Revival of the Manufacturing Sector Focus on Trade Aspects December 2010 PAKISTAN BUSINESS COUNCIL

Revival of the Manufacturing SectorFocus on Trade Aspects

December 2010

PAKISTAN BUSINESS COUNCIL

Table of ContentsBackground … 3World Trade Organization … 9Tariff Rates for Selected Commodities for Pakistan & India … 11Trade and Manufacturing Data for Selected Commodities … 12Television Sets … 13Paper and Paperboard … 14Electric Motors … 15Tea … 16Ceramics … 17Footwear … 18Textiles – Synthetic Fabrics, Ready Made Garments … 19Pakistan’s Free Trade Agreements … 20Pakistan – Sri Lanka FTA … 22Pakistan – China FTA … 28Pakistan – Malaysia FTA … 34Export Potential with Major Trading Partners … 40Total EU Imports from Bangladesh, Pakistan, Sri Lanka and Viet

Nam … 41Total US Imports from Bangladesh, Pakistan, Sri Lanka and Viet

Nam … 42Under Utilization of SAARC … 43

Afghan Transit Trade Agreement … 44Salient Features of the New APTTA … 46Recommendations of Industries not considered in the APTTA … 47Pakistan Afghanistan Bilateral Trade … 48Top 10 Pakistani Exports to Afghanistan in 2009 … 49Afghanistan’s Transit Trade … 50Incentive to Smuggle … 51Top 10 Imported Commodities under the ATTA by Afghanistan … 52Limited Potential of CAR … 53Problems of Under Invoicing and Misreporting … 54Comparison of Official 2009 data From Top 10 Import Partners … 55Pakistan – China: Difference in Reported Import/Export Figures … 56Pakistan – China: Discrepancy in Import Figures for Selected

Commodities - 2009 … 57Pakistan – UAE: Difference in Reported Import/Export Figures … 58

Page 2

Background• Government & Industry urgently need to

develop a strategy to reduce the trade gap and to bring about higher levels of economic growth

• It is critical to revive the manufacturing sector as this will lead to:– Creation of jobs– Reduction in imports as domestic manufacturing

regains domestic market share– Increased competitiveness in export markets

Page 3

$18 $18 $19

$32$35 $35

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

2003 2004 2005 2006 2007 2008 2009 FY09* FY10*

Billi

ons

Pakistan's Trade GapExports Imports

BackgroundThe current Foreign Exchange situation is grave. With commodity prices rising again after dropping in 2009, the current account deficit of $15.3 B is very high and not sustainable.

$15.3 B

Page 4

Source: United Nations Commodity Trade Statistics Database* Data on the basis of GoP Fiscal Year. Fiscal year runs from Jul – Jun. Source: State Bank of Pakistan

Mineral Fuels28%

Durable Cons. Goods

(Machines & Appliances)

10%

Electrical Machinery

(Sound, Mobile Telephony, TV)

8%Iron and Steel

5%

Organic Chemicals

5%Animal or Veg

oils/fats4%Plastics

4% Auto-Vehicles & parts3%Fertilizers

3%Pharmaceuticals

2%

Others28%

2009

Mineral Fuels33%

Durable Cons. Goods

(Machines & Appliances)

9%


(Sound, Mobile Telephony, TV)

9%

Animal or Veg oils/fats

5%Organic

Chemicals4% Cereals

4%Iron and Steel

4% Plastics3%Cotton

3%Auto-Vehicles3%

Others23%

2008

BackgroundReducing our import bill looks difficult due to the highly inelastic composition of our imports

Source: United Nations Commodity Trade Statistics Database

Page 5

In 2009, top 10 items accounted for 72% of our imports. In 2008, they accounted for 77% of our imports.

$8 $9 $10 $11 $11 $11 $10

$4$4

$6 $6 $7$10

$8

$0

$5

$10

$15

$20

$25

2003 2004 2005 2006 2007 2008 2009

Billi

ons

Pakistan's Exports

Textiles & Textile Articles Other Exports

BackgroundMajority of Pakistan’s exports are still based around a single crop (Cotton)/manufacturing sector (Textiles). Export diversification, though necessary, looks difficult in the near term

Page 6


0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

0.35%

0.40%

0.45%

0.50%

0.55%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Percentage Share in World ExportsBangladesh Pakistan Sri Lanka Viet Nam

Background

Page 7

As a result, Pakistan’s export performance in the world has declined with competitors starting to either catch up or outstrip Pakistan


-40

-30

-20

-10

0

10

20

30

2005 2006 2007 2008 2009 2010

Ann

ualiz

ed p

erce

nt ch

ange

Global Industrial Production

World Advanced economies Emerging economies

Emerging Asia Pakistan

Background

Source: IMF, FBS, Pakistan Economic Survey 2009-10

Page 8

The discussion has to be framed within the context of global manufacturing trends

The World Trade Organization

Page 9

Revival of the Manufacturing Sector: WTO a Hindrance?

