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Express Tribune
a day ago
- Business
- Express Tribune
Steel sector warns of collapse
Listen to article Pakistan's steel sector may become the first casualty of the government's decision to open the economy to foreign competition, as a parliamentary review finds flaws in the assumptions behind cutting protection levels by 52%. Abbas Akber Ali, patron-in-chief of the Pakistan Association of Large Steel Producers (PALSP), warned on Friday that the proposed tariff reduction would push Pakistan toward trading in imported steel instead of manufacturing it locally. If implemented, the new National Tariff Policy would shut down local mills, leading to $1 billion in annual steel imports and risking around 2 million jobs, he said. PALSP Chairman Javed Iqbal Malik stated that the current protection level of 53% for the steel sector would fall to 10% by the policy's fifth yearfar below the 38% minimum needed. Malik said the association met with Haroon Akhtar Khan, Special Assistant to the Prime Minister on Industries, who acknowledged their concerns but said he was powerless to help. He added that the PM's steering committee on industry concerns also refused to meet the industry. Under the new policy, the average applied tariff rate will fall from 20.2% to 9.7% over five years, a 52% drop, Commerce Secretary Jawad Paul told the National Assembly Standing Committee on Finance this week. In FY26, tariffs will fall to 15.7%, a 22.3% cut in the protection wall. This will include reducing customs duty to 11.2%, additional customs duty to 1.8%, and regulatory duty to 2.7%. The government said reforms are based on the World Bank's Global Trade Analysis Project (GTAP) model. The Standing Committee had asked World Bank and commerce ministry officials to brief Opposition Leader Omar Ayub Khan. Ayub and other members met with the experts on Friday in the Parliament House and later shared their observations with the committee. Ayub told the committee that the GTAP model was static, had limitations, and was based on trading in only a few tariff lines. He also criticised the use of Pakistan Bureau of Statistics data, calling it unreliable, and noted the model ignored several key variables. Committee Chairman Syed Naveed Qamar asked Ayub to submit his observations in writing to the committee. The GTAP model projects exports to grow by 10-14% and imports by 5-6%. Over five years, it anticipates trade liberalisation to reduce the trade deficit by only 7%. Abbas Ali urged the government to delay tariff rationalisation for at least one year or until the industry stabilises. The association said the proposed policy could cripple domestic steel production, trigger a $4 billion foreign exchange outflow, worsen the import bill, and deepen the current account deficit. With steel mill closures, 4,000 megawatts of electricity used by the industry would go idle, and 2 million jobs are at risk, Abbas said. According to the association, the perception that the current tariffs protect the industry is inaccurate - only offsets cost differences caused by state-regulated input prices, especially energy. "We can compete globally if electricity costs Rs20 per unit instead of the current Rs40," Abbas said, adding that high electricity rates raise local steel production costs by Rs50,552 per tonne. Abbas said the industry does not seek protection having invested over Rs100 billion in modern European technologies and is regionally and internationally competitive. Tariff reductions would allow semi- and fully-finished products to flood the market, raising the import bill by at least $1 billion, the association said. Javed Malik stated that tariff cuts should be delayed until power, taxes, and interest rates become regionally competitive. He noted that India, the world's second-largest steel producer, has increased protection for its steel sector. Bangladesh offers 90% protection, while Pakistan's protection level is half of this at just 43-57%. Malik said Bangladesh imposes minimal sales tax per ton, while Pakistan charges Rs38,000, and pointed out that Bangladesh's largest mill has a capacity of 2.4 million tonnes, while Pakistan's largest 1.1 million-tonne mill is shut down. Abbas said the government should have first introduced reforms with incentives for iron ore extraction alongside tariff cuts. This would increase raw material supply, reduce costs, improve quality, and enhance global competitiveness. He added that Pakistan's steel production is just 6 million tonnes, compared to Iran's 35 million, India's 100 million, and China's 900 million tonnes. India, China, Russia, and Iran all have state-owned iron ore mining companies supplying to private sectors, giving local manufacturers access to cheaper materials — about $30 per tonne.
