The effect of import and export on the economy of Pakistan
1. Introduction
Imports: Goods or services that were produced abroad.
Exports: Goods or services produced locally and sold abroad.
Generally, an import means bringing goods into one country from another country in a legitimate manner, typically for use in trade. Import of goods and services are provided to domestic consumers by foreign producers. Import of commercial quantities of goods normally requires involvement of the Customs authorities in both the country of import and the country of export.
1.1 The purpose of study:
To know what is the effect of import and export in Pakistan and why Pakistan import and export the goods to other country and my objective is to know what are the problem faced by Pakistan and why the Pakistan export is less than import.
1.2 Context of study (History of Import and Export):
International trade is one of the hot industries of the new millennium. But it's not new. Think Marco Polo. Think the great caravans of the biblical age with their cargoes of silks and spices. Think even further back to prehistoric man trading shells and salt with distant tribes. Trade exists because one group or country has a supply of some commodity or merchandise that is in demand by another. And as the world becomes more and more technologically advanced, as we shift in subtle and not so subtle ways toward one-world modes of thought, international trade becomes more and more rewarding, both in terms of profit and personal satisfaction.
Because the different resources are available in different placing and business opportunities of growth attracts the business man to import and export the goods from one country to other country the different prices in different market and business man can get the maximum profit to export the goods and can get the goods on low price to other country and biggest reason of the export and import is to share the goods between the countries to get the maximum profit and fulfill the demand.
1.2.1 History of Import and Export in Pakistan:
Pakistan is a member of the World Trade Organization, and has bilateral and multilateral trade agreements with many nations and international organizations.
In Pakistan the import and export was started from Jan 10, 1950. At this time Pakistan has two parts West Pakistan (Pakistan) and East Pakistan (Bangladesh). Pakistan started its export from cotton because Pakistan is an agriculture country so cotton was the export item from Pakistan and until now it is a major item of export of Pakistan.
Demand of the world for import and export of Pakistan has been fluctuate due to its domestic and political uncertainty, and specially it has a great impact on agricultural production and have all contributed to variability in Pakistan's trade deficit.
In the six months from July to December 2003, Pakistan recorded a current account surplus of $1.761 billion, roughly 5% of GDP. Exports of the Pakistan grow by 19.1% in Fiscal Year 2002-03. Pakistan still has a large merchandise-trade deficit in the fiscal year 1996-97 that was 6.4% of GDP. Principal and interest payments in Fiscal Year 1998-99 totaled were $2.6 billion and it is more than double the amount that was paid in Fiscal Year 1989-90.
1.2.2 Major Export of Pakistan:
· Sports goods
· Ice cream
· Livestock meat
· Fish
1.2.3 Major Imports of Pakistan:
· Petroleum and petroleum products
· Edible oil
· Chemicals
· Fertilizer
· Capital goods
· Industrial raw materials
· Consumer products
· Agriculture Machinery
· Textile Machinery
· Iron, Steel and Aluminum
1.3 Significance of study:
Importing is not just for those lone footloose adventurer types who survive by their wits and the skin of their teeth. It's big business these days--to the tune of an annual $1.2 trillion in goods, according to the U.S. Department of Commerce. Exporting is just as big. In one year alone, American companies exported $772 billion in merchandise to more than 150 foreign countries. Everything from beverages to commodes--and a staggering list of other products you might never imagine as global merchandise--are fair game for the savvy trader. And these products are bought, sold, represented and distributed somewhere in the world on a daily basis.
But the import/export field is not the sole purview of the conglomerate corporate trader, according to the U.S. Department of Commerce, the big guys make up only about 4 percent of all exporters. Which means that the other 96 percent of exporters--the lion's share are small outfits like yours will be--when you're new, at least According to the U.S. Census Bureau, the top 10 countries with which America trades (in order of largest import and export dollars to smallest).
Canada,Mexico,Japan,China,Germany,United,Kingdom,France,Republic of Korea (South Korea),Taiwan, Singapore. You needn't, of course, confine yourself to trade deals with importers and exporters in these countries--there are scads of other intriguing possibilities available, including the member countries of the Caribbean Basin and Andean pacts and the new kids on the Eastern Bloc, the former Soviet Union countries. But as a newbie on the international scene, you should familiarize yourself with our biggest trading partners and see what they have to offer. Then take your best shot, with them or with another country.
Every business needs consumers for its products and services to, as the Vulcans so eloquently put it, live long and prosper. Now that you know what running an import/export business entails, you need to plan, or target, your market, and determine who your potential clients will be, which geographic areas you'll draw from, and what specific products or services you'll offer to draw them in.
This is a very important phase in the mega-trader building project. The proper market research can help boost your trading company into a true profit center, and the more research you do, the better prepared you are before you officially open your doors, the less floundering you're likely to do.
1.4 Problem definition
Why the Pakistan export is less than import
1.4.1 Electricity problem
Whether Pakistan the electricity is less than demand of country.
1.4.2 Exchange rate
Whether Pakistan exchange rate, the imports are more than export.
1.4.2 Lack of technology
Whether Pakistan lack of technology imports are more than export.
2. Literature Review:
In literature different articles of different authors written at national level and International level has been discussed about the causes of low exports products of Pakistan.
2.1 Introduction to Literature Review:
In Literature Review different articles have been discussed on National and International level authors about the problem statement that is causes of lack of technology & electricity problem of Pakistan due to which our export is declining and our import is increasing. In the Literature Review the main theme of the article has been discussed about the problem that how we can control this problem to increase our export.
2.1.1 Explanation of Literature Review:
In the explanation of Literature Review I have discussed in detail the main theme of the author that how we can overcome to the problem that is causes of less exports and more imports products of Pakistan due to which our export is declining and our import is increasing.
2.1.2Article#1(Pakistan Textile Industry Facing New Challenges)
2.1.2.1 Abstract:
The Pakistan textile industry contributes more than 60 percent (US $ 9.6 billion) to the country’s total exports. However, currently this industry is facing great decline in its growth rate. The major reasons for this decline can be the global recession, internal security concerns, the high cost of production due to increase in the energy costs etc. Depreciation of Pakistani rupee that significantly raised the cost of imported inputs, rise in inflation rate, and high cost of financing has also effected seriously the growth in the textile industry. As a result neither the buyers are able to visit frequently Pakistan nor are the exporters able to travel abroad for effectively marketing their products. With an in-depth investigation it was found that the Pakistan’s textile industry can once again be brought back on winning track if government takes serious actions in removing or normalizing the above mentioned hurdles. Additionally, the government should provide subsidy to the textile industry, minimize the internal dispute among the exporters, withdraw the withholding and sales taxes etc. Purchasing new machinery or enhancing the quality of the existing machinery and introducing new technology can also be very useful in increasing the research & development (R & D) related activities that in the modern era are very important for increasing the industrial growth of a country.
Keywords: Textile; exports; global recession; production; inflation; marketing; withholding.
2.1.2.2 Introduction:
The Pakistan textile industry total export is around 9.6 billion US dollars. The textile industry contributes approximately 46 percent to the total output or 8.5 percent of the country GDP. In Asia, Pakistan is the 8th largest exporter of textile products providing employment to 38 percent of the work force in the country. However, the textile industry currently faces massive challenges. The All Pakistan Textile Mills Association (APTMA) needs to enhance the quality of its products. However, APTMA argues other factors such as high interest rates and cost of inputs, non conducive government policies, and non-guaranteed energy supplies hinder their competitiveness.
2.1.2.3 History of Pakistan Textile Industry:
Increase in the cotton production and expansion of textile industry has been impressive in Pakistan since 1947. Cotton – bales increase from 1.1 million bales in 1947 to 10 million bales by 2000. Number of mills increased from 3 to 600 and spindles from about 177,000 to 805 million similarly looms and finishing units increased but not in the same proportion. Pakistan’s textile industry experts feel that Pakistan has fairly large size textile industry and 60-70% of machines need replacement for the economic and quality production of products for a highly competitive market. But unfortunately it does not have any facility for manufacturing of textile machinery of balancing modernization and replacement (BMR) in the textile mills. We need to think about joint ventures for the production of complete spinning units with china, Italy and production of shuttle less looms with Korea, Taiwan and Italy.
