An Analysis of the PAK – ECO Recorded Trade during the decade 1993-2003

Dr. Jahangir Achakzai*
& Dr. Zahid Marwat**

Abstract

The economic ties between Pakistan and Economic Cooperation Organization (ECO) member countries date back to centuries, however, the progress achieved in this respect remained marginal because of different political and economic reasons. Despite these political and economic breakdowns trade between them through official channels i.e. the recorded trade, continued without much interruption. Pakistan has bright prospects of expanding its exports to ECO countries. Similarly, the members countries of ECO can, and need to, export more to Pakistan. The ECO region is full of potential, what is lacking is the will to cooperate with each.

Introduction

The world has turned into a “Global Village” mainly characterized by economic liberalization, privatization and globalization. In such a changing world the Economic challenges have become a central policy issue for both developed and developing countries alike. Presently the economic cooperation, whether bilateral, or regional, has become indispensable for facing the economic challenges. On the one hand the institutions like World Trade Organization (WTO) are working hard to multilateralism. On the other hand, there has been a significant revival of regionalism in the world. Regional preferential trade agreements of different kinds have been established as a result of which intra-regional trade has increased rapidly. The success of the European Union and ASEAN in promoting international trade and stimulating economic development has also encouraged other countries to form economic groups. The world has witnessed that; those countries that do not form a trade group would experience a reduction in their trade shares.

Economic Cooperation Organization (ECO)

Seen in this perspective, in 1964 Turkey, Iran and Pakistan put foundation of “Regional Cooperation for Development (RCD)”. Under RCD the cooperation was made in the fields of trade, communications, banking, industry, political and cultural affairs, railway and transportation. In 1985 the name of RCD was changed to Economic Cooperation Organization (ECO). After the disintegration of Soviet Union it was realized to cooperate with the ‘States’ separated from Russian Federation. Then in May 1992 not only the Central Asian States got the membership of ECO, but also Afghanistan was included in ECO. Thus the members of ECO increased from 3 to10 as Pakistan, Iran, Turkey, Afghanistan, Azerbaijan, Kyrgyzstan, Tajikistan, Turkmenistan, Kazakhstan, and Uzbekistan. In this way, this organization became an ‘International Economic Forum’.

Main Objectives of ECO

The objectives of ECO mainly include; (a) Sustainable economic development of member states, (b) Progressive removal of trade barriers and promotion of intra-regional trade, (c) Development of transport and communications infrastructure linking the member sates with each other and with the outside world.

ECO Preferential Trade Agreement

The ECO member states launched ECO Preferential Trade Arrangement in 1991. The basic aim of the Agreement was to expand trade and other economic cooperation amongst the states through reciprocal exchange of concessions with a view to equitably benefiting all ECO countries, taking into consideration their diverse levels of economic and industrial development and respective trade policies. It plans a gradual liberalization of intra-regional trade through a step-by-step approach envisaging exchange of tariff concessions in raw, intermediate and manufactured goods. The ECO Preferential Trade Agreement provides for a 10 percent import tariff reduction on specified commodities. It provides lower Tariffs and other Non-tariff preferential treatment to goods coming from the member countries than to goods coming from outside the region.

Significance of Foreign Trade for Pakistan

The role of international trade in the development process of a country is vital. The role of trade explained by Adam Smith’s “vent for surplus” theory, culminated with Marshal’s “Engine of growth” theory, both placed the role of foreign trade at a high rank due to its contribution such as promoting growth through cooperative environment and generation of surplus for further acceleration of the economy. Moreover, the international trade serves as transmission belt for the transfer of the benefits of industrialization and modern technology from the developed to under developed countries . Higher rates of economic growth of developed, and specially industrialized countries, are partly the consequences of international trade.
In recent years trade with industrial countries is no longer an engine of growth for the developing countries as was earlier understood. The industrial countries have been increasingly adopting projectionist policies against the export of developing countries. Such restrictions are likely to become even more stringent in future particularly, under the World Trade Organization (WTO) regime. Furthermore, technological changes in industrial countries have led them, to the synthetic substitutes of primary products in which the developing countries have comparative advantage. Thus, in so far as it is realized that the growth of trade is necessary factor for accelerated development and structural change in an economy, and if in the existing framework of international trade, the necessary expansion of trade cannot be achieved, enhancement of mutual trade among developing countries appears to be the best alternative. Many developing regions, therefore, have initiated the scheme of economic cooperation with the foremost objective of enhancing trade among themselves.
Pakistan’s dependence on foreign trade has increased over the passage of time. Increasing dependence of the economy on foreign trade underlines the significance of this sector for the whole economy.

