Ch.

10 Trade
In this Chapter we will Study about
1. GLOSSARY
2. REASONS AND BENEFITS OF TRADE
3. EXPORTS/ IMPORTS OF PAKISTAN
4. DIFFERENCE BETWEEN GDP AND GNP
5. TRADE ROUTES
6. BOP AND BOT
7. EXPORT PROCESSING ZONES
8. TRADING BLOCS + EU
9. WTO + EPB+ TDAP
 Glossary

•Trade is the exchanging of goods between people, country or provinces for

money or goods for goods.

•Barter trade is buying goods for goods or exchanging goods for goods.

•When trade is done within a city, it is called intracity trade.

•When trade is done between cities, it is called intercity trade.

•When trade is done between countries, it is called international trade.

 Glossary

•When goods are sold to other countries, it is called exporting.

•When we buy goods from other countries, it is called importing.

•Commodities are things used by people.

•Consumers are the people who are using commodities.

•Remittances is the term used for money which is sent overseas to workers
to earn money.
 Glossary
•Foreign exchange is the system by which one currency is exchanged for another; and
which enables international transactions to take place.
Purchasing power is the ability of a consumer to purchase or buy something.
GDP (Gross Domestic Product) is whatever the country is earning or producing within
itself.
GNP (Gross National Product) is the earning of country from within country and also
from outside the country (remittances & export).
 Glossary
Balance of payment (B.O.P.) of a country is the record of all economic transactions
between the residents of the country and the rest of the world in a particular period of
time.
Balance of trade (B.O.T.) is the difference between the value of exports and the value of
imports only during a given period of time.
More earning & less spending results in a positive balance of trade/surplus
Less earning & more spending results in a negative balance of trade/trade deficit
 Why do we trade?
● Lower prices ● •Import resources they lack at home
● •Greater choice ● •They are a relatively inefficient
● •Differences in resources producer
● •Specialization permits economies
● •Economies of scale
of large-scale production
● •Increased competition ● •Provides employment as part of the
● •More efficient allocation of tertiary sector
resources ● •Establishes a link between different
● •Sources of foreign exchange activities that depend on each other
•
TRADE IMPORT
BENEFIT of
S Pakistan

E
EXPORTS AS
of TO CRE RTS
IN P O
Pakistan EX
 How do we benefit from trade?
● •Specialization of production ● Production of value-added goods
● •Utilization of domestic resources ● Promotes industrialization
for export items ● •May lead to rise in GNP
● •Creation of employment ● Economies of scale on large-scale
production
opportunities
● •Transfer of information technology
•Processed goods are semi-finished goods that are used to make finished
products or services, which may or may not use machinery. E.g. – cotton yarn
•Manufactured goods are the goods that are transformed from raw materials
into ready products with the help of machinery. E.g. – readymade garments,
sports goods, surgical instruments, carpets & rugs, etc.
GDP = consumption + investment + government
spending + (exports – imports)
GNP = GDP + NR (Net income from assets abroad)
•GDP defines a nation’s economy in geographical terms while GNP
defines a nation’s economy in terms of nationals
•GDP exists to see the strength of a country’s local economy while GNP
exists to see how the nationals of a country are doing
•In GDP, production is done within a country over a particular time
period while in GNP, production can take place anywhere in the world
 Major Imports of Pak
Pakistan imports a fairly large number of items from other countries. The items that Pakistan imports are:
Food, e.g. – wheat, sugars, pulses, etc.
Machinery, e.g. – textile, agricultural, mining machinery, etc.
Petroleum and petroleum products
Textiles, e.g. – synthetic fibres
Fertilizers and other chemicals
Metals ,e.g. – iron and steel
Miscellaneous

These items can be divided into 3 categories:

Capital goods (goods that are used in
producing other goods, rather than being
bought by other consumers)
Consumer goods (goods that are being used
by the consumers directly)
Raw material for capital and consumer goods
 EXPORTS CAN BE
INCREASED BY.,,,,

Develop cottage/small-scale industries

•Increase variety of export products •Instead of exporting raw material, we

should export finished goods
•Use strict quality control measures
•Create export agencies such as Export
•Export higher value-added products Promotion Bureau
•Reduce taxes for exporters •Set up Export Processing Zones (EPZ)
 ••North of Pakistan
•East of Pakistan ØLinked to China •South-west
ØTerritory of India ØSilk Route Pakistan
ØNot good bilateral ØKarakoram Highway (KKH): ØLand route to Iran
relations and Turkey (RCD
Gilgilt, Khunjerab Pass
Highway)
ØTrade on limited Xinjiang
scale ØNarrow and not
ØAccess to sea port for land-
properly built
locked state

•North-west Pakistan
ØMountainous terrains of Afghanistan.
ØHistorical passes (Khyber pass, Kurram Pass, Khojak Pass)
ØLess development
ØRoad from Quetta and Chaman
Why are sea routes preferred in Pakistan?
•Land routes are expensive

•Heavily taxation by respective government

•Transport charges are low
•Shorter routes when compared to land routes
•Ports provide modern facilities
•Countries of Middle East are easily accessible

•Warm-water port opens throughout the year while during winter land routes in the northern area can
be blocked by avalanches and landslides
Difference between BOT and BOP
•BOT is a statement that captures the country's export and import of goods with the remaining world while
BOP is a statement that keeps track of all economic transactions done by the country with the remaining
world

•BOT are transactions related to goods only while BOP are transactions related to both goods and services

