EDITORIAL: Last year, the government approved the National Tariff Policy (NTP 2025–30), and this fiscal year, it has included the auto sector within its scope. Recently, a heated debate has emerged between industrial players—who are likely to be adversely affected by the NTP—and “liberal” economists.
The latter believe that rationalizing tariffs will reduce anti-export bias and help local industries find a competitive advantage. However, the former argue that this policy could eliminate some existing businesses.
Both sides have a point, and a middle ground is warranted. This is particularly true because, despite receiving high tariffs, the majority of protected industries have failed to achieve the level of competitiveness needed to operate in an environment of open imports. They lack sufficient R&D, innovation, and economies of scale. While policies are usually designed to provide protection for a specific period using a sunset clause, such clauses are seldom implemented.
Instead, industrial players typically lobby to extend their protection, perpetuating the status quo. Thus, they may need a shock to force them to operate more efficiently.
However, there are genuine concerns across manufacturing industries that may not be addressed solely by implementing the NTP; in fact, doing so could be counterproductive. Manufacturers face multiple layers of taxes and compliance requirements imposed by various federal and provincial agencies. In contrast, importers only have to navigate one or two layers.
The lack of a level playing field puts local manufacturers at an inherent disadvantage.
Furthermore, Pakistan lacks the base materials required for many industries. Without a domestic petrochemical complex, the country does not produce essential industrial intermediates like propylene, steel, aluminum, industrial chemicals, and refined metals. As a result, downstream industries are entirely dependent on imports.
The non-availability of reliable and affordable energy makes it difficult for Pakistan to compete with imports from countries where such inherent inefficiencies do not exist.
Historically, the country has relied heavily on imported energy, while power generation has become expensive due to lopsided contracts. Furthermore, transmission and distribution losses are passed on to paying consumers. These high costs, combined with the absence of downstream linkages, put the industrial sector at a distinct disadvantage. While these disadvantages could be diluted through economies of scale, achieving this requires strong demand—which is currently hindered by high retail prices driven by steep indirect taxes like GST and FED. Ultimately, without scale and facing higher costs, no industry can thrive.
However, scale can be achieved by entering export markets. The energy crisis is increasingly becoming a thing of the past; with the massive induction of renewables (mainly solar), energy costs have declined for many players.
The contribution of indigenous sources is also increasing in the energy mix, while debt repayments related to the 2015 IPP policy will start to decline in 2027. Attempts are also being made to tackle transmission and distribution losses through privatization.
Nonetheless, taxes remain a major issue, and refunds are not easy to obtain. While these costs are passed on to the domestic market, they make exports uncompetitive. Furthermore, the overall security situation and negative perceptions keep buyers at bay, as they prefer to do business with safer countries.
Moreover, data from other regional countries show that they can export while maintaining higher protection for their domestic industries. According to WTO data, Pakistan’s simple average tariff is significantly lower than those of India and Bangladesh, and it is comparable to those of East Asian nations.
Although economists argue that Pakistan has additional duty protection in the form of ACD and RD, these are also present in other jurisdictions—some of which employ non-tariff barriers as well. Thus, it cannot simply be said that protectionism is higher in Pakistan. The core of the problem is the absence of other competitive factors; without these, even lower tariffs may not be able to eliminate the anti-export bias.
That being said, excessive protectionism is like an addiction. It allows firms to make higher profits, leaving them content to operate sub-optimally while extracting economic rents. Thus, reducing tariff protection is healthy, as it forces local industries to cut costs and become more efficient. If they cannot adapt, they should be replaced by more competitive ones.
At the same time, too much openness too quickly could kill existing industries, while a lack of other competitive factors may prevent them from being replaced by better alternatives. Therefore, the government needs to gradually reduce protection while working to improve efficiency across the macro-economic structure.
Copyright Business Recorder, 2026