Third World trading vehicle – The international market place – III
(This is the THIRD in a series of articles that will attempt to analyse our present system of EXPORT TRADE and recommend suitable alterations).
Pakistan’s two major exports are cotton and rice, thereafter the international market place becomes a troubled area for our commodities and products due to many reasons, prime among them being a narrow range of exportable products, lack of sophistication in export techniques, inconsistent quality and last but not the least, a wall of latent and blatant protectionism. It is better to go over the potential target areas of exports in relations to our imports with a general analysis of the present statistics.
North America has two of Pakistan’s major trading partners, USA and Canada. Not counting military hardware, Pakistan’s major imports from USA (US$ 500 million annually) are edible oils (US$ 220 million), chemical fertilisers (US$ 58 million), machinery & allied equipment (US$ 52 million), wheat and food products (US$ 25 million), chemicals, (US$ 22 million), etc while most of our exports (US$ 200 million annually) are made-up garments, etc (US$ 45 million), cotton yarn and fabrics (US$ 35 million), carpets and rugs (US$ 20 million), cotton towels and fish and fish preparation (US$20 million each). A trade gap of US$ 300 million exists which is further enhanced by the purchases of defence and allied equipment funded by Foreign Military Sales (FMS) programme or hardcash (the figure goes up to around US$800 million annually). With Canada the annual trade gap is approximately US$ 45 million with our imports being US$ 60 million and exports around US$ 15 million. The major items for import items are machinery and equipment (US$ 23 million), coal etc (US$ 10 million), iron and steel products (US$ 11 million), while exports being ready-made garments including hosiery (US$ 4 million), cotton cloth (US$ 3.5 million) and cotton towels (US$ 2.5 million). Latin America, which could be targeted for our less sophisticated products, gets a very negligible amounts of sports goods and surgical instruments while taking tea, steel plates, raw wool and yarn of synthetic fibre. The trade is very meagre and must be improved.
In South America, our major trading partner is Brazil from whom we import US$ 35 million worth of goods, mainly iron ore (US$ 18 million), iron and steel products (US$ 7 million) and soyabean oil (US$ 11 million) while exporting rice worth US$3 million making a lop-sided trade gap of US$ 32 million. Our trade with Peru, Chile, Colombia and Venezuela is negligible, erratic and mostly with an adverse trade gap.
Africa can be divided into three distinct areas, starting with Egypt and the rest of North Africa (Libya, Morocco, Tunisia, Algeria and Mauritania), then East Africa (or English speaking areas) comprising of Uganda, Somalia, Tanzania, Kenya, Zaire, Sudan, Ethiopia. West Africa (or mostly the French speaking areas except for Nigeria) comprises of Mali, Niger, etc. Our annual exports to Egypt (US$ 19 million) are tobacco leaf while imports are raw cotton (US$ 10 million). Libya has very negligible exports to us while we export US$ 6 million worth goods and commodities annually, mostly cotton bags (US$ 3 million) and canvas tents (US$ 1 million), our exports showing a downward trend.
For Morocco, Algeria and Tunis, our exports are around US$ 3.5 million and imports less than US$ 1 million, our main item of exports being rice (US$ 3 million). In East Africa our major trading partner is Kenya from whom we import over US$ 250 million worth of tea and export almost nothing (rice US$ 15 million). We export about US$ 5 million worth of raw cotton to the other East Africans, from whom we also take cotton, tea and spices worth US$ 45 million for an adverse trade balance. From West Africa, we import mainly tea (US$ 15 million) while exporting rice (US$30 million) and cotton (US$2 million) for a favourable trade balance.
In Europe, we have UK as a major trading partner (imports US$ 300 million, exports US$ 100 million). Major imports being machinery and equipment (US$ 110 million), transport etc, (US$ 50 million), medical, pharmaceutical (US$ 20 million), iron and steel products (US$ 10 million) and chemicals (US$ 15 million) while major exports are cotton yarn and thread (US$ 35 million), animal hair and wool (US$ 8 million), ready made garments (US$ 10 million). From the EEC countries our major imports are machinery & equipment (US$ 275 million), chemicals (US$ 80 million) and pharmaceuticals (US$ 50 million) for a total of US$ 600 million worth of imports whereas exports are only US$ 320 million mainly cotton yarn (US$ 50 million), cotton products (US$ 35 million), rugs and carpets (US$ 33 million) and cotton products (US$ 45 million) for an adverse trade gap of around US$ 280 million.