Reflecting on the state of affairs, Abid Chinoy, Pakistan cloth merchants Association (PCMA) Chairman, Appreciated government’s efforts to encourage new exports and finding new markets, which need aggressive export marketing. The steps taken on the monetary front, such as the frequent devaluation of Pak rupee in terms of dollar could not improve the cost competitiveness of exportable products due to increase in prices of the local and imported inputs of the local textile industry. During the period 1973 to December 1992, some 71 spinning units with 1,136, 835 spindles, 6,600 rotors and 7,329 looms were closed down. In 1992, a foreign consultant form was hired by the government to look into the stagnate conditions in the local textile industry. One of the observations of the foreign consultant was “Pakistan has failed to make real progress in the international market and is being over taken by many of the neighboring competitor countries.
The rise in export of value-added products from Pakistan was another point of encouragement for the textile sector. “The export of value-added products rose to 57.4% from 53.9% in 2002 which is clear sign that we are moving in the right direction, “said the Chairman of all Pakistan textile mills association. The trade policy is considered an acceptable paper, but in the industry does not fine anything that could lead to a high level exports achievement and remove trade imbalance. Pakistan’s textile sector earned US$5.77 billion during the 2003 year, compared with US$5.577 BILLION OF 2000-2001 indicating a growth of 0.69%. The total exports of textile sector in 2004 were US 5.7 billion which shows 2.5% growth it increase to 4% growth in 2005 as compared to 2004.The textile sector shows 8% negative growth in 2006.T he negative growth continue in 2007 also with the value of 5%.The textile sector shows 15% growth in 2008. Now we will discuss the main reasons of crisis in textile industry step by step in detail
2.1.2.4 Lack of Research & Development (R&D) in Cotton Sector:
The lack of research & development (R&D) in the cotton sector of Pakistan has resulted in low quality of cotton in comparison to rest of Asia. Because of the subsequent low profitability in cotton crops, farmers are shifting to other cash crops, such as sugar cane. It is the lack of proper R&D that has led to such a state. They further accuse cartels, especially the pesticide sector, for hindering proper R&D. The pesticide sector stands to benefit from stunting local R&D as higher yield cotton is more pesticide resistant.
2.1.2.5 Lack of Modernize Equipment:
Moreover, critics argue that the textile industry has obsolete equipment and machinery. The inability to timely modernize the equipment and machinery has led to the decline of Pakistani textile competitiveness. Due to obsolete technology the cost of production is higher in Pakistan as compared to other countries like India, Bangladesh & china.
2.1.2.6 Finance Bill to Burden Industry Further:
All Pakistan Textile Mills Association (APTMA) has told that government’s actions are not matching with its words for the textile industry. Referring to the Prime Minister Yusuf Raza Gilani speech at the © Research Journal of Internatıonal Studıes - Issue 14 (May, 2010) 23 launching ceremony of the Infrastructure Development of the Pakistan Textile City at Port Qasim Industrial Area, where Prime Minister spoke high of the textile industry contribution towards the country’s economy, Chairman APTMA Tariq Mehmood said the federal budget 2009-10 is a total negation of the acknowledgement of the role of textile industry on the part of the Prime Minister. According to him, reintroduction of minimum tax on domestic sales would invite unavoidable liquidity problem, which is already reached to the alarming level. He said the textile industry was facing negative generation of funds due to unaffordable mark up rate on the one hand and acute shortage of energy supply & unimaginable power tariff for industry.
2.1.2.7 Increasing Cost of Production:
The cost of production of textile rises due to many reasons like increasing interest rate, double digit inflation & decreasing value of Pakistani rupee. The above all reason increased the cost of production of textile industry which create problem for a textile industry to compete in international market.
2.1.2.8 Internal issues pose a Larger Threat for Pakistan’s Textile Industry:
Pakistan’s textile industry is going through one of the toughest period in decades. The global recession which has hit the global textile really hard is not the only cause for concern. The high cost of production resulting from an instant rise in the energy costs has been the primary cause of concern for the industry. Depreciation of Pakistani rupee during last year raised the cost of imported inputs. In addition, double digit inflation and high cost of financing has seriously affected the growth in the textile industry. Pakistan's textile exports have gone down during last three years as exporters cannot effectively market their products since buyers are not visiting Pakistan due to adverse travel advisory and it is getting more and more difficult for the exporters to travel abroad.
Textile exporters rightfully demand reduction of Kibor rate to 8% to avoid a severe decline in exports. A three-year comprehensive textile policy is expected to be announced before budget 2009-10. The textile policy has been designed to enhance the exports of textile sector to $ 25 billion in next three years. This was stated by the Minister for Textile Industry Rana Farooq Saeed Khan. Textile Minister further informed that the spinning and weaving sector would get its due share from the Export Investment Support Fund, worth Rs. 40 billion allocated in the Federal Budget 2009-10. Rana Farooq pointed out that he has advocated the case of immediate support to textile industry in the Parliament and also in the Cabinet meetings because he is confident that only textile industry was capable enough to bale out Pakistan from the current economic crisis. He further said that although we are 4th largest producer and 3rd largest consumer of cotton but unfortunately now we are at number 12 in the international trade of textile products. Additionally, he stressed that government should take immediate measures to remove slowdown in the textile sector. He said that high cost of doing business is because of intensive increase in the rate of interest which has increased the problems of the industry. He said that record increase in markup rates is one of the major cause of defaults in servicing the loans availed by the industry, hence, the volume of non-performing loans has reached to an alarming situation. He said that power shut downs may result in massive unemployment resulting in law & order situation.
2.1.2.9 Energy Crisis:
· Electricity Crisis
As a consequence of load-shedding the textile production capacity of various sub-sectors has been reduced by up to 30 per cent. The joint meeting of APTMA & other related organization was held at APTMA House to formulate a joint strategy to address the alarming electricity crisis being faced by the textile industry. The meeting unanimously decided to constitute a joint working group of electricity management for the textile industry in the larger interests of the value chain of the textile industry. The joint working group will meet shortly to design a detailed plan to pursue the following goals; Immediate total exemption from Electricity load shedding for the textile industry value chain; Rationalization and reduction of electricity tariff. © Research Journal of Internatıonal Studıes - Issue 14 (May, 2010) 24 The load-shedding of electricity cause a rapid decrease in production which also reduced the export order. The cost of production has also risen due to instant increase in electricity tariff. Due to load shedding some mill owner uses alternative source of energy like generator which increase their cost of production further. Due to such dramatic situation the capability of competitiveness of this industry in international market affected badly.Fig.1.illustrates comparison between electricity production and consumption.
Figure 1: Comparison between Electricity Production and Consumption
· Gas Shortage
Gas load-shedding continues in Punjab and NWFP despite a significant increase in temperature. A spokesman for the All Pakistan Textile Mills Association (APTMA) claimed that 60 to 70 per cent of the industry had been affected and was unable to accept export orders coming in from around the globe. He said the textile industry had already endured over 45 days of gas disconnection over a period of four months, causing extraordinary production losses and badly affecting capability of the industry.
In Punjab, he said, energy supply disruption only was causing an estimated loss of Rs1 billion per day. In the larger interest of the economy and exports, he suggested, the government should “ensure utility companies provide smooth electricity and gas supply to the textile industry”.
2.1.2.10Tight Monetary Policy:
The continuity of tight monetary policy cause an intensive increase in cost of production. Due to high interest rate financing cost increases which cause a severe effect on production. The withholding tax of 1% also effect the production badly. The high cost of doing business is because of intensive increase in the rate of interest which has increased the problems of the industry. The government should take immediate measures to remove slowdown in the textile sector.
2.1.2.11Removal of subsidy on Textile sector:
The provisions of Finance Bill 2009-10 are not textile industry friendly at all. Provisions like reintroduction of 0.5% minimum tax on domestic sales, 1% withholding tax on import of textile and articles etc., are nothing but last strick on industry’s back. Reintroduction of minimum tax on domestic sales would invite unavoidable liquidity problem, which is already reached to the alarming level. The textile industry was facing negative generation of funds due to unaffordable mark up rate.
2.1.2.12Lack of new investment:
Pakistan textile industry is facing problem of Low productivity due to its obsolete textile machineries. To overcome this problem and to stand in competition, Pakistan Textile Industry will require high investments. There is a continuous trend of investing in spinning since many years. Pakistan’s textile industry estimates that around Rs1, 400 billion (US$32 billion) of investment was required till 2010 in order to achieve the government's export target." Pakistan is facing externally as well as internally problems which restricts the new investment. The unpredictable internal condition of Pakistan cause a rapid decrease in foreign investment that affected all industries but especially textile industry.
2.1.2.13United States & EU cuts imports of textile from Pakistan:
United States cancel more then 50% of textile orders of Pakistan .US also impose a high duties on the import of textile of Pakistan which effect the export in a bad manner. US & EU are the major importer of Pakistan textile which create a huge difference in export of Pakistan textile after imposing a restriction on import of Pakistani textile goods.
