72734 v1 World Trade Indicators 2009/10 Pakistan Trade Brief Trade Policy exports of wheat.2 Most of these measures have since been removed. In an attempt to increase the quality of Pakistan began liberalizing its trade regime as part of domestic electrical products, the government the Comprehensive Economic Revival Program instituted a 35 percent tariff to discourage the use of launched in 1999 and its tariff rates have fallen copper and aluminum waste, often used to make sub- dramatically since then. However, with an MFN Tariff standard products.3 In July 2008 the government Trade Restrictiveness Index (TTRI)1 for overall trade removed tariffs on gas imports for some industrial of 12.2 percent, Pakistan’s trade regime remains units.4 In June 2009, the government placed a tariff on slightly more restrictive than the average South Asian vegetable imports from India.5 In July 2009 the nation, (which has a TTRI of 11.3 percent), and government announced a new three-year Strategic considerably more restrictive than the average lower- Trade Policy Framework that aims to increase middle-income country (which has a TTRI of 8.6 economic growth through exports. The plan percent). It ranks as the 103rd least restrictive regime of highlighted government proposals to diversify exports a sample of 125 countries. Pakistan, which is and enhance competitiveness in existing products.6 dependent on food imports, has established much lower import barriers for agricultural than non- agricultural goods, which have TTRIs of 7.9 and 12.5 External Environment percent, respectively. The simple average of the MFN applied tariff rate has decreased significantly in the Regarding its access to international markets, past several years to 13.5 percent, less than one-third Pakistan’s Market Access TTRI7 (including of its value a decade ago. It is now very close to the preferences) for 2007 stands at 7.3 percent for all average for both the South Asia region and lower- goods, with no significant difference found between middle-income countries, which are 13.5 and 11.4, agricultural and non-agricultural goods. This is very respectively. Pakistan’s maximum tariff on all goods similar to the average faced by the South Asia region, (excluding alcohol and tobacco) was 90 percent in which was 7.6, but considerably higher than the 2008. The trade policy space, as measured by the average faced by lower-middle-income countries, wedge between bound and applied tariffs (the which was 2.4. The simple average of the rest of the overhang), was 46.4 percent. The country has world tariff faced by Pakistani exports is 9.9 percent. liberalized its banking and telecommunication sectors. When taking into account the level of exports it is 7.5 However, the low overall GATS commitment index percent, with only a slight difference between score suggests ample room for greater future agricultural and non-agricultural goods. Over the multilateral commitments to services liberalization. course of 2008, the real effective exchange rate of the Pakistani rupee depreciated by 2.6 percent, making In response to rising food prices, in April 2008 the exports relatively more competitive. Pakistani government applied price floors to exports of rice, and decreased import tariffs and banned Pakistan is party to the South Asian Free Trade Agreement (SAFTA). A comprehensive free trade agreement (FTA) with Malaysia that includes goods, services, and investment came into effect in 2008. The Unless otherwise indicated, all data are as of August 2009 goods FTA with China, signed in 2006, was extended and are drawn from the World Trade Indicators 2009/10 to cover services in 2008, but its official signing was Database. The database, Country Trade Briefs and delayed in July when the Pakistani government Trade-at-a-Glance Tables, are available at decided to further review the agreement before http://www.worldbank.org/wti. implementation.8 Fulfilling commitments under a FTA with Sri Lanka, which came into effect in 2005, If using information from this brief, please provide the Pakistan eliminated tariffs on a wider range of following source citation: World Bank. 2010. ―Pakistan products of Sri Lankan origin in March 2009. Pakistan Trade Brief.‖ World Trade Indicators 2009/10: Country Trade is negotiating a FTA with the Gulf Cooperation Briefs. Washington, DC: World Bank. Available at http://www.worldbank.org/wti. World Trade Indicators 2009/10 Pakistan Trade Brief Council, which includes the United Arab Emirates, month.14 National statistics (reported by fiscal year one of its largest trading partners.9 ending in June) for 2008–09 show a 5.8 percent drop in goods exports compared to the 2007–08.15 These data show that some of the most important exports, Behind the Border Constraints namely readymade garments, cotton yarn, and bed linen faced significant decreases over the previous In terms of the conduciveness of its institutional fiscal year (21.7 percent, 15 percent, and 10.2 percent environment to business, Pakistan was ranked 85th of respectively). Textiles as a whole fell by 9.5 percent.16 183 in the Ease of Doing Business index for 2009, being the best performer in South Asia. The Logistics Total imports grew by an estimated 19.3 percent in Performance Index, a measure of the ease of trade nominal terms in calendar year 2008, largely driven by facilitation, rates Pakistan at 2.62 on a scale from 1 to the increases in food and fuel prices, which is reflected 5 with 5 being the highest