With the COMECON countries (less the USSR) our exports barely reach about US$ 34 million while imports are US$ 100 million, with machinery and equipment (US$ 65 million) and transport (US$ 12 million) forming the bulk of exports with rice (US$ 10 million), cotton yarn (US$ 11 million) making up the rest. The trade statistics hide the fact that the bulk of our edible oil (US$ 100 million) and DAP fertiliser (US$ 100 million) come on barter trade from the barter parties in the COMECON countries while we give them mostly raw cotton (almost all of which goes to Manchester), naphtha and molasses (all traditional items). With Russia, we have a favourable trade balance mostly because we have to pay for the machinery and equipment for the Pakistan Steel Mills, importing US$ 33 million worth almost all being machinery, equipment and spares while exporting cotton cloth (US$ 22 million), woollen blankets, etc (US$ 12 million) and readymade garments (US$ 17 million). With Austria and Switzerland our imports amount to US$80 million, mainly machinery (US$ 12 million), pharmaceuticals (US$ 15 million), chemicals and insecticides (US$ 18 million) while our major exports are rugs and woollen carpets worth US$ 20 million for an adverse gap of US$ 60 million.
In Asia, we have the Middle East, South Asia, South East Asia, Japan, China and East Asia. From the Middle East our major imports are oil (US$ 120 million), and chemical fertiliser (US$50 million) while exports are rice (US$ 80 million), readymade garments (US$ 60 million), silk (US$ 50 million) for a very unfavourable trade balance, to some extent assuaged by our burgeoning exports to Iran. Even to South Asia (India, Bangladesh, Burma, Sri Lanka, Nepal and Bhutan) which should be our traditional marketplace, our exports are worth US$ 80 million, major items being raw cotton (US$ 15 million), machinery & equipment (US$ 12 million) while we import raw jute (US$ 32 million) and tea (US$ 50 million). The ASEAN countries of South East Asia get some of our rice (US$ 31 million), naphtha (US$ 6 million), raw cotton (US$ 4.5 million) for a total of US$ 60 million while we import palm oil (US$ 170 million), tea (US$ 33 million) and scientific, medical equipment (US$ 20 million) for a total of US$ 280 million, giving an adverse trade gap of US$ 220 million. In East Asia, Hong Kong, South Korea, Taiwan and North Korea, our major exports are raw cotton and cotton yarn (US$ 35 million) for a total of US$ 50 million while we import US$ 80 million worth, mainly machinery and equipment (US$ 10 million), yarn and fabrics of synthetic fibre (US$ 11 million) etc.
With Japan, we have a very unfavourable trade balance of about US$ 440 million because we purchase transport vehicles, etc for US$ 200 million, machinery and equipment (US 115 million), iron and steel products (US$ 50 million), silk thread and synthetic fibre (US$ 75 million) for a total of US$ 700 million while barely exporting raw cotton (US$ 35 million) and cotton yarn (US$ 110 million) for a meagre total of US$ 260 million which still makes for a sizable export figure to one country. Our trade gap with China is also growing with US$ 110 million of imports, mainly chemicals (US$ 20 million), tea (US$ 15 million) and machinery and equipment (US$ 12 million), while we export iron and steel products US$ 12 million, urea (US$ 12 million) and raw cotton (US$ 11 million) for a total of US$ 36 million.
We export US$ 20 million worth of goods and commodities to Australia, mainly cotton yarn and fabrics (US$ 12 million) while we import coal (US$15 million), iron and steel products (US$ 8 million) and iron ore and scrap (US$ 6 million), for a total of US$ 45 million. Similarly New Zealand exports to Pakistan US$ 14 million worth of raw wool, animal hair, etc to us while import only US$ 3 million worth, mainly cotton fabrics (US$2 million).
Looking at the statistics objectively, we come to the following conclusions region-wise.
For North America, our aim should be to close the gap with USA and Canada, aiming for certain realistic objectives:-
a. Negotiate for an increase in our textile quotas, basing our contention on the fact that 40% of the economy is cotton based.
b. Promote our handmade products by extensive marketing, in the vast US and Canadian market by establishing a network of sales promotion offices and outlets.
c. Encourage US and Canada to pick-up some of our machinery and equipment for their aid to Third World countries as these would be ideal for Third World use. Conversely ask them to pickup some of our obligations of imports from Third World countries in any Countertrade deal we may envisage with the less-developed countries without the hard cash to pay for it.
d. Negotiate OFFSET deals for our large arms purchases.
e. Make a concrete effort in Latin America, particularly in Countertrade deals involving purchases of sugar from that area.
