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Pakistan should rationalize its tariff structure to facilitate foreign trade

By FARAZ SIDDIQUI
May 08 - 21, 2000

The removal of trade barriers has pushed the world towards the formation of free trading blocs with minimum trade barriers and free mobility of goods and services the world over. The emergence of global markets essentially span over the last two decades.

America has emerged as the sole super power having an immense influence as the core economic power with its major contribution in world trade and investment. In 1960 US companies enhanced their operations to exploit the fertile opportunities with high growth rate in the markets of Latin America, Europe and Asia. Japan also started making its mark on the global trade in 1970s and soon became the world's biggest industrialized nation contributing greatly to the world trade. The 1980s witnessed the rise of a number of Asian economies like Taiwan, South Korea, Singapore, Malaysia and Hong Kong. China today has emerged as one of the most promising economies anywhere in the world. The last decade has laid down the foundations and terms for increased global restructuring, improved global efficiencies and operations worldwide.

America, Europe and Japan are the core economic powers in international trade with their highest contribution in world trade. These major economic powers enjoy a lion's share of the global gross national product and investment activities. Korea, Taiwan, Hong Kong, Singapore, Canada and some European countries also emerged economic powers which are providing world community with value added goods and services. The concept of regionalization has also emerged as an offshoot of the globalization in the recent years, world has been dividing into core economic blocs and regions in order to facilitate trade by the trade barriers.

The huge volume of trade between the industrialized nations is evident from the trade between the US and Japan, US and Europe and Japan and EC . The trade volume between European Community alone is a huge because it is the biggest economic and monetary union. The impact of European Monetary Union on Europe's capital markets is multidirectional. Another important issue is the scheduling of Euro currency which will actually be put into circulation on the first day of Jan 2002, during three year transition period Euro will be available only in electronic form. The important area of trade between the industrialized nations are automobiles, computer etc. The trend of protectionism in Japan and in some other countries, however, is creating problems for many nations. The on-again-off-again row between the US asking Japan its market for US beef and automobiles is just one example.

Why nations trade internationally?

There are many reasons for firms and countries to make Foreign Direct Investment business partnership overseas. For instance:

  • The ownership and control of foreign assets .

  • The need to cut the risks and uncertainties of the domestic business cycle.

  • To enter into rapid growing markets.

  • A desire to internationalize in order to reduce the cost.

  • Desire to overcome trade barriers.

  • A desire to take the advantage of technology expertise.

  • Through FDI, firms want to take active participation and control of foreign firm.

  • To acquire technological and managerial know-how.

  • To be the part of economic blocs.

Economic Integration and international trade

Economic unions and integration are the most important feature of world trade and business. The main purpose of such mergers and union is to reduce trade barriers among member countries in order to facilitate the free trade in the region. But these different forms of economic unions and mergers undertakes different tasks and implications but their main focus is the free flow of factors of production and reducing the trade barriers. EU, NAFTA, EFTA, SAARC, ASEAN, ECO are the some of the important economic blocs. European Union is the biggest monetary and economic union which includes 11 countries of Europe out of 15. These economic blocs are not only playing a very crucial role to promote the trade globally but on the other hand these unions confine the boundaries for the non-members. However, overall the emergence of these blocs can result in a general benefit of the consumers of these areas.

Barriers

Although the world is moving towards globalization but it is not easy to pace it throughout the world equally because due to many existing barriers. Every government aims at to encourage local productivity and protect local market. It also want to encourage exports and to develop world markets by providing subsidies in the form of tax breaks and low interest loans to national companies. In other words it creates barriers for international trade and business through tariff and non tariff measures . On the one hand the government has to resort to such legislations which safeguard the local industry and trade and on the other it has been under pressure to be more open to free trade under the WTO.

Present Scenario:

In recent years some important trends emerged in international trade like counter trade in which exporting firm receives payment in terms of product for example East and West trade as western pipeline and technology in exchange for Russian gas. In past couple of years trade in services industry like banking, insurance etc. increased drastically. Formation of free trade zone imports can defer payment of custom duty.

