This document provides an analysis of the implications of non-tariff barriers (NTBs) on Pakistan's trade. It discusses Pakistan's NTB regulations and the effects of NTBs between Pakistan and neighboring countries like India. The analysis finds that India has more restrictive trade policies and higher NTBs than Pakistan. Reducing NTBs could significantly increase bilateral trade between India and Pakistan, especially if Pakistan were to grant Most Favored Nation status to India. The document also examines Pakistan's tariff and non-tariff reform policies.

1. ANALYSING IMPLICATIONS OF NON-TARIFF
BARRIERS ONPAKISTAN’S TRADE
SUBMITTED TO: MA’AM MAHA AHMAD
SUBMITTED BY: IQRA SHAHID & AYESHA
IMRAN MALIK
COURSE: INTERNATIONAL TRADE
DATE OF SUBMISSION: 28/5/15
BSECO2K12

2. 1
Contents
1. INTRODUCTION...............................................................................................................................2
2. OVERVIEW OF PAKISTAN’S NTBs REGULATIONS ............................................................................2
3. LEGAL AND ECONOMIC ANALYSIS OF NTBs in PAKISTAN AND ITS NEIGHBORING COUNTRIES.....3
3.1. Effect of NTBs on Trade between India and Pakistan.............................................................4
3.1.1. The ORTI..........................................................................................................................4
3.1.2. Comparing Indices and Trade Logistics...........................................................................4
3.1.3. Gravity Model .................................................................................................................5
3.1.4. Implications from Export Firms Survey...........................................................................6
3.1.5. Granting MFN status to India..........................................................................................7
4. TARIFF AND NON-TARIFF REFORM POLICIES..................................................................................8
5. POLICY IMPLICATIONS...................................................................................................................10
6. CONCLUSION.................................................................................................................................11
References ............................................................................................................................................12

3. 2
1. INTRODUCTION (by Iqra Shahid)
There are several domestic laws that create tariff and non-tariff barriers due to which these
Pakistan and the rest of these countries have closed their economies in varying degrees.
Taxes on trade are the tariffs whereas the non-monetary restrictions of different kinds that
include safety and packaging standards, quotas, documentation requirements, levies and
embargos are designated as non-tariff barriers (NTBs). These barriers are usually set up by
the regulatory organizations that are authorized by legislatures to conduct these protocols.
Many international trade laws, the World Trade Organization in particular, form policies that
limit the use of these barriers that constrain trade. Developing countries such as Pakistan
impose these barriers to protect the domestic industry.
2. OVERVIEW OF PAKISTAN’S NTBs REGULATIONS (by Iqra Shahid)
The main regulation policies used to formulate NTBs in Pakistan are as follows:
 Statutory regulatory Orders (SROs)
 The Import Policy Order
 The Export Policy Order
In Pakistan the Ministry of Commerce is a cabinet-level ministry from the Federal
Government is the main regulatory body that articulates and executes the trade laws.
Pakistan’s Trade Development Authority, Trading Corporation of Pakistan, Pakistan Institute
of Trade and Development and Directorate General of Trade Organizations are under the
control of Ministry of Commerce. Imports and Exports (Control) Act, 1950 is the primary
directive from which these trade laws are derived. Article 3 of the Imports and Exports
(Control) Act gives the Federal Government the power to ban, control or restrict the import
or export of any service or good and set rules and limitations concerning tariff and non-tariff
barriers. This article also issues the policies concerning the licenses, grants, transfers of
licensing, appeals, fee charges associated with these licenses and grants. The Ministry of
Commerce principally enforces its legislative power to manage trade and restrict imports
into Pakistan by passing Statutory Regulatory Orders (SROs) (Khan, 2010).
NTBs, essentially bureaucratic, are intended to discourage imports and limit the availability
of foreign products to support domestic industries.
NTBs may also include delays in customs and clearance, conflict over grading of products,
stringent standardization requirements and visa issuance difficulties1
.
1
Business Forum of Punjab

