Current scenario and future prospects
By Dr. TALAT AFZA
Nov 27 - Dec 03, 2000
The famous economists Adam Smith and David Ricardo
presented the theory of specialization and trade. The thesis developed
by these economists is that if two countries have different natural
resource endowments, they should specialize in the production of the
goods and services in which they have higher natural resource
endowments and should involve in bilateral trade. This will result in
higher production and consumption levels and higher social and
economic well being of both the countries. Analyzing the natural
resource endowments and stage of economic development of Pakistan and
Japan, it can be said that Japan is an industrialized country
deficient in natural resources and raw materials which relies heavily
on its value added exports to pay for these imports. On the other
hand, Pakistan stands in the category of developing countries
deficient in technology and endowed with natural resources of fertile
agricultural land and raw materials. The natural resource endowments
and economic backgrounds of both the countries make a very strong case
to develop these economies through international trade and investment.
The objective of the paper is to analyze the trade relations of Japan
and Pakistan and suggest the ways to improve and benefit from these
relations in future.
Pattern of trades
During the early days of Japan-Pakistan foreign
trade relations, Pakistan exported raw cotton to Japan and Japan
processed the cotton into yarn and cloth and then exported them back
to Pakistan. This pattern shifted later on as Japan began to export
spinning machinery to Pakistan, and currently textile yarn and fabric
is the largest component of Pakistani exports to Japan. From
Pakistan's perspective Japan is one of the important trading partner.
During the period 1990-91 to 1993-94 Japan's percentage share in
Pakistani exports can be ranked on average at second or third place
after U.S.A and Germany. The percentage share of Pakistani exports to
Japan has been declining persistently during the period 1990-91 to
January 2000 probably due to recession in Pakistan, Japan's protective
trade policies and Japan's trade with ASEAN countries. See table 1.
Table
1
|
Major Export Markets of
Pakistan |
|
( % Share ) |
|
|
Country |
90-91 |
91-92 |
92-93 |
93-94 |
94-95 |
95-96 |
96-97 |
97-98 |
98-99 |
99-Jan 2000 |
|
USA |
10.8 |
12.8 |
13.9 |
14.4 |
16.2 |
15.5 |
17.7 |
20.5 |
21.8 |
24.4 |
|
Germany |
8.9 |
7.1 |
7.8 |
8.0 |
7.0 |
6.8 |
7.5 |
6.3 |
6.6 |
6.2 |
|
Japan |
8.3 |
8.3 |
6.8 |
8.0 |
6.7 |
6.6 |
5.7 |
4.2 |
3.5 |
3.4 |
|
UK |
7.3 |
6.6 |
7.1 |
7.8 |
7.1 |
6.4 |
7.2 |
6.9 |
6.6 |
6.9 |
|
Hong Kong |
6.0 |
7.3 |
6.6 |
7.3 |
6.6 |
9.1 |
9.4 |
7.1 |
7.1 |
5.9 |
|
Dubai |
2.8 |
4.4 |
5.9 |
6.3 |
4.0 |
4.7 |
4.6 |
5.0 |
5.4 |
5.5 |
|
Saudi Arabia |
3.6 |
4.3 |
4.7 |
3.5 |
2.7 |
2.4 |
2.6 |
2.5 |
2.4 |
2.5 |
|
Sub Total |
47.7 |
50.8 |
52.8 |
55.3 |
50.3 |
51.5 |
54.7 |
52.5 |
53.4 |
54.8 |
|
Other Countries |
52.3 |
49.2 |
47.2 |
44.7 |
49.7 |
48.5 |
45.3 |
47.5 |
46.6 |
45.2 |
|
Total |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
|
Source: Pakistan's Foreign Trade Key
Indicators, Ministry of Commerce, Islamabad & Review of
Foreign Trade, Federal Bureau of Statistics, Statistics
Division, Government of Pakistan, Vol. 24, March 2000. |
Pakistan's major imports consist of machinery,
petroleum products and chemicals. Japan and U.S.A. dominates the other
countries in terms of % share of Pakistani imports. As indicated by
table 2, Japan stood at the first place in terms of percentage share
of Pakistani imports during the period 1990-91 to 1995-96. But on
average the percentage shares of Pakistani imports from Japan showed a
declining trend.
