trade Flashcards
functions of trade
links various activities eg movement of goods, processing and sale, iron ore from mines to mills etc
helps specialization of regions in production of a variety of commodities and exchange of goods bw different regions
employment in tertiary industry eg transport, computer operators etc
importance of trade
specialization of goods and services eg Paks cotton textile and sports goods, japan’s hi tech electronics, sri lanka’s tea etc
utility of domestic resources, growth of secondary industry and exports
transfer of technology from developed countries
development schemes started by new technoloy and foreign exchange earnings
growth of value added products in under developed countries in order to increase earnings eg ready made garments
improving relations bw states eg India and Pak hostility may be reduced y promoting bilateral trade
achieving economies of scale as large scale production due to increased demand of products from trading partners
major imports
capital goods: machinery, electrical, electronic appliances (UK, USA, Japan; SK and Malaysia)
veg oil and wheat from USA
edible/palm oil from malaysia
crude oil from ME (KSA and Iran)
Tea and coffee from Sri Lanka and Kenya
medicines from UK germany and USA
major exports
raw cotton to UK
cotton cloth to Eastern Europe and ME; cotton yarn China (HK)
carpets, rugs, surgical instruments, sports goods to the USA and ME
ready made garments, rice, spices to ME
fish and fish products to Japan, some EU states and SL
trade routes and factors affecting Pak’s trade w other countries
east: India: no major trade due to disturbed relations though there are easy road and rail routes on flat lands facilitating efficient transport of goods
NW: Afghanistan: v rugged terrain w narrow winding roads and high narrow passes eg Khyber, Khojak, Kurram; usually disturbed relations hinder trade w afghanistan otherwise there is indirect access to central asia: rich in oil and gas reserves that can be imported by Pak thru pipelines
recent: Quetta-Chaman road and proposed gas pipeline tajikistan - pak
north: China: silk route and its remodeled ver, KKH is the major source of trade; highly dangerous road but regularly maintained by CHina and Pak
ultimate aim: Link Karachi port w central asia thru china ; gwadar port to china as part of cpec
SW: Iran: RCD highway and railway route to Iran and turkey since 1964 but after Iranian revolution of 1980 these routes r not being fully utilized
2016: imp agreement bw India and china to build chahbahar port - if developed it would restrict efficiency of Gwadar port
east: India: no major trade due to disturbed relations though there are easy road and rail routes on flat lands facilitating efficient transport of goods
NW: Afghanistan: v rugged terrain w narrow winding roads and high narrow passes eg Khyber, Khojak, Kurram; usually disturbed relations hinder trade w afghanistan otherwise there is indirect access to central asia: rich in oil and gas reserves that can be imported by Pak thru pipelines
recent: Quetta-Chaman road and proposed gas pipeline tajikistan - pak
north: China: silk route and its remodeled ver, KKH is the major source of trade; highly dangerous road but regularly maintained by CHina and Pak
ultimate aim: Link Karachi port w central asia thru china ; gwadar port to china as part of cpec
SW: Iran: RCD highway and railway route to Iran and turkey since 1964 but after Iranian revolution of 1980 these routes r not being fully utilized
2016: imp agreement bw India and china to build chahbahar port - if developed it would restrict efficiency of Gwadar port
south: Arabian sea
ports at cost open at all times thru out year
modern facilities at karachi bin qasim to ensure ez access to ME
short cut to europe thru red sea suez canal mediterranien sea
route to North africa SE Asia and Japan
Gwadar will further boost trade thru arabian sea
GDP
it is domestic production from within a country regardless of who produced it from nationals or foreign companies
calculated on annual basis
GNP
it is the production by nationals both within and outside Pak, measures the output by Pak nationals where ever they are in the world
growth and competition of imports and exports since 1947
Imports:
steady growth in general (1947-48) (1971-71)
rapid growth of imports since 1972 : devaluation in currency, rise in oil prices, cost of imports increased
early years: heavy imports of consumer and capital goods due to lack of industrailization
1960s: Rapid industrial growth; more import of raw materials for capital and consumer goods
recent: mainly raw materials imported; some capital and consumer goods
early years after 1947: self sufficient in food crops, later due to population growth import of food grains, edible oil and milk increased
exports:
slow growth w fluctuations, greater export of low value goods, agricultural products and raw material; gradually moe exports of value added goods instead of raw
increased exports mainly due to increased prices, not in terms of bulk of exports