4. 3
3. LEGAL AND ECONOMIC ANALYSIS OF NTBs in PAKISTAN AND ITS
NEIGHBORING COUNTRIES (by Iqra Shahid)
Non-tariff barriers are the biggest impediment to the intra-regional trade among the South
Asian countries. Due to the intense trade restrictiveness imposed within South Asia, the
intra-regional trade is a meagre and insufficient 5 per cent. Compared to this the European
Union’s intra-regional trade amounts to 58 per cent, The North American Free Trade
Agreement countries have 52 per cent and Association of Southeast Asian Nations (ASEAN)
have 26 per cent trade among themselves. A Consumer Unity and Trust Society
International research proved that if there did not exist any non-tariff barriers among SAFTA
countries the trade would increase nearly twice the current rate. However since it is
impossible to completely remove the NTBs, bilateral, multi- lateral and intra-regional trade
terms and initiatives need to be taken by the member countries.
Pakistan and its neighboring countries Sri Lanka, India and China are developing countries
with large populations which means that they have immense labor forces and equally large
consumer bases. Free trade among these neighboring countries should be relatively simple
due to low transportation costs and minor cultural barriers to trade and the consumers can
have access to the best services and products at least possible costs. However, various legal
and economic aspects have forced Pakistan and these neighboring countries to abandon
their trade and economic activities.
According to IMF-Trade Restrictiveness Index it has been calculated that among the South
Asian countries Bangladesh and India have the most rigid trade regimes. The countries
following Bangladesh and India are Sri Lanka, Pakistan and Nepal. Compared to its
neighboring countries India and China, Pakistan has less comprehensive and rigid non-tariff
barriers. These NTBs have no substantial effect on imports to Pakistan. The NTBs in India
and China on the other hand have huge trade surpluses over Pakistan. Many different
processes have been established in order to calculate the degree of trade restrictiveness
between countries that results due to the implementation of various NTBs, enabling us to
see how the countries in the South Asia rank according to the level of the restrictiveness and
rigidity in their NTBs and which country achieves higher benefits in terms trade-associated
policies (these will be elaborated upon in a later section).
Pakistan’s primary imports from China are electronics such as radio, satellite and telephone
equipment. Main imports from India include black tea and cotton. Another important
import is polypropylene from which automobile parts, plastics and textiles are
manufactured. Pakistan’s NTBs focus on these imports concerning plant equipment,
agriculture and textile products. The most dominant and rigid non-tariff barriers remain in
the agricultural industry as agriculture constitutes of largest proportion of Pakistan’s
economy. Majority of the population depends on agriculture, directly or indirectly. The
interest groups such political parties enforce NTBs to protect the domestic agriculture
industry.

5. 4
3.1. Effect of NTBs on Trade between India and Pakistan
Examining the role of India in this context warrants a more detailed discussion.
3.1.1. The ORTI (by Iqra Shahid)
The World Bank according to the Overall Trade Restrictiveness Index, ORTI, also ranked
India as the country to have the more restrictive trade administration in this region which
means India implements a relatively more extensive range of NTBs and these NTBs are
specifically targeted on the agricultural and auto manufacturing products (UNCTAD, 2012).
The OTRI calculates the weighted average of the tariff of a given country. The weights show
the structure of import volume and import demand elasticities of each imported product
(Kee; Nicita; Olareagga, 2004). If according to ORTI the restrictiveness was diminished by
India the prospective exports level of Pakistan to India could possibly range from $700 to
$800 million. (Kee, Nicita, & Olareagga, 2008)
Table1: POTENTIAL LEVEL OF EXPORTS TO INDIA IF GENERAL AND PAKISTANI-SPECIFIC NTBs
ARE RELAXED ($ Million)
Current level of
exports
Increase in exports
(%)
Potential Level of
Exports
Agricultural goods 80.6 69.7 137
Non-Agricultural
goods
251.9 125.3 566
Total 332.5 111.4 703
Overall Trade Restrictiveness Index approach yields an estimate of total $703 million (Pasha
& Pasha, 2012).
There needs to be relaxation on these trade barriers applied by India if regional trade
among the South Asian countries is to be promoted.
3.1.2. Comparing Indices and Trade Logistics (by Iqra Shahid)
A comparison of these indices and trade related logistics between Pakistan and India reveals
that India has higher performance than Pakistan.
Table2: COMPARISON OF INDICATORS OF LOGISTICS
Indicator*
Pakistan India Average for
South Asia
LPI – Overall 2.53 3.12 2.49
LPI - Customs Efficiency and other border
procedures
2.05 2.70 2.22
LPI – International Transport Costs 2.80 2.91 2.13