The volume of trade is expected to increase further in the days to come. Because on the one hand Pakistan is opening up its markets to the rest of the world by removing tariff and non-tariff barriers and on the other hand getting access to the foreign markets. So one can easily anticipate that the dependence of economy on foreign trade is bound to increase drastically but the trade sector has limitations of its own.
These limitations stem from the reality that Pakistan has and is experiencing “commodity and geographic concentration” in trade.

Commodity Concentration

By commodity concentration we mean that our trade is revolving around very few items. Our exports are highly concentrated in few items namely, cotton, leather, rice, synthetic textile and sports goods.
The above table shows that the share of these five items in the total exports of Pakistan was more than 80% during the reference period except the year 2001-02 where it was slightly lower than eighty percent.
The situation is further aggravated by the reality that out of the 83 percent share of the five items in total exports, the share of the cotton group alone was 61% during the year 1990-91. The share of the cotton group was the highest (64.1%) in the year 1995-96. Although it decreased to about 60 percent in the year 2001-02, but still it was very high compared to the share of other items. The major weakness of this commodity concentration type of trade is that any short fall in the cotton crop seriously affects total exports earnings.

Geographic Concentration

Along with the commodity concentration, our trade sector is characterized by geographic concentration. By geographic concentration we mean that our major trading partners are few in number. Our exports are highly concentrated in few countries namely USA, Germany, Japan, UK, Hong Kong, Dubai and Saudi Arabia.
The degree of geographic concentration of our exports can be judged by the fact that about half (47.7%) of our export went to only seven countries of the world i.e. USA, Germany, Japan, UK, Hong Kong, Dubai, and Saudi Arabia during the year 1990-91. The degree of the geographic concentration was at its peak when these seven countries accounted for 55.3 percent in the total exports of Pakistan during the year 1993-94. More or less the same (55%) was their combined share in the exports of Pakistan during 2001-02.

Table 2: Pakistan’s Major Exports.

Country	90-91	91-92	92-93	93-94	94-95	95-96	96-97	97-98	98-99	99-00	00-01	01-02
U.S.A	10.8	12.8	13.9	14.4	16.2	15.5	17.7	20.5	21.8	24.8	24.4	24.7
Germany	8.9	7.1	8.7	8.0	7.0	6.8	7.5	6.3	6.6	6.0	5.3	4.9
Japan	8.3	8.3	6.8	8.0	6.7	6.6	5.7	4.2	3.5	3.1	2.1	1.8
U.K	7.3	6.6	7.1	7.8	7.1	6.4	7.2	6.9	6.6	6.8	6.3	7.2
Hong Kong	6.0	7.3	6.6	7.3	6.6	9.1	9.4	7.1	7.1	6.1	5.5	4.8
Dubai	2.8	4.4	5.9	6.3	4.0	4.7	4.6	5.0	5.4	5.7	5.3	7.9
Saudi Arabia	3.6	4.3	4.7	3.5	2.7	2.4	2.6	2.5	2.4	2.5	2.9	3.6
Sub Total	47.7	50.8	50.8	55.3	50.3	51.5	54.7	52.5	53.4	55.0	51.8	54.9
Other Countries	52.3	49.2	47.2	44.7	49.7	48.5	45.3	47.5	46.6	45.0	48.2	45.1
Total	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0

Source: Ministry of Commerce and Trade Government of Pakistan.