Table
2
|
Major Sources of Pakistani
Imports |
|
( % Share ) |
|
Country |
90-91 |
91-92 |
92-93 |
93-94 |
94-95 |
95-96 |
96-97 |
97-98 |
98-99 |
99-Jan 2000 |
|
U.S.A. |
11.8 |
10.5 |
9.4 |
10.6 |
9.4 |
8.9 |
12.0 |
11.2 |
7.7 |
6.1 |
|
Japan |
13.0 |
14.3 |
15.9 |
11.8 |
9.6 |
10.7 |
8.6 |
7.8 |
8.3 |
6.6 |
|
Kuwait |
0.7 |
0.9 |
3.3 |
5.3 |
5.8 |
6.4 |
6.9 |
5.6 |
5.9 |
10.5 |
|
Saudi Arabia |
6.2 |
5.2 |
5.4 |
5.4 |
4.9 |
5.9 |
6.0 |
6.1 |
6.8 |
9.5 |
|
Germany |
7.3 |
8.0 |
7.4 |
7.7 |
6.8 |
5.8 |
5.6 |
5.2 |
4.1 |
4.4 |
|
U.K. |
4.9 |
5.5 |
5.2 |
4.9 |
5.1 |
4.4 |
5.0 |
4.1 |
4.3 |
3.7 |
|
Malaysia |
4.0 |
4.2 |
5.1 |
5.5 |
8.8 |
7.2 |
4.7 |
7.1 |
6.7 |
4.5 |
|
Sub Total |
47.9 |
48.6 |
51.7 |
51.2 |
50.4 |
49.3 |
48.8 |
47.1 |
43.8 |
45.3 |
|
Other Countries |
52.1 |
51.4 |
48.3 |
48.8 |
49.6 |
50.7 |
51.2 |
52.9 |
56.2 |
54.7 |
|
Total |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
|
Source: Pakistan's Foreign Trade Key
Indicators, Ministry of Commerce, Islamabad & Review of
Foreign Trade, Federal Bureau of Statistics, Statistics
Division, Government of Pakistan Vol. 24 March 2000 |
Overall, Pakistan had a continuous trade deficit
with Japan during the period 1993-94 to 1998-99. Pakistani exports to
Japan had an increasing trend up to the year 1995-96 but started
declining mainly due to the antidumping duties of Japanese government
on textile imports from Pakistan in 1995 and partially because of the
increasing trade between Japan and ASEAN countries. The imports from
Japan were also on the rise since 1995-96 and started declining from
1996-97 onwards. The probable reasons for this declining trend in
imports may be the joint ventures between Pakistan and Japan in the
automobile sector and the discouragement of Pakistani government for
these imports to develop the domestic industry and conserve the
foreign exchange reserves.
Table
3
|
Pakistan
Japan Balance of Trade |
|
(Million US$) |
|
Year |
Import |
Export |
Balance |
|
1993-94 |
1008.05 |
542.67 |
-465.38 |
|
1994-95 |
994.0 |
543.01 |
-450.99 |
|
1995-96 |
1270.64 |
582.50 |
-688.14 |
|
1996-97 |
1029.33 |
479.16 |
-550.17 |
|
1997-98 |
792.83 |
360.76 |
-432.07 |
|
1998-99 |
785.69 |
271.35 |
-514.34 |
|
Source: "Economic Review" 1998
Chamber of Commerce and Industries, Karachi, Research and
Development Department. |
Trade restrictions
It is generally believed that foreign trade had
played an important role in the economic development of Japan. But
this foreign trade led growth was not based on the notion of
"free trade" as envisaged by Adam Smith rather this growth
was achieved under the umbrella of protectionism. During the 1950s
and early 1960s the Japanese government exercised strict control
over foreign trade and exchange dealings in order to protect
Japanese manufacturers from competition in their home markets, and
to strengthen their capacity to sell abroad. Japan's elaborate
structure of trade restriction was dismantled under the pressure
from her trading partners. Since the late 1960s Japan's import
policies have been continuously liberalized. This does not however,
mean that imports into Japan are free from artificial barriers.
Although overt and formal quantitative restriction are few, some
individual sectors are still heavily protected. agriculture being
the most important example. Government regulations have a visible
effect on agricultural products. Rice, wheat, beef, sugar and dairy
products are among the most prominent. Although Japan's formal NTBs,
or quantitative restrictions, are relatively few, but these formal
NTBs still remain high in agriculture. The protection to the
agriculture sector is provided by means of import restrictions and
massive provision of direct and indirect subsidies. The imposition
of these barriers is probably the largest single factor to
negatively affect the market opportunities of Pakistan, as Pakistan
is basically an agricultural country with a potential to export the
agricultural products to Japan. Currently, almost 80 per cent of
Pakistani exports to Japan consists of textile yarn and fabric.
Japan is following import restriction policies for the textile
products but these restrictions do not cover all textile products.