•BOT gives a partial view of the country's economic status while BOP gives a clear view of the economic
position of the country
 t i v e
n e ga
r e a
th e
y i s
Wh ?
O P
B
Due to unfavourable weather conditions, production
•More importing of capital goods due to industrialization
and export of rice and cotton is declining
•Tough competition in world market
•Less modernization of machinery
•Consumption-oriented society
•Less production of value-added goods
•Rise in oil prices
•Increase in prices of inputs
•Export of non-cotton products are facing trade barriers
•Foreign debts
 vase

The negative balance of payments can be corrected by 3 ways:

1.By increasing exports

2.By restricting imports

3.By reducing imports related to the tertiary sector

 Infrastructure
Incentives
•Established near the seaport to facilitate import or export of
•100% ownership rights goods and the import of the required machinery
•No minimum or maximum limit for investment •Consistent government policies help to bring to stability in

•Duty-free imports of machinery, equipment and materials the investment climate

•Adequate air travel facilities
•No sales tax on input goods and services
•Adequate transport facilities
•Exemption from import duties and freedom from national import
•Efficient transport links to raw material sources
restrictions
• All facilities electricity, gas and water are made available
•The domestic market to be available on international and
commercial standards • Peaceful, secure and environmentally protected pollution –
free work area
 Objectives
● •Boosts industrialization
● •To increase country’s exports
● •To create job opportunities
● •To transfer Hi-tech from developed country to developing countries
● •Promotion of foreign and local investment
● The Export Processing Zones Authority (EPZA) was established in 1980 to plan, develop and
operate Export Processing Zones in Pakistan.
Trade Barriers: ‘A trade barrier is an obstacle to or something that stops
trade’
Trade barriers may exist in the form of:
•Tariffs - A tariff is a tax on imported products or services.
•Quota - A quota is a limit on the amount of goods that can be imported.
Embargo - An embargo is a ban on certain imported products.

Advantages Disadvantages
1. •Protect homeland industries from 1. •Tariffs increase the price of imported goods.
competition
2. •Less competition from world markets means there
2. •Protect jobs
3. •Improve the balance of payments position is an increase in the price.
4. •Gives rise to greater self-sufficiency 3. •The tax on imported goods is passed along to the
thereby reducing foreign dependency
consumer so the price of imported goods is higher.
5. •Creates domestic demand that leads to
greater exploitation of local resources 4. •Local industries become complacent due to lack of
international competition, and thus lose efficiency
Trading Blocs ‘A group of countries
•Which are geographically close to each other
•Have similar trade policies
•With their mutual co-operation allow free flow of goods’

OBJECTIVES
PAKISTAN TRADING BLOCS
Pakistan is a member of:
1. •Reduction of trade barriers among the member
countries 1. •SAARC (South Asian Association Regional
2. •Maintaining better relations Cooperation)Welfare enhancement and opportunity to realize
3. •Promoting free transfer of labor, capital and
the full potential of the region.
other factors
4. •Creating common currency and Central Bank 2. •ECO (Economic Cooperation Organization)
5. •Assisting member countries To promote political economic corporation and regional stability
6. •Enhancing welfare of consumers
1. •ASEAN (Association of South-East Asian Nations)To
7. •Promoting higher employment
manage issues of trade and economics of least developing
countries
 Activities
Pakistan Objectives
and the of EU
EU

Advant Disadvan
ages tages
Objectives Activities of EU
•Setting up a common market •Elimination of custom duties, quantitative
restrictions with regard to export & imports
•Continuous & balanced expansion
•Establishment of a common custom tariff &
•Closer relations between the member commercial policy
states. •Abolition of all obstacles for movement of
persons, services & capital

•Application of programs in order to

coordinate the economic policies
Advantages
•Expansion in the export market & more foreign Disadvantages
exchange which improves BOP •Pakistan may face sanctions due to increasing
•Promote industrialization. terrorism

•More investment in industry by investors •Pakistan’s exports face restrictions

•More employment opportunities. •Low standardization of products of cottage/small-
scale industries
•Access is easier because EU countries have few trade
barriers •Trade agreements affected by due to Pakistan
having trade agreements with other countries.
•EU countries are politically and economically stable
•Agro-based products are unreliable

Political instability in country.

World Trade Organization (WTO)
The World Trade Organization is an international institution to allow free trade between its member
countries by reducing or abolishing certain restrictions imposed by the governments of these countries
on their exports and imports.
While signing the WTO Agreement members committed to:
1.Reduce trade barriers
2.Discipline the use of subsidies
3.Countervailing measures and technical barriers
Opportunities and challenges for Pakistan resulting from its membership of WTO
•Pakistan’s cotton and textile industry has to be re-orientated to produce high-quality cotton products or
value-added products
•Agriculture has to cope with WTO’ s standards (on pg:199) so, that may lead to reduction of
unemployment and reduction revenue for government
Service sector is relatively open for foreign companies so compliance with WTO restrictions won’t have any impact on
the telecommunication sector
•Public administration should works as a partner with the private sector to provide a suitable industrial environment
•Import duties have to be reduced/fixed according to WTO rules which may affect the domestic industry negatively
•Small-scale and medium-scale industries face major challenges as their cost of production is high. The government
must provide loans and professional training to these industries

What steps should be taken?

•Modernize the production process
•Building up strong infra-structure
•Research in agriculture
•Establishment of a transparent and cost-efficient business environment
•International quality standards
•Flow of information
Time To
Complete
and submit
the booklets