Pakistan’s bold bet to cash in on India’s tariff crisis will remain a pipedream

As India works to offset the US’s 50 per cent tariff blow to its trade sector, there is an ambitious buzz in Pakistan, which hopes to fill the gap left by India in the US market. The anticipation is high in the garment industry of the debt-ridden country in the wake of reports that many US importers have put on hold their orders, some even diverting them to Pakistan.

Pakistan’s exports in the last fiscal came to a mere $32 billion, as against India’s $824.9 billion. Most of the Pakistani exports were to the US, amounting to $6 billion. Of this, over 80 percent is concentrated in the textile sector.

The state believes the US tariff hike on Indian goods presented a “strategic opening” for Pakistan, which has only 19 per cent tariffs. Pakistan’s finance adviser Khurram Schehzad hailed the development, adding that his country, having one of the lowest regional tariff profiles, is positioned to expand its exports, particularly in textiles, pharmaceuticals, agriculture, technology, mining and minerals, and other value-added manufacturing.

But, reality could be otherwise, and the Pakistani working class knows it. While state officials are lining up to blow their trumpets, the exporters themselves aren’t thrilled. Kamran Arshad, chairman of the All Pakistan Textile Mills Association, told Arab News  that he was unsure whether the new trade agreement with the US would benefit Pakistan significantly. “The costly power and high interest rates would not allow us to compete (in the global textile market) at this 19 percent tariff,” Arshad told Arab News.

The country, with minimal infrastructure and resources, is plagued by high power and gas prices.

While the interest rate in Pakistan is double that of garment sector competitors like India, Vietnam, Indonesia, and Cambodia, the power bills too are also vastly higher than these countries. The tax paid by the Pakistani businesses is almost 10 per cent higher than their competitors, including India.  

A report that appeared in Karachi-based Dawn also asserts that any hopes of Pakistan capturing India’s market are a pipedream. It cites a chronic shortage of foreign reserves, an unfriendly business climate, including a lack of infrastructure, and the uncertain policies are raining on Pakistan’s parade. This is besides the expensive energy and limited raw resources.

While it urges Pakistan to attract FDI in exports with policy reforms and policy stability, it is unlikely that any investors would rush to Pakistan in the current terror climate, where foreigners, even Chinese, are targeted, and terror attacks are a regular phenomenon. “Without credible policy reforms, Pakistan can only watch from the sidelines,” Dawn states.

 

India