A debate has erupted between industry representatives and policymakers over the calculation and implications of tariffs presented in the National Tariff Policy (NTP) 2025-2030. An analysis by an assistant professor of economics and research fellow at CBER, IBA, suggests that a large gap between reported trade tariffs and the rates actually applied to imports is creating an unpredictable environment for investors and hindering the country's manufacturing productivity.
The analysis highlights a discrepancy in the NTP 2025-2030. While Pakistan reported a simple average most favoured nation (MFN) tariff rate of 10.3% to the World Trade Organisation (WTO) for 2024, the NTP shows a baseline tariff rate of 20.2%. This difference exists because the NTP includes regulatory duties (RDs) and additional customs duties (ACDs), whereas the WTO figures only report statutory customs duties.
The analysis identifies a "tariff overhang," which is the gap between the bound rate—the maximum tariff a WTO member commits not to charge—and the applied rate. Pakistan’s simple average bound tariff is 60.8%, creating a gap of 50.5 percentage points. In contrast, Thailand and Malaysia have gaps of less than 17 percentage points. Because of this wide gap, Pakistan can apply large RDs and ACDs through statutory regulatory orders (SROs) and Finance Acts without breaching WTO commitments.
The author argues that this large gap makes tariff policy unpredictable, preventing firms from treating it as a stable factor when planning supply chains or factories. The analysis states that tariff uncertainty undermines other reforms, as firms may be reluctant to meet European Union standards if input costs can change overnight via SROs. For example, some auto sector products may face a 100% tariff despite a group average of 22.5%.
While the NTP 2025-2030 aims to narrow the gap by eliminating the web of RDs and ACDs and placing customs duties into simpler slabs, the author notes it does not address the bound rates. As applied tariffs fall, the overhang will widen, meaning each reduction could be reversed by a subsequent Finance Act. To lock in reforms, the author states the tariff overhang must be narrowed.
The analysis also compares Pakistan to Southeast Asian neighbors. Approximately 60% of non-agricultural imports into Vietnam and Thailand enter duty-free, compared to 40% for Pakistan. Furthermore, 35% of Pakistan's non-agricultural imports face duties above 10%, while that figure is about 16% for Vietnam and less than 10% for Thailand.
Data from the Regional Integration and Value Chain Analyser created by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) shows that Pakistan's exports are overwhelmingly home-made, with foreign value added accounting for only 8.5% of gross exports. This is significantly lower than Vietnam (37%), Cambodia (34%), and Thailand (29%). Even in Pakistan's most export-oriented sector, textiles, foreign value-added content is less than 9%, compared to more than 21% in Bangladesh.
The author concludes that Pakistan's tariff structure penalizes exporters and productive firms that require high-quality inputs. To be serious about reform, the author states the NTP must be followed by the rebinding of tariffs closer to applied rates and deeper, reciprocal free trade agreements (FTAs) with important trading partners.
