Quantitative Restrictions On Trade in Pakistan

Quantitative Restrictions on Trade in Pakistan
International Trade Assignment
INSTITUTE OF BUSINESS & INFORMATION TECHNOLOGY
Table of Contents
QUANTITATIVE RESTRICTIONS ....................................................................................... 2 TRADE STRUCTURE OF PAKISTAN .................................................................................. 4 The Main Imported Products: .............................................................................................. 4 The Main Exported Products: .............................................................................................. 4 Trading Partners ...................................................................................................................... 4 TRADE FLOWS ....................................................................................................................... 4 TRADE STRATEGY ................................................................................................................ 5 WORLD BANK OPERATIONS ON INTERNATIONAL TRADE ....................................... 6 QUOTA RESTRICTIONS IN PAKISTAN ............................................................................. 7 European Union & Pakistan ................................................................................................. 7 Withdrawal of quota restrictions by US & EU .................................................................... 7 Aptma seeks govt intervention in yarn quota issue .............................................................. 8 US agrees to remove quota restrictions on Pakistan's man-made bedding items ............... 8 Implications for Pakistan of Abolishing Textile and Clothing Export Quotas ....................... 9 The Basic Economics of the Quotas and their Abolition ....................................................... 10 The Barriers to be affected by Quota Abolition ................................................................. 12 Implications of quota abolition and productivity for sectoral output and exports in Pakistan ............................................................................................................................... 13 Implications of quota abolition and productivity improvement for welfare in Pakistan . 14
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QUANTITATIVE RESTRICTIONS
A quantitative restriction, also referred to as a QR, is a measure which limits the quantity of a product that may be imported or exported. There are different types of quantitative restriction: y A quota, i.e. a measure indicating the quantity that may be imported or exported; a quota can be a global quota, a global quota allocated among countries, or a bilateral quota. y A prohibition, or ban of a product; such a prohibition may be absolute or conditional, i.e. only applicable when certain defined conditions are not fulfilled. y Automatic and non-automatic licensing.
WTO members are required to notify the WTO Secretariat of any quantitative restrictions, which they maintain and of any changes in these restrictions, as and when they occur. The notifications must indicate: y y y y The products affected by the QR. The type of QR (prohibition, quota, licensing). An indication of the grounds and WTO justification for the QR. A statement on the trade effects for the QR.
Explicit limits, or quotas, on the physical amounts of particular commodities that can be imported or exported during a specified time period, usually measured by volume but sometimes by value. The quota may be applied on a selective basis, with varying limits set according to the country of origin or destination, or on a quantitative global basis that only specifies the total limit and thus tends to benefit more efficient suppliers. A quota is a direct quantitative restriction on the amount of a commodity allowed to be imported or exported. Virtually all countries that have undergone a TPR have some form of quantitative restriction in place on the export of specific goods. However, the types of products covered and reasons for such quantitative controls or bans vary significantly by country. In contrast to export taxes,
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which are primarily imposed for economic reasons, quantitative export restrictions are employed to meet a range of goals. More than half of the countries surveyed enforce export bans on products in accordance with their obligations under international agreements and conventions. Many countries also enforce quantitative restrictions for economic or security reasons (42 percent and 40 percent, respectively). In addition, preservation of the environment (35 percent), resource/food conservation (11 percent), goods related to culture/heritage reasons (7 percent), and public health (10 percent) also serve as justifications for quantitative export restrictions.(Bonarriva, Koscielski, & Wilson, 2009) Country Brunei India Kenya Korea Australia Quantitative Restriction Articles of an antique or historical nature Human organs Wild animals Rice Cheddar cheese Regulation Prohibited Prohibited License required Quota Quota Reason Culture/heritage Public health International convention Conservation of domestic supplies Economic
Source: World Trade Organization Quantitative restrictions imposed for economic, environmental, and cultural/heritage reasons are used by countries across the income spectrum. However, high income economies tend to impose quantitative restrictions most frequently for security reasons or in accordance with international agreements and conventions. Bycontrast, low and lower-middle income economies tend to impose restrictions most frequently for resource conservation purposes and to ensure public health.(Bonarriva, Koscielski, & Wilson, 2009)
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TRADE STRUCTURE OF PAKISTAN The Main Imported Products: y y y y y Industrial and agricultural capital goods Chemicals Oil products and its by-products Raw materials Food products
The Main Exported Products: y Clothing y Cotton y Rice y Carpets y Leather goods TRADING PARTNERS Main Suppliers Japan United States Germany Saudi Arabia United Kingdom Malaysia Main Customers United States Germany United Kingdom Japan United Arab Emirates Saudi Arabia
TRADE FLOWS Pakistans exports are highly concentrated: currently the majority of exports originate in the textiles and apparels sectors. Early evidence indicates that Pakistan has so far been able to expand exports in the wake of the abolition of OECD countries quotas on textiles and apparel in 2005. Imports are more dispersed, as is typical in most countries although inputs for the textile and apparel sectors (machinery, fibers, dyes and chemicals, etc.) and petroleum products make up sizeable shares of total imports.
The bulk of Pakistans trade is with countries outside of South Asia. This reflects in part Pakistans specialization in products that are also exported by its neighbors. This low level of trade also stems from a half-century of protectionist policies and political-military tensions in the region. Recent analysis commissioned by the World Bank indicates the potential for greater trade with India, notably in light manufactured products (e.g., bicycle components and fans).
TRADE STRATEGY Pakistan has made substantial progress over the past decade in constructing a more open and transparent trade policy regime. y The government has reduced tariff rates across the board. The simple average ad valorem tariff rate in the 2005/06 trade policy is just under 15 percent, compared to over 50 percent in 1995. y Quantitative restrictions, exchange controls, and other direct state interventions into trade have been largely eliminated; ordinary customs duties are now the primary trade policy Instrument. y Many special regulatory orders that provided discretionary exemptions to firms or industries have been eliminated, thus leveling the playing field and making the trade regime less complex. y Pakistan has steadily extended the positive list, which restricts the types of goods that may be legally imported from India. The list expanded from 40 items in 1983 to 687 items in 2004/5, and to 768 in 2006. y The signing of the South Asia Free Trade Agreement (SAFTA) in January 2004 is an important step towards higher intra-regional trade in South Asia. The first phase of SAFTA tariff reductions is expected to come into effect from July 2006. India granted Pakistan the Most Favored Nation status in 1995/96, Pakistan has not yet reciprocated this move.
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WORLD BANK OPERATIONS ON INTERNATIONAL TRADE

