Addressing trade policy challenges

LAHORE: Effective trade policies require consistent enforcement, transparency and strategic incentives to achieve national economic goals while curbing illicit trade practices. Unfortunately, Pakistan’s trade policies fail to meet these objectives.

Trade policy serves as a framework for regulating international trade to foster economic growth, generate employment, maintain a balance of payments, and promote industrialisation. It influences tariffs, subsidies, quotas and agreements to encourage exports, manage imports, and protect domestic industries. A well-structured policy ensures competitive integration into global markets, sustainable development and technological advancement.

For economies like Pakistan, the primary objectives of trade policies are to expand market access and strengthen foreign exchange reserves. They also aim to support nascent or strategic sectors against unfair foreign competition and diversify markets to reduce reliance on limited sectors. Effective trade policies enhance competitiveness through innovation and cost reduction, spur employment by driving industrial and service sector growth, and align trade balances through export-import optimisation.

Pakistan’s trade policy faces several significant challenges, including over-reliance on the textile sector, which constitutes over 60 per cent of exports, and minimal focus on high-value industries like engineering goods and IT. The country also depends heavily on a few markets, such as the EU and the US, while largely neglecting emerging economies.

Poor coordination between federal and provincial authorities and weak monitoring mechanisms further undermine the effectiveness of trade policies. High import duties inflate production costs for export-oriented industries, while limited financial, research, and capacity-building support hampers exporters’ competitiveness. Logistics and infrastructure deficiencies, including inefficient transport systems, port bottlenecks and high energy costs, also weaken Pakistan’s trade position.

Furthermore, lax enforcement of anti-smuggling laws enables smuggling to thrive, undermining formal trade. Complex procedures and slow refund mechanisms deter exporters.

Under-invoicing and smuggling are critical challenges that undermine trade policy goals. Under-invoicing reduces customs duties and tax revenues, distorts trade statistics and facilitates money laundering. Smuggled goods, often sold at lower prices, harm formal traders and industries, stifling local production and industrial growth.

These practices bypass tariffs, undercutting domestic producers and creating an uneven playing field. They discourage investment in protected industries and erode the effectiveness of tariff protections.

Countries like India, China and Vietnam provide successful models for combating smuggling and under-invoicing: India employs goods and services tax (GST) networks and conducts regular market inspections, requiring sellers to provide proof of origin or tax payments.

China uses its golden tax system and border surveillance to deter smuggling. Vietnam has embraced customs digitisation and imposes heavy fines and jail terms for illicit trade practices.These nations also enhance collaboration among customs, tax authorities and law enforcement, engaging trade associations to discourage the sale of illegal goods.

Pakistan must adopt similar measures, including digitising its tax and customs systems, enforcing strict penalties for illicit trade, and ensuring robust monitoring and coordination. Addressing trade policy flaws will pave the way for a more competitive, diversified and growth-oriented economy.