2.1.2.14Raw material Prices:
Prices of cotton & other raw material used in textile industry fluctuate rapidly in Pakistan. The rapid increase in the price raw material effect the cost of production badly. The increase in raw material prices fluctuate rapidly due to double digit inflation & instable internal condition of Pakistan. Due to increase in the cost of production the demand for export & home as well decreased which result in terms of downsizing of a firm. Hence the unemployment level will also increase. Govt. should take serious step to survive the textile industry. In order to decrease the price raw material for textile we need to increase our production capability. Simultaneously, the government should make arrangement for introducing international system of Cotton Standardization in Pakistan to enhance quality and value of Pakistan lint cotton by utilizing the technical services of Pakistan Cotton Standard Institute.
2.1.2.15Export Performance of the Textile Sector:
For the second year in a row, the country missed annual textile export target of 12 billion dollars by 20 percent due to high cost of production, power shortage and stiff competition with regional players. The federal government envisaging 15 percent growth had set textile export target of 12 billion dollars for FY09 against 10.35 billion dollars for FY08. However, in FY09, the country not only missed its textile export target but also registered a decline of some 6 percent as compared to FY08. "Yes, the country has fallen short of textile export target by over 2 billion dollars due to the global meltdown and several barriers faced by textile industry on the domestic front," said Mirza Ikhtiar Baig, Prime Minister's Advisor on Textile. Ikhtiar said that high cost of doing business, power shortage, poor industrial infrastructure and slow external demand are some major factors contributing to the decline in textile export. However, he is confident that during the current fiscal year textile sector will show better performance as the government is trying to remove the tariff barriers, besides exploring new textile export markets. "I am confident that the governments and the Ministry of Textile's efforts will be helpful in boosting the country's textile export and enabling it to compete with other regional competitors like India and China," Baig said.
Additionally, the official statistics of the State Bank of Pakistan (SBP) show that the country's textile exports is also some 2.36 percent lower than the export of fiscal year 2006-07, in which overall textile exports as per receipts stood at 10.011 billion dollars. The central bank has also revealed that out of 12 major textile export 9 registered negative growth and export of only three items - raw cotton, bed wear and towels has posted some increase. With 18.34 percent decline, readymade garments exports stood at 983 million dollars and knitwear export at 2.054 billion dollars after a decline to 4 percent in FY09. Fig.2. shows comparison of Pakistan Textile Exports in (US$bn) for different fiscal years.
Figure 2: Pakistan Textile Exports in (US$bn) for different fiscal years
2.1.2.16The Effect of Global Recession on Textile Industry:
In economics, the term ‘recession’ means “The reduction of a country’s Gross Domestic Product (GDP) for at least two quarters; or in normal terms, it is a period of reduced economic activity.”
Pakistan is 26th largest economy in the world, and 47th largest in terms of the dollar. It is sad to see our economy like this now. Pakistan is actually a very economically diverse country with boasting industries of textiles, agriculture, etc. The main reason for this slump has largely been the political instability over the past few years; no proper economic policies were implemented; at least none that succeeded. This caused a very high rate of inflation, which, in 2008, had increased to a whopping 25% as compared to a 7.9% of 2006. What occurred afterwards is what we call the domino effect. The value of the Rupee crashed from 60-1 USD to 80-1 USD in only a month, the prices of commodities soared through the roof, the number of people living below poverty line increased from 60 million to 77 million, and consequently, the working class layman became virtually deprived from basic necessities like water, wheat, electricity, natural gas, and cooking oil; add to all this, the preposterous amounts of load-shedding, and what we get is a nation in shambles.
The above all situation of the economy badly affected the textile industry also. The demand for textile product cut down locally & internationally as well. The export order reduced due to unpredictable conditions of Pakistan & political instability. The cut down in the production of textile cause further unemployment level which decrease the living standard of peoples.
2.1.2.17 Effect of Inflation:
Inflation rate is measured as the change in consumer price index (CPI).Inflation is basically a general rise in the price level. It is decline in the real value of money. Inflation can have adverse effect on economy. Pakistan is one of prey of inflation. It still faces high double digit inflation. The increase in inflation cause the increase in the cost of production of textile good which return in downsizing. The double digit inflation cause reduction in exports of textile.
2.1.2.18 Unemployment Caused by Textile:
Unemployment occurs when a person is available to work and seeking work but currently without work. The unemployment rate in 2006 was 6.6 per cent which decreases 0.1 percent in 2007. The unemployment rate reaches to 7.5 per cent in 2008 due to global crisis. As the LSM decrease the production that’s why the unemployment level rises very rapidly. The rise in unemployment level is 11 per cent in 2009. The unemployment rate in textile industry was very high during the current fiscal years because of recession & increasing cost of inputs & fluctuating situations of country. Year wise comparison of inflation and unemployment with the time can be seen in Fig. 3.
Figure 3: Inflation and Unemployment VS Time
2.1.2.19Summary:
Pakistan’s textile industry is going through one of the toughest periods in decades. The global recession which has hit the global textile really hard is not the only cause for concern. Serious internal also effected Pakistan’s textile industry very badly. The high cost of production resulting from an instant rise in the energy costs has been the primary cause of concern for the industry. Depreciation of Pakistani rupee during last year which has significantly raised the cost of imported inputs.
Furthermore, double digit inflation and high cost of financing has seriously affected the growth in the textile industry. Pakistan's textile exports in turn have gone down during last three years as exporters cannot effectively market their produce since buyers are not visiting Pakistan due to adverse travel conditions and it is getting more and more difficult for the exporters to travel abroad. Pakistan’s textile industry is lacking in research & development (R & D).The production capability is very low due to obsolete machinery & technology.
Pakistan is facing high cost of production due to several factors like the hike in electricity tariff, the increase in interest rate, energy crisis, devaluation of Pakistani rupee, increasing cost of inputs, political instability, removal of subsidy & internal dispute. The above all factor increase the cost of © Research Journal of Internatıonal Studıes - Issue 14 (May, 2010) 29 production which decreases the exports. Exports receipts decrease from $ 10.2 B to $ 9.6 B. The global recession also hit badly the textile industry. Double digit inflation also caused decrease in production in textile sector which cause the increase in unemployment level. By the removal of subsidy the industry’s production get higher effected which prove as a last strike on industry’s back.Govt should provide subsidy to the textile industry for the survival of this industry. Continuity of 1pc controversial withholding tax on import of essential raw material (cotton & polyester staple fibre) for industry should be withdrawn immediately. This withdrawal would enable the industry to procure some 3m cotton bales annually from outside world in order to meet the shortage and to compete with regional competitors in international market to earn foreign exchange for the country.
On imposition of 16% FED on banking and insurance services such advance taxes would play havoc with the growth of the industry in already existing adverse circumstances and needed to be withdrawn immediately. The government should not withdraw sales tax and withholding tax exemption on machinery and parts, as it would add cost besides liquidity problem for the industry.
2.1.3Article#2(Demand for Textile and Clothing Exports of Pakistan)
2.1.3.1 Introduction:
For a long time, textile and clothing have played an important role in the economic development of the country. Its development has been the major economic objective in industrialized countries as well as the less developed countries (LDCs). The trade in this sector is functioning in the international trade environment that is increasingly subject to protectionism, in the form of Multi-Fiber Arrangement (MFA),1 restraining the textile and clothing exports to the large markets of Western Europe and North America. In the last round of GATT negotiations (1994), Uruguay Round (UR) it has been decided that these restrictions will be phased out2 within the span of ten years, by 2005. An important change brought out by the agreement on textile and clothing (ATC) will be the reduction of non-tariff barriers (NTBs). According to one estimate Pakistan will have an additional market access of about 62 percent and 67 percent for textile and clothing respectively with the eradication of MFA in 2005 [Khan and Mahmood (1996)].
Another estimate by Ingco and Winters (1995) the gain for Pakistan would be more than US$ 500 million with the removal of MFA. Taking account of the tightness with which MFA has bound Pakistan, this gain might be around US$ 1-1.3 billion [cited from Mahmood (1999)]. According to Trela and Whalley (1990) estimates, Pakistan would gain $0.008 billion. with the removal of both tariffs and quotas. However, with the removal of only bilateral quota and not the tariffs, most of the developing countries including Pakistan would be worse off. Thus indicating the advantageous terms of trade for the developed country as a result of not eliminating the tariffs.
