The Process of Reducing or Removing Restrictions on Foreign Trade Essay Example

domestic industrial sector, and promoting exports.

In order to achieve their objectives, the authorities implemented various measures. These included providing financial incentives such as tax breaks, duty cuts, and other opportunities for exporters to boost their profits. The maximum duty rate was reduced from 225% in 1986-87 to 70% in 1994-95. Additionally, the number of custom duty slabs was decreased from 13 to 5. Throughout this decade, the flexible exchange rate system that had been introduced earlier remained effective.

Between 2000 and 2003, the government enacted policies that aimed at promoting liberalization, deregulation, and cost reduction for businesses. These policies were focused on maintaining a stable macroeconomic framework in terms of inflation rates, interest rates, and exchange rates. They also emphasized the importance of service exports as an essential part of the country's overall trade policy. As a result of increased economic openness, there has been a significant acceleration in trade measured by imports and exports over the past five years.

Pakistan's trade performance has been subpar compared to other developing Asian economies. While Pakistan's trade-to-GDP ratio has increased by 0.4 percentage points annually since 1990, India's has increased by 0.8 percentage points yearly and Korea's by 1 percentage point per year. The average global trade growth as a proportion of GDP, which is at 1 percent per year, has also surpassed that of Pakistan.

REGIONAL / BILATERAL TRADE AGREEMENTS

Pakistan has engaged in various regional and bilateral agreements to promote liberalization and enhance its trade. Some of these agreements include:

AGREEMENT ON SOUTH ASIAN FREE TRADE AREA

The South Asian Association for Regional Cooperation (SAARC) was established on December 8, 1985. The governments of Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and

Sri Lanka adopted the SAARC Charter with the aim of accelerating economic and social development among member states. The Agreement on South Asian Free Trade Area (SAFTA) was signed during the Twelfth SAARC Summit on January 6, 2004.

The South Asian Free Trade Area will be fully established on January 1, 2016 when the Agreement comes into effect. Pakistan has signed an agreement with Iran regarding Preferential Trade. This understanding was approved by the Cabinet on May 25, 2005 and became operational on September 1, 2006 as mutually agreed.An agreement was reached between Pakistan and Iran, where Pakistan granted 338 duty lines to Iran and Iran granted 309 duty lines to Pakistan. This agreement also involved both countries providing preferences to each other, accounting for approximately 18% of the Most Favored Nation (MFN) duty for both nations.

Additionally, since June 12, 2005, there has been a Free Trade Agreement (FTA) between Pakistan and Sri Lanka. Through this FTA, both countries are able to offer preferential market access to each other's exports through duty concessions. In Pakistan, Sri Lanka enjoys the advantage of having duty-free market access for 206 products such as tea, rubber, and coconut.

Pakistan will have duty-free access to 102 products in the Sri Lankan market, including oranges, basmati rice, and technology goods.


There is an Early Harvest Programme with Malaysia.


The Agreement for the Early Harvest Programme (EHP) for the Free Trade Area (FTA) between Malaysia and Pakistan was signed on Saturday, 1 October 2005 in Kuala Lumpur. The Pak-Malaysia EHP has been in effect since January 1st, 2006 and will continue until the FTA is

implemented or until March 31st, 2007.

The Early Harvest Programme (EHP) between Pakistan and China, which is based on the import statistics of 2004 and the Most Favoured State (MFN) applied tariff rates of 1 January 2005 of both states, commenced on 1st January 2006. Signed and exchanged on 5th April 2005, the EHP includes extensions related to tariff grants and a schedule for reducing duties. It serves as a mini fast-track preliminary to the Free Trade Agreement (FTA) currently under negotiation. This programme has facilitated duty-free access to a significant number of products within the first two years, thereby increasing market access for both Pakistan and China in areas of mutual commercial interest.

Both countries will benefit from a preferential Margin of Preference for exporting various products, resulting in lower duty rates compared to exports from other countries under the most favored nation (MFN) duty rate.
Free Trade AGREEMENT WITH MALAYSIA
The Cabinet approved the Comprehensive Free Trade Agreement (FTA) for Closer Economic Partnership between Pakistan and Malaysia on November 6, 2007. The agreement was signed on November 8, 2007, in Kuala Lumpur, Malaysia. This agreement is an important step taken by the Government of Pakistan to secure market access for its export products in Malaysia and strengthen economic and trade relations with an important member of the region.

Free Trade Agreement with China

China and Pakistan signed a free trade agreement in Islamabad on November 24, 2006. Chinese President Hu Jintao and Pakistani President Pervez Musharraf were present for the signing ceremony. The agreement initially focuses on trade in goods and investments, with plans to include trade in services in 2007.

Preferential Trade Agreement with Mauritius

Pakistan established a preferential

trade agreement with Mauritius on July 30, 2007.

ECOTA

The Economic Cooperation Organization (ECO) members - Pakistan, Iran, Turkey, Afghanistan, and Tajikistan - signed the ECO Trade Agreement in July 2003.

FRAMEWORK AGREEMENT ON Trade


Pakistan engaged in free trade discussions with MERCOSUR countries to expand trade relations. These discussions resulted in the signing of a Framework Agreement on Trade on July 21, 2006.