• Proponents of WTO stress that structural imbalances, trade malpractices and misuse of the ATTA are the real culprits.

• In addition, there seems to be an inability to fully exploit the opportunities created through WTO & existing FTAs

• Pending conclusive evidence we can only make educated guesses on the real causes behind the lackluster performance of our manufacturing sector

Page 10

Tariff Rates for Selected Commodities for Pakistan & India

Bound tariff: Represents a commitment not to increase tariffs above the listed rates for all countriesApplied tariff: Duties that are actually charged on imports. These can be below the bound ratesEven though Pakistan’s applied rates are quite low, the high bound rates are viewed negatively as they represent a risk to investors. The possibility of GoP suddenly raising duties to the higher bound rate means that investors have to account for it in their projections.

Page 11

Applied Rate Bound Rate Applied Rate Bound Rate040210 Milk in powder form 25 100 60 60320413 Basic dyes & preparations based thereon 0 50 7.5 40283421 Nitrates of potassium 5 60 7.5 40843920 Machinery for making paper/paperboard 5 50 7.5 25

840681-2 Steam turbines & other vapour turbines 5 50 7.5 25844511-2 Carding machines/Combing machine 5 55 7.5 25

Paksitan Tariff Indian TariffHS07 Code Short Description

Source: World Trade Organization Bound and Applied Tariff rates for India and Pakistan

Trade and Manufacturing Data for Selected Commodities

Page 12

$0

$10

$20

$30

$40

$50

$60

2003

23.1%

2004

23.0%

2005

23.0%

2006

22.9%

2007

23.1%

2008

32.7%

2009

32.2%

Mill

ions

Year

Applied Tariff*

Imports ($ value)

*trade-weighted average of HS 02 subheadings of 8528

0

200

400

600

800

1,000

2003

23.1%

2004

23.0%

2005

23.0%

2006

22.9%

2007

23.1%

2008

32.7%

2009

32.2%

Nos

. in

Thou

sand

s

Year

Applied Tariff*

Domestic Manufacture and Import QuantitiesDomestic Manufactures Imports

*trade-weighted average of HS 02 subheadings of 8528

Television Sets

Source: Trade Data: United Nations Commodity Trade Statistics Database (HS 02 code: 8528)Manufacturing Data: Pakistan Statistical Year Book, Federal Bureau of StatisticsTariff Data: World Trade Organization

Televisions were removed from the ATTA† negative list in 2005. Domestic manufactures and legal imports started declining at the same time. See page 52 for Afghan Imports under ATTA

Page 13

Trade Partner Amount QuantityWorld $6,531,724 48,303

Malaysia $4,397,633 18,226China $884,128 12,525USA $268,476 4,807UAE $203,518 2,964

Korea Rep $106,783 832

Television Imports by Pakistan in 2009

** 2009 manufacturing data not available

† Afghan Transit Trade Agreement

0

200

400

600

800

2003

18.2%

2004

18.0%

2005

17.5%

2006

17.2%

2007

15.2%

2008

15.1%

2009

16.2%

Thou

sand

Ton

nes

Year

Applied Tariff*

Domestic Manufacture and Import Quantities

Domestic Manufacture Imports

*trade-weighted average of HS 02 subheadings of 4801-4814

$0$50

$100$150$200$250$300$350$400

2003

18.2%

2004

18.0%

2005

17.5%

2006

17.2%

2007

15.2%

2008

15.1%

2009

16.2%

Mill

ions

Year

Applied Tariff*

Imports and Exports ($ value)Exports Imports

*trade-weighted average of HS 02 subheadings of 4801-4814

Paper and Paperboard

Source: Trade Data: United Nations Commodity Trade Statistics Database (Product HS 02 code: 4801-4814)Manufacturing Data: Pakistan Statistical Year Book, Federal Bureau of StatisticsTariff Data: Pakistan Country Profile, World Trade Organization

