Smart summary of the whole unit # 10 : Trade

Smart-Summary of UNIT # 10 : TRADE

Trade: Exchange of goods and services between different areas/cities/countries.
Ancient concept: Barter system which meant the exchange of goods with other
goods without using money (before the invention of currency).
Functions / importance: Links activities, help specialization, provide employment,
promotes industrialization, transfer of IT, rise in GNP, utilize in domestic resources,
production of value added goods. Pakistan has trade relations with more than 100
countries. our major trade-partners are China, UK, USA, UAE, EU, Germany and Saudi
Arabia.
Exports: Selling your surplus/extra goods and services to other countries.
Classification of exports: Primary (raw cotton), Processed (yarn) ,
Manufactured (cloth).
Trends of exports: in Pakistan, during past years, Primary export has decreased as
the raw materials are now being used in industries for value addition &
manufacturing.
The processing/value addition also depends on industrialization and government
policies, improved quality, competition, foreign investment.
Major exports of Pakistan:
Primary Commodities: (raw cotton, fruits, fish, leather, vegetables, mutton , beaf,
chicken , milk)
Processed & value-added products: (yarn, gray-cloth, tin-pack fruits etc.)
Manufactured: textile products, ready-made garments, carpets, rugs, sports goods,
surgical instruments, leather and beddings.
Direction of Exports: UK (raw cotton), Eastern Europe (cloth), USA (carpets, rugs,
surgical instruments and sports goods), China, Hong Kong (cotton yarn), Japan (fish
and fish products)
Steps to improve exports: Shift to value added goods, more cottage industries,
reduce taxes, organizations like Trade development authority of Pakistan TDAP to
create awareness, identify markets, help entrepreneurs, provide loans, arrange expo
exhibitions, quality control measures. Establish EPZs to provide assistance to
investors for the infrastructure, 100% ownerships, and duty free imports.
Threats to Exports: Political instability leading to lack of government priority,
irregular power supply, natural disaster like flooding droughts.
Imports: Goods or services brought into a country from a foreign source.

1|Page By: Adnan Ashraf, Beaconhouse Liberty Campus,Lahore

 Smart summary of the whole unit # 10 : Trade

Classification of imports: Capital goods, raw material for capital goods

(manufactured goods used for further producing e.g. sugar mill machinery),
consumer goods (manufactured goods fulfilling the daily need of consumer e.g.
cosmetics and luxury items), raw material for consumer goods.
Trends for imports: During recent years capital goods have shown a slight increase
as more production is taking place in HMC, and other steel mills, No drastic change
has occurred in raw material of capital goods whereas raw material for consumer
goods had shown a slight increase due to their use in industrialization with ever
increasing population with growth. A good sign is reduction in imports of consumer
goods again due to local manufacturing.
Major imports of Pakistan: Food (food, wheat, oil, sugar, pulses) machinery (textile,
electrical, construction, mining, agriculture) Petroleum, textile, fertilizer and other
chemicals, metals (iron steel)
Direction: Machinery electrical appliances from UK, USA, Eastern Europe, Japan.
Mineral oil from Middle East. Tea from Srilanka.
Reasons for increase in imports: Increase in population resulting in increase of
demands and shortage of food, rapid industrialization needs more raw materials,
globalization.
Balance of trade (B.O.T) = Value of export minus value of import
Difference between BOT and BOP: BOT is the difference between value of imports
and exports of commodities / goods only during a given period of time.It doesn’t
include services sector.
Balance of Payments (B.O.P) = Value of exports & services minus value of imports &
services.
BOP is the difference between value of imports, exports and services during a given
period of time.
Reasons for negative BOT of Pakistan: Importing high quality goods and major
export consisting raw materials resulting in negative balance of trade increase in
population and demand. Inability of goods to compete in market. Tariffs on imported
goods, dependency on other countries as factor for oil, tea etc, and heavy petroleum
imports and by products, hard competition, devaluation of rupee currency, Pakistan
does not belong to major regional organizations only ECO and SAARC.
Effects of negative balance of trade: Taking loans to meet deficiency, cutthroat
development projects, rely on foreign assistance, embargo may be imposed in case

