By Ishrat Husain

Pakistans merchandise exports have declined from 0.18 percent in 1990 to 0.14 percent of the world
export market in the last twenty five years. Indias share has tripled from 0.57 percent to 1.78 while
Bangladeshs share has risen from 0.05 percent to 0.14 percent in the same period. Pakistans exports,
which used to be only one third of India, have fallen to one tenth and Bangladesh, which used to lag
behind with its exports being only one third of Pakistans in 1990, exceeded our exports level last year.
At the turn of the millennium, 97 percent of merchandise exports used to finance the countrys imports
but this ratio is down to 61 percent. Sharp depreciation of the Pakistani rupee since 2007-08 has not
helped boost the demand for Pakistani exports. And while the currency depreciated by 55 percent,
export growth was 24 percent only in the last five years. In the preceding six years, the currency
remained stable while the exports more than doubled in dollar terms.

Not only has the export growth rate leveled down but the composition has also remained unchanged.
Two thirds of exports are concentrated in a few agriculture raw material and labour resource- intensive
products such as textiles, leather, rice etc. The country has taken no advantage of its location next door
to two fast growing economies China and India as market concentration remains high. We are focusing
on traditional, stagnant sunset sectors rather than the dynamic fast growing strategic products in the hi-
tech and medium-tech sectors. Our share in hi-tech exports has remained unchanged since 1980s at
less than 2 percent while the low-tech exports now account for two-thirds of total exports relative to
almost one half in the 1980s.

What factors explain this declining competitiveness of Pakistani exports? These can be divided into two
broad categories. First, is the government policy weaknesses and macroeconomic factors and second is
the firm inefficiencies and microeconomic gaps.

At the public policy and macroeconomic level, Pakistan has never followed an export growth-led
strategy although lip service has been paid times and again. The taxation system penalises the formal,
organised, compliant firms while allowing the informal and unorganised sector to evade taxes, placing
the former at a competitive disadvantage. Economies of scale and benefits of agglomeration therefore
elude Pakistani firms whose growth remains stunted. High rates of sales tax and custom duties act as a
barrier for imports of raw materials, components, parts and accessories that go into the final fabrication
or assembly of goods. The tax refund scheme for exporters is ridden with corruption and the genuine
exporters stay out of the scheme and therefore do not expand into new activities for which there is
growing demand in the world market. The permits, licenses, inspections and NOCs required by various
federal, provincial and local government departments and the extra payments made add to the
transaction costs. The import substitution mindset that protects the existing companies through high
tariff rates, non-tariff barriers, exemptions and concessions in the form of specific Statutory Regulatory
Orders (SROs), a highly complex and discretionary import classification system, has not allowed new,
efficient and competitive firms to emerge or take roots. The playing field is titled too much in favour of
inefficient entrenched, rent-seeking and rent-sharing companies. Tariff reforms carried out in early
2000s that had simplified and streamlined the tariff bands and reduced the maximum tariff rate have
been reversed and made the trade regime too complex. Pakistans overall trade restrictiveness index is
high and rising. By 2010 Pakistan had become the worlds seventh most protected economy.A World
Bank study has estimated that a 1 percent rise in tariff complexity leads to a 13.2 percent decline in
export growth. High value-added products that require imported raw materials and inputs cannot thus
be manufactured or assembled in Pakistan and supplied to global value chains. Sub-contracting,
outsourcing, tolling are the concepts that have not yet sunk in Pakistan.

Weak dispute resolution, and contract enforcement, prolonged and expensive judicial system and little
protection of intellectual property rights are also some other impediments for business expansion and
export diversification. Courts take more than a decade to adjudicate property and land disputes after
exhausting an elongated chain of appellate system. Land acquisition procedures are cumbersome and
outdated.