Page 14

Market share of domestic manufacturers has been steadily eroding

Trading Partner AmountWeight

(tonnes)World $292,291,791 367,526Indonesia $50,913,854 65,232China $39,308,386 42,378Russia $26,605,380 45,646Sweden $25,929,648 35,179Korea $16,262,997 20,028

Paper and Paperboard Imports in 2009


0

50

100

150

200

250

300

2003

18.2%

2004

15.1%

2005

11.9%

2006

11.7%

2007

10.7%

2008

10.8%

2009

9.5%

Thou

sand

s

Year

Applied Tariff*

Domestic Manufactures and Import QuantitiesDomestic ManufacturesImports

*trade-weighted average of HS 02 subheadings of 850140, 850151-850153

$0$5

$10$15$20$25$30$35$40

2003

18.2%

2004

15.1%

2005

11.9%

2006

11.7%

2007

10.7%

2008

10.8%

2009

9.5%

Mill

ions

Year

Applied Tariff*

IMPORTS ($ value)


Electric Motors

Source: Trade Data: United Nations Commodity Trade Statistics Database (Product HS 02 code: 850140, 850151-850153)Manufacturing Data: Pakistan Statistical Year Book, Federal Bureau of StatisticsTariff Data: Pakistan Country Profile, World Trade Organization

Page 15

The decline in domestic manufacture has coincided with the lowering of applied tariff. Starting 2004, import quantities started outstripping domestic manufacturing

Trading Partner

Amount Quantity

World $25,111,576 107,390 China $10,489,882 60,650 Germany $2,379,949 2,608 Italy $1,991,089 3,826 Czech Rep. $1,301,193 978 USA $1,197,920 3,393

Electric Motors Imports in 2009


$0

$50

$100

$150

$200

$250

2003

25.0%

2004

10.0%

2005

10.0%

2006

10.0%

2007

10.0%

2008

10.0%

2009

10.0%

Mill

ions

Year

Applied Tariff*

Imports ($ value)

0

40

80

120

160

2003

25.0%

2004

10.0%

2005

10.0%

2006

10.0%

2007

10.0%

2008

10.0%

2009

10.0%

Thou

sand

Ton

nes

Year

Applied Tariff*

Domestic Blended and Import QuantitiesDomestic Blended Imports

Tea

Source: Trade Data: United Nations Commodity Trade Statistics Database (Product HS 02 code: 090230, 090240)Manufacturing Data: Pakistan Statistical Year Book, Federal Bureau of StatisticsTariff Data: Pakistan Country Profile, World Trade Organization

Page 16

Domestic Blended quantities are steady. Legal import quantities have declined even though Pakistan’s population has been growing. Compare with Afghan Imports under ATTA on pg 52

Trade Partner Amount Weight (tonnes)

World $222,076,481 88,747Kenya $141,180,758 51,685Rwanda $15,289,242 5,765Malawi $8,877,810 4,606India $8,252,613 3,643Indonesia $7,529,837 4,062

Tea Imports by Country in 2009

** 2009 domestic blend data not available

$0

$20

$40

$60

$80

$100

2003

25.0%

2004

25.0%

2005

25.0%

2006

25.0%

2007

25.0%

2008

34.7%

2009

32.8%

Mill

ions

Year

Applied Tariff*

Imports ($ value)


Ceramics

**Manufacturing data was not available for Ceramics

Source: Trade Data: United Nations Commodity Trade Statistics Database (Product HS 02 code: 6901, 6904-6911)Tariff Data: Pakistan Country Profile, World Trade Organization

Page 17

The increase in import quantities of ceramics corresponds with the building boom in Pakistan

0

50

100

150

200

250

300

2003

25.0%

2004

25.0%

2005

25.0%

2006

25.0%

2007

25.0%

2008

34.7%

2009

32.8%

Thou

sand

Ton

nes

Year

Applied Tariff*

Import Quantities


Trading Partner AmountWorld $57,668,499China $38,325,845UAE $5,726,314Spain $4,133,136Indonesia $2,008,996Malaysia $1,917,307

Ceramics Imports by Pakistan in 2009

$0

$50

$100

$150

$200

2003

25.0%

2004

25.0%

2005

25.0%

2006

25.0%

2007

25.0%

2008

25.0%

2009

25.0%

Mill

ions

Year

Applied Tariff

Imports and Exports ($ value)Export Import

0

5

10

15

20

25

2003

25.0%

2004

25.0%

2005

25.0%

2006

25.0%

2007

25.0%

2008

25.0%

2009

25.0%

Mill

ions

of P

airs

Year

Applied Tariff

Import & Export QuantitiesImports Export

Footwear

Source: Trade Data: United Nations Commodity Trade Statistics Database (Product HS 02 code: 6401-6405)Tariff Data: Pakistan Country Profile, World Trade Organization