Attempts FOR MARKET ACCESS IN THE EU

Efforts have been made to enhance market access in the EU, which is Pakistan's largest export market.


PAK-EU FTA


Pakistan has requested the EU to engage in FTA negotiations. The goal is to persuade the EC that, considering Pakistan's market size and potential, it can be a reliable FTA partner for the EU.


MARKET ACCESS INITIATIVE IN NON-EU COUNTRIES


Pakistan is targeting non-EU countries within Europe to establish PTAs leading to FTAs.

These states include Switzerland, Norway, Serbia, Montenegro, Bosnia, Croatia Belarus, and Ukraine. Serbia and Bosnia have agreed to initiate dialogues with Pakistan.

RUSSIA A draft of the PTA was sent to Russia for consideration on May 12, 2006. Later, their questions on the draft were clarified and the response is now awaited. Recently, the issue was discussed between the Prime Ministers of both states during the visit of the Russian Prime Minister on 12-13 April 2007.

Trade POLICY 2008-09
The trade policy for the year 2008-09 emphasizes a people-centric approach, aiming to reduce poverty. It achieves this by promoting higher exports, which leads to increased production of surplus goods and more

job opportunities. The policy also focuses on enhancing export incomes through the promotion of high-value products, improvement in quality, adherence to international standards, and reduction of business costs through capacity building and vertical integration. Additionally, it aims to support marketing activities through trade promotion and expanding market access. The policy also prioritizes diversification of export products and markets with a target of achieving $22.10 billion in exports for 2008-09, representing a 15% growth compared to the previous year.

EXPORT STRATEGY AND MEASURES
The export strategy for 2008-09 aligns with the mentioned goals and includes measures such as intensifying efforts in market intelligence.

TDAP engages in various activities such as organizing exhibitions, participating in trade carnivals, and sending trade deputations in order to promote trade publicity. The Ministry of Commerce also supports these efforts through trade diplomatic negotiations to create more market access opportunities and reduce non-duty barriers for exporters in other countries. The goal is to increase the competitiveness of exports by helping businesses reduce costs. As such, several measures are being proposed to simplify procedural requirements, including comprehensive zero evaluation of various export sectors. To address the issue of poor infrastructure affecting exporters, coordination with relevant government agencies is being pursued. Instead of providing cash incentives or subsidies, especially considering current financial constraints, emphasis will be placed on supporting capacity building efforts of exporters, such as productivity enhancement programs and training facilities to upgrade human resource skills.

The proposals for promoting increased trade in agricultural goods will benefit small and medium enterprises (SMEs) in the manufacturing sector and support diversification. Exporters will be encouraged to enhance product quality, meet consumer preferences, adhere to international standards, and acquire necessary

certification. The strategy includes implementing successful previous trade policies to boost exports as well as introducing new measures such as Temporary Importing for Exports, Zero Rating of Exports, and the development of Export Clusters. To facilitate exports to Paktia (Gardez) and Khost provinces in Afghanistan, a customs station will be established at the Pak-Afghan border in an appropriate location. This initiative aims to reduce transportation costs and delivery time from Pakistan specifically for this region.

IMPORT STRATEGY AND MEASURES

Our import strategy for this year seeks to tackle the trade gap and promote imports that will enhance our exports' competitiveness, leading to increased quantity and value. To boost the competitiveness of our export products in international markets, we will allow the import of Job batch & A ; Stock tons of raw materials, subject to a 5% duty. We have also expanded the list of items from India that can be imported based on stakeholder requests. By sourcing cheaper raw materials from India, our exports will gain a competitive edge globally. Additionally, we are permitting the importation of Diesel and fuel oil from India due to cost-effectiveness resulting from lower transportation costs, which helps address our global trade deficit. In Budget 2008-09, Customs Duty on imported CNG Buses was reduced from 15% to zero.

In the event that an Indian manufacturer of CNG coaches makes a firm commitment to establish production of such coaches in Pakistan, the Ministry of Commerce may provide special dispensation for import of 10 coaches by road via Wahga from each potential investor as trial shipments.

PAKISTAN AND THE WTO

Pakistan has been a member of the WTO since 1995, as

well as its predecessor organization, the GATT established in 1948. We are pursuing a growth strategy driven by exports, making market access crucial for our businesses. The increasing number of discriminatory agreements and free trade areas among some members is also undermining our market access. Therefore, in order to maintain current markets and gain new ones for our exportable goods and services, we rely on the WTO to reduce duty and non-duty barriers on a Most Favored Nation (MFN) basis.

The liberalisation of Most Favored Nation (MFN) effectively equalizes the opportunities for competitive providers. Pakistan has actively participated in the Doha round of trade negotiations, which began in Qatar's capital in November 2001. Known as the "Doha Development Agenda" (DDA), these negotiations have aimed to address distortions in global agriculture markets and secure improved market access for Pakistani product and service suppliers. Additionally, two more ministerial conferences have taken place since 2001: one in Cancun in 2003 and another in Hong Kong in 2005.