Pakistan is a member of the World Trade Organization, and has bilateral and multilateral trade agreements with many nations and international organizations. It is part of the South Asian Free Trade Area agreement and the China Pakistan Free Trade Agreement. In recent years the World Bank has supported the Ministry of Commerce and other agencies in the Government of Pakistan with analysis on trade issues, including most recently the Pakistan Growth and Export Competitiveness Report, as well as studies on agricultural trade, a series of studies on Pakistan-India trade, plus policy notes on SAFTA, textile quotas, and tariff rationalization.
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QUOTA RESTRICTIONS IN PAKISTAN European Union & Pakistan

Exports are considered as the spinal cord in today's economic regime of any country. Unfortunately, Pakistan never succeeded to cross the psychological barrier of $10 billion.Pakistan's textile sector is currently negotiating with European Union, one of the important trade partner of Pakistan. Currently, around $1.7 billion worth of textile is being exported to EU member countries and it is believed that size of exports to E.U may go up to $2.5 billion as soon as quota restrictions on Pakistan textiles are lifted by the E.U countries. Active players in the textile exports to E.U feel that if EU is really sincere in lifting of textile quota restrictions, it should first withdraw anti-dumping duty imposed in 1979 on certain textile products from Pakistan. On the other hand, E.U has already lifted quota curbs on Egypt, Turkey and Bangladesh and they have been given the status of Most Favored Nation (MFN) under WTO regime. In any case, under WTO agreement all trade barriers have to be lifted after January 1, 2005. However Pakistan is struggling to carve a respectable place for its textile products before the deadline for doing away with the quota restrictions by all signatories to the WTO agreement.
Withdrawal of quota restrictions by US & EU

