BENEATH the din of the headlines from the war a whole new battle is brewing. A small news item last week announced that the prime minister has approved a plan to reduce all duties, across the board, on all items. In effect, a large part of the apparatus of protection that local industry enjoys is set to be dismantled. And industry is not happy. Here is what is happening. According to a plan prepared by his team of economic advisers, which includes Oxford academic Stefan Dercon, all customs duties and regulatory duties on imports are set to be reduced in a phased manner over the next few years until they reach a maximum slab of 15 per cent. There are three categories of duties applied on imports. Effective from July 1, they plan to have only four slabs for customs duties, zero, five, 10 and the maximum slab of 15pc. Additional customs duties (ACD) are currently applied in four slabs, of two, four, six and seven per cent of declared value of the consignment. Starting from July 1, the highest slab of seven will be dropped, and next year the next highest, and the year after that the next until July 1, 2028, when all ACDs are abolished. Last is regulatory duties, which are applied in many slabs, some going up to above 100pc. From July 1 there will be only four slabs of zero, 10, 20 and 30pc with all other slabs abolished. Then from next year they will start abolishing the top slab until 2028 when there will be no more regulatory duties on all imports. Industry is at a loss for words when describing what is about to happen. For a large number of industries that rely on these duties to make their products competitive against imports this is nothing short of a death knell. The government is doing this in what it says is a bid to spur exports. The affair began as a duty reduction plan for raw materials and intermediate goods used in exports, but grew in scope as it travelled through the process of consideration and approval until it became a robust trade liberalisation plan. The plan received approval from the prime minister last Friday. Today (Thursday) the tariff board will sit on it, and after that it goes to the cabinet for approval. Then it gets written in the money bill and becomes law with the budget’s passage. Implementation is set to start by July 1. There is not likely to be any more resistance. The government is convinced that this sort of tariff reform is necessary to shift towards an export-led growth strategy. It is also convinced that the revenue impact of duty reductions will be manageable. And even though in the short term the duty reductions could drive imports, by the time the plan concludes in 2028, the net impact on the trade balance will be positive 13pc according to their own projections. Overall, there is high level of confidence within the government that they are going to do this, and those members of industry opposing the plan must find a way to survive in the new world that is about to open up, or find some other line of business to invest in. Industry is at a loss for words when describing what is about to happen. For the first time, I hear industry leaders reduced to using expletives when talking about this. Industries like automobiles, mobile handset assembly, paper and board, spinning, polymers and chemicals, plastics and rubber, etc, are set to be impacted very sharply. All find viability for their business models behind a wall of duty protections that keeps foreign competition at bay. With that wall reduced, their feasibility is eroded. The plan is a radical one, no doubt. Drawn up by academics, it is built around the notion that industries that have relied on tariff protection now need to adapt or die, but Pakistan must learn to become competitive in global markets. It may sound fine but it does run the risk of turning Pakistan into a trading economy, since it will undoubtedly gut large sections of manufacturing but may or may not spur exports in the way its proponents expect. They have not done any projections of the impact on demand for foreign exchange once imports become so much cheaper. Second, they have no projections on the employment impact if industries like auto parts or cotton spinning begin to either shut down or reduce capacity in the face of mushrooming imports. Frankly, I am not convinced that the economy can withstand the shock, especially to the reserves, that could come from the sudden surge of imports such a step could trigger. Maybe they think they can contain that through what are called ‘non-tariff barriers’, which in this case would be banks’ refusal to open letters of credit for imports because the State Bank is busy buying most of the dollars coming into the market in the first place. There is a history of this government taking what they consider to be bold steps, then backtracking once the consequences begin to flow in. Take the example of solar rooftop, where the same prime minister announced an aggressive solar policy and then his ministers started complaining about the impact that the proliferation of net metering was having on the power system’s cash flows. Something similar could well happen here. The plan as it stands sounds good at an academic level, and a convincing case can be made for it theoretically. But an entirely different picture will emerge once it begins to be implemented. Are they ready for the inevitable storm once implementation gets going? The spike in imports due to these duty reductions will come rapidly. The corresponding growth in exports, if it comes, will take much longer. How do they intend to weather the years in between? It will take a lot more than faith to see this through. The writer is a business and economy journalist. Published in Dawn, May 22nd, 2025