LAHORE: Despite following the policy of protectionism, Pakistan fares well in terms of tariff rates compared to India and Bangladesh, said Customs department sources, as the average Most Favoured Nation (MFN) rate of Pakistan was 12.1 percent against 17.1 percent and 14 percent for India and Bangladesh respectively, said sources from Pakistan Customs.
However, they added, the MFN rates of China (9.8 percent), Sri Lanka (9.3 percent), Indonesia (8.1 percent), and Malaysia (5.6 percent) are much below than Pakistan. Similarly, according to the sources, Pakistan looks better than India and Bangladesh in terms of average MFN rates with respect to product groups in the region.
The textile sector enjoys more protection in India (20.7 percent) and Bangladesh (19.5 percent) compared to Pakistan (15.3 percent), they said, adding that the MFN rate for machinery upon which entire edifice of industrial development is built is lower in Pakistan compared to Bangladesh and India.
It may be noted that Pakistan has liberalized comparatively faster than India and Bangladesh since 2000 taking the average MFN rate as the proxy variable for liberalization, as the average MFN rates for Pakistan, India and Bangladesh were respectively 25.16 percent, 35.56 percent, and 21.64 percent in the year 2000, which in the year 2018 respectively stand at 12.1 percent, 17.1 percent and 14 percent. It simply suggests that Pakistan has liberalized more compared to India and Bangladesh in the last two decades, they said.
However, again, the MFN rates of other regional countries like China (16.99 percent), Malaysia (9.84 percent), and Indonesia (8.43 percent) were much low compared to Pakistan in 2000. Their MFN rates are even lower compared to Pakistan, India, and Bangladesh in 2018 as well.
According to sources, Pakistan has provided protection through the tariff, devised several schemes of exemption of duty and taxes for export promotion and its average MFN rates are lower at least compared to two regional comparators i.e. India and Bangladesh but its exports have stagnated.
They said the pace of industrial growth is slow and competitiveness is eroding in the international market. Also, said sources, manufacturing industries are lagging behind in terms of technological advancement and adaptation causing low value-added and low-quality export products. The sources said the local manufactures were least incentivized to upgrade their processes due to lack of competition from abroad firms as happened in the case of the textile sector.
Factors like lack of skilled workforce, electricity and gas shortages, etc. are also partly responsible for the low productivity of manufacturing sector but role of import substitution policies and tariffs also cannot be ruled out. The tariffs have aimed at short-term gains of revenue at the expense of sustainable economic growth and the complexity of tariff structure and not-easy-to-use export promotion schemes are certainly responsible for slow industrial growth and exports, they added.
Copyright Business Recorder, 2020