The Trade Barriers and Its Effect on Economy of the Country: The

Case of Pakistan

Since free trade is becoming increasingly popular, protectionism has made a comeback since the
Great Depression of 1929 and continues to be a concern today. Over time, other justifications for
the use of protectionism have been proposed, such as the "learning by doing" principle, national
security concerns, and the threat of unfair competition. When it comes to regulating international
trade, governments have two main tools at their disposal: liberalization (free trade policy) and
protectionism. Protectionist policies aim to shield domestic markets from foreign competition by
tariffs and other trade barriers, while free trade policies involve minimal governmental
intervention in international trade and are driven by supply and demand in the free market.
According to (Kee HL, 2009), protectionism is the government's action to support a domestic
industry in the face of foreign competition. To diminish the potential real world income,
(Baldwin, 1970) defines trade policy is any public or corporate policy that affects the allocation
of commodities and services in international commerce or the allocation of resources used in the
production of such goods and services. While the market is a crucial regulator of foreign
commerce under the liberalization policy, protectionism essentially restricts the free operation of
market forces, making the two categories of trade policies unique to each country.

Free international commerce in products, services, and forces of production can be affected and
distorted by NTBs, which are domestic policy interventions performed by states that are not
tariffs. These obstructions may be deliberately erected to limit certain types of commerce, or they
may emerge accidentally as a result of the interaction of national and international legal
frameworks pertaining to trade. NTBs, which are also called "structural bottlenecks," include a
wide range of specific actions taken by the importing State that are often hard to identify as such.
These include things like "buy national" policies, institutionalized corruption in the importing
State, and inefficient bureaucratic systems in the importing State. There are three main types of
NTBs, the first of which is import tariffs. Non-tariff barriers, or NTMs, are regulatory measures
imposed by a government that are not based on tariffs or other forms of taxation. The second
type consists of export constraints imposed by governments, such as export taxes, quotas, bans,
and other voluntary export limits. Among these two types of NTMs are those imposed on
commodities as they enter or leave a country's borders? Thirdly, domestic measures such as
municipal laws encompassing health, technological, product, labor, and environmental
requirements, as well as national taxes and domestic subsidies for competing products, fall under
the category of domestic NTMs.

In an attempt to better understand how these rules affect international trade, many researchers
have begun to probe their effects. Trade agreements (TAs) with and without intellectual property
rights (IPRs) are analyzed from a bilateral trade flow perspective by (Campi, 2019). The effects
of China's trade liberalization on WTO countries' greenhouse gas emissions are investigated by
(J.Levitt, 2019). The case of Pakistan has been the object of investigation by several scholars.
What Impact Does Trade Policy Have on Domestic Relative Prices in Pakistan? Is the topic of
(Stephen R. Lewis, 1968). The trade policies of Pakistan are described by (Baysan, 1992).

Recent growth in Pakistan has been accelerating, while macroeconomic imbalances are growing.
The macroeconomic environment is a major problem for the near-term economic forecast. Based
on the World Bank database, Pakistan's GDP grew by 5.3% in FY17, a 0.8% rise over the
previous year.

When comparing exports ($24.2 billion) to imports ($48.1 billion), Pakistan had a negative trade
balance of $23.9 billion in 2016. In 2017, Pakistan had a total economic output of $278 billion,
and its GDP per person was $5,24,000. Pakistan's exports have decreased by 4.1% per year over
the previous decade, from $29.1B in 2011 to $24.2B in 2016, while imports have increased by
1.3% per year, from $44.6B in 2011 to $48.1B in 2016. Pakistan's trade deficit in 2016 was
$23.9 billion, the result of more imports than exports. Even though it had improved from the
previous year, the trade deficit in 1995 remained at $664 million (Fig. 1). In 2017, the top export
markets for Pakistani goods were the United Kingdom ($1.63 billion), China ($1.50 billion),
Germany ($1.28 billion), and Spain ($0.9 billion), while the top exporting countries were China
($16.89 billion), the United Arab Emirates ($8.39 billion), the United States ($6.40 billion),
Saudi Arabia ($3.06 billion), and Japan ($2.51 billion).
Source: (Yeo, 2019)

The impact of trade policy, including non-tariff barriers, environmental policy stringency, entry
cost, and free trade agreement on trade between Pakistan and its key partners, is examined in
order to pinpoint the root cause of the negative balance and devise strategies for boosting trade in
the next decade.

Regarding the estimation of the effects of NTBs and NTMs on trade flows, present a new
method. (Ghodsi M, 2016) Employ a four-stage method to evaluate the influence of trade policy
initiatives on the average yearly growth of labor productivity across the world economy.