**Manufacturing data was not available for Footwear

Page 18

Export quantity is back at the 2003 level whereas imports have steadily been increasing

Trade Partner

AmountQuantity

(No. of Pairs)World $39,177,571 11,191,751 China $33,632,567 9,638,661 Thailand $3,455,745 1,024,639 Viet Nam $659,148 163,270 Indonesia $257,511 64,930 Italy $228,404 58,467

Footwear Imports by Country in 2009

$0

$200

$400

$600

$800

200325%

200425%

200514%

200615%

200715%

200815%

200915%

Mill

ions

YearApplied Tariff*

Synthetic Fabrics - Imports & Exports ($ value)

Total Imports - rep Pak Exported to Pak - rep China ATTA Imports Total Exports - rep Pak*trade-weighted average of HS 02 subheadings of 5407, 5408, 5508-5512

$0

$1,000

$2,000

$3,000

$4,000

200325%

200425%

200525%

200625%

200725%

200825%

200925%

Mill

ions

YearApplied Tariff

Articles of Apparel & Clothing AccessoriesImports & Exports ($ value)

Total Imports - rep Pak Exported to Pak - rep China Total Exports - rep Pak

Textiles – Synthetic Fabrics, Ready Made Garments

Page 19

Cause for concern is that imports under ATTA as well as exports of synthetic fabrics to Pakistan (reported by China) are greater than the total legal imports reported by PakistanSource: Trade Data: United Nations Commodity Trade Statistics Database (Product HS 02 code: 5407, 5408, 5512-5516)Tariff Data: Pakistan Country Profile, World Trade Organization

Source: Trade Data: United Nations Commodity Trade Statistics Database (Product HS 02 code: 61 ,62)Tariff Data: Pakistan Country Profile, World Trade Organization

As in the case of synthetic fabrics, total imports reported by Pakistan are less than the exports to Pakistan reported by China

Pakistan’s Free Trade Agreements

Page 20

Free Trade Agreements (FTA)

Page 21

• An FTA is an agreement between two or more countries to eliminate tariffs, quotas and preferences on most (if not all) goods and services traded between them. An FTA generally starts off with a reduction in tariffs before eventually leading to elimination of tariffs in 5-10 years.

• With WTO talks stalled, more and more countries are resorting to signing FTAs with their preferred trading partners. This could create problems of market access. For example, the EU is planning on signing an FTA with India but an EU FTA with Pakistan is not on the horizon. This will have an effect on Pakistan’s textile exports.

• Pakistan has signed 3 major FTAs (with about 10 more in the works)

Pakistan – Sri Lanka FTA

Page 22

• Pakistan’s first FTA. Operational from June 2005• Total trade in 2009 was $273 Million• Pakistan got market access at zero duty for 102

products including agricultural goods, rice (with quantity restrictions) and engineering goods

• Sri Lanka was given duty free market access on 206 products including tea (with quantity restrictions), rubber and coconut

