Prospects and

Challenges to trade with

Pakistan

Naeem Anwar

Minister (Trade)High Commission for Pakistan New Delhi

Conference on “Trade opportunities for SMEs among SAARC & ASEAN Countries”December 11-12, 2009, Chennai, India

Scheme of Presentation

• Overview of Small and Medium Enterprises in Pakistan

• Organizations/Associations in Pakistan that supports SME Growth

• Policy initiatives by the Government that supports the growth of SMEs in Pakistan

• Trade opportunities for SMEs between Pakistan and India covering:

List of products exported by SMEs

Products imported by Pakistan

Export/Import statistics -  product and country specific

General Overview

• Both India and Pakistan are SME dominated economies. The density of SMEs in each country accedes 90% of total business population.

• However the size of the two economies, sectoral composition, trading partners and the proportionate contribution made by the SMEs is different.

• In total bilateral trade Pakistan accounts for less than 1 percent of India’s trade and India accounts below 5 percent of Pakistan’s trade

• In 1948–49, 70 percent of Pakistan’s trading transactions were with India, while 63 percent of Indian exports were directed to Pakistan.

Special Initiatives for Pak-India Trade

• In Pakistan’s recent Trade Policy, following additional policy initiatives are offered to enhance trade with India

• Inputs in DTRE will also be allowed to be imported from India, even if these are not included in the importable items from India, or manufactured locally.

• import of machinery / equipment for mining / quarrying and grinding of minerals (along

with spares) would be allowed from India.

• Stainless steel is importable from India by train. In order to further reduce the cost of doing business, it has been decided to allow their import by trucks through Wahga as well.

• Paddy harvesters & Paddy dryers may be provided on matching grant basis in rice growing areas. Furthermore rice farm machinery namely paddy harvesters and dryers will be importable from India through Wahga by road.

Organizations in Pakistan Responsible for SMEs Growth

• Small and Medium Enterprises Development Authority

• SME Bank

• Trade Development Authority of Pakistan

• Technical Education and Vocational Training Authority

• Skill Development Institute

• Many NGOs

Promoting SMEs Exports

• Agro Food Processing Facilities Center (AFPC) , Multan. This Centre comprises of fruit processing (Mango and Guava Pulp), vegetable processing (Tomato paste/puree), Fresh Fruit/Vegetable Grading and Packing. Also provides training and consultancy services to SMEs. The major objective of this project is to enhance the exports

• Gujranwala Business Center (GBC) is being established to provide business development services in the areas of product design, product quality and international standards and packaging. It shall provide display facilities to SMEs to market their products & services. The project aims to enhance the exports of light engineering, sanitary fittings, tiles, leather products, ceramics, plastics, auto-parts, fans, cutlery, electric home appliances and textiles and other industries that exist in Gujranwala.

• Sialkot Business & Commerce Centre (SBCC) provides shared display, meeting and conference facilities to exporters of Sialkot city producing sports goods, surgical instruments, leather garments, gloves & accessories, sportswear and musical instruments. It shall serve as a one Stop Shop for international buyers, host exhibitions year round and provide business development services to small & medium exporters. The Project is under implementation.

Cont: Promoting SMEs Exports

• Sports Industries Development Centre (SIDC), Sialkot is being established to facilitate technology up-gradation and human resource development of sports industry. SIDC will introduce new technology to the local industry and also facilitate in producing prototypes, train manpower, support developing new designs and facilitate in obtaining international patents to enhance the export of sports goods.

• Women Business Incubation Center (WBIC), Lahore is an all encompassing facility providing display stalls, affordable furnished offices, one to one business counseling and other business development services under one roof for existing & aspiring women entrepreneurs. WBIC also provides training to women entrepreneurs and encourages them to export their commodities in international markets.

Sector Development Companies

Following Sector Development Companies have also been established that aim at upgrading production, improving marketing, and understanding and meeting consumer demands in order to enhance the export and global competitiveness of respective sectors.

• Pakistan Dairy Development Company• Pakistan Gems and Jewellery Development

Company• Pakistan Stone Development Company• Furniture Sector Development Company

Industrial Information Network

• To enhance the integration of Pakistani SMEs in global value chain, Pakistan’s first B2B (business-to-business) and business information portal, Industrial Information Network was launched on June 25, 2005.

• The objective of IIN is to use Information Technology to support capacity building for sustainable industrial development in Pakistan and promote the use of B2B E-Commerce in the country.

