Pakistan offers better trade incentives in region

LAHORE: On paper, the Indian trade regime looks more open than Pakistan, but its non-tariff and technical barriers coupled with countervailing duties make imports into India even more difficult than Pakistan. 

Asia-Pacific Trade and Investment Report (APTIR) by United Nations (UN) Economic and Social Commission for Asia and the Pacific (ESCAP) reveals that India’s average MFN-applied and effective tariffs at 12.1 percent and 9.8 percent are slightly higher than Asia-Pacific averages of 7.4 percent and 7.4 percent respectively. However its WTO-bound duty, at 47.5 percent, is much higher than the Asia-Pacific average of 21.7 percent. 

In Pakistan’s case, MFN-applied and effective tariffs at 13.8 percent and 14.3 percent are much higher than the Asia-Pacific averages. Also, its WTO-bound duty, which averages 60.2 percent, is substantially higher than the Asia-Pacific average of 21.7 percent. 

Pakistan has imposed only one countervailing duty against European Union. India, on the other hand, has imposed 34 countervailing duties out of which 13 are against EU, one against Turkey, eight against USA and 12 against other countries. 

WTO removes some of these measures on appeal but it takes almost three years before a final decision is announced. Our National Tariff Commission is perhaps the slowest in addressing the complaints of domestic producers. 

Trade measures, which, after implementation, certainly or even probably discriminate against foreign commercial interest, have been classified as “Red” in the ESCAP report.

 According to the report, Pakistan announced four Red and three Amber measures and implemented all of them. On the other hand, India heralded 24 Red measures but applied only 15 of them, while it executed all of its nine Amber measures. These discriminatory measures in Indian regime certainly boost Indian exports and reduce its imports. 

Intraregional trade costs in Pakistan have fallen slightly since 2009. It is still costlier for Asia-Pacific economies to trade with Pakistan than with East Asia-3 (China, Japan and the Republic of Korea) – the intraregional benchmark – and with the EU-3 (France, Germany and the United Kingdom) – the extra regional benchmark. Based on the UNRC Survey 2015, Pakistan’s trade facilitation and paperless trade implementation score is 47.3 percent as compared to 46.5 percent for Asia-Pacific. 

Furthermore, trade costs between India and other regional economies have fallen sharply since 2009. However, it remains costlier for Asia-Pacific economies to trade with India than with China, Japan and the Republic of Korea or with major EU economies (France, Germany, and the United Kingdom). Based on the UNRC Survey 2015, India has implemented 67.7 percent of potential trade facilitation measures compared to 46.5 percent for the Asia-Pacific.

Other aspects of trade related issues highlighted in report reveal the share of intermediate goods in trade – a proxy for participation in Global Value Chains (GVCs)– is much higher in Pakistan (36 percent) than the Asia-Pacific overall (22 percent) for imports, and also higher in Pakistan (28 percent) than in the region (18 percent) for exports. Pakistan is involved in textile value chains at the processing stage, which is reflected by the top import products including woven fabrics and cotton, and the top exports products being dominated by garments and textiles. 

The share of intermediate goods in trade – a proxy for participation in GVCs – is much higher in India (37 percent) than the Asia-Pacific region for imports. For exports, the share of India (35 percent) is even above the Asia-Pacific region (18 percent). 

Indian participation in GVCs is mainly centered on the diamond industry, as the country is a major hub for cutting and polishing diamonds. The diamond trade accounts for 5.9 percent of imports and 10.9 percent of total exports. 

Pakistan has 11 trade agreements in force, which are higher than the Asia-Pacific average of 7.1 agreements. Thirty per cent of the total exports are to Preferential Trade Agreement (PTA) partners, compared with 35 percent for Asia-Pacific, while 53 percent of the total imports are from PTA partners, compared with 45 percent for Asia-Pacific. Pakistan’s exports to PTA partners are much lower than India’s exports to its PTA partners. 

India has 14 trade agreements in force, again much higher than the Asia-Pacific average. PTA partners account for 38 percent of exports, compared to 35 percent for the Asia-Pacific. For imports, 49 percent are from PTA partners, compared to 45 percent for the Asia-Pacific.