Trade serves many function:
It establish links in different activities for e.g raw materials
such as cotton are transported to the places where they are
processed
It helps regions to produce commodities and to gain goods
It creates job as part of tertiary sector
How does it benefit us?
Japan is famous for electronics, Pakistan for cotton products,
srilanka, for tea, Bangladesh for juice. Countries trade their
commodities
Due to trade demand for export increases and domestic
resources are utilized to produce them
The flow of capital and information tech increases economic
development
Foreign exchange earned through trade can be spent on
importing raw goods
It increases a country national income
Exports and imports:
Each year Pakistan sells mill worth of goods to other
countries
These are exports
An export is represented by a flow of exchange coming in
Pakistan
At same time pk also buys mill worth of goods, this is called
import
It is represented by a flow of foreign exchange leaving
Pakistan
Major exports:
Primary commodities:
Raw cotton, fruits, vegetables, fish, leather
Processed good: cotton yarn
Manufactured goods:
Finished garments, carpets, sports goods, surgical
instruments
In 1974-1975 primary goods accounted for 48% exports
This percentage declined to 18% in 2019-20
Commodity group:
Cotton products: 57.8%
Leather and its products; 3.7%
Rice: 9.1%
Direction of exports: / shared in 2019-20
Usa: 17.3%
China: 8.0%
Afghanistan: 4.2%
Imports of Pakistan;
Food: wheat, pulses, oil, sugar
Machinery: textile, agricultural, construction, mining
Petroleum and its products
Textiles; synthetic fibres
Metals; iron and steel
The above items can be classified into 3 groups;
Capital goods
Raw materials
Ii) raw material for capital goods iii) raw material for
consumer goods
Consumer goods
In 1974-1975 the share of consumer goods was 23% imports
In 2019-20 consumer goods accounted for 19% imports
Whereas the share of capital goods and rawmaterials for
capital and consumer goods was 81% total imports
Direction of imports/ share in 2019-20
China: 23.6%
Uae: 14.1%
Usa; 4.8%
Saudi Arabia: 5.3%
Affects of imports:
The imbalance of trade has to be filled by taking loans
increasing debt
Development projects have to be curtailed
Reliance on foreign assistance increases
Business and commercial activity slows down
Higher taxations limits the consumer purchasing power,
resulting in lower demand and less production
GDP (gross domestic product) AND GNP (gross
national product):
Gdp means the total monetary value of all goods and
services produced within a country
Gnp means the total monetary value of all goods and
services produced by the resources owned by citizens of
countries
Both differences:
Gdp defines a nations economy in geographical terms. If
focuses on domestic production, regardless of who owns
productive capital. It refers to whatever is being produced
within the four provices
Gnp however focusses on production by nationals. This
means that it measures anything produced by Pakistan and
pakistans capital in the world
Trade routes:
Foreign trade can be done through, land sea and air
Historically trade caravans used the landroute from
subcontinent to central asia, but after creation of Pakistan
these were not extensively used. Sea routes continue to
develop because of their advantage over land routes
Factors that make trade difficult by land includes
To the east there is india, politically pk and india are not on
good terms
To the north west lies mountainous terrain of Afghanistan.
There is no adequate road linking with central Asian
republics through Afghanistan. Khyber, korram, and khojak
pases are not developed. However is recent years there
have been some improvement through road between quetta
and chaman
The north is linked to china through a historical route once
known as silk road. More development has been done by
karakoram highway
In 2013 chinas belt and road initiative began to improve
trade. An economic corridor is being created from kashgar in
china to Gwadar on makran coast, where a huge deep port is
being made
The karakoram highway passes through gilgit in north over
the khunjerab pass into xinjiang province of china
To the south west a landroute rcd highway goes to iran,
Syria and turkey. Very little trade moves along it as it is very
narrow. Recently government has allocated funds for its
development
Why sea routes are preferred?
The land route to Europe is expensive and heavily taxed. The
sea route is shorted around Arabian peninsula
Karachi and port qasim provide modern facilities for
containing ships and bulk cargo
Countries of middle east can be accessed easily by sea
Karachi is a warm water port that is open all year, while land
routes maybe blocked by snow or landslides
Balance of payment;
Value of exports- value of imports
Pakistan have always had a negative balance of payment
because the value of its import is higher
Why is there a negative balance of payment?