2|Page By: Adnan Ashraf, Beaconhouse Liberty Campus,Lahore

 Smart summary of the whole unit # 10 : Trade

of non-payment, assets of company may be sold to pay loans, higher taxations,

business and commercial activity slows down.
Solutions to correct negative balance of trade: Shift to value added goods, develop
more cottage industries, reduce taxes, establish EPZs and industrial estates, political
stability, encourage foreign investors, quality check measures, research for market
opportunities, encourage entrepreneurs. Another solution could be reduction in
tertiary sector by training our own people according to requirements of countries.
Export Processing Zones ( E.P.Z )
Definition: Containing industrial units which manufacture products with export
potential.
Objectives: To boost industries, attract foreign investors, create job opportunities,
and transfer technology.
Incentives to EPZs by Government: 100% ownership, no limit for investment, duty
free imports, no sales tax on services, electricity and gas bills. Exemption from import
duties.
Areas for EPZ in Pakistan: Karachi, Sialkot, Risalpur, Lahore, Faisalabad, Gawadar.
Infrastructure required for EPZs: Near the seaport for reduced transportation
charges, at areas where government has consistent policies, air travel facilities for
foreign investors, other transport facilities for marketing and transportation of
goods, efficient to links to raw material sources.
Potentials of establishing EPZs on Makran Coast: Attract foreign investors as
accessible to land locked countries of Central Asian states. Gawadar port will cater
the trade of UAE, Oman, Saudia Arabia and Qatar. It’s a deep water port with large
hinterland for developing EPZs. Infrastructure facilities like airport, WAPDA plant at
Pasni.
Trade barriers:
Definition: Trade barrier exists when government impose a set of restrictions that
make it difficult for countries to trade their goods and services easily.
Types of barriers: Tariffs (taxes on imports), embargo (ban on imported products),
quotas (restriction of quantity of imports).
Objectives: Barriers restrict the inflow of goods in the country e.g. cheap Chinese
goods are a threat to our industries.
Advantages: Self sufficiency rises, protect local industries, create employment, and
improve BOP.

3|Page By: Adnan Ashraf, Beaconhouse Liberty Campus,Lahore

 Smart summary of the whole unit # 10 : Trade

Disadvantages: Limited consumer choice, non international competition, costly

goods also needed to be produced as not allowed in imports.
Exchange rates:
Definition: It refers to the price of one currency in terms of other currency e.g. 1 US
dollar is equal to 9 Sit determines cost of exports and price of imports.
Depreciated exchange rates: When one unit of that currency buys fewer units of
other currency e.g. when one dollar falls from 84 to 70 rupee the dollar is
depreciated. Depreciation makes imports expensive and imports
cheaper.Appreciated exchange rates: When one unit of currency can buy greater
value of another currency e.g. $+79 rupee to 85 rupee. It makes imports cheaper and
export expensive.
Trading Blocks
Definition: Trading blocks refers to regional groupings of international economies to
allow for greater cooperation and facilitation of free trade. It has no restriction on
members and strong barriers for non members. Pakistan is a member of ECO and
SAARC and WTO.
Opportunities for Pakistan from membership of WTO: WTO is an international trade
organization allowing free trade between member countries, Pakistan its member
after 2004. Pakistan became accessible to international trade market.
Challenges to be a member of WTO: Cotton has to be produce value added products.
Agriculture has to cope with international standard by opening domestic market and withdraw
export subsidies. Cheap imports and decreased exports of agricultural products lead to
unemployment and reduction of revenue. Safe and hygiene standards have to be maintained,
shift to high quality pesticides. Service sector gets open for foreign companies like banking and
telecommunication. Public sector has to work in compliance with private sector for industrial
development. Small and medium scale industries face challenges like rising prices of raw
material, high coast electricity out dated machinery lack of hygiene control low investment due
to low profits.
Solutions to meet challenges: Modernize production process, training and education. Build
infrastructure to improve human resource, carry more research in agriculture, upgrade civil
service to help Pakistan to operate under new rules, make our industry comply with
international quality.
Trade Development Authority of Pakistan: TDAP has formally replaced EPB as it was unable to
play a role in international trade. TDAP will go beyond narrow domain and will be involved in
overall planning of different sectors linking them with international requirements. It will be
under the control of ministry of commerce.

4|Page By: Adnan Ashraf, Beaconhouse Liberty Campus,Lahore