 

Table 3: Overview of PAK-ECO Trade                                                                         (Mln. us $)

	Particulars	1993-95	1995-97	1997-99	1999-01	2001-03	1993-03
	2	3	4	5	6	7	8
1.	Pakistan’s Exports to: ECO.                                 Whole world 1.1 as % of 1.2	377.4 14939.7 2.5	468.9 17027.1 2.8	345.9 16407.0 2.1	505.0 17771.0 2.8	864.8 20295.0 4.3	512.4 17288.0 2.5
2.	Pakistan’s Imports from: ECO. Whole world 2.1 as % of 2.2	461.9 18958.8 2.4	683.0 23699.1 2.9	546.9 19549.7 2.8	765.6 21038.3 3.6	687.8 22560.0 3.1	629.1 21161.2 3.0
3.	ECO’s total Foreign Trade Exports. Imports.	116781.0 126943.7	136058.8 174744.6	124830.1 158587.7	165500     177500	211008 233421	150835.6 154239.4
4.	ECO’s trade with Pakistan as % age of ECO total trade: Exports. Imports.	0.3 0.4	0.4 0.4	0.3 0.4	0.3 0.4	0.4 0.3	0.3 0.4
5.	Pakistan’s total trade (export & imports) with: World ECO (5.2 as % of 5.1)	33898.5 839.3 2.5	40726.2 1151.9 2.8	35956.7 892.8 2.5	37347.7 1038.7 2.8	42855.0 1552.6 3.6	38156.8 1095.1 2.9
6.	ECO’s total trade (export & imports) with: World Pakistan (6.2 a % of 6.1)	243724.7 839.3 0.3	310803.4 1151.9 0.4	283417.8 892.8 0.3	343000.0 1270.6 0.4	444429 1552.6 0.4	305075 1095.1 0.4

Source: Author’s calculation based on ECO secretariat data.
PAKISTAN’S TOTAL TRADE

Pakistan and ECO member countries exchanged, during 1993-2003, goods valuing 1095.1 million dollars on the average.

Figure 1: Pakistan’s Total Trade (exports & imports) with World and Eco 1993-2003

Source: ECO Secretariat data, Tehran Iran.

Figure 2: PAK-Eco Trade as percentage of total foreign trade 1993-2003

Source: Author’s calculation based on ECO secretariat data.

was a bit low (6%) as compared to 1993-95, the average value of Pak-ECO trade during the period was substantially more (37% in 1995-97, 51% in 1999-01) than that of 1993-95 period. The periods 2001-03 compared still more favorably (85%) with 1993-95.
The value of goods traded between these two regions, however, experienced an increasing trend in terms of percentages of their total world trade except the period 1997-99, where it was the same as in 1993-95 (Figure 6-2). In other words, Pakistan and ECO were much more important to each other, as sources of supply and markets for goods, in 2001-03 than in 1993-95.

Pakistan’s Exports

Pakistan’s exports to ECO maintained upward trend throughout the period under review except the period 1997-99. Thus, compared with the figure of 377.4 million dollars during 1993-95 (Table 3), Pakistan exported goods worth $ 864.8 million during 2001-03 and there was no decline during the intervening period except the years 1997-99.
Similarly, in terms of percentage of Pakistan’s total exports to the world the figure increased from 2.5% to 4.3% over this period (Table 4). 

Table 4: Pakistan’s average annual exports to World and Eco during 1993-03.
(Mln. us $)

Sr. No.	Period	Exports to:
		World ($)	ECO ($)	Col. 4 as % of Col .3
1	2	3	4	5
1.	1993 – 95	14939.7	377.4	2.5
2.	1995 – 97	17027.1	468.9	2.8
3.	1997 – 99	16407.0	345.9	2.1
4. 5.	1999 – 01 2001 – 03	17771.0 20295.0	505.0 864.8	2.8 4.3

Source: ECO Secretariat Tehran Iran.

Market Share of ECO

Unlike the ECO market’s share in Pakistan’s total world export which increased from 0.3% in 1993-95 to 0.4% during 2001-03 (Table 3), that of Pakistan’s share in ECO’s total imports from the world decreased. Thus, during 1993-95 ECO’s imports from Pakistan accounted for 0.4% of ECO’s imports from the whole world, which reduced to 0.3% during 2001-03.