In order to speed up the process of industrialisation the
import of capital goods is essential. Raw material accounted
for 81% total imports for industries in 2019
Our goods lack modernization and standards to be in global
market
Our society is a consumption oriented one, consumer goods
make 19% of total imports
It imports a lot of petroleum products to power its industries
Sometimes wheat and other have to be imported, increase
import bill
For many years Pakistan did not belong to any regional
organization, for this reasons it struggles to build
connections. It is a member eco ( economic cooperation
organization), saarc ( south Asian association, for regional
cooperation) and have recently joined WTO ( world trade
organization)
The negative balance can be corrected by:
Increasing exports
Restricting imports
Curtailing imports related to tertiary sector
How to increase exports?
Higher value added products should be exported more
The development of cottage and small scale industries
Increase the variety of export items
Reduction in taxes will get more exporters
Export agencies such as export promotion bureau have been
created to organize export activities
Export processing zones:
These contain industrial units which manufacture products
for exports
Their purpose:
To boost industrialization
To increase export by setting up foreign investors
To create job opportunities
The export processing zones authority ezpa was made in
1980 to plan and operate these zones in pk. Industries
operating in these zones may import machinery or any
equipment for manufacture of export goods without paying
import taxes
Infrastructure required for these:
Should be build near a seaport to facilitate exports
Adequate air travel facilities
Adequate transport facilities for marketing of finished
products
The potential of epz on makran coast
Geographical location of Gwadar:
Gwadar location between Karachi and uae ( via sultanate of
oman and iran)
Foreign investment along with high could be attracted to
Gwadar
It can serve as a regional trade hub with recent
developments in it such as rehabilitation, and development
of Afghanistan and cas
The port of Gwadar when developed will be able to cater for
uae, oman, Saudi Arabia , and Qatar
The deep water port ad export processing zone can be
developed. An area covering 100 hectares has already been
allocated for epz, while another 4000 hectares are reserved
for industrial zone
Infrastructure such as transport links, water resources from
dasht and the Mirani dam, desalination plant, and power
resources plant through wapda at pasni, could be arranged
by government
Restriction on imports:
Consumer goods accounted for 14% of imports, most of
these are luxury items which could be easily made in
Pakistan
Reduction in imports related to tertiary sector:
Includes banking, insurance, education and health
In Pakistan there has been a trend for hiring skilled
personnel from foreign on high salaries, it can be reduced by
training Pakistani citizens
Trade barriers;
Trade barriers may exist as tarrifs (taxes on import), trade
embargoes ( a ban on certain imported product0, quotas
(restriction on a quantity of products imported). An inflow of
cheap imported products from china results in high levels of
uncompetitiveness
Therefore to protect domestic industry, trade barrier is
required
Advantages:
Give rise to self sufficiency, reducing foreign dependency
Protect local industries and generate more employment
Creates domestic demands much more and correct balance
of payment
Disadvantages:
Consumer choice is limited to domestic products
Local industries being poor due to lack of products from
international
Even those products which the country produces inefficiently
and at high cost would be need to be produced
Exchange rates:
Refers to the price on one currency in terms of other like us
1$ = 158pkr
These determine the cost of imports and exports, and
investment return costs
It is said to depreciate when one unit of that currency buys
fewer and fewer units of another currency. If dollar amount
decreases it has depreciated because it will not buy as many
rupees
Appreciation of the exchange rates takes place when one
unit of a currency can buy greater unit of another currency.
It makes imports cheaper and exports expensive
European union (eu):
Is an economic and political group and trading bloc of 27
states in europe
It was established in 1993 to enhance economic connections
It has evolved as a single market and allows the free
circulation of goods and services with eu. No customs or
import quotas
However these can include when the states trade outside
the union
Pakistan and the eu:
It exports mainly textiles, medical equipments and leather
products to eu
Imports mainly, mechanical, electrical and chemical products
Its advantages:
Expansion in foreign market
Development of export orientated industries /
industrialization
More employment opportunities
Fewer trade barriers so access is easier
Disadvantages:
Facing sanction due to terrorism
Faces restriction due to child labour
Pakistans cottage industries lack standards
Pakistan agricultural exports are unreliable due to natural
factors
Trade development authority of Pakistan: (tdap)
Was established in 2006 to replace export promotion bureau
It was intended to take a broader view of global trade
The authority is under administrative control of ministry of
commerce, in order to ensure that its policies are in line with
those of federal gov
It has 14 regional offices, and runs seminars and workshops
Is involved in planning and development of diff sectors of
economy and in linking them with international trade
requirements
Sectors like ‘manufacturing’
Agriculture and service industry to be developed according
to international standards