1985 onwards: significant growth in exports as a result of setting up several industries and assemblage plants of electronic goods and automobile vehicles
rzn for change in composition of imports and exports
gradual increase in exports in diversified goods
exploration of new markets
better quality of products
a variety of incentives offered to the exporters since the 1960s
greater pace of industrialization 1960 onwards
setting up of oil refineries and iron and steel industries
currency exchange rates
international trade rate is mainly in superior currencies eg dollar, pound and euro
pak rupee has been experiencing depreciation against all these currencies over the decades
if pak rupee appreciated over these currencies = lesser imort costs but export earnings would declines as pak will be paid lesser amount of foreign currencies
if rupee depreciated = import cost increase export earning increase
if pak improves BOP to make it positive = an appreciated rupee will benefit the economyas its import spendin will be reduced and may produce better quality goods to increase bulk of its export
BOT
it is the difference of value of exported goods and value of imported goods
better indicator of foreign trade is BOP
BOP
BOP is an indicator of a country’s performance in foreign trade
BOP is defined as the difference bw value of all exports and value of all imports (goods and services)
Pak has almost always experienced a negative BOP
majors rzns for negative BOP of Pak
- heaving spending on imports
capital goods and raw material for capital and consumer goods eg iron ore, manganese, machinery, crude oil, electrical appliances etc
consumer goods: those that are directly purchased and used by the consumer eg medicines, electronics, tea
capital goods: goods used to make other goods eg consumer goods
non essential/ luxury consumer items eg expensive garments, cosmetics, perfumes
agricultural and food items despite the fact that Pak is an agro based economy( wheat, sugar, oilseeds etc)
services of foreign consultants for major projects eg dams and other development schemes and they are paid huge sums of money
- lesser earnings
poor quality products; tough competition w other countries eg India, China, Malaysia etc
non-diversified exports: heavy dependence on export of selected items eg cottom textile, rice, leather products, sports goods (more than 60% of export earnings are cotton related)
trade barriers restrict exports for various reasons eg pollution, child labor, poor working environment; boycott of sports goods in 1990 due to issue of child labor, some countries stopped fish trade w pak due to concerns abt water pollution in pak, trade relations w many countries damaged after pak became nuclear state in 1998
limited range of value added products
(difficult to earn export earnings w out value addition)
not many trade partners
3. miscellaneous factors
rising prices of oil in world market adversely affect paks industries eg sudden rise in 1970s and 80s
Pak not a member of any major trade bloc eg ASEAN or EU; ECO not efficient due to disturbed relations w Afghanistan; Pak disturbed due to Pak Indai disturbed relations; no success in makin SAFTA for same rzn
many countries stopped trade w pak after it conducted nuclear explosion in May 1998 and this further worsened negative BOP
failure to follow sustained development schemes; industrial and trade policies
heavy spending on defence due to Indian hostility; repaying debts
effects of a negative BOP
development projects have to be curtailed
more reliance on foreign assistance
more loans taken to repay prev debt
country’s assets to be sold to pay off loans
high taxation = inflation = low purchasing power of consumers = lower demand and lesser production
srs consequences eg trade embargo if Pak becomes defaulter
measures to improve BOP
increasing exports:
export more value added goods
expanding cottage and small scale industries to diversify exports
increasing non cotton exports
improving quality in order to compete w other countries
reducing taxes on necessary imports and exports
creating and improving performance of special bodies eg TDAP and EPZA that set up EPZs
setting up more expo centres
settin up dry ports to facilitate exports and import of traders inland/landlocked cities eg Laore, Peshawar, Faisalabad
dry port provides most of the port facilities eg packaging and storing of goods and documentation and custom clearance services to save time of traders
eg Mughalpura dry port, lahore and dry ports in Peshawar, Multan, Islamabad etc
EPZs
areas reserved for export oriented industries
aim: to increase industrialization and export; create jobs and transfer hi-tech from developed world; attract investors
infrastructure of EPZs
should be near port to facilitate exports and imports eg Karachi and Gwadar
efficient travel and transport facilities: land and air transport for traders; land transport for movement of workers , raw material and products
consistent govt policies to ensure stable environment for trade industry
eg: Karachi, Sialkot, Risalpur and now at Gwadar
