TRADE In 2004-2005 exports by Pakistan were valued at US$14 billion, imports at US$19 billion, leaving a trade deficit of US$5 billion There was a high level of commodity concentration in exports, as only five products (cotton and cotton products, leather, rice, synthetic textiles, and sports goods) accounted for over 79 percent of the total There was also a concentration in markets; seven countries accounted for 482 percent of total exports in 2004-2005 The United States was the largest single importer for Pakistani products, accounting for 256 percent of total exports in 2004-2005 Pakistan followed import substitution economic and trade policies for more than four decades This inward focus meant that the tradeto-GDP ratio was much smaller than would be expected for a country of its size and the state of economic development Since the 1990s, Pakistan has opened its economy by reducing the level of tariffs, removing most tradeables from negative lists, doing away with licensing requirements for importers and exporters, reducing the extent of government procurement for agricultural commodities, and reducing the scope of non-tariff barriers Consequently, the volume of trade in recent years has increased by a multiple of the increase in GDP

The share of total trade in GDP increased by four percentage points in five years (2000-2005), from 26 percent to 30 percent In 1947, the year India and Pakistan gained independence, India was Pakistan’s main trading partner, accounting for more than one-half of the country’s total exports and imports Initially, because of a trade war between the two countries in 1949 provoked by Pakistan’s decision not to follow India in devaluing its currency with respect to the US dollar, the volume of Indo-Pakistan trade declined precipitously Although India-Pakistan trade has expanded in recent years, trade with India through official channels amounted to only 25 percent of the total For India, trade with Pakistan was even a smaller proportion of total trade There was a significant change in both the commodity composition and the destination and origin of Pakistan’s exports and imports At the time of independence, Pakistan’s exports were overwhelmingly agricultural—raw cotton, rice, and wheat accounted for more than 90 percent of exports India was the largest market

Sixty years later, manufactures—mostly textiles and leather products— accounted for three-fourths of the total exports By policy, both India and Pakistan continued to restrict inter-country trade India continued to levy specific duties on textiles from Pakistan and had numerous non-tariff barriers in place It had, nonetheless, granted most-favored-nation (MFN) status to Pakistan, a step Islamabad did not reciprocate Pakistan’s imports from India were governed by a positive list, which was expanded in 2005, with imports allowed for some agricultural commodities and farm products that were in short supply in the country Pakistan was an important trading partner for landlocked Afghanistan For several decades it granted its northern neighbor transit rights through its territory More than 90 percent of Afghanistan’s imports before 1979 came though Pakistan Karachi was the main port for Afghanistan’s trade However, some of the country’s imports were smuggled back into Pakistan The Afghan external trade was seriously disrupted after the Soviet Union’s invasion of Afghanistan in 1979 and remained more or less suspended even after the Soviet troops vacated the country

It was only after the fall of the Taliban regime in December 2001 that economic life, along with external trade, began to return to the country Since that time, Pakistan has reemerged as the most important trading partner for Afghanistan While Pakistan’s trade policy encourages trade with Afghanistan, the country continues to prohibit Indian exporters from using the Pakistani land corridor India began to develop the more expensive sea-land route using a newly built port in Iran However, Pakistan allowed the use of its territory for Afghan exports to India Yet, cumbersome procedures had to be observed even for these exports at Wagah, the border post between Pakistan and India The decision to admit Afghanistan into the South Asian Association for Regional Cooperation, taken at the Dacca (Dhaka) summit meeting in November 2005, would allow easier access to Afghanistan by India if transit rights were to be incorporated as a trade facilitation measure within the scope of the South Asian Free Trade Area Pakistan announces a new trade policy every year, timed with the announcement of the budget The most recent policy for 2005-2006, announced in June 2005, aimed to enhance export proceeds by improving the world market share of Pakistan’s core exports For this, the focus was placed on sustainable value addition through capacity building and capability enhancement of exporters It also strove to achieve product and geographic diversification, besides reducing the cost of doing business

The policy facilitated regional as well as bilateral trade agreements for enlarging market access and endeavored to build international confidence on protection of intellectual property rights

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