Chapter 5: Challenges in Trade

Outline
● Challenges of trade logistics
● Trade policy
● Development in regional trade
● Insights of Pakistan-India case study
● Challenges that needs to be overcome
Link between Trade, Industrial Competitiveness and Urbanisation

Industrial
Competitiveness

Trade Urbanisation
 Logistics
● Support physical movement of goods within and across borders.
● Pros of a modernized logistics system;
1. Strongly correlated with trade and economic growth.
2. Important for higher value products
3. Reliability of supply chain is an important aspect
4. Better inventory control
5. Lower costs and high production rates
Sadly, Pakistan doesn’t realize this!
● Pakistan ranked at 71 out of 155 countries.
● Low LPI score
● Transport supply chain system doesn’t provide the value added services.
 Specific Logistic Concerns
(i) Ports and Shipping
● Logistical inefficiencies of ports due to
1. high cargo charges
2. delays at ports
3. Labour problems
4. Restrictive onshore cargo handling practices
● PACCS has reduced custom clearance time
and free storage time.
(ii) Trucking
●The trucking fleet in Pakistan runs on underpowered engines and is decades old.
●Low-capacity and low-powered trucks are made due to high import tariffs, which hinders the
improvement of the trucking industry.
●Trucks are overloaded to earn high earnings which results in:
1. Longer travelling time; Traveling in Pakistan takes three times as long as it does in Europe
because many trucks work long hours at low speeds of 20 to 25 kilometres per hour.
2. Increased chances of accidents; Due to lack of enforcement of standards on safe operation,
crew hours, vehicle modification, and trailer manufacture.
3. Transport time is lost.
4. Quality of service is poor; even though it is inexpensive.
●Small truckers are substantial in number. They have two choices: Either go to large truck owners
and associate themselves with their fleets, or become associated with a broker who provide work.
(iii) Railways
● Pakistan Railways is Pakistan’s top organizations with over 90,000 employees in 2007–08.
● The main line connects Karachi, Multan, Lahore, Rawalpindi, and Peshawar which are the 5 major
stations.
● There are 625 stations with 1,043 km of total double-track sections and 285 km of electrified sections.
Problems with Pakistan Railways
● Pakistan Railways has to compete with road
transportation.
● In comparison to road transport, freight charges
are uncompetitive.
● Railway transportation consists of long delays
and limited speed.
● Compared to other countries such as China and
Thailand, Pakistan Railways freight services are
around one-eighth and half as productive
respectively.
● PR has a very low market share, accounting for
less than 10% of passenger travel and 4% of
freight traffic.
(iv) Aviation
●Pakistan International Airline is the major public sector airline and it carries approximately 70 percent of
domestic passengers and almost all domestic freight traffic.
●The share of airfreight to total freight transported is quite small.
●Transporting through air freight takes three times longer than the actual transport time because of
inadequate supply of air freight capacity on planes.
●It is also comparatively expensive.
●Private airlines joined the civil aviation industry because of the Open Skies Aviation Policy as most of
these airlines faced heavy losses due to being operated on a small scale, with limited professional
management, inefficient and old equipment, and competition from the well-established PIA.
●Private operators could not continue to operate so they joined the CAA which has clashed with PIA over
the years.
 Trade Policy

● Pakistan embarked on a radical trade liberalization program

in 1996–97.
● Exports of the country soared during 2003-2007 by almost
110%.
● However, in 2006/07, there were increase in the maximum
complexity of Customs Duties.
● There were at least nine standard “normal” tariffs, ranging
from zero to 50 % as compared to just four standard normal
rates, ranging from 5 to 25 %, in 2002/03
● Substantial distortion has thus crept back into the trade
policy, and that distortion benefits a few chosen firms while
eroding the international competitiveness of the vast majority.
 Regional Trade

● World Bank’s Doing Business 2010 report ranks Karachi the highest among the trading cities
of Pakistan. But this is not surprising.
● Can you identify a more surprising trend in this graph?
Historical Context
Historical East-West Trade Routes of
Pakistan

Up to the 19th century, most trade in the

regions that now constitute Pakistan was
regional trade over land routes in cities
such as Lahore, Multan, and Peshawar
There was virtually no trade via the sea.
What caused this change?
 Towards Becoming a Regional Economic
Hub
● Regional trade in a much-changed current setting has the potential to be a big idea
growth vent.

● Trade across Pakistan’s land border thus presents great possibilities with:
● China which is undergoing a major restructuring to deepen growth and thus bring it
to Pakistan’s land border in the north.
● India on an impressive growth trajectory of 7–8 percent growth per annum and now
recognized as a major emerging economic power
● Iran that lies beyond the western border and is rich in oil and natural gas that it
would be free to sell to needy South Asia.
 Trade with India

● Becoming a regional hub entails

normalizing economic relations with
India.
● Analytical work, combined with recent
geopolitical developments, has resulted
in Pakistan taking steps towards
granting most favored nation status
(MFN) to India.
 Moving forward on Trade with
●
India
The establishment of a bilateral commission
● The commission would address the issues closely tied to India and Pakistan having a
normal economic relationship that results in sustained benefits.
● The commission would focus on the following:
○ Goods and services-related non-tariff barriers
○ Land routes.
○ Travel
 Some Insights from the Case Studies
● A major bottleneck in promoting Pakistan-India trade is freight infrastructure, especially Pakistan
Railway, without which the full range of the benefits of geography can be realized.
● Senior members of the policy establishment are generally supportive while working-level officials
are trapped in an obstructionist mindset mainly for kickbacks.
● Ease of travel is critical for small businesses to seek out profitable opportunities, acquire local
knowledge, and develop partnerships based on trust.
● Internationally competitive Pakistani exporters see India as a huge market.
● Political tensions must not be allowed to disrupt business travel and supply lines
 Improvement in Trade Infrastructure
and Trade Facilitation at the Land
Borders
● Cross-border connectivity will be critical for Pakistan to enjoy the economic benefits of
becoming a hub for economic transaction in the region.
● Pakistan needs to overcome the following trade facilitation and infrastructure challenges:
○ Sea (Shipping Services)
○ Air (Airfreight Services)
○ Land (Road Transport Services)
○ Railways
○ Waterways (Rivers and Canals)
○ Pipelines (Oil and Gas Transport)
○ Transmission Lines (Electricity)