PAK-JAPAN TRADE RELATIONS

In the economic field Japan continues to be a major trade partner of Pakistan

By Dr.Muhammad Ayoob Shaikh
&                  
 Mr. Hakim Ali Kanasro

Feb-11 - 17, 2002

After inception of Pakistan in August 1947, Japan established a liaison office in Karachi in December 1950. And on April 28, 1952, when the San Francisco Peace Treaty came into effect, Japan and Pakistan established diplomatic relations, and since then both countries have enjoyed friendly relations for fifty two years. Bilateral economic relationship including trade between Japan and Pakistan has been steadily promoted. Commerce treaty in 1960, which mutually grants the most, favored treatment on trade and entry of nationals etc.

In the economic field Japan continues to be a major trade partner of Pakistan. In the development cooperation field, Japan has contributed to the economic development of Pakistan as a major bilateral development cooperation partner.

After the 2nd world war, more than 50% of Japan's industry was in ruins. The cotton spinning and textile industries were very important factors in the revival and reconstruction of Japan's nation. At that time Pakistan extended a helping hand to Japan, by exporting raw cotton, an indispensable material for the spinning industry and by importing cotton textiles from Japan under the open General License System, even though the world market was plagued by shortage of many materials. Even in the early fifties Japan was still short of foodstuffs and Pakistan had supplied rice to Japan.

Pak-Japan have different natural resource endowments, they should specialize in the production of the goods and services in which they have higher natural resources endowments and should involve in bilateral trade. In this way production and consumption level will be higher and social and economic well being of both the countries. Because Japan is an industrialized country, deficient in natural resources and raw materials, which rely heavily on its value added exports to pay for these imports. 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.

Pakistan exported raw cotton to Japan and it processed the cotton into yarn and cloth and then exported these back to Pakistan. This pattern shifted later on as Japan began to export spinning machinery to Pakistan, and currently textile yarn and fabrics the largest component of Pakistani exports to Japan. From Pakistan's perspective Japan is one of the most important-trading partner. During 1990-91 to 1999-2000 Pakistan's major export went to seven countries namely, USA, Germany, Japan, U.K., Hong Kong, Dubai and Saudi Arabia. Among these countries, the share of Pakistan's exports to USA has been increasing persistently while that of Japan exhibited a continuous decrease mainly due to the protracted recession in the Japanese economy.

The share of exports to Germany, UK, Hong Kong, Dubai and Saudi Arabia remained almost stagnant with minor fluctuations. The country wise annual share in export since l990-91 to 1999-2000 is given in the Table-1.

It is evident from above Table-1 that Pakistan is trading with number of countries but its exports are highly concentrated in few countries. Nearly above one-half of Pakistan's exports during the period from 1990-91 to 1999-2000 went to above seven countries. Among these countries, the share of Pakistan's exports to USA has been increasing continuously and share of Pakistan exports to Japan shows persistently decrease. It is also clear from the above table that the Pakistan exports to Japan also declined by 62.65% in the year 1999-2000 in comparison of 1990-91. Pakistan exports to Japan had a rising trend up to the year 1993-94 but started declining mainly due to the antidumping duties of Japanese government on textile imports from Pakistan in 1995 and partially because of the rising trade between Japan and ASEAN countries.

In the same way Pakistan is trading with large number of countries but its imports are highly concentrated in few countries. Nearly below one-half of Pakistan's imports during the period from 1990-91 to 1999-2000 originated from seven countries namely, USA, Japan, Kuwait, Saudi Arabia, Germany, UK and Malaysia. By and large, the shares of imports originating from these countries have remained almost unchanged during the 1990s with the exception of Germany, which depicts a decreasing trend. The imports from Japan were also on the increase since 1992-93 and started declining from 1993-94 to 1999-2000. The shares of imports from Kuwait and Saudi Arabia in 1999- 2000 have increased. The probable reasons for Japan decreasing trend in imports may be the joint venture between Pakistan and Japan in the automobile sector and the discouragement of Pakistani government for these imports to develop the home industry and conserve the foreign exchange reserves.

Pakistan's imports are highly concentrated in few items namely, machinery, petroleum and petroleum products, chemicals, transport equipments, edible oil, iron and steel, fertilizer and tea. These eight categories of imports, on average, accounted for about 75 per cent of total imports in the decade of the 1990s. Among these categories, machinery, petroleum & petroleum products and chemicals accounted for almost 54% of total imports. Our country is trading with large number of countries but its imports are highly concentrated in few countries. Nearly below one-half of Pakistan's imports during the decade of the 1990s originated from seven countries namely, USA, Japan, Kuwait, Saudi Arabia, Germany, UK and Malaysia. The evidence is given in the table-2.