While soliciting support of the GOP in the war against terrorism, the US and European Union (EU) hinted towards easing of quota restrictions and lowering of duties on textiles and clothing of Pakistan origin. Pakistani manufacturers have been anxiously waiting the formal announcement. Despite a number of meetings of the US and EU officials with the GOP representatives from Pakistan, presumably these governments may not be able to ease quota restrictions and/or reduce duties. At the best they can increase quota ceilings.
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This belief is based on two factors: 1. Economies of these countries plunging into further recession 2. Particularly in case of the EU easing of quota restrictions was delayed due to toppling of the democratic government in October 1999. Therefore, analysts suggest that instead of waiting for any concessions from importing countries, Pakistani exporters should explore new markets, improve quality standards and competitiveness of their products. Cost cutting approach is not the solution.
Aptma seeks govt intervention in yarn quota issue

On march 2010, all Pakistan Textile Mills Association (APTMA) has appealed the government to intervene in the matter of cotton yarn quota restriction and provide justice to spinning industry. APTMAs zonal bodies from Peshawar, Multan, Lahore, Faisalabad, attended the meeting, have strongly opposed the unilateral imposition of quota on yarn export.At least 30 spinning units have approached the court of law to seek the withdrawal of controversial SRO, which reduced the yarn export limit from 50,000 tons to 35,000 tons. Between 198895, an export tax on raw cotton was imposed in Pakistan to promote the downstream yarn industry. This policy succeeded as a short-term subsidy to the yarn industry, but later led to reduce investment in new technology in the yarn industry that consequently inhibited its long-term growth.(Bonarriva, Koscielski, & Wilson, 2009)
US agrees to remove quota restrictions on Pakistan's man-made bedding items

On November 07 2002, the United States has agreed to remove quota restrictions on Pakistan's man-made bedding products, commonly known as 666 textile category, but declined to eliminate discrepancies found during 1998-2000. Pakistan's side argued that man-made bedding products were quota-free for all countries, but quota restrictions have been imposed in case of Pakistan, which calls for rational approach. However, Alan Larson assured them that this restriction would
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be removed on reaching Washington.US has imposed restrictions on nine categories of textile products from Pakistan, and did not seem prepared to ease these restrictions.
Implications for Pakistan of Abolishing Textile and Clothing Export Quotas

Pakistan will benefit substantially from abolition of its own quotas, with the benefits resulting from improved efficiency of resource allocation outweighing the loss of quota rents. The adverse impacts of increased competition will be softened by the diversity of the industry, with many of the products in which Pakistan specializes, such as mens knit shirts, being much less important to competing countries. While this diversity will help reduce the adverse impacts of quota abolition on clothing, it does not appear to be sufficient to eliminate themmany important products for Pakistan, such as sweaters, are important to other exporters and face tight quota restrictions. Overall, Pakistans real income would decline by perhaps 0.4 percent, and real wages could decline slightly if no actions are taken to improve productivity. The abolition of the quotas against exports of textiles and clothing from developing countries scheduled for January 1, 2005 will have important implications for Pakistan and other major exporters of textiles and clothing.
South Korea keen to import Pakistani Rice

Pakistan, for the first time had started exporting rice to South Korea in 2009. The first consignment of 6,202 tonnes of rice was exported to the foreign country in December 2009 while the quantity of rice exported has been consistently increasing during January 2010 onwards. A Pakistani rice exporter company had won an order for more than 6,000 tonnes of Brown Rice to Korea after the rice category was included in the global quantity quota of Seoul. According to the sources with the approval of the World Trade Organisation, private rice import to Korea is impossible apart from the quantity of Minimum Market Access (MMA) by year 2014. The quantity of the MMA import quota is to be raised to 7.96 per cent of Koreas total domestic consumption by 2014 from the 4 percent in 2004. This MMA quantity is divided into 2 quotas as local quota and global quota. Local quota (205,000 tons) is limited only to USA,
China, Australia, and Thailand and table rice (white rice) is included in this quota. Global quotas quantity is increasing every year by (20,347 tonnes). Processed rice (Brown Rice) is included in global quotas which can be applied to Pakistani rice.
The Basic Economics of the Quotas and their Abolition

