“PAKISTAN'S trading patterns have closely followed a cycle defined by a major departure from and return to protectionist import substitution policies.

Over 1997-2003, under a radical liberalisation programme, trading monopolies were eliminated, especially in agriculture sector and a significant, unilateral opening of trade regime was witnessed.

The unweighted (i.e.simple) average statutory tariff fell from 47.7 in 1997-98 to 17.3 per cent in 2002-03. These changes were accompanied by a steep depreciation of the real exchange rate. .Not surprisingly, these reforms converted Pakistan as the least protected market in South Asia region.

But in the second half of 2000-10, particularly after the global crisis and in response to twin high deficits—fiscal and current account, heavy protectionism was re-introduced. While it served to correct imbalances, it re-introduced major distortions in the trade system. These included active use of WTO compatible regulations to restrict imports--- including quasi-import licensing mechanism, particularly for the protection of local industries.”

“There are now at least nine standard normal statutory tariffs ranging from zero to 50 per cent . This compares with just four standard normal rates, from 5-25 per cent in 2003-04. From the list of 906 manufactured items that enjoy tariff exemptions, 91 per cent of the listed products benefit only a single local monopoly producer and five per cent benefit only two producers, while other producers of the same good, especially the small and medium producers, do not receive the same treatment. The extremely high protection slows down the development of efficient and competitive industries and promotes rent-seeking (quasi-monopoly behaviour.”

The above are observations from Planning Commission's strategy paper, “ Pakistan: Framework for Economic Growth May 2011.”

While one would agree with the Commission's views that protectionism should not “ promote rent-seeking “ which needs to be strongly discouraged to foster competition and efficiencies in the economy, selective curbs on imports are inevitable to correct widening trade imbalances in the present stage of country's industrialisation. A judicious blend of import substitution and export growth can help reduce heavy foreign dependence more rapidly.

One cannot take pride in the fact that Pakistan had emerged in 2002-03 as the “least protected market in South Asia” if it had set a process of deindustrialisation, kept agriculture stagnant, promoted mercantilism and led to a growth bubble. In that period, exports picked up because of accompanying “steep depreciation of the real exchange rate.”

This did not happen because of quality improvement, value-addition and globally competitive prices or efficiencies in the export-oriented industries. And currently, despite the protectionist policies, exports have jumped up to a record level with a stable rupee because of high international commodity prices. Policy responses have to cater to specific issues while applying a combination of universal principles of protectionism and free trade. For this, the Tariff Commission has to be properly equipped and empowered to reject unjustified protectionism.

While the PC says, “heavy protectionism,” in response to the global crisis and twin deficits—fiscal and current account, “has served to “correct imbalances,” it laments the re-introduction of “ major distortions” in the trade system. “Heavy protectionism” is inevitable in the current environment to shake off dependence on foreign money and heavy alien intellectual inputs in growth strategies,, so as to develop a home grown economic model based on self-reliance. This is an over-arching issue. The improvement in the external sector, brought about curbs on imports, has contributed to Pakistan running things without any IMF assistance for about one year. And RGST has been postponed for a more suitable time.

Free trade and protectionism--- inseparable twins—are applied individually and separately to suit changing realities. While paying lip-service to free market, why does the United States restricts Chinese and Arab investment in “strategic areas” and why does it deny Pakistan's textile goods freer access to its market?. With the Anglo-Saxon global financial model bringing enormous benefits to the wealthy in the Untied States but incomes of its citizens declining in recent years, Washington could afford to be generous in opening up of its markets to cheaper goods from developing countries to prevent public outcry against high cost of living.. With wages down and dollar depreciating fast over the past few years, the US is returning to manufacturing and export of industrial goods.

Dwelling on the crises the West was facing, Nobel Laureate Amartya Sen recently said they could learn from rapidly growing economies like China and India. He believes there is much that developing countries can contribute at “the level of ideas” to the debate in the western world. For example, the importance of growth in public revenue generation. Going straight at budget deficit cuts growth.” He also noted that “ the dominant figures in public discourse are not democratic figures but bankers,” while referring to debt crisis in Europe.

One can look at experiences of different countries and draw lessons from them. But it is no good to blindly adopt things done in any country. The real issue is to adapt useful foreign ideas to specific conditions in Pakistan..

Free trade has spurred pre-capitalist mercantilism. Liberalisation of foreign trade has helped to rapidly increase the services sector ( which now constitutes 54 per cent of the GDP) at the cost of commodity producing sectors. It had pushed up imports and trade deficits, making the economy heavily dependent on foreign capital and financial inflows. Once these inflows dropped, the growth rate came down.

Pakistan has not been able to gain in a volatile international market and its economic growth is trailing behind most of the countries in the region because its state-patronised rentier class cannot compete in the global market. The solution lies in combining free trade within national frontiers with a flexible approach to selective foreign trade curbs. The domestic market should be opened up to international competition in phases so as to benefit from it, not de-industrialise or for the lure of mercantilism.