It is evident from the table-2 that Japan's average share was 10.63% and USA average share was 9.78% in this way they dominates the other countries in terms of percentage share of Pakistani imports. The shares of imports from Kuwait and Saudi Arabia in 1999-2000 have increased because both countries were witnessed on account of higher Pakistan oilfields limited (POL) imports from both these countries.

It is also evident from the table-2 that Japan stood at 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 was more as compared to other countries and also its share declined after 1996-97.

Japan is the second largest trade partner for Pakistan following the United States. The export from Pakistan to Japan has increased from Rs.11.448 billion to Rs.13.850 billion in the year 1990-91 to 1999-2000. Import from Japan to Pakistan also increased by Rs.22.161 billion to Rs.33.681 billion in the above same period. Deficit in the balance of trade has also increased from Rs.10.713 billion to Rs.19.813 billion during the period from 1990-91 to 1999-2000.

Pakistan has average exported to Japan Rs.15.228 billion and imported from Japan average Rs.34.679 billion and balance of payment in deficit was averagely Rs.19.450 billion during the period from l990-91 to 1999-2000. As evidence is given in table-3

It is clear from the table-3 that the overall Pak-Japan balance of trade position in the decade of 90s remained under pressure.

Debt Service payment on Japan's loan

The large accumulated amount of Japan loans has increased the liability of debt service payments many fold. The evidence is given in the table- 4

Table-4 shows that debt service payment on Japan loan increased till to the year 1997-98 after that the principal and interest both declined because of debt rescheduling.

Workers remittances from Japan

The earnings of Pakistani nationals, which they earned in Japan and sent it to Pakistan constitutes the worker's remittance from Japan. The table-5 shows the workers remittance and percentage share of worker remittance from Japan.

It is evidence from the above table that the annual workers remittance decline year after year. Because annual workers remittance (AWR) was US$ 26.84 million in the year 1990-91 but it declined and reached to only US$ 1.58 million in the year 1999-2000. The government of Pakistan must check and watch whether this amount may come through Hundi business, if it is true then government must provide facilities to the peoples to deposit and take their money through bank. In this way government can show accurate AWR and remove the money risk of the Pakistani workers those are working in Japan.

Conclusions

1. Japanese government has imposed certain conditions on the trade with Pakistan after the nuclear explosion, which has negative impact on Pak-Japan trade relation. These impositions should be removed to encourage the trade relations between both countries. Recently, Japan government has made some positive decisions to assist Pakistan after its decision to be with world to wage war against terrorism.

2. Pakistan government must remove the duties against import of textile machinery and other industrial equipment.

3. Pakistan government must consider to encourage to export value added finished products rather raw material to Japan.

4. As major portion of export to Japan is covered by textile products which is dangerous for Pakistan because of its dependency on this single sector. Although there is much room for other products to be exported to Japan.

5. More important thing is that Japanese people are quality conscious so that Pakistani exporters should improve and confirm the quality of goods with attractive packaging.

Dr. Muhammad Ayoob Shaikh is senior faculty member of Faculty of Commerce and Business Administration at University of Sindh, Jamshoro. He has written a considerable number of articles and books on the subjects related to fields of business, commerce and economics.

Mr. Hakim Ali Kanasro is also senior faculty member of Faculty of Commerce and Business Administration at University of Sindh, Jamshoro. Mr. Kanasro has a huge experience of Teaching and Administration as he has established SZABIST Larkana Campus and he is also engaged in writing research paper in his fields of interest.

Table-1

Major Export Markets of Pakistan

Percent Share

Country

90-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-2000

Total

Average

% Increase Decrease over the period

USA

10.8

12.8

13.9

14.4

16.2

15.5

17.7

20.5

21.8

24.8

168.4

16.84

129.62

Germany

8.9

7.1

7.8

8.0

7.0

6.8

7.5

6.3

6.6

6.0

72

7.2

-32.58

Japan

8.3

8.3

6.8

8.0

6.7

6.6

5.7

4.2

3.5

3.1

61.2

6.12

-62.65

UK

7.3

6.6

7 1

7.8

7.1

6.4

7.2

6.9

6.6

6.8

69.8

6.98

-6.84

Hong Kong

6.0

7.3

6.6

7.3

6.6

9.1

9.4

7.1

7.1

6.1

72.6

7.26

1.66

Dubai

2.8

4.4

5.9

6.3

4.0

4.7

4.6

5.0

5.4

5.7

48.8

4.88

103.57

Saudi Arabia

3.6

4.3

4.7

3.5

2.7

2.4

2.6

2.5

2.4

2.5

31.2

3.12

-30.55

Sub-total

47.7

50.8

52.8

55.3

50.3

51.5

54.7

52.5

53.4

55.0

524

52.4

15.30

Other countries

52.3

49.2

47.2

44.7

49.7

48.5

45.3

47.5

46.6

45.0

476

47.66

13.95

Total

100

100

100

100

100

100

100

100

100

100

100

Sources: (1) Pakistan's Foreign Trade Key Indicators, Ministry of Commerce.
 (2) Economic Survey 2000-2001, Government of Pakistan, Finance Division, Economic Advisor's Wing, Islamabad, P-125.

