Arsalan Ali

Increasing competition between domestic companies and foreign firms, coupled with lowering tariffs, can improve the efficiency of domestic firms.

Talking to WealthPK, Dr Uzma Zia, Senior Research Economist at Pakistan Institute of Development Economics (PIDE) Islamabad, said Pakistan can become self-sufficient by developing domestic industries, which would help increase exports and economic growth. She said the government uses tariffs to discourage competitive imports and protect the domestic industry. This makes imported products more expensive than domestically produced goods.

Data from the Trade Development Authority of Pakistan (TDAP) shows that there are 1,623 tariff lines on the products, among which 587 are from raw material for consumer goods, 189 from raw materials for capital goods, 484 from capital foods, and 122 from consumer goods.

The above statistics indicate that Pakistan’s economy is based on consumer goods rather than capital goods. In this way, we can see tariff rationalisation is focused on the raw materials for consumer goods. Imports of raw material for capital goods are minimal, indicating a lack of capacity in the domestic market.

The TDAP report highlighted that tariff rationalisation may focus on raw material for capital goods. This is because, for growth in exports, it’s imperative to shift from consumer goods production to capital goods production. The report pointed out that tariffs related to synthetic fibre should also be rationalised. The world is moving towards garments made from synthetic fibres, while the domestic textile industry is dependent on cotton-based garments. Synthetic fibres face an import duty of 10 to 25%.

Pakistan is foregoing the opportunity to export garments made from synthetic fibre as the global demand is increasing and the cotton-based garments demand is decreasing. Tariffs on synthetic fibres should be decreased so that domestic industries can shift from cotton to synthetic fibre, the report recommended.

According to the report, import tariffs must be reduced, and domestic producers must be enabled to compete with international producers and reach out to the export market. The report said reducing input tariffs while keeping tariffs on final goods high introduces an anti-export bias that ultimately leads to lower productivity growth. It said reduction of import tariffs on inputs is good, but gradually it should also be lowered on final goods.

Tariffs and other import duties play a key role in allocating resources. To avoid unintended consequences of changes in tariffs, regulatory duties and additional customs duties, the National Tariff Board must commit to a simple tariff structure, the report suggested.

Credit : Independent News Pakistan-WealthPk