The decision to the Doha unit of ammunition, which takes into account the interests of the developing rank, has had many ups and downs. Negotiations were disrupted in the summer of 2006, which caused doubt among many observers. However, the rank's sustained efforts led to a partial resumption of negotiations in November 2006 and full resumption since January 2007, after the World Economic Forum meeting at Davos.

Trade POLICY REVIEW BY THE WTO

Pakistan's economic growth has been impressive since its previous Trade Policy Review in 2002. This is mainly due to its relatively open trade and investment policies, sound macroeconomic policies, and structural reforms. These factors have also contributed to reduced unemployment and poverty

in the country, according to a report by the WTO Secretariat. Trade liberalization has brought noticeable improvements in customs procedures, significant reduction of tariff protection, and expansion of duty bindings, which have made the trade regime more predictable. However, some sectors still have a complex tariff structure. Additionally, there has been an enhancement in the protection of Intellectual Property Rights.

The study also acknowledges that Pakistan still lags behind in diversifying its exports, relying heavily on fabrics and clothing, which make up two-thirds of total exports. This sector now faces tougher competition in major markets. Additionally, the government's involvement in certain activities such as technology and key services persists. The study suggests that continued trade liberalization and other reforms to address restrictions, excessive regulatory controls, and labor market rigidity would improve Pakistan's international competitiveness and opportunities for sustainable economic growth.

EFFECTS OF TRADE LIBERALIZATION ON GROWTH AND POVERTY

Both positive and negative effects can be observed in the transmission channels.

Trade liberalisation has had a positive impact on reducing poverty by promoting economic growth, increasing productivity and investment, and stabilizing prices. However, it has also resulted in certain costs, particularly related to financial adjustments, which have led to an increase in poverty. The reduction in tax revenues due to lower import taxes and efforts to control the fiscal deficit has affected spending on development. These expenditures not only directly benefit the poor but also have the potential to create employment opportunities for them. Unfortunately, the foregone investments have negatively impacted the income of those living in poverty.

With regards to income inequality, the evidence suggests that while trade liberalisation alone leads to a small decrease in inequality, an increase in

Foreign Direct Investment (FDI) seems to increase it. This process of liberalisation places Pakistan in the middle of a group of developing economies in Asia in terms of self-imposed trade restrictions, including both tariffs and non-tariff barriers. Within this group, Pakistan restricts its imports as much as China and less than India, Malaysia, the Philippines, and Bangladesh, but more than Thailand, Turkey, Indonesia, and Sri Lanka. However, in terms of barriers imposed by other countries on a country's exports, Pakistan has the least market access among the same group of developing countries in Asia and also ranks high globally in being denied market access.

CONCLUSION AND POLICY IMPLICATION

While trade liberalisation is seen as promoting development by positively affecting development indicators, it has not affected the selected indicators of poverty, income distribution, PGDP, and employment in Pakistan as expected.

The availability of low-cost raw materials and machinery through unrestricted trade has increased production. At the same time, exporting manufactured goods has created more job opportunities due to increased demand for domestic products. However, trade liberalisation has also led to a greater income inequality in the country. This can be attributed to the poor performance of intervening factors in Pakistan. Therefore, it can be argued that trade liberalisation has not had a positive impact on development in Pakistan.

It may not be solely the fault of liberalization policies, but also due to the intervening factors of our economy. Some suggested policy implications are: Since Pakistan is a labor abundant country, it should prioritize the production and export of labor-intensive products, such as textiles. To alleviate poverty, we should encourage productivity-oriented approaches that can increase the income of the poor by

enhancing their productivity. Another effective factor for development is political stability, which should be promoted in the country. Improved political stability would have positive implications. Over the past 50 years, Pakistan has experienced multiple changes in government and corresponding changes in economic policies. To enhance economic performance, the country should improve political stability. In order for trade liberalization to effectively promote growth and development, Pakistan should enhance the performance of its mediating factors. Under suitable conditions, further reduction of trade barriers can stimulate growth and reduce poverty in Pakistan.

It is important to have other pro-investment policies in place, in addition to taking advantage of trade liberalisation. It is crucial to carefully manage the increase in development expenses, so that the costs of adjusting to trade liberalisation do not outweigh the benefits. However, simply budgeting for more development expenses is just the first step. The systems for delivering and monitoring these expenses must also be enhanced. It is not advisable to primarily finance the development expenses through increased financial deficits, as this would jeopardize the hard-earned macroeconomic stability and credibility. Some expenditure shifting is necessary, and taxes as a percentage of GDP should be raised. This includes implementing taxes on agricultural income, services, as well as capital gains from stocks and real estate. Efforts to improve social safety nets and implement skill development and training programs are also needed to mitigate employment losses during the transition period.

To ensure the long-term viability of exports, it is essential to enhance existing establishments, attract foreign direct investment focused on exports, and explore new export markets. Improving market access in current markets also plays a crucial role. The elimination

of textile quotas presents a potential opportunity; however, to compete with strong rivals like China and India, Pakistan needs to enhance its international competitiveness in order to fully benefit from this opportunity.