ITC, World Bank report: Half of Pak exporters find it hard to comply with trade regulations

ISLAMABAD: A new report published by the International Trade Center (ITC) and World Bank reveals that about half of the Pakistani exporters find it hard to comply with trade-related regulations or procedures in Pakistan and abroad.

The report published by ITC in collaboration with the World Bank and supported by Australian Aid titled “Invisible Barriers to Trade: Pakistan Business Perspective” states that better integration with the global value chain and increased exports are important for Pakistan’s economic development through job creation – especially for youth and women.

In fact, the country can potentially increase its exports by up to $12 billion by 2024 even taking into account disruptions caused due to COVID- 19, according to the International Trade Centre’s latest export potential assessment for Pakistan.

As much as $7 billion of this untapped export potential is at risk, due to market frictions such as lack of transparency and related non-tariff measures, especially for small businesses looking to trade more across borders.

Thus, identifying which non-tariff measures hinder Pakistani exports is critical for the Government to better formulate its trade policies. Governments, according to the report, impose measures such as testing, certification and licensing to regulate markets, protect their consumers and preserve their natural resources.

Traders in developing and least developed countries, in particular, have the most difficulty dealing with these non-tariff measures (NTMs).

The NTM Business Survey in Pakistan finds that 49% of small enterprises and 57% of medium-sized firms have trouble with non-tariff measures, while 54% of large companies consider them to be burdensome. Almost half of the challenges these firms reported stem from Pakistani rules on matters such as export inspections, tax refunds and export certification.

These invisible barriers to trade affect exporters and importers differently, and their impact varies across sectors. Regulations and the procedures to comply with them are difficult for 51% of Pakistani exporters and 46% of importers.

Most agricultural exporters (60%) – especially those dealing with fresh and processed foods – experience difficulties with these measures, as most countries have stringent regulations in place to protect human health and the environment. In comparison, 47% of the Pakistani companies that export manufactured goods face problems.

Technical measures are the main obstacle for exporters. Conformity assessment requirements such as testing and product certification are a bigger concern (41%) than rules related to quality standards, safety and production processes (4%).

In fact, Pakistani exporters say that high costs and administrative hurdles related to conformity assessment mean it is actually tougher to prove compliance with regulations than to comply. This mirrors survey results in other developing countries.

Almost 43% of the difficulties involve regulations of Asian countries (excluding the South Asian Association for Regional Cooperation, or SAARC), and particularly Gulf Cooperation Council members. More than one third (36%) of burdensome foreign regulations are European. Pakistani exporters say complying with European rules is difficult and the accompanying conformity assessment procedures are too strict. The neighbouring Saarc countries account for only 5% of the problems that Pakistani exporters experience with foreign regulations.

At the individual partner country level, the United Arab Emirates and the United Kingdom are responsible for the most reported regulations, each accounting for 8%. German measures account for 6%, while Oman and the United States account for 5% each.

Improving quality infrastructure and enforcing quality compliance are key to export development. For instance, Pakistan should increase the capacity of local laboratories to carry out required testing and certification. Efforts need to be made to strengthen the capacity of small and medium-sized enterprises to comply with international market access requirements.

Finally, Pakistani trade regulations and processes must be streamlined to facilitate exports. A policy rethink is needed on advance payment restrictions on raw material imports and processes involving the duty drawback scheme. Export inspection processes at the customs also should be improved.

Supporting small businesses to achieve export success also requires a clear understanding of the challenges they face. International Trade Centre business surveys on non-tariff measures aim to achieving exactly that – identifying key trade hurdles through direct interaction with businesses.

“Non-tariff measures – often imposed to protect human, animal or plant health, to ensure quality or inform consumers about production processes – can at times become obstacles to trade.

Non-tariff measure compliance may become too onerous for firms, and the mere process of finding the right information can be cumbersome” said the WB’s former country director in Pakistan Illango Patchamuthu.