Turning to the microeconomic factors, a study carried out a few years ago showed that Pakistans
textile sector productivity was only 40 percent that of China. Thus, there is a huge scope of moving to
the efficiency frontier and reap huge gains both for the firm as well as the country. The size, scale of
operations, market structure, formality and location are some of the considerations that affect
productivity and profitability which, in turn, lead to expansion, value addition or diversification. A strong
association is observed between productivity and variables representing the formal nature of firms.
Organised firm shaving a larger market share seem to cope better with the negative elements of the
business climate and thus show productivity gains. Innovation and skill variables are also significantly
associated with productivity. At the aggregate level, therefore, average productivity is depressed
because too many resources are being utilised by low productivity firms mainly in the informal sector. A
large number of family owned businesses in Pakistan even in the organised sector are hesitant to
provide full disclosure of their operations and maintain multiple books of accounts. They dont attract
any external capital as their reported balance sheets are not expanding and their financial ratios are
pathetic. Those who had obtained loans from the banks due to their political connections were able to
use their influence in getting these loans written off and thereby reaping a windfall gain. Many family
owned businesses also rely on their own kith and kin for the supply of strategic human resources in
place of qualified professionals. This inadequacy of engineers, accountants, managers, and marketing
executives naturally leads to under performance and inefficiency. When aggregated, the economy
performs well below its efficiency frontier and is unable to penetrate international markets because of
lack of competitiveness. Entry for newcomers is discouraged by the existing entrenched business houses
and the financial institutions. Only five percent of firms account for 76 percent of the exports. In the last
five years, the shortages of power and gas have played havoc. Export orders could not be delivered or
had to be diverted because of these shortages. New orders had to be refused because the exporters
could not fulfill them on time.

The new government that is committed to liberalisation, deregulation and privatisation should initiate
reforms that will enable Pakistan to enhance its export competitiveness, reduce its dependence on
external aid and augment its foreign exchange resources. These should encompass openness to the
world, lowering and simplifying tariffs, less intrusive bureaucracy, improvement in trade facilitation and
logistics. In the first seven years of the millennium a more liberal trade regime had enabled exports to
grow rapidly and doubled their value resulting in comfortable balance of payment position. There is no
reason that this record cannot be surpasse.

YHE ABSTRACT WALI STATEMENT HA

ABSTRACT: Export controls can take a variety of forms (e.g., export bans, taxes, quotas,
or restrictive licensing), and are applied by both developing and developed countries to meet
economic and noneconomic goals. This paper reviews some of the recent economic literature
discussing the rationale for and economic impact of government controls, the patterns of use of
export controls and the current treatment of these controls in trade agreements. Rationales for
export controls include increasing government revenue, promoting downstream industries,
controlling price fluctuations, as well as certain noneconomic objectives (e.g., strategic arms
control, environmental protections, etc.). With respect to economic effects, when a country
imposes an export control, it typically has the intended effect of lowering the domestic price of
the restricted product in the short run because of increased supply in the domestic market. In
the long run, however, export controls may have unintended and undesirable effects. The most
comprehensive source of information on the use of export controls is the Trade Policy Review
(TPR) mechanism reports generated by the World Trade Organization. Data from the TPRs
indicate that export taxes on agricultural products and raw materials are the most frequently
used export control, and are employed principally by lower-middle and lower income
economies. Many countries contend that quantitative export restrictions and other border
measures such as export taxes are market distorting. Consequently, many recent trade
agreement negotiations have been used as platforms to reduce the use of quantitative export
controls and taxes on exports.

2. ABSTRACT
The trade environment of Pakistan is facing a chronic trade deficit. The primary
reason for the deficit are the exports of Pakistan being flowing towards specific trade
partners and secondly, the lack of export diversification. As such, this paper examines the
main factors behind the export performance of Pakistan by estimating a gravity model
using panel estimation for the period of 1995 2011 across 142 countries. The estimation
results reveal the main determinants of Pakistans exports being the GDP of importer and
exporter country, dummy variables of language, religion, trade agreements and
membership of the world trade organization. The study also reveal that trade costs and
common border does not play a role in boosting the trade of Pakistan. As such, the study
suggest that Pakistans exports be diversified and directed towards countries in close
proximity and where trading costs are low


Abstract3

There is an urgent need for policy makers to adopt a cautious perspective when dealing with the
recent revival of protectionism. The changing policy context of global competition requires that
emphasis be placed on facilitating broad-based innovation. This is in sharp contrast to the current
and past industrial policies that were based on import substitution and sector-picking. This paper
briefly outlines Pakistans experience with industrial policy over the past 6 decades, and shows
how protectionist industrial and trade policy regimes are ineffective with respect to equipping
Pakistan to compete globally. The paper also outlines global best practices with reference to
designing an enabling industrial policy and suggests policy reforms that are appropriate in the
political and global context of Pakistan. There also exist contrary views about the scope and
composition of industrial policy even within the government functionaries. There is a dire need
for a shared vision and deeper consensus building. Thus this paper aims to highlight the radical
contrast in perspectives that exists between the current policy of the ministry of industries and a
policy conducive to a prosperous Pakistan
new task