Business Recorder
3 days ago
- Business
- Business Recorder
Tariff rationalisation: Rs500bn revenue loss estimated
ISLAMABAD: The government has estimated revenue loss of around Rs500 billion on account of tariff rationalisation including changes in import duties in the next five years under National Tariff Policy. Briefing on customs tariff reforms, Ministry of Commerce Secretary Jawad Paul told the National Assembly Standing Committee on Finance, Wednesday, that the estimated revenue impact is Rs500 billion. Various models including macro model, export forecasting model and Global Trade Analysis Project (GTAP) model, import tariff revenue show a loss of about Rs500 billion in static calculations under National Tariff Policy (2025-30). In the next five years, a positive revenue impact of 7-9 percent has been calculated on revenue considering all factors of customs tariff rationalisation; i.e., increased demand, economic growth, transparency, decrease in under-invoicing, smuggling, compliance cost. The GTAP calculations show that the exports will increase by 10-14 percent, whereas, imports will increase by 5-6 percent. During the meeting, committee members inquired about rationale behind calculations of increase in exports and imports. Paul responded a separate technical briefing on calculation models/ trade equilibrium models would be arranged for parliamentarians on this issue. He said that the outcome of the Free Trade Agreements signed with certain countries had a negative impact on the country. The Commerce secretary stated that there is an institutional shift of taking away import tariff policy from the Federal Board of Revenue (FBR) to the Ministry of Commerce. Tariff Policy Board is a recommendatory body to the Federal Cabinet which has taken the final decision on Finance Bill (2025-26). The target of new National Tariff Policy is to reduce overall tariffs from 20.19 percent to 9.70 percent, readjustment of customs duties slabs to 4 slabs (0 percent, 5 percent, 10 percent and 15 percent) from existing 5 slabs in five years, reduction in customs duty to a maximum of 15 percent in five years, elimination of RDs/ACDs in five years and phasing out of Fifth Schedule of the Customs Act. The existing additional customs duties (ADCs) slabs will be eliminated in four years, keeping in view the annual targets for reduction in ACD rates. The ACD rates would be reduced across 7,500 items with complete exemption for lower slabs. Few products at 35 percent Customs duty are subjected to auto sector policy, therefore, the auto sector ACDs will be eliminated gradually from July 1, 2026. The existing regulatory duty slabs will be eliminated in five years, keeping in view the annual targets for reduction in RD rates. The maximum rate of RD is proposed to be reduced from 90 percent to 50 percent to rationalise excessive para-tariffs. RDs will be fully removed on 554 raw materials and intermediary goods. RD rate will be reduced on 602 goods. The notifications to implement these changes will be issued from July 1, 2025, he maintained. Responding to a query, Paul stated that there is no upward revision of slabs of customs duties, DCs and RDs under the tariff reforms and only downward revision in import duties. He said that the new tariff policy would also be applicable on auto sector like other sectors. Auto sector tariff will also be rationalised to enhance competitiveness, productivity and common welfare including removing quantitative restrictions on import of old and used vehicles. The new auto policy would be introduced from July 2026. Finance Minister Muhammad Aurangzeb informed the committee that the tariff rationalisation is a big change and a permanent implementation committee has been constituted to monitor impact of tariff rationalisation on domestic industries as well as impact during transition period. Copyright Business Recorder, 2025
Express Tribune
3 days ago
- Business
- Express Tribune
'52% duty cut to boost exports'
Listen to article The government on Wednesday claimed a drastic 52% cut in import duties will lead to exports rising faster than imports, while revenues will grow by one-tenth. However, it admitted these projections are based on calculations by the World Bank. Proceedings of the National Assembly Standing Committee on Finance revealed that the government is venturing into uncharted territory, largely relying on the World Bank's Global Trade Analysis Project (GTAP) model. The committee was briefed by the Ministry of Commerce on the new National Tariff Policy, which is being described as "Pakistan's East Asia moment" aimed at increasing exports and reducing the trade deficit. Under the new policy, the average applied tariff rate will fall from 20.2% to 9.7% over five years — a 52% drop — Secretary Commerce Jawad Paul told the committee. He claimed exports will rise at twice the pace of imports due to tariff reforms. According to the GTAP model, exports are expected to grow 10-14%, while imports would rise only 5-6%, said Paul, adding this would help improve the trade deficit despite a lower protection level. When asked about these projections, Finance Minister Muhammad Aurangzeb said, "These are assumptions — some may work and some may not." Leader of the Opposition Omar Ayub Khan raised concerns about the implications of reduced tariffs on reserves, inflation, exports, and imports. He questioned the assumptions behind the optimistic forecast and asked how such drastic tariff cuts could lead to higher exports without hurting reserves. The government failed to provide clear answers and admitted that the World Bank developed the numbers using its GTAP model. Khan demanded the model be shared with the committee. The government did not present the model at the meeting and instead promised a separate briefing by the World Bank and commerce minister. Khan insisted