Pakistan Sri Lanka FTA

Page 23

GDP1: $40.7 B $42.0 B $165 B$167 B

GDP Growth1: 6.0% 3.5% 2.0%3.7%

Population1: 20.2 M 20.3 M 166 M170 M

Per Capita Income1: $2,020 $2,068 $ 994$ 981

Exports2: $8.1 B $7.1 B $20.2 B$17.6 B

Imports2: $13.6 B $9.4 B $42.3 B$31.6 B

Trade Surplus/Deficit: -$5.5 B -$2.3 B -$22.1 B-$14.0 B

Foreign Currency Reserves1: $2.6 B $4.8 B $9.0 B$13.6 B

FDI, net inflow1: $752 M $404 M $5.44 B$2.39 B

Comparison of Key Economic IndicatorsSRI LANKA PAKISTAN

1. World Bank – World Development Indicators (http://data.worldbank.org/indicator) 2. UNCTSD

Page 24

2008 2009 2008 2009

http://data.worldbank.org/indicator

1.24%

0.18%

0.00%

0.40%

0.80%

1.20%

1.60%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Perc

enta

ge

Sri Lanka's share in Pakistan's World Trade

% Share in Total Exports of Pakistan % Share in Total Imports of Pakistan

$217

$56

$0

$50

$100

$150

$200

$250

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Mill

ions

Pakistan - Sril Lanka Trade

Exports to Sri Lanka Imports from Sri Lanka

Trends in Pakistan - Sri Lanka Trade

$161 M


--- FTA operational

Page 25

$12

$4

$6

$8

$15

$20

$8

$7

$9

$13

$21

$8 $7

$3

$13

$27

$6

$8

$5

$10

$20

$8 $7 $7 $6

$0

$5

$10

$15

$20

$25

$30

Rubber & articles of Rubber

Fruit & Nuts Veg. plaiting materials

Coffee, tea & spices Oil seeds and oleaginous fruits

Mill

ions

Top 5 Imports from Sri Lanka

2005 2006 2007 2008 2009

Comparison of Pre and Post FTA Import figures


Page 26

Import growth: Primarily in rubber with smaller growth registered in fruits/nuts. Due to quantity restrictions on tea imported at a lower tariff, tea imports have not grown

$84

$7 $3 $0 $3

$110

$5 $4 $0

$5

$104

$13

$16

$2

$10

$99

$15

$13

$4

$12

$87

$27

$16

$15

$13

$0

$20

$40

$60

$80

$100

$120

Cotton Cereals Veg,roots & tubers Earths & stone; plastering materials

Knitted or crocheted fabrics

Mill

ions

Top 5 Exports to Sri Lanka

2005 2006 2007 2008 2009

Comparison of Pre and Post FTA Export figures


Page 27

Export growth: Main export is cotton and its derivatives (yarn & fabrics). Mild export growth has occurred in cereals, vegetables and knitted fabrics (growth in the three commodities is ~ $43 million compared to 2005)

Pakistan – China FTA

Page 28

• Early Harvest Program (EHP) operational from Jan 2006. FTA operational from Nov 2006

• Total trade in 2009 was $4.78 Billion• Pakistan got market access at zero duty for: Cotton fabrics,

bed-linen and other home textiles, marble and other tiles, leather articles, sports goods, iron & steel products and engineering goods, industrial alcohol

• China was given market access mostly on commodities required for industrial growth: Industrial machinery, organic and inorganic chemicals, raw material for various industries including engineering sector, intermediary goods for engineering sector

Pakistan China FTA

Page 29

GDP1: $4,533 B $4,984 B $165 B $167 B

GDP Growth1: 9.6 % 9.1 % 2.0 %3.7 %

Population1: 1,325 M 1,331 M 166 M 170 M

Per Capita Income1: $3,422 $3,744 $994$991

Exports2: $1,430 B $1,202 B $20.2 B $17.6 B

Imports2: $1,131 B $1,006 B $42.3 B $31.6 B

Trade Surplus/Deficit: $299 B $196 B -$22.1 B -$14.0 B

Foreign Currency Reserves1: $1,966 B $2,453 B $9.0 B $13.6 B

FDI, net inflow1: $147.8 B $78.2 B $5.44 B $2.39 B

Comparison of Key Economic IndicatorsCHINA PAKISTAN

Page 30

2008 2009 2008 2009



5.68%

11.97%

0%

5%

10%

15%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Perc

enta

ge

China's share in Pakistan's World Trade


$1.00

$3.78

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Billi

ons

Pakistan - China Trade

Exports to China Imports from China

Trends in Pakistan - China Trade


$2.78 B

--- EHP operational

Page 31

$429 $5

40

$119

$93

$44

$568 $6

91

$127

$137

$77

$1,0

67

$696

$160

$176

$96

$1,3

82

$861

$222

$163

$167

$981

$608

$276

$190

$150

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600


Machinery & parts Organic chemicals Synthetic yarn and fabrics

Articles of iron or steel

Mill

ions

Top 5 Imports from China

2005 2006 2007 2008 2009



Page 32

Import growth: Imports have grown across the board. Cause for concern from a domestic manufacturing view is the increased import of the highlighted items

$272

$26

$28

$29

$3

$358

$28

$25

$31

$8

$377

$88

$30

$38

$7

$382

$159

$40

$43

$11

$701

$75

$47

$34

$21

$0

$100

$200

$300

$400

$500

$600

$700

$800

Cotton Ores, slag & ash Fish & other seafood Raw hides, skins & leather

Copper & articles of copper

Mill

ions

Top 5 Exports to China

2005 2006 2007 2008 2009



Page 33

Export growth: Growth has primarily been in Cotton and its derivatives (yarn and fabrics) and raw materials. No growth in value added products

Pakistan – Malaysia FTA

Page 34

• Early Harvest Program (EHP) operational from Jan 2006. FTA operational from Aug 2007

• Total trade in 2009 was $1.83 Billion• Pakistan has duty free market access for: cotton yarn &

fabrics, fruits and jewellery. However, textile made-ups are excluded.

