Tariff policy: learning right lessons from trade reforms
Pakistan's August 2025 trade data shows a wider deficit than a year ago, prompting some to question the country's five-year tariff liberalisation plan. Critics cite the IMF and World Bank-backed reforms in the 1990s, claiming tariff cuts led to weak exports, rising deficits, and de-industrialisation.
This view, however, does not stand up to scrutiny. No empirical evidence shows that tariff liberalisation hurt Pakistan's exports or industrial base. In fact, the country's only sustained period of double-digit export growth came after deep reforms. Between FY2002 and FY2008, exports more than doubled from $9 billion to $19 billion, growing over 13% annually.
The real setback came after 2008, when Pakistan reversed course by introducing regulatory and additional customs duties. This shift back to protectionism caused exports to stall, growing just 3% a year from FY2008 to FY2025, while peer economies surged ahead. Critics mistakenly treat these two distinct periods as one, even though their outcomes were completely different.
Another claim is that unilateral tariff cuts weaken a country's negotiating leverage. In practice, the opposite is true. Countries like Vietnam, Turkey, and Chile lowered tariffs on their own and still secured strong trade deals.
Meanwhile, Pakistan's high-tariff approach has resulted in only token free trade agreements (FTAs). The recent agreement with Turkey, like others before it, covers less than 2% of tariff lines.
Globally, trade openness is not in retreat. Apart from the United States, no other country has raised trade barriers. India, for example, is expanding trade ties, signing FTAs with the UK, the UAE, Japan, and Australia, and negotiating with the EU.
Asia-Pacific economies are integrating under the Regional Comprehensive Economic Partnership (RCEP), the world's largest trade bloc.
For the past 15 years, Pakistan has stagnated, losing around 1.45% of its share in global exports each year while competitors surged ahead. Critics of reform must recognise that this inertia has already cost us dearly and will continue to do so unless we decisively change course.
With Pakistan returning to a liberalisation path, it is time to pursue a more strategic trade policy. Instead of shallow FTAs, we should deepen existing agreements and seek entry into RCEP. Like India, Pakistan can pursue comprehensive FTAs with the UK and EU to secure predictable access, diversify exports, and join global value chains.
This would reduce reliance on temporary schemes like the GSP Plus, which limit export flexibility and are only available to low-income, vulnerable countries. Stronger, rules-based agreements would demonstrate policy credibility, attract investment, and support export-driven growth.
High tariffs not only suppress exports but also hurt domestic producers. Nearly half of the total tariff revenue – about Rs550 billion – is lost through concessionary SROs that benefit a few large firms while small and medium enterprises struggle. Reforms would level the playing field for all. High duties also encourage smuggling, feeding the informal economy and punishing legitimate businesses.
Reform is especially urgent as Pakistan and China restart work on CPEC Phase-II. This phase aims to expand Pakistan's industrial base and turn the country into a regional hub. Achieving this vision will require large imports of machinery and capital goods, which are difficult under high tariffs. And with IMF constraints limiting exemptions, a consistent, liberalised regime becomes essential.
Pakistan's core trade problem is not liberalisation, but inconsistency and inward-looking approach. Deep reforms brought an export boom. Protectionist rollbacks stifled it. If Pakistan faithfully implements the National Tariff Policy 2025-30, it can build competitive industries, leverage CPEC, secure meaningful trade deals, and help rejoin the global economy.
By breaking with the failed policies of high tariffs and selective favours, Pakistan is finally positioning itself to rejoin the world economy on competitive terms. With a degree of stability now achieved, tariff reforms mark the start of a new phase, one aimed at expanding trade, attracting investment, and reducing poverty.
Countries like China and Vietnam lifted hundreds of millions out of poverty through similar reforms, and Pakistan can do the same. After 15 years of stagnation, these changes offer a historic opportunity to dismantle elite capture, unlock growth and put the country on a path to shared prosperity.
The writer is a member of the PM Steering Committee for the Implementation of the National Tariff Policy 2025-30. Previously, he has served as Pakistan's ambassador to the WTO and FAO's representative to the UN