the briefing be open to the media, but Aurangzeb said the World Bank may not agree. Concerns were raised over foreign consultants using a one-size-fits-all approach that ignores Pakistan's ground realities. Officials from the finance ministry, Federal Board of Revenue (FBR), and commerce ministry could not clearly explain the impact on inflation, imports, reserves, or fiscal balance. "Trade tariff reform will be painful as inefficient firms will shut down," said FBR Chairman Rashid Langrial. Secretary commerce said that in the first year (FY26), the tariff rate would drop to 15.7%, cutting the protection wall by 22.3%. This will be achieved by reducing average custom duty to 11.2%, additional custom duty to 1.8%, and regulatory duty to 2.7%. PPP MNA Nafisa Shah noted that while the world is moving towards protectionism, Pakistan is granting unilateral concessions by reducing tariffs. Pakistan's issue has been high tariffs, and despite concerns, there is a need to lower protection under the Most Favoured Nation (MFN) regime of the World Trade Organisation (WTO), said Paul. He added that financial resources will shift to efficient sectors as export production increases. The industry will expand, jobs will grow, and investment will strengthen. The committee was told revenues would rise 7-9%, versus an estimated Rs500 billion loss in static calculations. For FY25, the FBR projects a net revenue gain of Rs47 billion, factoring in a Rs235 billion hit from tariff cuts. Gains would come from other changes, including Rs27 billion from easing age limits for used car imports. Paul said various models including macro, export forecasting, and GTAP showed a Rs500 billion static loss from tariff changes. But when adjusting for factors like demand, transparency, smuggling reduction, and compliance costs, GTAP forecasts a 7-9% revenue gain. He said three additional goals are part of the new tariff policy: export-led growth through level playing fields; support for green initiatives and energy-efficient industry; and promotion of advanced technologies like AI, robotics, nanotech, electronics, and chemicals. Additional customs duties will be phased out in four years, regulatory duties in five years, and exemptions within five years. The number of slabs will shrink to four, with a top rate of 15% within five years. Auto sector products with 35% custom duty are covered under the Auto Policy. These duties will be phased out from July 1, 2026, said Paul. Auto sector tariffs will be rationalised to enhance competition, productivity, and consumer welfare. Quantitative import restrictions on old and used vehicles, subject to quality and environmental standards, and the differential tariff structure will also be eliminated. A new Auto Policy will begin July 1, 2026, featuring major duty reductions and review of SRO 655, SRO 656, and removal of all ACDs and RDs. Products with no concessions under the 5th Schedule will move to the 1st Schedule. Items with concessionary rates will also shift to the 1st Schedule, either under MFN rates or the closest existing slab. The FBR and commerce ministry assured the committee that no new duties will be imposed on agricultural machinery and that all existing duties are trending downward. Finance Minister Aurangzeb said a committee under his chairmanship has been formed to monitor implementation of the new tariff policy and make adjustments as needed. "If raw material tariffs are reduced, it will help, otherwise industries will collapse," said PTI's Mubeen Arif Jutt. Immediate changes In the budget, the commerce ministry has proposed eliminating the 2% additional duty on zero custom duty slabs, affecting 2,156 tariff lines. The 3% custom duty will drop to 0%, lowering costs on 896 tariff lines. Similarly, the 11% CD will fall to 10% on 1,023 lines, and the 16% CD will reduce to 15% for 486 lines. Additional custom duty rates have been cut by 1% for the 7% slab; the 6% rate drops to 4%, and the 4% rate drops to 2%. The 2% ACD slab has been scrapped entirely.
Express Tribune
25-05-2025
- Business
- Express Tribune
A strategic shift towards self-reliance
The cost of exemptions and concessions under the customs duty regime has surged, now amounting to nearly 50% of the total tariff revenue, which is seen as a major deterrent to foreign investment. photo: file Listen to article The government's recent shift towards an export-led growth strategy has garnered broad support. Yet, some manufacturers and commentators remain sceptical, expressing concerns about the impact on local industry and jobs. Others question the timing of these reforms, particularly amid a global "trade war," not realising that this should have been done when Pakistan had started approaching the IMF in quick succession from 2008 onwards for relatively large bailout packages. For more than a decade, Pakistan's exports have remained stagnant – hovering between $25 and $30 billion annually – while imports have nearly doubled. This widening gap has created a structural imbalance in the foreign exchange reserves, leaving the economy perpetually vulnerable to external shocks and reliant on repeated IMF bailouts. To break this cycle, the government established specialised task forces comprising trade experts, senior officials and academia. After months of rigorous analysis and consultation, the conclusion was clear: without a comprehensive overhaul of Pakistan's outdated and distortionary import tariff regime, achieving sustained, double-digit export growth will remain elusive. Several international organisations that have studied Pakistan's trade regime have long urged reform. The World Bank, for example, has consistently ranked Pakistan among the world's most protectionist economies, with average tariffs at least twice the global average and three times higher than those in successful East Asian