Textiles and Clothing, no doubt is the largest industrial sector of Pakistan from the investment, employment and export point of view. It accounts for approximately 27 percent of total industrial output, absorbs about 38 percent of industrial labor force, and contributes around 60 percent to export earnings [Pakistan (1999-2000)]. However, despite its impressive contribution at the 1Network of bilateral agreements imposing restrictions on exports of textiles and clothing from developing to developed countries. 2In three stages (1995-97, 1998-2001, and 2002-2004). national level, the share in the world exports of textile and clothing is marginal.
The objective of this research is to see the trade prospects for Pakistan’s textile and clothing exports in the international market at the time when it has been decided in the WTO Agreement on Textiles and Clothing that the trade in this sector from the developing to developed countries should be completely free from quantitative restrictions (“integrated”) and governed by the normal GATT rules by 2005. The paper will also review the current status of Pakistani textile industry.
2.1.3.2 Export performance of the textile sector:
Textile industry is the major source of export earnings for Pakistan. Its share in the total merchandise exports of Pakistan, (though substantially declined since 1970) is still above 50 percent, (Table 1). As far as the share in world total is concerned (Table 2), it fell from 2.6 percent in 1970 to 1.9 percent in 1980. But since then it is rising and reached 2.7 percent in 1997 (with minor fluctuations in the last few years). Apparel (clothing) exports are relatively new for Pakistan. Its share in the total merchandise exports of Pakistan is around 22 percent (Table 1). But in the world total from a marginal share of 0.08 percent in 1970, its share has risen to only 1.0 percent in 1997
It is important to mention here that the major share of our textile exports goes to U.S.A., E.U., Canada and Japan. U.S.A. is the largest market for our textile products. The exports to these economies (except for Japan) are in the form of quotas.
2.1.3.3 Comparison with other developing countries:
The small share of Pakistan’s textile exports in the world total is the result of increasing world competition. Their performance is in sharp contrast to that of other Asian exporters particularly in Southeast Asia, advanced textile exporters like, China, South Korea and Hong Kong3. What is remarkable for these countries is the increase in their world market share in the presence of institutional restraints like, MFA (multi-fiber arrangements). It can be seen that from 1980 to 1997 (Table 3 and Table 4), Pakistan’s share in world textile trade has increased by 1.1 percent. Compared to it, the share of countries like Hong Kong, China, and South Korea has increased quite substantially, by 5.6, 3.5, and 3.8 percent respectively. At the same time, a noticeable feature is the decreasing share of Japan, U.S.A, France, U.K., Netherlands and Germany. In other words, decrease in the world share of textile 3Hong Kong—now part of China.
Exports from the developed countries as suggested in the standard theory of trade and development4. In clothing Pakistan’s share has increased from 0.3 to only 1.0 percent from 1980 to 1997. On the other hand, China’s share has increased from 4.0 to 16.7 percent. At the same time Mexico’s share has increased from 0.9 in 1993 to 2.9 percent in 1997. In recent years Pakistan’s performance is even poor rather than increasing its share has fallen from 1.2 in 1993 to only 1 percent in 1997. The share of developed countries (except for USA and Netherlands) in the clothing exports (just like textile exports) has decreased, indicating the shift in comparative advantage.
What lead these countries (South East Asian) to achieve the position in the world market is their resourcefulness (in terms of efficient methods of production, capital intensive technology, and well-trained manpower); adaptability—to the changing conditions i.e., changes in the patterns of world demand, changes in technology; and also the favorable government policies.
These countries have diversified their product range and gone in for highly automated capital-intensive technology. As a result they are producing goods close substitutes to the DCs capital-intensive products. But the exports of Pakistan are not even the close substitutes to these countries products.
2.1.3.4 Pakistan’s textile industry:
· Some features:
In Pakistan’s Textile Industry emphasis is on the spinning activity. Major portion of yarn produced (of good quality) is exported6 rather than utilizing large part of it for producing high value-added products like fabrics, or garments. This is an important structural weakness of our textile industry. This yarn imported by countries like Japan (major export market for yarn), Hong Kong, and South Korea7 who have well-flourished textile industry convert it into high value added products and fetch much higher prices in the international market. These countries do not grow cotton, but they have well-established textile industry because they have invested in modern manufacturing technology as well as in qualified and well-trained work force. Their efficient methods of production have enabled them to overcome the handicap of imported yarn. Whereas in Pakistan, textile industry continues to suffer due to lack of investment, and well qualified work force, despite having the advantage of cotton and labor.
In the weaving sector (organized mill sector) the installed loom age capacity has kept on shrinking from 30,000 in 1971-72 to 10,000 in 1998-99 [Pakistan (1999-2000). Out of which only 5000 are working/or effective. On the 4For details see Anderson (1992). 5According to Faini (1995) only the clothing exports of Korea, Hong Kong, and China are the close substitutes for industrial countries products. 6In 1998-99, yarn exports were Rs 47421 million, which is 24 percent of textile exports, 16 percent of (textile and clothing) exports and 12 percent of total exports.
These countries import almost 60 percent of Pakistani yarn. Other hand the number of spindles have increased in the same period from 2.90million to 8.3 million, out of which 6.6 million are effective or working. This implies that the organized mill sector has made an utmost shift towards spinning and almost gave up efforts to develop or modernize the weaving sector. But this decline of fabric production in mill is compensated by the production in the non mill sector. More than 80 percent of our cloth is produced in this sector. But the problem with this non-mill sector is they have low technology power looms in their units, which mostly produce narrow width poor quality gray fabrics, which is sold at a lower price.
No doubt, Multi-fiber Arrangements (MFA) leads to harmful consequences for the textile industry of Pakistan. For instance, it stalled modernization of the sector, as the government provided incentives for expanding low-cost power loom sector at the cost of an organized mill sector, to reap the advantages of low-cost. The resulting feature was the technological backwardness of Pakistan textiles (Chaudhry and Hamid: 1988). Encouragement of the power loom, leads to the decline in mill production and consequently closure of the huge installed capacity [APTMA (1995-96)].
As far as the garment production in Pakistan is concerned, the highest value-added product among the textile group, but the price we are getting for our products is less compared to other countries. According to one estimate 70 percent of these units are in the unorganized sector, producing cotton-made articles. These units do not have modern machinery and use the non-mill made cotton cloth. This may be one of the reasons that the price we fetch for our apparel exports is low compared to other countries.
An important change can be noticed in world trade, i.e., the shift in favor of clothing. In fact clothing exports have now become the highest growth sector in world trade, exceeding the value of textile exports. In 1997, world exports in textiles worth $172 billion, and clothing exports were of $191 billion worth. However, in 1980, world exports in textile and clothing exports were $55 billion and $41 billion of worth (Table 2). So Pakistan also needs to focus more on the garment exports to increase its world share. The content of man-made/ or synthetic fiber in the textile products of Pakistan is marginal only 11 percent. It can be regarded as a Consumption of Cotton, Man-made (Synthetic) Fibers in Textile.
Significant difference between Pakistani exports and the successful North East Asian countries. The usage of synthetic fiber in their textile products is very large e.g., in Korean products more than 70 percent. As mentioned earlier, the comparative advantage in textiles and clothing has been declining for the industrial countries and rising for the developing countries as a group (much stronger trend for clothing). However, at the same time industrial countries have a much stronger comparative advantage in capital-intensive synthetic fibers than do developing countries. World demand for these fibers is increasing given the greater durability of these products. Realising the changing trends, North East Asian countries have strengthened rapidly in this product group. It was with the imposition of Long-Term Arrangements (LTA) in 1962 to limit international trade in cotton textiles, that encouraged the firms in, for example, Korea, Japan Taiwanese textiles firms to switch to synthetic fibers. The same is for China. The country has a strong cotton-base, but at the same time use of synthetic fibers is also increasing.
2.1.3.5 Trade liberalization:
It has been decided in the Uruguay Round, 1994 that the trade in textiles and clothing will be completely liberalized. The restrictions in the form of MFA, will completely be eliminated by 2005. Implication is trade will enter a more competitive world. There will be no guarantee in the form of quota for our exports. So far almost five years have passed and no significant change (positive or negative) can be observed in our textile exports. This might be because most of the liberalization of more quota sensitive products is concentrated at the end of the phasing period. The quotas are imposed mostly on our high value added products (like fabrics, garments etc).
As said earlier, this has badly affected the growth of textile industry and has reduced competition. As far as the utilization of these quotas is concerned “Pakistan has not been always able to utilize existing quotas due to the problems in quota administration” [Khan (1995)]. There are also fears that if the liberalization proves too damaging for the DCs markets, they will go for other safeguarding measures like for instance, imposition of technical standards.