• This web portal caters to needs of Small & Medium Enterprises from various industrial sectors in Pakistan with initial focus on Textile and Leather sectors.

• IIN portal includes different sections on Trade Portal, Trade Bodies, Leather Industry, Textile Industry, Business Management & New Business Development, Govt. Rules and Regulations, WTO, Financing Information, Business News, and Shipping Intelligence.

Adoption of Best Practices

• In order to enable SMEs to become integrated into global value chains, through adoption of best practices SMEDA worked on a set of publications including Trade in Services

• An Answer Book for Small and Medium-Sized Exporters besides adaptation of four WIPO guidelines , in order to educate SMEs on IP issues

SMEs Training and Skill Development

Greening Through Technology Replacement

The following training programs/ seminars are regularly conducted to promote cleaner production techniques:

– Seminar on “Clean Production and Pollution Prevention Workshop” is conducted in collaboration with World Bank

– Regional Seminars on “Implementation of Cleaner Production Techniques” are conducted at Sialkot, Lahore Peshawar, Quetta and Karachi in collaboration with Cleaner Production Centre (CPC) Sialkot and Pakistan Institute of Management.

Skill Development

Promotion of Technology and Skill development is a tool to make SME’s more productive and globally competitive. SME’s lack quality control product standardization, invention and innovation due to their poor access to modern equipments.

Trade with India :Non Tariff Barriers

• Exim Licensing / Permits/ Standard Certificates• Subsidies • Visa Regime• Customs procedures• Land border transportation• Air Links• Sea Transportation • No Banking and financial infrastructure• Unnecessary procedural requirements

Major Challenges

Hostile Attitude And Mindset Unstable Political Situation Lack of trust and confidence Reluctance to Depending On Uncertain

Sources Uneasiness Of Financial Transactions Poor Transportation And Logistic

Infrastructure of land routes

Current Situation

• Composite Dialogues is suspended• Most of the Trade negotiation activities are either

stopped or substantially reduced• Top leaders of both countries met on various occasions

but no positive outcome• Pakistan offers resumption of dailogue• India insists appropriate action against Bombay terrorists.• Pakistan has already started the judicial action• Now ball is in India’s court

Five Years Bilateral Trade

S.No Year Exports Imports Balance

1 2004-2005 288.134 547.458 - 259.324

2 2005-2006 293.310 802.002 - 508.692

3 2006-2007 342.918 1235.885

- 892.967

4 2007-2008 254.858 1701.445 - 1446.587

5 2008-2009 (e)

335.046

1691.059 - 1356.013

Pakistan’s Top Ten Exports to IndiaS.No

Product 2004-05 2005-06 2006-07 2007-08 2008-09 Jul-Jan)

1 Petroleum products

172.948 96.873 160.325 50.525 116.145

2 Fruits & Vegetables

26.195 27.454 33.704 34.714 30.849

3 Cotton Fabric 18.623 33.945 50.164 40.429 15.937

4 Molasses 17.75 0 0 0 0

5 Chemicals Elements

4.052 37.516 2.141 7.478 2.246

6 Leather 3.533 2.067 7.800 13.244 0.642

7 Raw Cotton 2.746 0.835 0 0.122 10.741

8 Crude Veg Material

2.411 2.640 2.225 3.015 8.291

9 Textile Made ups 2.315 1.899 1.209 1.787 0.590

10 Chemical Products

1,983 0.905 1.590 2.215 47.903

Pakistan’s Top Ten Imports from India

S.No Product 2004-05 2005-06

2006-07

2007-08 2008-09 Jul-Jan)