The quotas operated under the Agreement on Textiles and Clothing were introduced under the Multi-fibre Arrangement (MFA), which developed from earlier arrangements against developing country exports of cotton goods. A key feature of these quotas is that they are imposed only by a subset of importers and only on exports from a subset of exporters. Another important feature is that the importers allow exporters to allocate the quotas and hence potentially to benefit from the higher prices in the restricted markets. Their effects are complex and pervasive and can only be understood taking a global perspective, and distinguishing between the restricted markets-- where prices are raisedand the unrestricted marketswhere prices are depressed. The issues involved in markets for final products also need to be distinguished from those in markets for intermediate products and raw materials. The existence of the quotas reduces the supply of textiles and clothing in the restricted markets, and hence increases the prices of these goods in those markets. The quotas used to restrict imports are in limited supply, and become valuable because of the difference between the price on world markets, and the prices in the restricting markets. This value accrues to the firms or individuals lucky, or skillful, enough to gain access to the quotas. Since the textile and clothing quotas are given to the exporting countries, the value of these quotas (quota rents in economic terms) is a potentially important source of gains to developing country exporters. However, the same exporting countries suffer because they are not able to employ their resources efficiently. In particular, they are restricted in their ability to use their comparative advantage in textiles and clothing to create employment in these sectors. Table shows the share of Pakistans exports of textiles and clothing directed to markets other than the quota-restricted markets of the EU, the USA, Canada and Norway. This table shows that Pakistan exported less than half of its products to restricted markets in 1991. Since then, the
share of its exports going to restricted markets has grown, either because the quotas have grown, or because Pakistans competitive strength in unrestricted markets has fallen. However, the share directed to the restricted markets was still only around 60 percent of total exports of textile and clothing, and barely above 50 percent for textile products alone. These fractions are much lower than those seen in less-competitive exporters such as Mauritius, Morocco and Tunisia whose exports are much more dependent on access to quota-restricted markets (World Bank 2003), but higher than in China, which is able to send only a quarter of its exports to the quota markets.
Pakistan: Share of production directed to restricted markets Textiles and Clothing Textiles only % % 1991 47.9 38.7 1992 46.9 38.0 1993 51.6 39.1 1994 53.0 38.8 1995 50.4 37.2 1996 51.1 40.0 1997 55.7 43.7 1998 61.7 50.1 1999 62.3 49.7 2000 61.1 49.2 2001 61.3 50.1 2002 62.1 52.4 Textiles defined as SITC Rev 3, 26+65+84. Source Pakistan Data reported to UNCOMTRADE
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The Barriers to be affected by Quota Abolition