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LPI – Logistics Competence 2.28 3.16 2.33
LPI – Track ability of Consignments 2.64 3.14 2.53
LPI – Domestic Transport Cost 2.86 3.08 3.12
LPI – Timeliness of Shipments 3.06 3.61 3.04
*Logistic Performance Index (LPI)
Source: World Bank, World Trade Indicators
Scale: of 1 to 5, 5 being best
These logistics show that both India and Pakistan have a huge margin to significantly
improve in all the indicators. Pakistan specifically needs to improve at customs and logistics
competence.
3.1.3. Gravity Model (by Ayesha Imran Malik)
In the context of international trade, a gravity model is a quantification of trade movements
between two countries. The basis is size as indicated by Gross Domestic Product as well as
the geographical distance between the two countries.
(Pasha & Pasha, 2012) quantified the impact of NTBs on the bilateral trade of India and
Pakistan in several ways, including the construction of a gravity model, the composition of
which they describe as follows (keeping India as the centre of trade) :
Where α is a positive intercept, gives the exports to India from the various countries
(encompassed by I that include Bangladesh, Bhutan, Nepal, Sri Lanka along with Pakistan),
is the GDP of respective countries (in USD, nominal terms), is the nominal GDP of
India (in USD) and is the geographical distance between India and the considered
countries.
The countries have approximately the same distance from India. The left hand side term of
the equation gives the magnitude of exports to India in terms of the GDP of the considered
countries. The results are given in Table 3.
Table3
Total Exports to India (USD
million) 2
2010-2011
Ratio of GDP of country to
India’s GDP
(USD
Billions)
Bangladesh 447 0.0581 7.693
Bhutan 201 0.0008 251.250
Pakistan 332 0.1029 3.226

7. 6
Sri Lanka 501 0.0287 17.456
Nepal 513 0.0091 56.263
Source: Pasha & Pasha’s calculations on data from India Trade Statistics
Even though geographical distance is somewhat similar, the ratio differs significantly
between the countries because trade relationships with India vary from country to country.
For example, Nepal, Sri Lanka and Bhutan have Free Trade Agreements (FTAs) with India,
warranting exceptional market access to them. Bangladesh on the other hand, has granted
Most Favored Nation (MFN) status to India, due to which it has comparatively higher trade
flows with India than Pakistan. Pasha & Pasha state that the case of Bangladesh presents a
comparative depiction of what would happen if Pakistan were to grant MFN status to India.
If Pakistan takes this action, exports to India may grow to 792 USD.
Hence, granting MFN status to India may mitigate the hindrance of NTBs for Pakistan if India
reciprocates by increasing exports from Pakistan.
3.1.4. Implications from Export Firms Survey (by Ayesha Imran Malik)
A survey by Pasha & Pasha of Pakistani firms engaged in exports to India gives varying
indications by different firms about the effect on exports if India were to loosen NTBs in its
with Pakistan. Table 4 shows the results.
Table 4: Degree of increment in exports if
NTBs are loosened by India
Degree of impact Percentage of firms
No effect 38
50% 12
50%+ - 100% 25
100%+ 25
Source: Calculations by Pasha & Pasha
The estimate the average potential increase to be approximately 60%, which implies that in
monetary terms, exports to India would increase to 530 million USD (Pasha & Pasha, 2012).
The exporters surveyed cited the following issues of NTBs that hinder trade with India:
 Visa issuance (documentation, sponsorship, delay, etc.)
 Transportation issues (restricted land routes, lack of wagons at railway, etc.)
 Lack of quarantine and testing provisions (including transparency issues)
 Consignment moving issues in between provinces