1 Chemical compounds

195.867 147.853

299.320

457.763 221.268

2 Chemical Materials 69.279 69.426 123.548

120.207 47.903

3 Ores, Iron & steel 65.346 46.277 53.169 61.988 52.968

4 Animal feed 38.988 73.183 99.806 79.806 82.978

5 Tyres and tubes 32.942 40.237 34.877 35.407 11.475

6 Raw cotton 15.090 39.592 233.714

545.747 21.730

7 Textile dyes/ colors

13.693 20.437 26.683 34.035 19.632

8 Iron steel products 13.408 31.265 31.323 40.542 19.734

9 Crude veg material 8.399 14.904 20.541 17.406 2.367

10 Non-Ferrous Mnfg 6.930 7.246 28.377 43.081 0.806

India’s Top 20 Products from Global Sources

S.No

Products 2005-06 2006-07 Growth% Share in total

1Petroleum, Crude & Products 39,757.45 52,112.76 31.08 32.1

2 Electronic Goods 11,771.30 14,378.58 22.15 8.86

3 Gold 9,658.21 12,930.03 33.88 7.97

4Machinery Except Elec & Electronic 8,860.08 12,381.91 39.75 7.63

5Pearls Precious Semi prcs Stones 8,638.58 6,621.20 -23.35 4.08

6Other Commodities 5,321.78 4,021.49 -24.43 2.48

7 Organic Chemicals 4,257.03 4,934.87 15.92 3.04

8 Iron & Steel 3,934.79 5,377.25 36.66 3.31

9Coal, coke & Briquittes Etc. 3,464.63 4,044.69 16.74 2.49

10Metal, Ores & Metal Scrap 3,409.09 7,499.99 120 4.62

Contd……Top 20 Imports

11Transport Equipments 2,936.56 3,991.81 35.93 2.46

13 Inorganic Chemicals 2,028.08 2,160.40 6.52 1.33

14Artfcl Resns,plstc Matrls,etc. 2,021.58 2,319.85 14.75 1.43

15Vegetable Oils Fixed (Edible) 1,788.84 1,923.29 7.52 1.18

16Profsnl Inst,etc Excpt Elctrnc 1,766.25 2,088.96 18.27 1.29

17 Non-ferrous Metals 1,646.73 2,385.49 44.86 1.47

18Fertilezers Manufactured 1,588.82 2,583.30 62.59 1.59

19Elec Machry Excpt Electronic 1,348.96 1,759.46 30.43 1.08

20Manufactures Of Metals 1,088.45 1,416.66 30.15 0.87

Bilateral Trade Options

There are many items which India and Pakistan are importing from global sources but not from each other because:

– Both countries are already enjoying safe and traditional markets for exports and imports

– Change in destinations and sources need incentives in terms of tariff, trade facilitation, security, reliability etc. which are not reasonably available in this case

– Fear of unexpected developments keep the bilateral trade relations under stress and reduces the attraction of other positive factors

– Business community of both sides has not yet developed closer and trustable relations

SAFTA Agreement Impact

• Both countries are Members of SAFTA Agreement but its impact on bilateral trade is almost negligible

• India Blames Pakistan’s “positive-list approach” and “non-grant of MFN status”

• Pakistan alleges extensive NTBs under Indian Trade Regime and uneasy market access

• Economic and trade cooperation is linked with other factors

Export Potential to India

Based on the export of Pakistan and the import data of India, following products may find a good market for export to India:

Petroleum Products Gems and precious stones Cotton Yarn and fabric Fruits Leather tanned Ladies Garments Marble and Onyx Handicafts Sports goods

Supply and demand side potential and constraints

• Currently Supply side of Pakistan is not sufficient to cater the full Indian demand if an aggressive strategy is made operational.

• Expansion of Pakistan’s supply side again depend on conducive political and economic environment

• India being a country with high population growth and fast growing economy will keep on expanding the demand side

• In order to establish and sustain a long term trading partnership with India, enabling political environment is must

Some bilateral trade issues

• Restoration of composite dialogue• GI of Basmati rice• Use of brand name of ‘super Basmati’ by

Indian rice exporters

• Special trade arrangement in terms of Article

X of GATT 1994• Pakistan’s non-paper on Indian NTBs• Single country exhibitions• Financial and physical infrastructure• Misc

Tariff Protection level and the market access in India

• Indian is deemed one of the most protected trade regime in the world

• They have low MFN rate but coupled with different rates of taxes like additional duty, special additional duty, countervailing duty , education cess etc.

• Import tariff Regime of India is judged as most complicated, highly dispersed and inaccessible in “one-go”

• Almost all major industries are highly protected through one or the other trade defense tools e.g. antidumping, countervailing and safeguard

Way ahead for bilateral trade

• The future markets of world trade are emerging in Asia and Africa

• Large economies in this region like India carry promising potential for trade and commercial activities

• Most effective and highly productive trading blocks are composed of neighboring countries.

• Both countries need to prepare a comprehensive trade promotion strategy to strengthen the peace process through establishing substantial commercial interests in each other’s

country.

• FICCI’s Report of Nov 2009 – highly Negative approach

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