 


 

Table -2

Major Sources of Pakistani Imports.

Percent Share

Country

90-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-2000

Total

Average

% Increase Decrease over the period

USA

11.8

10.5

9.4

10.6

9.4

8.9

12.0

11.2

7.7

6.3

97.8

9.78

-46.6

Japan

13.0

14.3

15.9

11.8

9.6

10.7

8.6

7.8

8.3

6.3

106.3

10.63

-51.5

Kuwait

0.7

0.9

3.3

5.3

5.8

6.4

6.9

5.6

5.9

12.0

52.8

5.28

161.4

Saudi Arabia

6.2

5.2

5.4

5.4

4.9

5.9

6.0

6.1

6.8

9.0

60.9

6.09

45.16

Germany

7.3

8.0

7.4

7.7

6.8

5.8

5.6

5.2

4.1

4.1

62.0

6.2

-15.06

U.K

4.9

5.5

5.2

4.9

5.1

4.4

5.0

4.1

4.3

3.4

46.8

4.68

4.48

Malaysia

4.0

4.2

5.1

5.5

8.8

7.2

4.7

7.1

6.7

4.3

57.6

5.76

44.0

Sub-Total

47.9

48.6

51.7

51.2

50.4

49.3

48.8

47.1

43.8

45.4

484.2

48.42

Other countries

52.1

51.4

48.3

48.8

49.6

50.7

51.2

52.9

56.2

54.6

515.8

51.58

Total

100

100

100

100

100

100

100

100

100

100

100

Sources: Economic Survey 2000-2001, Government of Pakistan, Finance Division, Economic Advisor's Wing, Islamabad. pp-130-131.

 

 


 

Table -3

Pak-Japan Balance of Trade

Year

Exports

% Increase (+) Decrease (-)

Imports

% Increase (+) Decrease (-)

Balance

1990-91

114.4 8

22161

-10713

1991-92

14226

24.26

32934

48.61

-18708

1992 -93

12109

- 14.88

41091

24.77

-28982

1993-94

16460

35.93

30407

-26.00

-13947

1994-95

16753

1.78

30667

0.86

-13914

1995-96

19544

16.66

42653

39 08

-23109

1996-97

18700

-4.31

40137

5.9

_21437

1997-98

15583

-16.66

34247

-14.67

-18664

1998-99

13616

-12.62

38817

13.34

-25201

1999-2000

13850

1.72

33681

-13.23

-19831

Total

152289

 

346795

 

194506

Average

15228.9

 

34679.5

 

19450.6

Increase over the period

20.98

 

51.98

 

85.11

Sources: Economic Survey 2000-2001, Government of Pakistan, Finance Division, Economic Advisor's Wing, Islamabad. P-106.

 


 

Table-4

Debt Service Payment on Japan's Loan (US$ million)

Year

Principal

% Increase (+) Decrease (-)

Interest

% Increase (+) Decrease (-)

1990-91

77.77

66.964

1991-92

92 086

18.48

70.222

4.86

1992-93

113.299

23.03

82.308

17.21

1993-94

134.769

18.5

96.227

16.91

1994-95

166.826

23.78

14.136

18.61

1995-96

181.428

8.75

104.946

-8.05

1996-97

167.078

-7.90

97.918

-6.69

1997-98

169.558

1.48

98.308

0.39

1998-99

14.796

-91.27

27.521

-72.00

1999-2000

0.538

-96.36

59.970

117.90

2000-2001

37.837

 

79.861

 

Total

1155.932

 

898.381

 

Average

115.59

 

89.83

 
Sources: Economic Survey 2000-2001, Government of Pakistan, Finance Division, Economic Advisor's Wing, Islamabad. P-121

 


 

Table -5

Workers Remittance (US$ million)

Year

Annual Workers Remittances

Workers Remittance Percent Share

1990-91

26.84

1.65

1991-92

17.96

1.03

1992-93

11.62

0.94

1993-94

7.13

0.65

1994-95

6.90

0.52

1995-96

3.65

0.30

1996-97

3.05

0.28

1997-98

2.65

0.21

1998-99

3.09

0.35

1999-2000

1.58

0.17

Total

84.47

6.1

Average

8.447

0.61

Sources: Economic Survey 2000-2001, Government of Pakistan, Finance Division, Economic Advisor's Wing, Islamabad. P-112-113