economies. This tariff structure has created a strong anti-export bias, functioning more as a tool for revenue collection than as a catalyst for industrial competitiveness. If Pakistan is serious about bridging its competitiveness gap and integrating into global markets, modernising its trade policies must be the starting point – and the moment to act is now. In line with the government's commitment to doubling exports within its five-year tenure, tariff restructuring efforts have been underway for several months. Once finalised, the proposed changes were evaluated through rigorous economic simulations using models such as the Global Trade Analysis Project (GTAP) and government-developed econometric frameworks. The results indicated clearly positive economic outcomes: increased employment, accelerated export growth outpacing imports and a favorable shift in investment flows. Notably, the analysis revealed a direct correlation between the ambition of reforms and the productivity of outcomes – the bolder the reforms, the greater the economic gains. These findings are not based on theoretical models alone. Historical evidence from both Pakistan's own tariff liberalisation efforts in the 1990s and early 2000s, as well as from other developing countries, shows that opening up to competition spurs exports, creates jobs, and reduces poverty, especially benefiting small and medium-sized enterprises (SMEs). Of course, no reform is without its challenges. Certain sectors may require transitional support. But with careful planning and well-designed safeguards, tariff reform could be the bold step Pakistan needs to unlock its full export potential. While the government will closely monitor implementation and impact, it is crucial to focus on the long-term upside and acknowledge the costs of not reforming. Over the past two decades, many of our peer countries embraced liberalisation while Pakistan fell behind, increasing its economic isolation. Unsurprisingly, not all stakeholders agree. The Pakistan Association of Auto Parts and Accessories Manufacturers (Paapam) has expressed strong reservations about reducing tariffs to 15% over the next five years. They argue that such reductions could force many local firms to shut down and exacerbate unemployment. However, the Karachi Chamber of Commerce and Industry (KCCI) counters that excessively high tariffs – currently over 87% on auto parts – only encourage smuggling. According to the KCCI, smuggled auto parts already account for 60% of the market, worth $380 million. Similarly, a Customs Department study found that in 2021, smuggled auto parts captured half of the Rs122 billion market while local production stood at just Rs16 billion. Ironically, tariffs designed to protect the domestic industry are instead incentivising smuggling and undermining both industry and government revenue. High tariffs carry several additional drawbacks. They have contributed to Pakistan's economic isolation, both regionally and globally. To offset the impact on certain industries, the government has introduced a range of schemes to provide cheaper inputs – yet these benefits are largely captured by a few large players, leaving SMEs at a disadvantage. At the same time, the cost of exemptions and concessions under the customs duty regime has surged, now amounting to nearly 50% of the total tariff revenue. This growing volume of preferential treatment not only undermines the integrity of the tariff system but is also widely seen as a major deterrent to foreign investment, which thrives on transparency, predictability and a level playing field. Tariff reform is not a leap into the unknown; it is a calculated, evidence-based step towards a more dynamic, inclusive and globally competitive economy. While short-term resistance is inevitable, the long-term benefits far outweigh the costs. If implemented with vision and consistency, these reforms can serve as a cornerstone of Pakistan's economic transformation, helping the country shift from a consumption-driven, import-reliant model to one that thrives on productivity, innovation and exports. This is not just about trade policy; it is about reshaping Pakistan's economic destiny. The choice before us is clear: continue with the status quo and endure recurring crises, or embrace reform and move confidently towards prosperity. The writer is a Senior Fellow at the Pakistan Institute of Development Economics (PIDE). Previously, he has served as Pakistan's Ambassador to WTO and FAO's representative to the United Nations at Geneva
Shafaq News
28-03-2025
- Automotive
- Shafaq News
US tariffs: German auto industry faces 29% loss
Shafaq News/ German car exports to the United States could decline by up to 29% if new US tariffs on foreign vehicles are implemented, consulting firm Deloitte reported on Friday. The firm estimated potential losses of €8.2 billion for German automakers and parts suppliers under the proposed tariff plan put forward by President Donald Trump. The projections are based on data from the Global Trade Analysis Project (GTAP), which tracks global trade flows. 'German manufacturers sold 1.3 million vehicles in the US last year,' said Harald Proff, head of Deloitte's global automotive practice. 'With American plants already running at 70% capacity, shifting production to the US is not a viable short-term solution.' Proff also noted that compensating for the projected losses would require major investment in US-based manufacturing—a move complicated by ongoing trade tensions and economic uncertainty. The Trump administration has imposed a range of tariffs since he took office, targeting Chinese goods as well as steel and aluminum imports. In February, Trump approved 25% tariffs on Mexican and Canadian imports, though he postponed implementation by a month after both countries agreed to new border security measures.