This is the era of information technology with rapid technological changes and advancements. It also changed the ways to conduct business, electronic commerce or e-commerce is the latest revolution in the world of business and commerce. E-commerce has its great impact over the pace of global business growth. It is estimated that GDP about 3.6% of America, 2.9% in Japan, 2.4% in Germany and 1.5% in Italy is made by IT.

Japan is one of the main power of world trade with the highest per capita income in the world. But business entry for foreign firms are not so easy because of numbers of non tariff barriers like retail store limitations and the informal bidding system and another major trade barrier is imbalances between Japan and rest of the world. But on the other hand companies have many options include exporting, licensing, joint ventures, acquisition and creation of Japanese subsidiaries. So the scope for business activities in Japan is rich but the need of immaculate planning is essential.

North America is another important market for world trade and business. Canada, Mexico and United States are the main actors in this region and both countries have 60 percent of their trade with United States although the both countries have very distinctive practices. FTA (Free Trade Agreement) and NAFTA (North American Free Trade Agreement is the step towards free trade between the countries in the region. The FTA and NAFTA would eliminate the trade barriers between the countries which will be resulted in trade liberalization in this region. Latin America is a very important market for international trade and business.

Besides US, Japan and EU there are 100 other countries which have rich and sizable opportunities. Most of these countries are witnessing privatization and legislative changes in order to attract foreign direct investment and to encourage these countries to tap their economic potential. Although most of them are developing countries but they can be emerged as strong economic powers through g many ways like attraction of foreign capital and creation of small-common markets by making intra regional trade agreements. These countries can progress by enhancing trade activities with US, Japan and EU.

Asia is considered to be the market of today and tomorrow with fertile opportunities and the land of emerging economic powers. Markets like India, South Korea, Singapore and Malaysia are attractive markets for MNEs. Korea, Singapore and Malaysia are growing stronger economically and they are trying to establish strong relationships with developed countries. Australia is doing something different, it is mostly relying on Asian countries like Japan as their primary markets . India and Russia are also very important markets with their changing economic moves like privatization and joint ventures with foreign MNCs. China also emerged as a very strong economy as the cheapest cost of labour countries from other parts of the world for their manufacturing businesses.

Pakistan in context of International Trade:

World is moving towards globalization and internationalization but like many other things once again Pakistan is lagging far behind to follow this pace. Political instability and uncertain economic conditions are the main detriment to foster foreign trade and business. The level of foreign direct investment is not up to the mark and exports are also very low. The government is trying to facilitate the foreign investment and to discover the new horizons by expanding the areas for new investments . In past foreign investment was confined to manufacturing sectors only but in recent years it has been allowed in other sectors like agriculture and services. The new investment policy of Pakistan is aimed at an increase of US$ 2 billion annually in the fields of electronics, software development, engineer, agrofood, value added textile, tourism and construction industries.

FDI plays a crucial role in the economic development of any country but unfortunately Pakistan is rated 20 out of 100 in the World Development Report, Pakistan has lowest ranking in SAARC region. The average direct investment in Pakistan is about $485 million in the previous nine years, this is almost negligible. Pakistan is also a member of some economic unions such as SAARC and ECO. But in fact Pakistan's economy has been deteriorating since many years despite of the rich scope and sizable opportunities.

It is imperative that e-commerce infrastructure for Pakistan should provide connectivity to the world trade in their transactions so that they can achieve world wide business opportunities. Institution should produce highly skilled graduates for e-commerce in order to avail this opportunity effectively and to persue new trading partners.

OUTLOOK:

Following the pace of globalization, countries are trying to reduce the trade barriers among the countries with the creation of free trade areas. But on the other hand economic blocs are creating big obstacles for non-members, trade barriers and trade restrictions are big threats to the free trade activities. In context of international trade Pakistan is far behind because of many reasons but it is imperative that Pakistan should prioritize its foreign trade agenda by increasing its activities in joint ventures and easy registration of foreign firms in our markets. Also Pakistan should prioritize its manufacturing sector with value-added or export industry, Hi-tech industries, priority industry and others. Pakistan should rationalize its tariff structure to facilitate foreign trade and investment.