The impact of NTMs on commerce is typically estimated using the gravity model (Disdier A-C,
2010). (Khouilid M, 2017) Analyzed the effect of non-tariff measures on Moroccan exports by
using the elasticity of imported demand and an approximated gravitational equation for a sample
of 28 countries with varying levels of development. Non-policy-induced trade barriers are
becoming increasingly important, as (Genç M, 2014)point out.

There are seven (7) different types of legal instruments that have been utilized to establish Tariff
barriers in Pakistan. The Special Regulations Orders (SROs) have been used the most, followed
by the Import Policy Order 2009 and the Export Policy Order 2009. The majority of India's
exports to the United States consist of cotton, black tea, and chemicals such as polypropylene
(used to produce plastics, ropes, auto components, and textiles) and p-Xylene (used to make
polyester). The country relies heavily on Chinese suppliers of telecommunications gear.
Agricultural, horticultural, and food-related goods face the brunt of Pakistan's non-tariff
restrictions. The dominance of agricultural NTBs appears to be the predictable result of interest
group demands to retain economic rents, given that agriculturalists have historically been
established in political offices across the country (Shah, 2014).

When it comes to regulating commerce, the Federal Government defers to the Ministry of
Commerce. It regulates the Pakistan Investment Development Authority and other organizations
under its purview. The Imports and Exports (Control) Act, 1950 is the primary source from
which the Ministry's authority to regulate commerce is derived. Article 3 of the Imports and
Exports (Control) Act gives the Central Government the authority to prohibit, restrict, or
otherwise control the import or export of any items and to regulate all practices and procedures
involved in import and export. The authority granted by this article extends to the processing of
license applications, the issuance, use, transfer, sale, or cancellation of licenses, the
determination of the form, manner, and length of appeals in connection therewith, and the setting
of fees imposed in respect thereof. The Ministry of Trade and Industry has used its statutory
authority to issue a number of Statutory Regulatory Orders (SROs) that have limited imports
over the years.

Free trade agreements (FTAs) are important trade policies, according to Grossman and Helpman
(1993a), especially for the least developed countries. An East Asia Free Trade Agreement was
shown to increase GDP and wellbeing in member nations by Urata and Kiyota (2003). When
political instability is high, countries are more likely to sign FTAs after a leader's unexpected
exit, according to research by (Rotunno, 2016). To identify the effects of FTAs on bilateral trade
flows (i.e., trade creation and diversion effects), estimated a gravity equation.

National policies have become increasingly protectionist in today's competitive global economy.
To shield themselves from increasingly unfair international competition, especially from
developing countries, states favor taxing international corporations, subsidizing domestic
industry, and enacting other forms of protectionist policy. In some cases, especially in
industrialized nations, these rules and actions are strengthened by a stringent environmental
policy. Based on our findings, stricter environmental rules have a negative impact on global
competitiveness. Reduce Pakistan's trade flows because strict environmental rules have a major
effect on international trade.
There isn't a clear direction in which non-tariff barriers affect trade for Pakistan. NTB's
beneficial effect on high-income nations suggests that states take measures to safeguard
themselves from other high-income nations. Pakistan's trade with the Gulf States and Asian
countries like Bangladesh and Afghanistan has suffered as a result of the NTB. Developing
countries are increasingly insulating themselves from one other. This casts doubt on prior
research that found NTB to negatively impact trade flow (Disdier A-C, 2010).

The free trade agreement encourages countries to open up further in the face of rising
international rivalry marked by the erection of ever-higher barriers between them. Meanwhile,
Pakistan is exerting a lot of effort to improve the attractiveness of its economy. In this study, we
observed that FTA has a positive, statistically significant relationship with trade. However, the
new policy outlook suggests that in order to strengthen the economy, Pakistan should increase
the number of trade agreements it has with significant partners like China.

Finally, it was pointed out that Pakistan's primary export is not agricultural goods. The new trade
strategy will emphasize gender mainstreaming, rationalizing tariffs, and bridging investment
gaps in order to establish an export surplus, in addition to giving strategies to enhance service
exports to improve export competitiveness and diversify markets and products. Better market
access for the country's products requires reevaluating the terms of free trade agreements.

Pakistan's goals include raising yearly exports to US$ 35 billion, becoming more competitive in
international markets, shifting to an efficiency- and innovation-based economy, and increasing
the country's market share in regional commerce.

Conclusion

In recent years, the argument over free trade versus protectionism has been increasingly heated.
The developed world is losing ground in the market to emerging economies. New tariff barriers
are a concern for liberals, while protectionists worry about the economic upheaval that would
result from the unequal distribution of losses and gains among employees in industries that
compete with imports. Both the policy of restricting imports and the policy of liberalizing
exports continue to play a significant role in international commerce. This study, using the
gravity model, analyses the impact of various trade policy actions on trade flows between
Pakistan and its primary trading pattern from 2006 to 2015.
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