2.1.3.6 Rules of Origin or anti-dumping actions:
It is also important to mention here that the industries in the west have undergone massive restructuring throughout the eighties. In order to offset the rising wage costs, producers in these countries have gone in for highly automated, labor saving technology in both weaving and spinning. This has to a considerable extent, neutralized the low wage cost advantage of developing.
Countries in the production of yarn and fabrics. Result is the low labor intensity as far as the production in developed countries is concerned. Along with this, 8For details see Anderson (1992: 41). 9Around 27 percent of the textile items. emphasis is on product up gradation, i.e., to produce defect free, high quality output. This has been possible with the rapid development in electronic control systems and the development of computer aided designs. The strategy is to produce totally different products, to the one imported from the developing countries. However, such technological innovations have yet to effect significantly the manufacture of clothing, where sewing accounts for 90 percent of the value added labor-intensive activity. Labor saving innovations are confined to designing and cutting operations, but these have not provided an effective encounter to the low wage advantages of developing countries.
To counter this, the clothing firms in developed countries (especially in Europe) have adopted two different strategies. First one is the ‘Demand for Market Oriented Strategy’. That is to increase their market power, by producing high price fashion clothing for the markets with relatively rigid consumer demand, product differentiation through the promotion of brand names and advertising, and also by increasing the efficiency of distribution. With an increase in market power, they can easily transfer rising cost to consumer in the form of rising prices. Second kind of strategy is ‘Supply Oriented Strategy’.
This involves relocation of low wage activities to low wage areas. This has been referred to as outward processing trade (OPT), sub-contracting labor-intensive activities to low wage areas, under guaranteed buy back arrangement. Such type of trade activities is exempted from any kind of quota restrictions10. And now with the opening up of Eastern Europe it is expected that the transfer of export capabilities from Europe to developing Asia will be affected. The investors in EU are now concentrating the production of high quality and complex made-up textiles and clothing in Eastern Europe, to take the geographical advantage. Production in Asia is limited to simpler products, like casual wear or other goods for sale in local markets.
Some of the developing countries (East and Southeast Asian) have also adopted the supply side strategy, to reap the benefit of low wages, for labor intensive activities. The purpose is to circumvent the effects of quota restraints [Spinanger (1995)].
It seems to be very unlikely that the trade liberalization agreement will ease our access to industrial country markets. Only chance is for those who are already in a better competitive position like the South East Asian exporters.
2.1.3.7 Demand and supply factors:
This section will do a small exercise to estimate the demand function for the textile exports. It will test the ‘small country’ hypothesis for the textile and clothing exports of Pakistan.
10Example is the relocation of low wage activities by the German firms in Sri Lanka [details in Lall and Wignaraja (1995)].
· Small Country Hypothesis:
Demand is infinitely elastic with respect to price. And world income has no influence on exports irrespective of the size of the income elasticity of demand. In order to test ‘small country’ hypothesis, a simultaneous trade model is specified for the textile exports of Pakistan. A traditional demand function is modeled, with price and world income, along with trade weighted real effective exchange rate (REER) as important determinants. The purpose of including REER is, it will serve the purpose of competitor’s price. The demand function is modeled (in log-linear form):
log XD
t = a0 + a1 log PX t + a2 log REER t + a3 log WYt + Ut … (1)
where Xt = quantity of textile exports demanded;
PXt = price of textile exports;
REERt = real effective exchange rate;
WYt = world income.
Modeling supply side is a difficult job since the determinants of export supply differ from country to country, in accordance with domestic conditions. In addition to foreign demand and domestic supply, exports are determined in part by domestic demand for exportables. ‘In most less developed countries the incentive to export is strongly influenced by complex and continually changing industrial and trade policy measures’ [Reidel (1988)]. In other words, supply function modeled for Hong Kong [Reidel (1988); Muscatelli et al. (1992)], cannot be used for Pakistan. Following supply function is modeled for the textile exports:
Log XS
t = b0 + b1 log PXt + b2 log PDt + b3 log NERt + b4 T + Vt … (2)
Where XS
t = quantity of textile exports supplied;
PXt = price of textile exports;
PDt = domestic price of textile exports;
NERt = nominal exchange rate;
T = time trend.
Variable descriptions and the estimation procedure (in detail) are in the Appendix.
Following is the demand function estimated for the textile exports of Pakistan:
XD = 0.01 – 0.04 PX – 0.26 REER + 1.59 WY
(0.06) (0.08) (0.26) (0.89)
R2 = 0.07, DW = 2.52, DF = -6.05**
Where the numbers in brackets below the estimated parameters are t-statistics. DF (Dickey Fuller) is the unit root test applied to the residuals of co-integration equations, for testing the null hypothesis of no co-integration in the regression equation. The value of –6.05 is significant at 1 percent, strongly rejecting the null hypothesis of no co-integration. This implies that there exists a stable long run relationship between export demand and its price, real effective exchange rate and world economic conditions. The coefficient of export price is found not to differ significantly from zero. Thus implying infinite price elasticity of demand for textile exports. The coefficient of world income is also not found significant. Results are in confirmation to the ‘small country’ hypothesis: price elasticity very low (0.04) close to zero. As a “small country” the price of textile exports follows the world price. An implication is supply side policies are equally important.
On the supply side alternative variables are tried as supply side determinants (e.g., wage costs, price of raw material etc), however, variables which are found to be co-integrated to quantity supplied for Pakistan include, export price (unit value index), domestic price of textile and time trend. Estimates are:
XS = –0.02 + 1.13 PX – 1.33 PD + 0.84 NER + 0.01 T
(–0.10) (1.66) (–1.69*) (0.56) (1.49)
R2 = 0.38, DW = 2.57, DF = -6.29**
The estimated supply parameters all carry the expected sign and are of plausible magnitude. The results here are similar to the one obtained by Reidel (1988) for Hong Kong11, insignificant price and income elasticity, implying infinitely elastic demand with respect to price. And as in ‘small country’, world income has no influence on exports irrespective of the magnitude of income elasticity of demand. But difference between Pakistan and Hong Kong is in the ability to avoid trade barriers and compete in the world market. Non-tariff barriers have stifling effect on the textile exports of LDCs unless they happen to produce high quality goods. Hong Kong has performed very well. There are varieties of non price effects on the supply side, which have enabled Hong Kong to compete and circumvent trade barriers. This is also true for other Southeast Asian countries. They have avoided the problem highlighted by ‘elasticity or export pessimists’.
see Prebish (1950); Singer (1950); Lewis (1980); Cline (1982) and Faini et al. (1989)], because they happen to produce goods of high quality. These countries have been successful in differentiating their export products by adopting the modern techniques of production, training their manpower. It is also very much clear in the case of Pakistan, product diversification and its quality as well as lack of qualified labor force are big constraints for textile and clothing exports compared to the international demand constraints imposed by the DCs or the changing world environment. These factors will become even more important For the manufactured exports of Hong Kong.
The liberal trading environment in which, textiles and clothing exports are going to enter in 2005. There will be no place for the inefficient industries with obsolete technology. These will be wiped out of world market. There will be no guarantee in the form of quotas. Therefore to survive in that environment we need to go for modern technology and should emphasize on the quality of finished products.
2.1.3.8 Concluding remarks and policy:
Textile in the west has undergone massive restructuring and has now become more capital intensive. A highly competitive environment is waiting ahead, particularly after the elimination of MFA. Trade in this sector is entering more liberalized and more competitive world. Therefore, to survive in that environment we need to go for modern technology and should emphasize on the quality of finished products. The government should introduce and monitor the global quality standards, ISO 9000 and ISO 14000 in the production of textile products.
Instead of emphasizing too much on the spinning activity our industry should focus more on the production of fine quality cloth. Major portion of good quality yarn should be utilized domestically in the organized mill sector for the production of high value added fabric of better quality. And then later this fabric should be used in the production of garments. Reliance on low technology power looms for the production of fabrics should be reduced and the number of shuttle less looms should be increased which have the capacity to produce wider width superior quality fabric for the international market. In 1990’s the installation of these shuttle less looms was initiated in independent units. There number is around 15000, which is not comparable to countries like South Korea, Japan who have more than 50,000 of such looms. The most unfortunate thing is the deep financial crisis faced by this vital value added sector from its beginning. The increase in cotton prices resulting in proportionate increase in yarn price coupled with the increase in the cost of other inputs such as financial changes, electricity, labor, etc. has cripple.
