefit the producers of a good in a domestic economy at
the expense of all consumers of the good in that economy.
REASONS TO IMPOSE TRADE BARRIERS:
● restricting volume of imports
● restricting types of imports
● protecting local industries/ manufacturers
● saving foreign exchange
● controlling the rate of unemployment
ADVANTAGES / BENEFITS/ IMPORTANCE OF TRADE BARRIERS
● promote self-sufficiency
● reduce dependence on other countries
● protecting local manufacturers
● preventing unemployment among workers
● promote local resource utilisation
● improve balance of trade and payments situation
● generate more economic opportunities
DISADVANTAGES/LIMITATIONS/ PROBLEMS OF TRADE BARRIERS:
● restrict consumer choice to local products only

Page | 8
 ● local industries turn complacent due to lack of international competition from
other industries
● local industries can manipulate production to increase prices
● may lead to shortage of products needed by the population

EXCHANGE RATES
It refers to the price of one currency in terms of another currency. Exchange rates play
a very important role in determining the cost of imports, the price of exports and the
returns from overseas investments and remittances.
DEPRECIATION OF EXCHANGE RATE:
A situation when one unit of a currency buys fewer and fewer units of another
currency.
effects:
● It makes imports more expensive and exports cheaper in terms of foreign
currency.
● It leads to inflation within the country.
APPRECIATION OF EXCHANGE RATE:
A situation when one unit of a currency buys greater units of another currency.
effects:
● It makes imports cheaper and exports more expensive in terms of foreign
currency.
● it leads to economic prosperity within the country.

WTO: WORLD TRADE ORGANISATION:

It's an international institution to allow free trade between the member countries by
reducing or abolishing the trade restrictions imposed by the governments of these
countries. It came into being in 1995 to boost trade liberalisation. There are altogether
146 member countries. Since 2004 the economy of Pakistan has been exposed to the
challenges of the WTO.
OPPORTUNITIES AND CHALLENGES OF WTO:
COTTON TEXTILE INDUSTRY:
● needs to maintain high quality of production
● modernization of industry is needed to compete in open international market
both in terms of quality and price
● replacement of old and outdated machinery can help improving the quality of
production
AGRICULTURE:
● we have to open our domestic markets for imported agricultural products
● we need to eliminate government support on agricultural products to make
them more-competitive in open market
● government must withdraw all subsidies to agricultural sector
● mechanisation and modernization of agriculture may lead to increased
unemployment

Page | 9
THE SERVICE SECTOR:
● It's already open for foreign companies
● it will not be affected by the implementation of WTO's restrictions
● In the telecommunication sector many foreign companies are already working
including telenor warid, mobilink etc.
● The banking sector is also competing with many foreign banks such as silkbank,
meezan bank etc.
PUBLIC ADMINISTRATION:
● it should work as a partner to the private sector to the environment.
IMPORT DUTIES:
● Reduced import duties may badly damage the domestic industries due to
competition with imported goods
SMALL SCALE INDUSTRIES:
● These industries face a real challenge. as their cost of production remains very
high.
● To provide protection to these industries the government must provide loans
and technical training to these industries.

MEASURES TO DEAL WITH THE CHALLENGES OF WTO:

● modernization of secondary industries.
● training and education of industrial workers
● education and training of agricultural workers.
● development of agricultural research centres.
● improved quality of production in the textile sector.
● development of infrastructure facilities including transport, communication and
power supply.
● development of information technology to improve efficiency and production
procedures.

Page | 10