Australia, and New Zealand have similar market conditions as for North America and our effort must be so directed as for North America, specifically paras a to d aforementioned.
We have to make an extremely great effort for South America, the countries of which are mostly heavily debt-ridden. The major effort here will be to:-
a. Establish Countertrade deals with South American countries.
b. Push our traditional and non-traditional items, especially our cotton products.
c. Encourage the major economic powers and MNCs to pick up our Countertrade obligations.
In Africa, we have the greatest opportunities, specifically for our machinery and equipment, therefore we must:-
a. Like as in South America, the debt situation dictates Countertrade deals with commensurate counter-purchase of our obligations by the more affluent countries and MNCs.
b. Push for more purchases of our machinery and equipment.
c. Concentrate our effort sub-region wise and utilise our Third World and Muslim solidarity connections effectively.
South Asia represents an established marketplace for us due to its proximity, SAARC and miscellaneous other reasons:
a. Concentrate on more STAs like the TCP-TCB STA.
b. Push our non-traditional items more in this region.
c. Encourage India to take more of our finished products as India is a vast market place.
In South East Asia (ASEAN) the emphasis should be as follows:-
a. Encourage more Countertrade and STAs to balance our major imports of edible oils.
b. Be more aggressive in selling our non-traditional products.
With Japan and East Asia we have a very unfavourable trade balance and we know that basically Japan is a very “protectionist” market.
a. Encourage Japan and the other East Asians to off-take some of our products to third countries through their vast network of trading houses.
b. Make a concerted effort to make our purchases from countries with less “protectionist” tendencies.
We have a tremendous trade imbalance with the Middle East partly offset by home remittances of wage earners. However, we must explain to our Arab (and Islamic) friends with whom we enjoy ties of religion and culture why it is so important to balance the trade. Instead of aid and credits with which they are indeed generous they should purchase more of our products and commodities, perhaps even giving Pakistan some exclusive service and construction contracts. Our effort, therefore, in addition to aforementioned will be:
a. Encourage individual balancing of trade with the oil rich Middle East countries.
b. Push our agricultural products such as fruits and vegetable.
c. Export more textiles and made-ups.
With the UK, we have historical ties but the trade statistics are not properly representative because most of our raw cotton reaches Manchester through our barters with the COMECON countries. While we can utilise London as the MNCs do as an international trade crossroads, we could be more aggressive by:-
a. Encouraging OFFSET trade for our arms purchases.
b. Establish Countertrade and counter-purchase agreements especially tuned to picking up our obligations with African and South American countries.
Last but not the least, let us take our barter partners in the COMECON countries and the trade with Sweden and Finland into account. There is no justification whatsoever for the type of barter agreements that we have. Our barter partners have the machinery and equipment that we may well purchase from them instead of from Japan and S. Korea but we persist in taking palm oil and DAP fertiliser from them. These countries sell us products and commodities which do not originate from them against a steep mark-up, while barely taking out any non-traditional items from Pakistan in return which is the raison d’etre for the mark-up. At the same time instead of taking our raw cotton they purchase to their own countries, our barter partners mostly dump it in the Manchester market thereby causing CECP to compete against its own raw cotton with the resultant dampening of our prices in the world market on a day-to-day basis. We must do the following:-
a. Ensure that the sovereignty of barter trade is not desecrated by Countertrade deals ie. goods of commodities of Pakistan origin must go to our barter partner countries and vice-versa.
b. Delete palm oil and DAP fertiliser from the barter list and emphasize on the positive imports of machinery and equipment against OFFSET deals.
c. Ensure that a commercial entity like TCP monitors the enormous barter trade rather than a few susceptible bureaucrats in the Ministry of Commerce (MoC).
To sum it up, Pakistan’s approach to trade, barring a few honourable exceptions, has been most unprofessional bordering on criminal neglect, some of it on vested purpose. Trade in the present international market place must be positive or it will tend to retard the economic progress of the nation. A balanced view has to be taken on a national level and a direction must be set without any fear of upsetting any apple-carts on the way. Above all, there is one continuous refrain, Countertrade or STAs, to be entered into with a global economic point of view vis-a-vis Pakistan and its import needs. Our Principal export policy maker is the Minister for Commerce but the Economic Coordination Committee (ECC) of the Cabinet has to give proper guidelines. One can only hope that a democratically elected Government like the present one, given to change, even radical change, for the benefit of the people, will give due cognisance to the need of the hour and effect the necessary reforms.
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