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Pakistan
Foreign Trade
Foreign trade is important to the economy because of the country's
need to import a variety of products. Imports have exceeded exports
in almost every year since 1950, and Pakistan had a deficit on
its balance of trade each year from FY 1973 through FY 1992 (see
table 5, Appendix). In FY 1991, exports were US$5.9 billion, compared
with imports of US$8.4 billion, which resulted in a deficit of
US$2.5 billion. In FY 1992, exports rose to an estimated US$6.9
billion, but imports reached an estimated US$9.3 billion, resulting
in a trade deficit of US$2.4 billion. Economists forecast a trade
deficit of around US$2.5 billion for FY 1993. Pakistan's terms
of trade (see Glossary), expressed in an index set at 100 in FY
1981, were 78.0 in FY 1991 and 82.7 in FY 1992.
Crude oil and refined products are significant imports (see table
6, Appendix). Their value varies with internal demand and changes
in the world oil price. In FY 1982, oil products accounted for
around 30 percent of Pakistan's imports, falling to an annual
average of 15 percent in FY 1987 to FY 1990, rising to over 21
percent in FY 1991, but dropping back to 15 percent in FY 1992.
Other important categories of imports in FY 1992 included nonelectrical
machinery (24 percent), chemicals (10 percent), transportation
equipment (9 percent), and edible oils (4 percent).
Although import-substitution industrialization (see Glossary)
policies favored domestic manufacturing of substitutes for imports,
officials also encouraged manufactured exports in the 1950s and
1960s. In the early 1980s, incentives were again provided to industrialists
to increase manufactured exports. Nonetheless, in the early 1990s
the export base remained primarily dependent on two agricultural
products, cotton and rice, which are subject to great variations
in output and demand. In FY 1992, raw cotton, cotton yarn, cotton
cloth, and cotton waste accounted for 37 percent of all exports
(see table 7, Appendix). Other important exports were ready made
garments (15 percent), synthetic textiles (6 percent), and rice
(6 percent). There was some diversification during the late 1980s
as the share of manufactured goods rose. The share of primary
goods fell from 35 percent to 16 percent between FY 1986 and FY
1993. During the same period, the share of semimanufactures rose
from 16 percent to 20 percent, and that of manufactured goods
rose from 49 percent to 64 percent.
In the early 1990s, Pakistan's balance of trade remained particularly
vulnerable to changes in the world economy and bad weather. Sharp
increases in crude oil prices, such as those of 1979-81 and 1990,
raised the nation's import bill significantly. Total exports,
on the other hand, are more sensitive to agricultural production.
The decline in cotton production in FY 1993, for instance, seriously
affected the export level.
Sources for imports and markets for exports are widely scattered,
and they fluctuate from year to year. In the early 1990s, the
United States and Japan were Pakistan's most important trading
partners. In FY 1993, the United States accounted for 13.7 percent
of Pakistan's exports and 11.2 percent of its imports. Japan accounted
for 6.6 percent of exports and 14.2 percent of imports. Germany,
Britain, and Saudi Arabia are also important trading partners.
Hong Kong is an important export market and China a significant
supplier of imports. Trade with the Republic of Korea (South Korea)
and Malaysia is small but not unimportant. Trade with India is
negligible.
Because of Pakistani fears of protectionism in developed countries
and the increasing importance of regional blocs in international
trade, the government in the 1980s and early 1990s placed new
importance on developing trade links with nearby nations. In the
early 1990s, new trading initiatives were being pursued through
membership in two regional organizations, the Economic Co-operation
Organization (ECO) and the South Asian Association for Regional
Cooperation (SAARC--see Glossary).
The ECO was formed in 1985 with Pakistan, Iran, and Turkey as
its only members, but Afghanistan, Azerbaijan, Kyrgyzstan, Tajikistan,
Turkmenistan, and Uzbekistan joined in 1992. Some politicians
in the member nations see the ECO as a potential Muslim common
market, but political rivalries, especially between Iran and Turkey,
limit its effectiveness. In 1994 most of the concrete measures
being taken by the ECO concerned the improvement of transportation
and communications among the member nations, including the construction
of a highway from Turkey to Pakistan through Iran.
SAARC was founded in the mid-1980s primarily as a vehicle to
increase trade within South Asia by delinking the region's political
conflicts from economic cooperation. Its seven member states--Bangladesh,
Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka--adopted
the principle of unanimity in selecting multilateral questions
for debate. Despite frequent consultative committee meetings,
progress toward increased trade remained limited in 1994. Pakistan's
trade with India, for instance, is extremely limited. At the annual
SAARC summit in April 1993, members agreed to negotiate a South
Asian Preferential Trade Agreement by 1996 that would lower or
abolish tariffs among members.
During the first four decades after independence, controls on
imports were used to ensure priority use of foreign exchange and
to assist industrialization. In the 1980s, the government maintained
lists of permissible imports and also used quantitative restrictions
and regulations on foreign exchange to control imports. The most
extensive list covers consumer goods as well as raw materials
and capital goods that can be imported by commercial and industrial
users. A second list, mostly of raw materials, can only be imported
by industrial users. A third list covers commodities only the
public sector can import.
In 1991 and 1992, the government announced various measures to
liberalize trade. Import licensing was ended for most goods, many
products were removed from the lists of restricted imports, and
import duties were cut. In addition, foreign companies were allowed
into the export trade. The government also promised to convert
the remaining nontariff barriers into tariffs, incorporate various
ad hoc import taxes into customs duties, and reduce the numerous
exemptions and concessions on duties.
Data as of April 1994
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