The abolition of quotas in January 2005 will eliminate some, but not all, of the distortions affecting global trade in textiles and clothing. While the quotas will be abolished, tariffs on textiles and clothing will remain, frequently at very high levels. Further, some of Pakistans competitors will benefit from preferential access to industrial country markets, either under preference schemes such as the EUs Everything But Arms (EBA), or through preferences provided under regional arrangements. Estimated export tax equivalents of quotas in key supplying regions, 2002-3 Textiles Clothing EU USA EU USA % % % % Bangladesh* NA 0.0 NA 13.0 India 1.0 3.0 45.0 8.0 Pakistan* 7.0 5.0 4.0 6.0 China* 1.0 20.0 54.0 36.0 Hong Kong, China* 2.0 0.0 12.0 2.0 Sri Lanka 1.0 0.0 0.0 7.0 1.0 0.0 3.0 7.0 Other East Asiaa Newly Industrializing Economies 1.0 0.0 0.3 2.5 Notes: * Denotes an estimate based on quota price information. Other estimates interpolated from quota utilization data. a Based on Indonesia, Philippines, Thailand. b.Republic of Korea
and Taiwan, China.
Implications of quota abolition and productivity for sectoral output and exports in Pakistan
When quotas are abolished for all exporters, a quite different picture emerges. The increase in output of textiles falls from 6 to 4 percent. The implications for the output of clothing are much more dramatic. Instead of rising by 19 percent, clothing output falls by 24 percent. The decline in clothing exports is even more marked, with exports falling by 37 percent. Exports of textiles rise, however, by 14 percent. Examination of the detailed model results reveals that the main cause of this increase in textile exports is a sharp increase in exports of textiles to China, which more than compensates for reductions in exports to the Canadian, European and US markets brought about by increased competition in these markets. Output and exports of leather products expand sharply, taking up labor and other resources otherwise used in the clothing sector. Implications of quota abolition and productivity for sectoral output and exports in Pakistan Pakistan All Textile T and C Only Exporters Productivity Productivity Output % % % % Cotton 0.8 1.0 1.8 1.8 Other crops -0.2 0.2 0.3 0.3 Livestock -0.1 0.0 0.1 0.1 Other natural resources -0.9 -0.1 -0.2 -0.2 Fossil fuels -0.6 0.0 0.0 -0.1 Processed foods -1.2 0.1 -0.1 -0.2 Textiles 5.5 4.5 7.7 7.8 Wearing apparel 18.6 -23.8 -23.1 -18.9 Leather products -8.1 4.3 2.3 1.7 Basic manufactures -1.5 0.4 0.2 0.1 Equipment -2.3 0.6 0.2 0.0 Other manufacturing -0.5 0.5 0.7 0.7 Electric and gas utilities 1.4 0.2 0.4 0.5 Construction 0.0 -0.3 -0.2 -0.2 Services -0.4 -0.1 0.0 0.0
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Exports Cotton Other crops Livestock Other natural resources Fossil fuels Processed foods Textiles Wearing apparel Leather products Basic manufactures Equipment Other manufacturing Electric and gas utilities Construction Services Total
% -6.8 -6.7 -8.5 -10.3 -5.4 -7.5 8.4 29.0 -12.6 -6.9 -9.1 -5.6 -4.1 -5.8 -6.3 4.5
% 1.0 1.2 1.9 4.9 1.2 2.1 13.7 -36.8 7.1 2.0 1.9 1.6 0.6 0.9 1.6 1.3
% -0.8 -0.5 -0.4 2.2 -0.1 0.2 18.8 -36.0 3.8 0.4 -0.4 0.3 -0.4 -0.5 0.0 2.7
% -1.4 -1.1 -1.1 1.2 -0.6 -0.4 18.2 -30.1 2.8 -0.2 -1.2 -0.2 -0.7 -1.0 -0.6 3.0
Implications of quota abolition and productivity improvement for welfare and for labor returns in Pakistan
Increases in productivity in the textile and clothing sectors have positive effects both on overall economic welfare and on wages. Increases in productivity reduce the amount of labor, and other factors, required to produce a given volume of output, thereby destroying some jobs, but creating other jobs by increasing the competitiveness of the industry. The net effect is to increase the demand for labor, and hence wages, relative to the baseline with quota abolition in all countries. While the assumed 10 percent increase in productivity is not sufficient to overcome the adverse impacts of quota abolition in all countries, it does reduce them substantially. Larger increases in productivity could overcome the adverse impacts and raise both national income and real wages. Clearly, these results suggest that policy actions to increase productivity and competitiveness in the industry, and particularly in the textile sub-sector, should be a high priority.
Implications of quota abolition and productivity improvement for welfare and

for labor returns in Pakistan Pakistan All Textile Only Exporters Productivity, up 10 % Unskilled wages, % Skilled wages, % Real income (EV) % $m 2.1 1.7 0.2 103 -0.2 -0.4 -0.5 -295 0.3 0.1 -0.2 -140
T and C Productivity up 10% 0.4 0.2 -0.2 -101
Source: http://www.tdap.gov.pk/trade-policy-initiatives.php
Bibliography
Bonarriva, J., Koscielski, M., & Wilson, E. (2009). Export Controls: An overview of their use, economic effects, and treatment in the global trading system. OFFICE OF INDUSTRIES WORKING PAPER, ID-23. http://en.wikipedia.org/wiki/Foreign_trade_of_Pakistan. (n.d.). http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/. (n.d.). http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Business/10-Mar2010/Aptma-seeks-govt-intervention-in-yarn-quota-issue. (n.d.).
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http://www.pakdef.info/forum/showthread.php?2887-US-agrees-to-remove-quota-restrictionson-Pakistan-s-man-made-bedding-items. (n.d.). http://www.pakistaneconomist.com/issue2001/issue29/i&e2.htm. (n.d.). http://www.pakistaneconomist.com/issue2001/issue42/f&m.htm. (n.d.). www.muslimtrade.net/tradeguideline/pakistan/index.html. (n.d.). www.teachmefinance.com/Financial_Terms/quantitative_restrictions.html. (n.d.).
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International Trade Assignment

INSTITUTE OF BUSINESS & INFORMATION TECHNOLOGY