The financial viability of the shuttle less weaving sector in Pakistan. as apparels/garments provides the highest value added product among the textile items. Maximum focus should be towards the units producing garments. Our producers in this particular industry should try to adopt (just like in the West) the “Demand for Market Oriented Strategy” i.e., to increase their market power by producing high price fashion clothing. They should go for product differentiation through the promotion of brand names and advertising. And should also try to increase the efficiency of distribution. With an increase in market power they can easily transfer rising cost to consumer in the form of rising prices.
Realizing the importance of capital-intensive synthetic fiber (especially from the export point of view) the proportion of these fiber should be increased gradually in our textile products. No doubt our textile producers are aware of this change in world demand. But the hindrance is the availability of such fiber.
In addition to the quality, reliability, efficiency in delivery schedules, sufficiency in well-developed infrastructure in terms of communication, services, export procedures, appropriately trained manpower, material inputs and transport facilities, as well as stable enforceable contracts with foreign investors are also needed. Otherwise instead of any increase in share the maintenance of the current share in the global market would be difficult. Finally, diversification is needed not only in quality but also in the direction of trade. More than 50 percent of Pakistan’s exports are directed towards Europe and North America. This is one of the drawbacks for the low
Level of Pakistani exports (especially of Apparels).Given the protectionist policies and technological superiority of DCs, Pakistan textiles would certainly be at disadvantage in their markets. It would be worthwhile to work out new markets in other parts of the world, for instance Africa.
In brief, the extraordinary growth achieved by Hong Kong, South Korea and now China depends more than anything on the supply factors of international competitiveness. On the basis of which, these countries are able to exploit the shifting comparative advantage in world textile and clothing manufacture. Only low wages cannot guarantee a cost advantage in textile production. Low capital and energy costs can easily offset them. Prevailing exchange rate can be an important factor, in giving a competitive edge to a country. But this factor lost its importance when other developing countries also depreciate their currency and are better off in terms of product quality. Non-price factors on the supply side plays a crucial role in the export performance of the country.
2.1.3.9 Summary:
This research has seen the trade prospects for Pakistan’s textile and clothing exports in the international market at the time when it has been decided in the WTO Agreement on Textiles and Clothing that the trade in this sector from the developing to developed countries should be completely free from quantitative restrictions and governed by the normal GATT rules by 2005.
The paper has also reviewed the current status of Pakistan’s textile industry. Textile and clothing is the major contributor to our total exports. But in the international market the share is marginal. The reason is the increasing world competition. The quality as well as the range of goods produced is the major weakness for our textile exports. Therefore, to survive in a more liberalized and more competitive world in which we are going to enter we need to go for modern technology and for the production of high value added goods.
2.1.4 Articles#3(Mango export badly hit by ravages of floods: PHDEC)
KARACHI (October 15, 2010) : Export of mango, the second largest fruit crop of Pakistan, was badly hit by the ravages of floods, according to Pakistan Horticulture Development & Export Company (PHDEC). Mango production projection for the year 2010 was 1.8 million tons and it was estimated that out of this, 150,000 tons would be exported.
However, it has been documented that the export target has not been fully accomplished, and a shortfall of about 20,000 tons has been recorded by the end of the mango export season. Besides entering into the new markets of China, Germany and Malaysia, PHDEC has initiated work to meet the export procedure requirements of United States, Australia and Lebanon. It has high hopes that mango industry will be at high demand in the years to come.
Pakistani mango ranks at fourth position among the largest mango producing countries of the world. Mango harvest in Pakistan starts with relatively less popular varieties from end of April and exports start from end of May when the largest produced variety, Sindhri begins in Sindh and lasts till early October when the high demand variety, white Chaunsa, ends in Punjab. Other promising mango varieties with high export potential are Samar Bahisht and Chaunsa, which is largely produced in Punjab.
A PHDEB spokesman explained that mango from Pakistan is exported through sea, air and land routes. The shortfall in mango export target is mainly because of increase in freight charges by the airlines and floods in mango production districts ie Muzaffargarh, Bhakar, Rajan Pur, Layyah, D.G.Khan and Rahim Yar Khan of Punjab.
In some areas, floods resulted in complete loss of fruit while in others transportation and blockage of land routes were the major hurdles in getting the fruit to the sea, air and land terminals. PHDEB and other allied agencies have started working on rehabilitation of mango orchards, so that the impact of floods could be minimised over the next year's mango crop.
Technical inputs, free advice and other necessary remedial procedures have been driven for the welfare of mango growers in Punjab and Sindh. The Agriculture Sector Linkages Programme (ASLP) mango supply chain management project under the auspices of PHDEB has already been implemented to address the key constraints limiting the mango business in Pakistan.
The project has built capacity of delivering better quality mangoes in about 2,300 stakeholders all over Pakistan besides delivering research outcomes on product quality improvement and existing and new potential markets of Pakistani mangoes.
During the current year, 11 on-farm workshops on mango quality improvement (harvest maturity determination, harvesting techniques, de-sapping, field, sorting, grading and packing) were conducted in Rahim Yar Khan, Multan and Hyderabad with the collaboration of Departments of Agriculture Punjab (Fruit & Vegetable Development Project) and Sindh. The participants included mango growers, commission agents, contractors, harvesting and packing labour and support service providers.
Another two training workshops, one each in Sindh Agriculture University (SAU) and Sindh Horticulture Research Institute (SHRI), were conducted on delivering best quality mangoes to customer in domestic and international markets. The participants included: faculty members of SAU, research staff of SHRI, MS/PhD students and skill development internees.
One 'training of the trainers' workshop' was conducted in Hyderabad in which 37 research officers and extension officers from the Department of Agriculture Sindh participated. Two mango export coaching programmes were conducted, one each in Karachi and Multan. Exporters and their technical staff, progressive growers, extension officers and district level staff of Fruit & Vegetable Development Project Punjab attended the event.
Similarly three demonstrations in best practices were conducted in mango festivals in Mirpurkhas, Rahim Yar Khan and Muzaffargarh districts, which benefited over 350 farmers, contractors, farm labour and other relevant stakeholders. The Project published and distributed technical material in Urdu/English among potential users including growers, exporters and other commercial operators. It included mango export training guide, mango harvest maturity guides relating to Sindhri and Chaunsa varieties, mango defect guide, mango skin colour guide, mango repining guide and mango fruit quality.
Besides these capacity building activities, the National Project Co-ordinator (Chief Operating Officer, PHDEB) participated in Sustainability and Corporate Social Responsibility - third international symposium on improving the performance of supply chains in transitional economies held in Kuala Lumpur, Malaysia on July 4-8. He made a presentation titled "integrating post-harvest, marketing and supply chain systems for sustainable industry development - the Pakistan mango industry as a work-in-progress". Project also established institutional and business linkages among the stakeholders. PHDEB spokesman said the project, convinced by the meaningful achievements of the project during phase I and demand from the stakeholders, had been extended into phase II for a period of four years starting from October 2010. The project scope has been extended to cover the issues of small holders and gender equity.
2.1.4.1 Summary:
According to this article export of mango, the second largest fruit crop of Pakistan, was badly hit by the ravages of floods, During the current year, 11 on-farm workshops on mango quality improvement (harvest maturity determination, harvesting techniques, de-sapping, field, sorting, grading and packing) were conducted in different Pakistan cities but lot of other reasons Pakistan mango export is decreasing and one of them in recently is flood.
2.1.5 Article #4(U.S. Arms Sales to Pakistan)
In 2006, the United States signed arms transfer agreements with Pakistan in excess of $3.5 billion, ranking Pakistan first among all arms clients of the United States during that calendar year. The key elements in Pakistan’s arms purchases from the United States were 36 F-16C/D Block 50/52 fighter aircraft for $1.4 billion; a variety of missiles and bombs to be utilized on the F-16 C/D fighter aircraft for over $640 million; the purchase of Mid-Life Update Modification Kits to upgrade Pakistan’s F-16A/B aircraft for $890 million; and 115 M109A5 155mm Selfpropelled howitzers for $52 million. The rise of Pakistan to its new status as a major arms purchaser from the United States is particularly noteworthy given the difficulties the United States has had with Pakistan since the 1970s over its successful effort to produce nuclear weapons.