8. 7
 Packaging and labelling necessities (legalities, processing delays, etc.)
 Customs
 Dealings with banking facilities
 Information restrictions (excessively complex e-filing process, lack of trade fairs, etc.)
 Sentiments regarding India-Pakistan relations
3.1.5. Granting MFN status to India (by Ayesha Imran Malik)
The status of Most Favored Nation (MFN) when given to one country by another requires
that in the context of trade the two countries face equality in trade benefits in nominal
terms.
As a requirement of the WTO agreement, the granting of this status is intended to
encourage free trade.
Even though being a signatory of the WTO obligates a country to give MFN status to the
other members, Pakistan refused to give the status to India. As per the rules, India gave the
status to Pakistan. However, India also imposed NTBs on trade with Pakistan, so complete
market access was not given.
Removal of NTBs poses huge potential advantages to Pakistan, especially in the trade of raw
materials, such as cement, of which India faces a shortage and Pakistan has capacity in
excess of its domestic demand. As of 2010, Pakistan’s cement exports amounted to 11
million tonnes. Pakistan can meet the demand in India as well, however, there is the
imposition of NTBs in the form of Indian quality assurance inspectors that audit Pakistani
cement factories. Only the factories that they declare to be competent by the inspectors can
trade with India.
Besides the inspectors, there are also the issues of transportation costs as the railway
jurisdiction of India insists on charge for granting the use of their transportation avenues.
Furthermore, India has not yet installed scanners for clearance, which significantly slows
down the process of exporting, hampering the cost effectiveness and deteriorates the
quality of the product due to the prolonged time period it spends in transit (Khan U. , 2010).
The hindrance posed by NTBs is evident in the fact that despite opportunity for trade
specialization in South Asia, particularly between India and Pakistan, there has not been
much effort towards improving the value chain. Khan (2010) attempted to quantify the

9. 8
degree of intra-industry trade through the Grubel-Lloyd Index (GL) which is computed as the
ratio of intra-industry trade to overall trade. A value of 1 indicates 100% intra-industry
trade, whereas 0 indicates absolutely no intra-industry trade or inter-industry trade.
Between Pakistan and India, the GL for several industries came out to be 0, and it was no
higher than 0.0048 for any other industry.
All these factors suggest that If Pakistan grants MFN status to India, it is still a question of
whether India will reciprocate by removing NTBs. The transition will not be instantaneous.
4. TARIFF AND NON-TARIFF REFORM POLICIES (by Ayesha Imran
Malik)
Before 1988, Pakistan had a highly protectionist trade policy that placed heavy emphasis on
tariffs and NTBs alike. After 1988, Pakistan’s trade policy has prominently featured trade
liberalization, but the success of implementation has not been consistent.
Following the 1994 Uruguay Round Agreement, Pakistan, a member of the WTO, faces a
multitude of opportunities to gain increased export market access and diversify its exports
repertoire. However, Pakistan faces significant competition from both developed countries
and developing countries alike (Paracha, 2000).
This is evident from the example of one of Pakistan’s main exports, textiles. The share of
cotton in exports is 19.1% amounting to $4.7 billion2
.
Previously, here was heavy protectionism in the form of the Multi-Fibre Agreement (MFA).
Implemented in 1974 and remaining in effect up to 1994, this agreement laid the ground
rules for quotas in bilateral trade. It was mostly utilized by the developed countries to guard
their industries against rival imports from the developing world.
In the Uruguay Round of 1994, it was ruled that the restrictions of MFA would be phased
out over 10 years, by 2005.
A crucial impact of the termination of the MFA was anticipated to be the contraction of
NTBs, estimated to increase market access for Pakistani textile exports by 67% (Khan &
Mahmood, 1996).
However, this was not the case. Between the years 1980 to 1997, Pakistan’s share in world
textile trade saw an increase of 1.1%, but other countries have fared exponentially better,
as evident in Table 5.
Table 5: % increase in share in world textile trade
Pakistan Hong Kong China South Korea
1.1 5.6 3.5 3.8
Source: Afia Malik’s calculations on International Trade Statistics data
2
World’s Richest countries (website), top Pakistani exports to the world