• Malaysia was given preferential market access on palm oil, industrial machinery, organic and inorganic chemicals, raw material for various industries including engineering sector and intermediary goods for engineering sector

• Has received criticism for being a ‘Palm Oil’ FTA

Pakistan Malaysia FTA

Page 35

GDP1: $221 B $192 B $165 B$167 B

GDP Growth1: 4.6 % -1.7 % 2.0 %3.7 %

Population1: 27.0 M 27.5 M 166 M170 M

Per Capita Income1: $8,187 $6,975 $994$981

Exports2: $199 B $157 B $20.2 B$17.6 B

Imports2: $156 B $124 B $42.3 B$31.6 B

Trade Surplus/Deficit: $43 B $33 B -$22.1 B -$14.0 B

Foreign Currency Reserves1: $92 B $97 B $9.0 B$13.6 B

FDI, net inflow1: $7.4 B $1.6 B $5.44 B$2.39 B

Comparison of Key Economic IndicatorsMALAYSIA PAKISTAN

Page 36

2008 2009 2008 2009



0.90%

5.09%

0%

2%

4%

6%

8%

10%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Perc

enta

ge

Malaysia's share in Pakistan's World Trade


$158

$1,608

$0

$500

$1,000

$1,500

$2,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Mill

ions

Pakistan - Malaysia Trade

Exports To Imports From

Trends in Pakistan – Malaysia Trade

$1.45 B


--- EHP operational

Page 37

$436

$5 $38

$36

$43

$411

$0 $29

$53

$58

$725

$3 $39

$73

$69

$1,2

46

$0 $54

$66

$85

$1,1

15

$113

$40

$43

$49

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

Palm oil, other animal/veg. oil

Petroleum Oil Organic chemicals Plastics & articles of plastics

Machinery & parts

Mill

ions

Top 5 Imports from Malaysia

2005 2006 2007 2008 2009



Page 38

Import growth: Main import growth has been in Palm Oil. Little to no increase in imports of other commodities

$13 $1

6

$11

$6

$0

$10 $1

6

$11

$8

$0

$18

$16

$11

$9

$0

$39

$21

$14

$14

$5

$63

$18

$11

$11

$10

$0

$10

$20

$30

$40

$50

$60

$70

Cereals Cotton Fish & other seafood

Towels, Bed Linen & Other Textile

Articles

Milled Corn

Mill

ions

Top 5 Exports to Malaysia2005 2006 2007 2008 2009



Page 39

Export growth: Substantial growth has only been in the export of cereals (rice) with mild growth in value-added textile products. Although Malaysia is a bigger market, total exports in 2009 of $158 M are less than the exports to Sri Lanka

Export Potential with Major Trading Partners

Page 40

Total EU Imports from Bangladesh, Pakistan, Sri Lanka and Viet Nam

Page 41

$3

$8

$2

$5

$2

$3

$4

$11

$0

$2

$4

$6

$8

$10

$12

$14

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Billi

ons

Bangladesh Pakistan

Sri Lanka Viet Nam

In 2002, of the total Pakistani exports to EU of $2 million, cotton and textiles made up 54% while in 2009 they made up 62%. The 2009 corresponding percentage for Bangladesh, Sri Lanka and Viet Nam is 92%, 59% and 17% respectively.


Total US Imports from Bangladesh, Pakistan, Sri Lanka and Viet Nam

Page 42

$3$4

$2$3

$2 $2$1

$13

$0

$2

$4

$6

$8

$10

$12

$14

$16

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Billi

ons

Bangladesh Pakistan Sri Lanka Viet Nam


As in the case of EU, cotton and textiles make up majority of Pakistan’s exports to the EU. In 2002, of the $2 million Pakistani exports to the US, cotton & textiles contributed 79% which rose to 82.4% of exports to the US by 2009.

17.4%

24.7%

2.6% 3.3%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

INTER-ASEAN TRADE SHARE IN ASEAN WORLD TRADE

INTER-SAARC TRADE SHARE IN SAARC WORLD TRADE

SAARC is heavily under-utilized

Page 43


In 2009 total world trade by SAARC countries was nearly $550 billion

Afghan Transit Trade Agreement (ATTA)

Page 44

Afghan Transit Trade Agreement (ATTA) - Background• Original treaty signed in 1965 between Pakistan and

Afghanistan. A new treaty, the Afghanistan-Pakistan Transit Trade Agreement (APTTA) signed in 2010

• Widespread misuse of ATTA is reportedo TV sets included in the 1996 negative list.

o TV sets removed from the negative list in 2005.