Pakistan’s Imports

Pakistan’s imports from ECO maintained upward trend throughout the period under review. Thus, compared with the figure of 461.9 million dollars during 1993-95, Pakistan imported goods worth $ 687.8 million during 2001-03 and there was no decline during the intervening period except the years 1997-99 (Table 5). Similarly, in terms of percentage of Pakistan’s total imports from the world the figure increased from 2.4% to 3.1% over this period. The importance of ECO as a source of import increased too (Table 5).     

Table 5:   Pakistan’s average annual Imports from World and Eco during 1993-2003.
(Mln. us $)

Sr. No.	Period	Imports from:
		World ($)	ECO ($)	Col. 4 as % of Col .3
1	2	3	4	5
1.	1993 – 95	18958.8	461.9	2.4
2.	1995 – 97	23699.1	683.0	2.9
3.	1997 – 99	19549.7	546.9	2.8
4. 5.	1999 – 01 2001 – 03	21038.3 22560.0	765.6 687.8	3.6 3.1

Source: Author’s calculation based on ECO Secretariat data.

Balance of Trade

With the exception of the period 2001-03, the balance of trade stayed favorable to ECO. The relevant summary statistics are given in Table 6.

Overall Trend During 1993-2003

In the previous section an overview of Pakistan’s exports to and imports from ECO was presented as a part of that of PAK-ECO trade in general. The present section continues the export analysis and studies the subject in greater detail; trend; composition, etc.

 

Table 6: Pakistan’s Balance of Trade with Eco.
(Mln. us $)

Sr. No.	Period (Average Annual)	Imports ($)	Exports ($)	Balance
1	2	3	4	5
1.	1993 – 95	461.9	377.4	-84.5
2.	1995 – 97	683.0	468.9	-214.1
3.	1997 – 99	546.9	345.9	-201.0
4. 5.	1999 – 01 2001 – 03	765.6 687.8	505.0 864.8	-260.6 177.0
6.	1993 – 03	3145.2	2562.0	-583.2

Source: ECO Secretariat Tehran Iran.

Trend of Exports

As observed in the previous section the trend in general was upward, if two years averages are considered. The average value of goods exported, in current prices, during 2001-03, was 129 % more than the corresponding value for 1993-95 (Annex 1).
But the going was not smooth. As will be seen in Annex (1), during the period of ten years bracketed between 1993-03, there were two such years when the exports to ECO dropped over the previous year, the exports decreased from 298.8 in 1995-96 to 170.1 in 1996-97 and 214.1 in 1997-98 to 131.8 during 1998-99.

Composition of Exports

The composition of exports of a country is determined, among other factors, largely by that of its domestic products and areas of comparative advantage over its trading partners. Unless distorted by artificial barriers and boosters, the export composition data can be taken as a good indicator of the area of comparative advantages of the exporter concerned, and a change in composition has important messages for policy makers and planners. Therefore, the relevant data in respect of Pakistan’s export to ECO countries are studied at some length in this section. Statistics on export composition are given in Annex (4).
Annex (3) shows that the agricultural commodities (item 1-4) accounted for nearly two third (65%) the exports of Pakistan to ECO member countries during 1993-95. The share of these four items was 54.9%, 27.9%, 39.6% and 42.5% during the years 1995-97, 1997-99, 1999-01 and 2001-03 respectively. Other important items contributing remarkably in the exports of Pakistan to ECO countries includes miscellaneous manufacture articles, animal and vegetable fats, petroleum and petroleum products, tarpaulins, sails, tents, synthetic fabrics and live animals chiefly for food etc accounting for one fourth of the exports in 2001-03.
This indicates that the pattern of Pakistan’s exports to ECO member countries on the hole has been consistent with the known areas of advantage of Pakistan.
The commodities like rice, cotton yarn and cotton fabrics stand out prominently regarding their average annual value during the ten years period of 1993-2003, having their share of 18.52%, 14% and 9.9% respectively. Out of these three commodities ‘Rice’ came out as the most important commodity having the average annual value of 18.52% in the ten years period.
The analysis reveals the fact that agriculture sector emerged as an important sector in the composition of Pakistan’s exports to ECO countries during 1993-03, showing the strength and stability of comparative advantage of Pakistan over ECO member Countries. This has important implications for future export strategy of Pakistan in relation to ECO countries which will be studied in a later chapter.
The top ten exports to ECO countries in different periods starting 1993-95 are given in Annex (5). As can be seen in the table, ‘Rice’, ‘Cotton yarn’ and ‘Cotton fabrics’ rank at the top. Again rice turned out as the top most commodity accounting for first rank in six years (1995-97, 1999-01, 2001-03) out of the ten years period. The second commodity in line was cotton yarn that changed its position from ‘first’ in four years period of 193-95 & 1997-99 to that of ‘second’ in the four years period of 1995-97 & 1999-01. In case of the third commodity namely Cotton fabrics the position remained unchanged and it ranked third in six years period.
 