The total value of Pakistan’s 2006 arms purchases from the United States nearly matches the total value of all Foreign Military Sales (FMS) program purchases by Pakistan from the United States for the entire period from FY1950-FY2001 (more than $3.6 billion in current dollars). For the period from calendar year 2005 through calendar year 2008, Pakistan has placed orders with the United States for defense articles and services through the FMS program valued at $4.5 billion.1
In the 1950s and 1960s, at the height of the Cold War, the United States saw Pakistan as a usefully in the effort to contain the military expansion and political influence of the Soviet Union. For its part, Pakistan saw its relationship with the United States as a useful counterweight to India’s military power and its prospective threat to Pakistan’s security. Beginning in the mid-1970s,
Pakistan responded to India’s 1974 underground nuclear test by seeking its own nuclear weapons capability. These efforts subsequently led the United States to suspend military aid beginning in 1979. Soon thereafter, following the Soviet Union’s invasion of Afghanistan, the U.S. waived its sanctions on assistance to Pakistan in an effort to gain its support for the effort to force the withdrawal of the Soviet miliary from Afghanistan. Early in the Presidency of Ronald Reagan, the United States sold Pakistan 40 F-16 A/B combat fighter aircraft, an indication of the Reagan Administration’s view of that country’s potential as a supporter against Soviet Union expansionism in South Asia. Yet in spite of the renewal of U.S. aid and the development of closer military ties in the early 1980s, many in Congress remained concerned with Pakistan’s developing nuclear weapons program.
In 1985, Congress added Section 620E (e) to the Foreign Assistance Act. This provision, known as the Pressler amendment, required the President to certify to Congress that Pakistan did not possess a nuclear explosive device during each fiscal year in which the Administration proposed to provide assistance to Pakistan. This placed an important brake on expansion of a defense supply relationship between the United States and Pakistan. With the withdrawal of Soviet military forces from Afghanistan, the nuclear weapons development program of Pakistan came under intensive U.S. examination again. Finally, in October 1990, President George H. W. Bush suspended U.S. military assistance to Pakistan. As a result of this action, the United States stopped the delivery of 28 F-16 fighter aircraft that Pakistan had purchased 1989.
Throughout the 1990s, the United States essentially ended military cooperation and arms sales to Pakistan. It was only after the terrorist attacks against the United States on September 11, 2001, that the Bush Administration chose to re-engage with Pakistan in the area of defense cooperation, and was willing once again, to consider and approve major weapons sales to that country. It secured authority from Congress, which has been extended annually as required, to waive restrictions on aid to Pakistan. President Bush has invoked this authority to keep providing aid.
The rationale for this change of policy regarding arms sales to Pakistan was to secure its government’s support for the U.S. counter-terrorism program. In June 2004, President George W. Bush designated Pakistan a Major Non-NATO ally.
After a decade of denying Pakistan the right to purchase advanced military equipment and assistance in purchasing it, a major contract was signed in 2006 for the purchase of 36 new F- 16C/D aircraft and associated equipment. The express rationale of the Bush Administration for this specific sale was given its geo-strategic location and partnership in the Global War on Terrorism (GWOT),
Pakistan is a vital ally of the United States ... This proposed sale will contribute to the foreign policy and national security of the United States by helping an ally meet its legitimate defense requirements. The aircraft also will be used for close air support in ongoing operations contributing to the GWOT.
This statement succinctly summarizes what continues to be the underlying argument by the Bush Administration for arms sales and military assistance to Pakistan. Apart from the 40 F-16A/B aircraft sold to Pakistan during the early years of the Reagan Administration, few other major weapons systems have been sold to Pakistan by the United States until the 2006 F-16 aircraft sale.
Other systems sold have primarily been missiles such as the Sidewinder for the F-16 aircraft, and a limited number of Harpoon anti-ship missiles. Since the Bush Administration has announced its willingness to sell major weapons systems to Pakistan, various press accounts have speculated about possible new sales. Apart from the major 2006 F-16 sales and related equipment noted above, no additional major weapon systems have been sold to Pakistan and military issues in the U.S.-Pakistan relationship see CRS Report RL33498, Pakistan-U.S. Relations, by K. Alan Kronstadt. Determination that contains specific stipulations regarding Pakistan, the President may waive provisions in law that would otherwise prevent U.S. military assistance to Pakistan.
The country seeking U.S. weapons be “eligible” to purchase them. Thus, if there is no other prohibition in other U.S. law that would preclude the sale of a weapon to Pakistan, then it would be “eligible” to make such a purchase from the United States. Because a country is eligible to purchase a weapon does not mean that the United States is obligated to sell it.8 Should the United States government choose to do so, it can stop the transfer of defense articles and services to Pakistan for which valid contracts exist, without finding it in violation of an applicable agreement with the United States relating to permissible uses of weapons previously sold.
The authority for suspension of deliveries or defense items or cancellation of military sales contracts is found in sections 2(b) and 42 (e) (1)-(2) of the AECA. Section 2(b) of the Arms Export Control Act permits the Secretary of State, under the President’s direction, to, among other things, determine “whether there shall be delivery or other performance” regarding sales or exports under the AECA in order that “the foreign policy of the United States is best served thereby.” Section 42(e)(1)9 of the Arms Export Control Act states that Each contract for sale entered into under sections 21, 22, 29 and 30 of this Act, and each contract entered into under section 27(d) of the Act, shall provide that such contract may be canceled in whole or in part, or its execution suspended, by the United States at any time under unusual or compelling circumstances if the national interest so requires.
Section 42(e)(2)(A) of the Arms Export Control Act further states that erach export license issued under section 38 of this Act shall provide that such license may be revoked, suspended, or amended by the Secretary of State, without prior notice, whenever the Secretary deems such action to be advisable.
Thus, all government-to-government agreements or licensed commercial contracts for the transfer of defense articles or defense services may be halted, modified, or terminated by the executive branch should it determine that it is advisable to do so. In this context, should the Bush Administration decide that actions taken by the government of Pakistan are contrary to the national security interests of the United States, the President can suspend or terminate existing arms sales agreements or prevent the delivery of weapons previously ordered, as he deems appropriate. The Congress can also pass legislation that would suspend, modify, or terminate any arms sale contract should it choose to do so.
2.1.5.1 Summary:
This article briefly reviews the issue of U.S. arms sales to Pakistan. It provides background details regarding recent major weapons transactions between the United States and Pakistan, as well as the rationale given for such sales. It also reviews the current statutory framework that governs U.S. weapons sales to Pakistan, including existing authorities that could be used to curtail or terminate existing or prospective sales to that country. This report will only be updated should events warrant.
2.2 Objectives of study:
Ø How Pakistan can solve import and export problem
Ø How Pakistan import can be reduce
Ø How Pakistan export can be increased
Ø How can gain global market share of export
2.3 SWOT Analysis for Import and Export in Pakistan:
Business strengths are its resources and capabilities that can be used as a basis for developing a competitive-advantage. Examples of such strengths include:
· Patents
· Strong brand names.
· Good reputation among customers.
· Cost advantages from proprietary know-how.
· Exclusive access to high grade natural resources.
Weaknesses:
The absence of certain strengths may be viewed as a weakness. For example, each of the following may be considered weaknesses:
· Lack of patent protection.
· A weak brand name of small scale manufacturing industries.
· Poor reputation among customers.
· High cost structure.
· Lack of access to the best natural resources.
· Lack of access to key distribution channels.
The external environmental analysis may reveal certain new opportunities for profit and growth. Some examples of such opportunities include:
· An unfulfilled customer need.
· Arrival of new technologies.
· Loosening of regulations.
Threats:
Changes in the external environmental also may present threats to the firm. Some examples of such threats include:
· Shifts in consumer tastes away from the firm's products.
· Emergence of substitute products.
· Increase in taxes.
· Increased trade barriers.
· Political Instability.
· Increase in the prices of Raw Material.
· Unavailability of Raw Material.
· Technological Advancement.
2.4 Hypothesis:
H1
Whether Pakistan import is more than export due to electricity problem
Ho
Whether Pakistan import is more than export not due to electricity problem
H1
Whether Pakistan import is more than export due to lack of technology
Ho
Whether Pakistan import is more than export not due to lack of technology
3. Research Methodology:
In research methodology I have made the research about this project and the detail about my research is as below.
3.1 Research Design:
The research design is questionnaire I have made questionnaire according to the project and take survey from different people to collect more information and know more about the problem and also their suggestions to solve the problem.
3.2 Population and Sample:
Total population = 32
Population | Sample Size |
Professional | 5 |
Teachers | 5 |
Students | 22 |
Total | 32 |
3.3 The Research Instrument:
The research instrument is Questionnaire.
3.4 Procedure of data Collection:
Procedure for data collection is that the data is collected through survey by using questionnaire. The questionnaire that has been fulfilled from different people is as follow.
· Professional
· Teachers
· Students
3.5 Data Analysis and Interpretation:
Q no 1; Export can be developed the economy of country, are you agree to this statement?