potential and scope of EPZs on Makran coast
strategic location of Gwadar, near UAE; proposed access to CAS thru motorway and CPEC started in 2015-16
foreign investors w hi tech can be attracted
huge area to develop a deep sea port and EPZs
infrastructure being developed eg Makran coastal highway that ahs reduced distance bw Gwadar and Karachi by several hundred km; water from dasht river and mirani dam; power by a plant set up by WAPDA in Pasni and proposed installation of desalination plant ( to purify sea water)
TDAP (Trade Development Authority of Pak)
replaced EPB (export promotion Bureau) to play an effective role bec EPB was not able to play effective role in international trade
TDAP expected to give major improvements
reasonable for overall planning and development of all sectors of production and economy
will be holding trade fairs and festivals in collaboration w FPCCI (federation of Paks chambers of commerce and Industry) to display Pak products to the world ; will also facilitate Pak traders to attend same held abroad eg Qatar and Dubai
restricting imports
restricting imports of luxury/ non essential consumer goods that are 12% of total imports
exploiting local human resource potential instead of hiring foreign consultants for mega projects
imposing heavy import duty on import of those products which are manufactured locally
overcoming power shortage crisis to increase production of export goods
explore industrial raw material locally
trade barriers
imposed by govt to restrict imports/exports
to restrict imports: increased tariffs (taxes on imports), trade embargo (ban on selected import products) and quotas (fixing a limit of imported goods)
protectionism: imposing trade barriers in order to protect domestic industry eg ez flow of cheap goods from China, India etc may threaten domestic industry and hence trade barriers for protectionism
advantages of trade barriers
greater self reliance, growth on domestic industry due to protectionism
more jobs due to growth of domestic industry
lesser dependence on imports, greater export earnings
improved BOP
lesser borrowing due to greater earnings
disadvantages of trade barriers
lack of competitive spirit of domestic manufacturers due to declining competition
limited choice for domestic consumers due to lesser variety available
local manufacturers might be forced to continue to produce low quality goods with higher costs of production
possibility of political favoritism and bribing; govt might act in a biased way while erecting trade barriers against some countries while sparing others
WTO
Pak joined in Dec 2004
membership of WTO will bring fewer opportunities and several challenges for Pak
opportunities: mainly for services sector that will have to make few adjustments
challenges: for industry, agriculture and public sector departments
cotton textile: have to improve quality, modernize production, more value addition products needed
medium and small scale industry: tough competition in quality w other countries
agriculture: modernization and reduction of subsides needed
import duties on several goods reduced in line w WTO regulations; adversely affect domestic industry
public administration: strict measures to ensure transparent and cost effective projects
business environment to be in conformity w WTO regulations
how to cope w challenges
modernization of production process by training and education along modern lines
building up strong infrastructure, improving human resources and research in agriculture
reforming the corrupt and inefficient civil services to operate under new rules
measures to bring industry at par w international quality standards
Pak and its trade w EU
EU, a ground of 27 european states merged as a single trading bloc in 1993
new common currency Euro although all member states also retained their own currencies
purpose: improve social, economic and political relations bw the member states
free trade economy: within EU goods and services are free from custom duties and import quotas
imp for Pak to trade w EU though w some disadvantages
A
more exports and export earnings
development of export oriented industries that will promote industrialization
more investment in industry by local and foreign investors
more jobs
fewer trade barriers in EU; easy to trade
EU politically stable and economically strong, so less uncertainty in trade
D:
chances of sanctions due to terrorism, insecurity, child labor and poor working conditions
more pressure for improving quality of goods to compete
small scale and cottage industry products = poor quality = may not be popular in EU
power shortage crisis in Pak = poor quality production and failure to meet deadline of exports
trade agreements w other countries may damage relations w EU states; if Pak imports poor quality goods at cheaper rate from china, imports from EU will decline
mainly agro based exports of Pak; deadline in agricultural output due to floods and pests may decrease industrial output and exports to EU
politcal uncerainty in Pak constant disturbing factor for trade w EU