Trend of Imports

Like exports, Pakistan’s imports from ECO experienced an increasing trend during 1993-03, and the average value imported during 2001-03 was higher than the corresponding figure of 1993-95 (Annex 1). The highest point in imports was reached during 1999-2001. To put the trend in concrete figures during 1993-95 Pakistan’s imports from ECO averaged at US dollar 231 million. These rose to 341.5 million dollar during 1995-97 after which the decline set in, touching the bottom of US dollar 273.5 million during 1997-99.It again increased to 382.8 during 1999-01. Finally it was 344 million in 2001-03.
As can be seen in Annex (1), Pakistan’s imports from ECO maintained unbreakable trend during 1993-97. After a slight relapse in 1997-99, the upward trend resumed and the highest point was reached in 19-01. The decline set in, and the imports reduced from 382.8 in 1999-01 to 344 million dollar during 2001-03.

 

Composition of Imports

Composition of Pakistan’s imports from ECO did not change much during the period under study. Bulk of the imports during 1993-94 was accounted for by Petroleum & Petroleum Products Annex (6), which was also the case during 2001-03 (the respective figures being 54.5% and 48.5%). Besides Petroleum & Petroleum Products, the next important item in the line was Fruits, Vegetable Preparation accounting for 7.9% during 1993-95 and 7.1% in 2001-03.The other important items in the import list are: Machinery, Raw Cotton, Chemical materials, Fertilizers, Chemical elements & compounds, Iron and steel, Ores and concentrates of iron etc. which together with Petroleum & Petroleum Products accounted for 81% of imports during 1993-95 and 82% during 2001-03. With the exception of Petroleum & Petroleum Products, which as stated above maintained its top rank in the import list all the other items in the top ten ones of 1993-95 experienced a change in ranking, Raw Cotton, Fruits, Vegetable Preparation, Chemical elements & compounds etc. improved theirs, while the rest sank to lower rank.

Conclusion

The ECO member countries have been trading with each other since centuries. The current state of intra-regional trade, however presents a dismal picture of in the ECO region. The countries of the ECO region mainly rely on industrial economies for their exports and imports. The mutual trade in the region has been stagnant over time. Despite some efforts to strengthen regional ties amongst the ECO countries, intra-regional trade has been no more than 6 percent of the global trade of ECO countries during the year 2002-03.
The ECO region is full of potential which has to be tapped and harnessed through joint effort of the member countries. So far the main reason for their low levels of trade is the lack of will to cooperate with each other. In order to achieve the objective of higher intraregional trade the member countries need to show that will of cooperation with each other which is absent at the moment.
Keeping in view the low levels of intra-regional trade, there arise the need for special efforts to devise ways and means to increase mutual trade among the ECO member countries. In the past, the countries of the region have been resorting to a number of policy options including; the policy of bilateral balancing or bringing regional trade deficit to zero. These measures resulted only limited success to increase the levels of trade to the inherent potential of the ECO member states. The best policy option in the give circumstances would be that each country is allowed to increase its exports to other countries in the region. This would ensure not only increase in the intraregional trade but also prove a source for stimulating economic activities in the region.