Page 45

Domestic Production: From 72,000 to 288,000

Domestic Production: From 795,000 to 534,000Legal Imports: From 935,000 to 609,000

Salient Features of the New APTTA

• Provides transit routes to Pakistan to the Central Asian Republics (CARs)

• Afghan exports to India via Wagah allowed. Indian exports to Afghanistan via Wagah not allowed

• Afghan Cargo allowed from 3 seaports: Port Qasim, Karachi Port, Gwadar Port

• No negative list or provision of negative list included• Measures adopted to reduce unauthorized trade:

– Installation of tracking device on transport unit– Custom to Custom information sharing– Provision of financial guarantees equivalent to Pakistan import

duties

Page 46

Recommendations of Industries not considered in the APTTA– Imposing quotas on transit items after calculating the

consumption of these goods in Afghanistan (Refused by Afghanistan)

– Collecting customs duties at the seaports on transit items at Pakistan’s Tariff rates, to be refunded once the cargo reaches (Refused by Afghanistan)

– Setting an identical tariff structure for Afghanistan and Pakistan to reduce smuggling margins (Cabinet Decision to rationalize tariff regime but no long term road map)

– Documenting Afghan Imports/Exports – Letters of Credit and registration with Afghan tax authorities for Afghan importers (Provision of financial guarantees equivalent to Pakistan import duties incorporated in APTTA)

Page 47

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Mill

ions

Pakistan - Afghanistan Bilateral Trade

Exports Imports

Pakistan Afghanistan Bilateral Trade

Bilateral trade between Pakistan and Afghanistan has been increasing since 2000. In 2009, exports to Afghanistan totaled $1.3 billion while imports were $122 million


Page 48

in million $

Country Trade ShareUSA 1,636$ 19.6%Pakistan 1,495$ 17.9%UAE 1,132$ 13.5%Nigeria 950$ 11.4%India 592$ 7.1%

Afghanistan World Trade, 2009

$394

$149

$149

$94

$85

$69

$59

$44

$41

$39

$0

$100

$200

$300

$400

$500

Mill

ions

Top 10 Pakistani Exports to Afghanistan in 2009


Total Exports: $1.34 B

Page 49

The top 4 items (Petroleum products, stone & cement, cereals, edible oil), which do not include any value added products, make up almost 60% of our exports

$1,957

$0

$500

$1,000

$1,500

$2,000

$2,500

2001 2002 2003 2004 2005 2006 2007 2008 2009

Mill

ions

Afghanistan's Transit Trade through Pakistan

Imports

Afghanistan’s Transit Trade• To access seaports, two possible options exist for Afghanistan:

Chabahar/Bandar Abbas port in Iran and Port Qasim, Karachi Port & Gwadar Port in Pakistan

• Afghanistan’s transit trade through Pakistan has been increasing, reaching $1.9 billion imports in 2009 (representing an increase of over 900% from 2001 levels)

Slide 50

Source: Pakistan Customs

Incentive to Smuggle

Page 51

Item Afghanistan Tariff Pakistan Tariff

Tobacco* 16% CD 25% CD + 16% ST + 4% WHT + ED

Auto Parts* 5% CD 35% CD + 16% ST

Tea 2.5% CD 10% CD + 16% ST + 1% ED

By staying out of the formal sector, smugglers are able to avoid Customs Duty as well as other taxes. Avoidance of Sales Tax and Excise Duty is a major source of advantage to smugglers.

*On the negative list prior to signing of the new APTTA

$0

$31

$0 $11

$1 $0

$23

$0

$33

$4

$21 $3

4

$2

$22

$8 $10

$61

$0

$25

$11

$321

$298

$127

$115

$103

$96

$94

$44

$43

$41

$0

$50

$100

$150

$200

$250

$300

$350

Mill

ions 2001 2005 2009

Top 10 Imported Commodities under the ATTA by Afghanistan

Keeping in mind the limited resources of Afghanistan, the large amounts of imports of the highlighted items suggests misuse of ATTA

Slide 52

Source: Pakistan Customs

Furthermore:• The CAR markets have already been penetrated by Chinese, Iranian and