Frequency | Percent | |
Valid yes No Total | 30 2 32 | 93.75% 6.25% 100% |
Explanation:
Most of respondent agree that export can develop the economy of Pakistan
Q no 2; Today Pakistan export is facing a number of problem the most dangerous is..?
Frequency | Percent | |
Valid Exchange rate Govt. Restriction Total | 16 16 32 | 50% 50% 100% |
Explanation:
50% of respondent agree that exchange rate is dangerous and 50% of respondent say Govt. restriction are dangerous that show both are serious problems
Q no 3; If export can develop the economy, is Pakistan export developing the economy of Pakistan?
Frequency | Percent | |
Valid Yes No Total | 26 6 32 | 81.25% 18.75% 100% |
Explanation:
Most of respondent agree that export is developing the economy of Pakistan
Q no 4; Do you think the exchange rate affect the import?
Frequency | Percent | |
Valid Yes No Total | 31 1 32 | 96.875% 3.125% 100% |
Explanation:
Most of respondent agree that the exchange rate affect the import.
Q no 5; Do you think the income level affect the import?
Frequency | Percent | |
Valid Yes No Total | 31 1 32 | 96.875% 3.125% 100% |
Explanation:
Most of respondent agree that the income level affect the import.
Q no 6; Do you think the import affect the economy of country?
Frequency | Percent | |
Valid Yes No Total | 32 0 32 | 100% 0% 100% |
Explanation:
100% of respondent agree that the import affect the economy of country.
Q no 7; Do you think the export affect the economy of country?
Frequency | Percent | |
Valid Yes No Total | 28 4 32 | 87.5% 12.5% 100% |
Explanation:
Most of respondent agree that the export affect the economy of country.
Q no 8; Do you think the exchange rate affect the export?
Frequency | Percent | |
Valid Yes No Total | 28 4 32 | 87.5% 12.5% 100% |
Explanation:
Most of respondent agree that the exchange rate affect the export.
Q no 9; Do you think the income level affect the export?
Frequency | Percent | |
Valid Yes No Total | 27 5 32 | 84.375% 15.625% 100% |
Explanation:
Most of respondent agree that the income level affect the export.
Q no 10; Are you satisfied from your current import and export situation of Pakistan?
Frequency | Percent | |
Valid Yes No Total | 1 31 32 | 3.125% 96.875% 100% |
Explanation:
Most of respondent not satisfied from current import and export situation of Pakistan.
Q no 11; According to you a country can survive without import and export?
Frequency | Percent | |
Valid Yes No Total | 1 31 32 | 3.125% 96.875% 100% |
Explanation:
Most of respondent agree that the country can’t survive without import and export.
Q no 12; Do you think slum in economy sector is due to …?
Frequency | Percent | |
Valid Backward policies and their implementation by Govt. Corruption More import More export Total | 15 13 4 0 32 | 46.875% 40.625% 12.5% 0% 100% |
Explanation:
Different respondent have different view some says backward policies of Govt. are factor to slum in economy and some say more import are the factor but my point of view the all factors are the cause of slum in economy of Pakistan.
Q no 13; Is import playing role in economic development in Pakistan?
Frequency | Percent | |
Valid Positively Negatively Both None of them Total | 8 16 7 1 32 | 25% 50% 21.875% 3.125% 100% |
Explanation:
Most of respondent says that import is playing role in economic development in Pakistan.
Q no 14; Is export playing role in economic development in Pakistan?
Frequency | Percent | |
Valid Positively Negatively Both None of them Total | 18 6 6 2 32 | 56.25% 18.75% 18.75% 6.25% 100% |
Explanation:
Most of respondent agree that export is playing positively role in economic development in Pakistan.
Q no 15; Are you agree this statement if Pakistan local industry is damage to import the foreign country product, you should import the foreign goods and services to full fill the demand?
Frequency | Percent | |
Valid Agree Disagree Neutral Total | 19 9 4 32 | 59.375% 28.125% 12.5% 100% |
Explanation:
Most of respondent agree that Pakistan should import the foreign goods and services to full fill the demand.
Q no 16; If Pakistan exporter gets the ISO certificate can Pakistan export increase or decrease?
Frequency | Percent | |
Valid Increased decreased None of them Total | 27 2 3 32 | 84.375% 6.25% 9.375% 100% |
Explanation:
Most of respondent agree that If Pakistan exporter gets the ISO certificate Pakistan export can increase.
Q no 17; Why export the goods to other country?
Frequency | Percent | |
Valid Economic growth Reduce the risk High profit All of them Total | 6 0 11 15 32 | 18.75% 0% 34.375% 46.875% 100% |
Explanation:
Different respondent give different view but over all show that the all of above them factor involve due to one country export the goods & services to other country.
4. Conclusion:
My conclusion about the above mentioned causes of low export of Pakistan decrease our export and increase our import. For this purpose Government should control all these above crises to increase export and decrease our import. Interest free loan should be provided to the small scale organizations to increase their productivity. Taxes should be decreases for the exporter country and taxes should be increased for importer companies to decrease the import.
5. Recommendations:
· Remedy though Foreign Direct Investment (FDI)
· Image Building of Pakistan to Attract Foreign Direct Investment (FDI)
· Focus on Value Addition
· Technology Up-gradation & Capacity Building
· Human Resources Development
· Reducing the cost of doing Business in Pakistan
· Need for Improving Textile Production
· Improvement in productivity
· Awareness of International Quality Standards
· Introducing concept of on-the- job-training
· Introducing efficient management techniques
· Subsidy removal should be taken a back
· Interest rate should be low down in order to survive this industry
· Electricity & gas tariff
· Removal of Energy Crisis
· Exploration of new Export Markets
6. Bibliography:
(http://www.wikipidia.com)
Introduction to Import and Export
(http://www.wisegeek.com/what-is-an-import-export-business.htm)
Context of the Study (History of Import & Export)
(http://en.wikipedia.org/wiki/International_trade)
History of Import and Export in Pakistan
(http://en.wikipedia.org/wiki/Economy_of_Pakistan)
Major Import and Export of Pakistan
(http://www.iep.sehrawala.com/sportsgoods.asp)
Literature Review (Articles)
(www.ezine.com)
7. Appendix:
7.1Appendix:
7.2Appendix:
Questionnaire
Dear participants, I am the student of MBA at Ripah International University Islamabad is more interested in learning about the actual causes of “why the import is more than export of Pakistan”. My project is to help expand the body of knowledge about the importance of import and export. Your reply will be treated in confidence. I greatly appreciate your help in furthering the knowledge of this research endeavor.
Yours Sincerely
Arfan Nazir
Name ………………………………………………………………………………...
Age……………………………………………………………………………….......
Gender……………………………………………………………………………….
Occupation…………………………………………………………………………...
Working Experience…………………………………………………………………
Contact No…………………………………………………………………………...
Mail Address…………………………………………………………………………
Date - 12 -2010
Q no 1: Export can be developed the economy of country, are you agree to this statement?
a) Yes b) No
Q no 2: Today Pakistan export is facing a number of problem the most dangerous is..?
a) Exchange rate b) Govt. Restriction
Q no 3:If export can develop the economy, is Pakistan export developing the economy of Pakistan?
a) Yes b) No
Q no 4: Do you think the exchange rate affect the import?
a) Yes b) No
Q no 5: Do you think the income level affect the import?
a) Yes b) No
Q no 6: Do you think the import affect the economy of country?
a) Yes b) No
Q no 7: Do you think the export affect the economy of country?
a) Yes b) No
Q no 8: Do you think the exchange rate affect the export?
a) Yes b) No
Q no 9: Do you think the income level affect the export?
a) Yes b) No
Q no 10: Are you satisfied from your current import and export situation of Pakistan?
a) Yes
b) No
Q no 11: According to you a country can survive without import and export?
a) Yes
b) No
Q no 12: Do you think slum in economy sector is due to …?
a) Backward policies and their implementation by Govt.
b) Corruption
c) More import
d) More export
Q no 13: Is import playing role in economic development in Pakistan?
a) Positively
b) Negatively
c) Both
d) None of them
Q no 14: Is export playing role in economic development in Pakistan?
a) Positively
b) Negatively
c) Both
d) None of them
Q no 15: Are you agree this statement if Pakistan local industry is damage to import the foreign country product, you should import the foreign goods and services to full fill the demand?
a) Agree
b) Disagree
c) Neutral
Q no 16: If Pakistan exporter gets the ISO certificate can Pakistan export increase or decrease?
a) Increased b) decreased c) None of them
Q no 17: Why export the goods to other country?
a) Economic growth
b) Reduce the risk
c) High profit
d) All of them