performance. This is in the increase in imports of goods of an estimated compared with 2.3 for the South Asia region and 2.47 21.4 percent, while services increased by an estimated for countries in the lower-middle-income group. It 5.3 percent. In 2009, imports are expected to fall by ranked 68th in the world and 2nd in the South Asia 23.5 percent, which is mostly driven by a fall in goods region (with India leading the regional group). The imports. High fuel prices in the first half of 2008 area in which it performed the best was the timeliness brought rising inflation but prices have since of shipments in reaching their destination and it needs decreased, easing the burden for importers.17 National most improvement in the quality of transport and IT statistics registered a 13 percent drop in FY2009–10 infrastructure. As the global economy faltered in late imports compared to the previous fiscal year. Foreign 2008, the Central Bank began providing assistance to direct investment as a share of GDP dropped from 3.7 banks that were supplying financing to exporting percent of GDP in 2007 to 3.2 percent in 2008, while firms.10 total remittances stayed steady at 4.2 percent of GDP. Trade Outcomes Notes Pakistan’s growth rate of total trade in goods and 1. TTRI calculates the equivalent uniform tariff that services grew at 14.2 percent in 2006 (calendar year), would keep domestic welfare constant. It is weighted by but since then has fallen in real (constant 2000 dollars) import shares and import demand elasticity. terms for two straight years, declining by 5.5 percent 2. FAO, 2009. in 2008. Real exports fell by 8.9 percent in 2008, while 3. ESCAP, June 2008, p. 4. imports fell by 2.1 percent. Expectations are that 4. ESCAP, August 2008, p. 3. exports and imports will fall in 2009 by 5.8 and 10 5. WTO, 2009, p. 72. percent, respectively. 6. Government of Pakistan, 2009. 7. MA-TTRI calculates the equivalent uniform tariff of In nominal terms, total trade grew by an estimated trading partners that would keep their level of imports 12.7 percent in calendar year 2008, which was double the rate of 2007. Total exports increased by an constant. It is weighted by import values and import estimated 2.2 percent, driven mostly by increases in demand elasticities of trading partners. goods exports, which grew by an estimated 5.6 8. Ghumman, 2009; Pakistan Defense, 2009. percent. Pakistan’s largest export industry is that of 9. Bilaterals.org, 2009a,b. textiles, which accounted for 57 percent of total 10. World Bank PREM Trade Group, 2009, p. 13. exports.11 Demand for textiles weakened in 2008 due 11. Commerce Division, 2008. to the worldwide economic downturn.12 Exports in 12. IMF, 2009, p. 8. services fell by an estimated 2 percent and are 13. International Financial Statistics, 2009. expected to fall further in 2009, contributing to an 14. State Bank of Pakistan, August 2009. anticipated fall in total exports of an estimated 9.3 15. Government of Pakistan, 2009 percent. According to provisional data,13 exports 16. Government of Pakistan Ministry of Commerce, decreased by 17.9 percent in nominal U.S. dollars 2009. during the first quarter and by 20 percent in the 17. Asian Development Bank, 2009, pp. 211. second quarter 2009 over the same quarters in 2008. However, exports picked up somewhat in June 2009 when they grew 20.4 percent over the previous Pakistan Trade Brief World Trade Indicators 2009/10 References July–June, 2007–08 and 2008–09.‖ . Asian Development Bank. 2009. Asian Development International Monetary Fund (IMF). April 2009. Outlook 2009: Rebalancing Asia’s Growth. Asian ―Pakistan: 2009 Article IV Consultation and First Development Bank, Manila. Review Under the Stand-By Arrangement—Staff Bilaterals.org. March 6, 2009a. ―Pakistan Seeks UAE’s Help Report; Staff Statement; Public Information Notice for FTA with GCC.‖ . and Press Release on the Executive Board ———. March 29, 2009b. ―Zero Duty for Lankan Discussion; and Statement by the Executive Director Goods in Pakistan.‖ . for Pakistan.‖ IMF Country Report No. 09/123. Commerce Division. 2008. Trade Statistics and Analysis. July IMF, Washington, DC. 1, 2009 Government of Pakistan Ministry of Commerce. ———. 2009. International Financial Statistics. . Washington, DC. Economic and Social Commission for Asia and the Nation, The. July 28, 2009. ―Highlights of Trade Policy Pacific (ESCAP). June 2008. E-TISNET Monthly 2009–12.‖ News. United Nations, New York. Pakistan Defense. February 23, 2009. ―China-Pakistan ———. August 2008. E-TISNET Monthly News. United Free Trade Agreement on Services to Be in Effect Nations, New York. Soon.‖ . Food and Agriculture Association of the United Nations State Bank of Pakistan. August 6, 2009. ―Balance of Trade.‖ (FAO). 2009. ―Policy Measures Taken by Govern- . 15 December 2008).‖ FAO, New York. World Bank PREM Trade Group. January 14, 2009. Ghumman, Mushtaq. July 7, 2009. ―Trade in Services ―The World Bank, Update on the Impact of the with China: Cabinet Directs Commerce to Revisit Financial Crisis on Trade and Trade Finance.‖ World Accord.‖ Business Recorder. Bank, Washington, DC. Government of Pakistan Ministry of Commerce. 2009. World Trade Organization (WTO). July 15, 2009. Trade Policy 2009–10 Speech by M.A. Fahim, ―Report to the TPRB from the Director-General on Minister of Commerce, 27th July, 2009. the Financial and Economic Crisis and Trade- ———. ―Comparative Export of Selected Items During Related Developments.‖ WTO, Geneva.