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