10. 9
The share of Pakistan declined from 1.2% in 1993 to 1% in 1997.
This is despite the fact that comparative advantage of textiles has shifted. South East Asian
countries have attained it due to their conducive trade policies as well as efficient
production process, investment in capital employing technologies and productive labor. In
short, these countries have adapted well.
With a diversified product base, their exports are deemed as close substitutes to the
products that are produced in developed countries using capital intensive technology.
However, the exports of Pakistan have not been able to come up to the mark (Malik, 2012).
Another factor worth considering relates to the EU and USA, which are those quota-
imposing countries that constitute Pakistan’s largest buyers of textiles with respective
export shares of 21% and 24%.
Pakistan’s market share of textiles is not likely to increase, in the light of a few factors, one
of them being that in its EU and US markets, the country has never even realized its full
quota, as evident from Table 6.
Table 6: Quota utilization in Pakistan (%)
Year 1999 2000 2001 2002
Region
EU 78.01 78.6 78.2 76.5
US 88.04 85.91 84.32 85.17
Total 74 77 74 75
Source: Export Promotion Bureau
Quota realization in Pakistan has been 70% on average, according to the Export Promotion
Bureau. This is due to the history of quota management policy in Pakistan. Dearth of
transparency, intensive allocations in limited groups of exports and even making
underutilized quotas inaccessible led to Pakistan’s quotas being grossly mismanaged. As a
result, the exporters suffered in terms of development. Even the termination of the MFA
does not bode entirely well for Pakistan because even though it reduces the NTBs, it is also
phasing out from other foreign markets, thus increasing the competition faced by Pakistan
(Paracha, 2000).
Due to meagre production and below par quality of the textile products, demand for
Pakistani textiles in the developing countries is quite low. Pakistan’s cotton textiles face
some major weaknesses in the form of contamination, below par productivity of labor, low
cost effectiveness in production processes and low investment in research and development
(Civil Services Academy Lahore, 2005).
According to Textile Vision 2005, Pakistani exporters are not favoured by importers due to:
 Low quality

11. 10
 Delayed deliveries
 Lack of incorporation of environmentally friendly production processes
 Shortage of new, contemporary ideas
5. POLICY IMPLICATIONS (by Iqra Shahid)
The reasons for huge surplus gap are as follows:
 The non-tariff barriers in Pakistan protect only the industries that have
comparatively low growth rates whereas the NTBs in India and China are on high
growth industries such as electronics and automobile manufactures, defense
contractors, businesses that produce large numbers of jobs and have the high
probability of being future international competitors in their respective fields.
 The non-tariff barriers in Pakistan effectively shut all the competition out of the local
market. There’s no motivation for the local industries to improve when foreign
competition is non-existent. The NTB policies in India and China however operate in
a way that makes the foreign products relatively more expensive (but still accessible
to the people). In this way foreign businesses have a chance to compete with and
also provide an incentive for improvement for the local industries. Foreign industries
are not completely shut out as they are in Pakistan.
 In Pakistan, the non-tariff barriers are not targeted at the protection of specific
strategic industries in the market. They are for the protection of general broad
categories of goods. Indian and Chinese NTBs have a different method of operation
whereby they are specifically customized to protect high growth industries.
Even though India has higher trade restrictiveness, Pakistan can improve its position in
South Asia by improving its trade policies.
In event of the overwhelming advantages the neighboring countries have over Pakistan,
NTBs need to be formulated that neutralize the effect of the more comprehensive and
sophisticated NTBs that India and China employ. In order to formulate trade policies that
benefit Pakistan this region following steps:
 All NTBs formulated must be permissible under the international trade laws. The
exemptions on trade laws and regulations under General Agreement on Trade in

