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.