Turkish goods. • It will be many years before Afghanistan has stabilized to the point that

transit is possible to CAR without significant risks

Limited Potential of CARThough major concessions were given in the new APTTA in exchange for transit access to CAR for Pakistani goods, the realistic potential of the markets in that region needs assessed

Slide 53

Source: World Bank – World Development Indicators (http://data.worldbank.org/indicator)

Country GDP (billion $) Per Capita Income Population (millions)

Tajikistan $4.98 $716 7.0

Kazakhstan $109.16 $6,870 15.9

Kyrgyzstan $4.58 $860 5.3

Uzbekistan $32.82 $1,182 27.8

Turkmenistan $19.94 $3,904 5.1

Pakistan $166.54 $981 170.0

Total Population: 61.1 million


Problems of Under Invoicing and Misreporting

Variance in data as reported by the Governments’ of Pakistan and its trading

partners for imports and exports of Pakistan

Page 54

$3.8

$3.5

$3.3

$1.8

$1.8

$1.6

$1.3

$1.3

$1.1

$1.0

$0.8

$5.5

Not

Rep

orte

d by

Sau

dia

Ara

bia

$1.1

Not

Rep

orte

d by

Kuw

ait

$1.6

$1.6

Not

Rep

orte

d by

Japa

n

$1.0 $1

.5

Not

Rep

orte

d by

Iran

$0.7

$0

$1

$2

$3

$4

$5

$6

China Saudi Arabia

UAE Kuwait USA Malaysia Japan Germany India Iran UK

Billi

ons

Imported from Trading Partner - rep Pak Exported to Pakistan - rep Trading Partner

Comparison of Official 2009 data From Top 10 Import Partners

Note: The figure reported by the importing country should be slightly higher because of the difference between CIF and FOB valuation


Page 55

The high variance in reported figures occurs mainly for China & UAE. For China, the imports reported by Pakistan are much less than the exports reported by China. For UAE the phenomenon is opposite. Imports reported by Pakistan are much higher than the exports reported by UAE

$0.56 $0.57 $0.59

$0.83$1.01

$1.10$1.01

$1.26

$0.24 $0.26 $0.30$0.44 $0.51

$0.61$0.73

$1.00

$0.0

$0.5

$1.0

$1.5

2002 2003 2004 2005 2006 2007 2008 2009

Billi

ons

Pakistani Exports to China

Imports from PAK - rep by China Exports to CHN - rep by Pak

$1.24$1.85

$2.47

$3.43$4.24

$5.79 $5.98$5.52

$0.70 $0.96$1.49

$2.35$2.91

$4.16$4.74

$3.78

$0.0

$2.0

$4.0

$6.0

$8.0

2002 2003 2004 2005 2006 2007 2008 2009

Billi

ons

Pakistani Imports from China

Exports to Pak - rep by CHN Imports from China - rep by PAK

Pakistan – China: Difference in Reported Import/Export Figures


Page 56

$1.74 B

$0.26 B


$190

$608

$11

$8 $31 $7

6

$87

$34

$52

$77

$581

$882

$169

$104

$121

$154

$148

$95

$101

$127

$0 $100 $200 $300 $400 $500 $600 $700 $800 $900

$1,000

Mill

ions

Pakistan Imports from China in 2009

Rep by Pak Rep by CHN

Pakistan – China: Discrepancy in Import Figures for Selected Commodities - 2009


Page 57

The large amounts of under declared imports of textiles, footwear and auto-parts has hurt the domestic industry

$1.46$1.79

$2.48

$3.41$2.77

$3.78

$3.35

$0.53 $0.74 $0.92 $1.12 $0.82 $0.82$1.06

$0.0

$1.0

$2.0

$3.0

$4.0

2003 2004 2005 2006 2007 2008 2009

Billi

ons

Pakistani Imports from UAE

Imports from UAE - rep by Pak Exports to Pak - rep by UAE

$1.12 $1.06$1.26 $1.24

$2.11$2.01

$1.54

$0.42 $0.45 $0.52 $0.52

$0.78

$1.41 $1.57

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

2003 2004 2005 2006 2007 2008 2009

Billi

ons

Pakistani Exports to UAE

Exports to UAE - rep by Pak Imports from Pak - rep by UAE

Pakistan – UAE: Difference in Reported Import/Export Figures

Page 58

$2.29 B



Documents

Revival of the Manufacturing Sector Focus on Trade Aspects December 2010 PAKISTAN BUSINESS COUNCIL