12. 11
Services, GATT, General Agreement on Trade in Services, SPS Agreement on sanitary
and phytosanitary measures, technical barriers to trade Agreement and Agreement
on Agriculture must be observed. The Central Government should train and appoint
a task force in the Ministry of Commerce who can evaluate and implement policies
and counter-policies against those of our neighboring countries in promptly.
 The NTBs need to be reformulated and redirected to specifically protect local
industries that have projected high growth rates. The Central Government and the
Ministry Of Commerce can start by lowering non-tariff barriers that protect local
industries with low political power and a slight chance of competing globally.
 Considerable evidence shows that Pakistan’s NTBs are not as diverse or extensively
applied as India’s. The local industry is primarily preserved through the application of
tariffs and Statutory regulatory Orders (SROs), import licensing is also limited and is
granted primarily for safety, religious and security of current tariffs. Sanitary and
phytosanitary measures (SPS) related regulations are obsolete and not strictly
applied. On the other hand, Indian exporters have expressed restrictions on visa,
goods that can be exported through land, custom inefficiencies and financial
transactions disorganizations and delays. The problems faced by the two countries
have been more or less the same in nature. This indicates that if a mutual
arrangement can be reached by both nations, significant benefits can be achieved by
both countries.
6. CONCLUSION (by Ayesha Imran Malik)
Following increased trade liberalization, Pakistan still faces manifestations of issues posed
by NTBs that hinder its export performance.
Attempts to quantify impact of NTBs seem to suggest that relaxation of these barriers can
lead to significant increase in trade outflow to India and other neighboring countries. Even
though Pakistan does not have a restrictive trade policy, this only translates into much
higher imports than exports, which face severe competition especially in the light of trade
openness.
As Pakistan is a member of the WTO, it is obliged to give complete market access to India,
however there are major pre-existing NTBs that will only be dismantled gradually, even if
Pakistan does grant the status. Pakistan’s High Commissioner to India recently suggested
that this action may have dire consequences for Pakistan’s economy. So there is still
indecisiveness amongst officials.
However, regarding other NTBs, Pakistan can work towards better compliance, increased
quality and infrastructural improvement, thus establishing a comparative advantage. It can
also work towards developing and effectively implementing a more efficient trade policy.

13. 12
References
Civil Services Academy Lahore. (2005). WTO Regime and its Impact on Pakistan. 31st Common
Training Programme Syndicate No. 10.
Kee, Nicita, & Olareagga. (2008). Estimating Trade Restrictive Indices .
Kee; Nicita; Olareagga. (2004). Import Demand Elasticities and Trade Distortions.
Khan, A. H., & Mahmood, Z. (1996). Emerging Global Trading Environment: Challenges for Pakistan.
Asian Development Review, 73-115.
Khan, U. (2010). Pakistan: South Asia Trade & Non-Tariff Barriers. Lahore: DPRC.
Malik, A. (2012). Demand for Textile and Clothing Exports of Pakistan. PIDE.
Paracha, S. A. (2000, March). Trade Policies and Liberalization in Pakistan. IDEAS.
Pasha, D. H., & Pasha, D. A. (2012). Non-Tariff Barriers of India and Pakistan and their Impact.
Beaconhouse National University: Institute of Public Policy.
UNCTAD, U. N. (2012).