The restrictions are in the forms of quota and duties on particular
products and particular exporting countries. For example, Pakistani
exports of coarse cotton yarn to Japan were restricted on account of
anti-dumping duties in 1995 by the Japanese government at the rate
of 9.9 per cent. The exporters of 20/s and 21/s yarns were affected
by these measures. Recently, these anti-dumping duties have been
removed which is expected to have a positive effect on Pakistani
textile exports to Japan. Japan introduced the General System of
Preferences (GSP) on August 1,1971 with an intended duration of 10
years. The scheme was extended twice in 1981 and 1991. The Japanese
imports grew after the introduction of GSP. Currently 184 countries,
including Pakistan, are the beneficiaries of Japan's GSP. Although
GSP is meant to encourage the imports but its conditions are strict
on the commodities in which developing countries have competitive
edge for example, textile and footwear. In contrast, conditions are
more lenient for the products in which developing countries are less
competitive, such as machinery, which limits the significance of the
GSP scheme. Moreover, there is a tendency for small groups of
developing countries to monopolize the benefits. ASEAN countries are
a good example as the Japan's trade with these countries is
continuously on the rise.
Conclusion and policy recommendations
Overall, Pakistan had a continuous trade deficit
during the period 1993-94 to 1998-99. Both the Pakistani exports to
and imports from Japan were on the rise up to the year 1995-96 and
started declining later on. The probable reasons for the decline in
exports are the imposition of anti-dumping duties of Japanese
government in 1995 on textile imports from Pakistan and increased
trade between Japan and ASEAN countries. The declining trend of
Pakistani imports from Japan may be attributed to the joint ventures
between Pakistan and Japan in the automobile sector and the
discouragement of Pakistani government for these imports to develop
domestic automobile industry and conserve the foreign exchange
reserves. Although Japan is liberalizing its import policies but
still the agriculture sector is heavily protected by means of import
restrictions and massive provision of direct and indirect subsidies.
These barriers negatively affect the market opportunities of
Pakistan as Pakistan is an agricultural country with a potential to
export the agricultural products to Japan. In the textile sector,
the main item of Pakistani exports to Japan, Japan's import
restrictions are in the form of quota and duties on particular
products and particular exporting countries. Japan introduced the
GSP with a purpose to encourage the imports but its conditions are
strict on the commodities in which developing countries have
competitive edge for example, textile and footwear. Moreover, under
the GSP scheme the Japanese trade with the ASEAN countries is
continuously on the rise. Although Pakistan-Japan trade relations
can be traced back to 1950's but currently the volume of trade
between the two countries is on the decline. There is an urgent need
to strengthen and improve the bilateral trade relations. In this
regards following recommendation are made
1. Pakistan needs to focus on increasing
the textile exports to Japan but it cannot be done single-handedly
rather it needs the positive attitude of the Japanese government as
it imposes the quota restriction on specific textile products and
specific countries. Recently, the Japanese government has removed
the anti-dumping duties imposed in 1995 on certain categories of
Pakistani textile exports to Japan, which is expected to encourage
the Pakistani textile exporters to recapture the market.
2. Pakistani government can also play an
important role in encouraging the textile exporters by providing
them the concession in duties on the imported textile machinery and
accessories. In the trade policy of 1999-2000 the government of
Pakistan has allowed the duty free import of auto coners for the
textile sector, which is a right step towards increasing the textile
exports.
3. The exporters should be persuaded to
export the higher Value added finished textile products instead of
textile yarn and clothes. In this regard, Pakistani exporters should
be encouraged to meet the Japanese importers to get export
specifications and adhere to them. Moreover, Pakistani government
through the Embassy of Pakistan in Tokyo should arrange the
exhibitions for the display of article of apparel / cloth
accessories to encourage these exports.
4. Currently, textile exports consists of
80 per cent of the total exports of Pakistan to Japan. There is a
strong need to focus on the other agricultural products as well.
Although it cannot be denied that the Japanese agricultural sector
is heavily protected yet there is still room to increase the
agricultural exports to Japan. Pakistan is among the beneficiaries
of Japan's GSP scheme and can benefit from this by exporting the
agricultural products, which are on the positive list of GSP. Some
of the prospective export products which are allowed duty free entry
into Japan includes ornamental fish; fish livers and roes, dried,
smoked, salted or in brine; mushrooms; dried bananas; guavas;
mangoes and mangos teens. Pakistan can also avail the privilege of
reduced tariff rates on the agricultural products, which are on the
positive list of GSP. The prospective export products on this list
includes crab; lobster; shrimp; prawns; tomatoes; potatoes; peas;
beans; fruit juices and vegetable Juices.
5. Pakistani government should also
encourage the exports of the agricultural products, which are on the
positive list of GSP by giving incentives and concessions to the
exporters of these products. The decision of the Pakistani
government to reduce the income tax on the export of fish and other
edible items from one per cent to half a per cent (Trade Policy,
1999-2000) is a right step towards this direction. Moreover, the
decision of decreasing the regulatory duties on steamed and crushed
bones from 20% - 15% to 10% - 5% will also help increase the export
of crushed bones.
6. Last but not the least, the exporters
should be stressed to be conscious of and improve the quality of
exports so that they could be able to compete with their competitors
and increase their market share which in turn will help improve the
balance of trade with Japan as well as, rest of the world.
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