Arsalan Ali

Pakistan’s successful integration into the global value chains (GVCs) requires a multi-faceted approach, which includes reducing trade costs, streamlining border processes, digitising operations, tariff rationalisation, intellectual property rights, and upgrading logistics infrastructure, experts say. Muhammad Shoaib Zafar, trade policy expert at International Trade Centre, said while talking to WealthPK that Pakistan should prioritise policies that reduce trade costs and streamline processes at the borders. He said delays and barriers at the border can hinder global integration and make trade less competitive. He said introducing customs reforms and developing transport and port infrastructure are crucial to facilitate the flow of goods across borders.

Shoaib maintained that delays at border crossings have severe implications for the logistics sector. “If trucks are stuck in queues, it not only affects their earning potential, but also hampers overall trade efficiency,” he explained. He said Pakistan should prioritise the provisions of the World Trade Organisation’s Trade Facilitation Agreement, digitise processes, and ensure transparency and streamlining at border points. He said Pakistan needs to enhance its market access, which can be achieved through free trade agreements and preferential trade agreements.

Shoaib said it is crucial to rationalise tariffs and liberalise trade while eliminating non-tariff measures. He said tariff escalations can be detrimental to GVC integration. The trade expert maintained that enforcement of contracts and protection of intellectual property rights was another critical aspect. He said GVCs involve a network of different firms, and without the guarantee of intellectual property protection, no business will risk entering a country. He said strengthening the contract enforcement and intellectual property rights protection is crucial to attract foreign firms and promote GVC participation.

Shoaib said national policies should capitalise on Pakistan’s comparative advantages. “While the country possesses a strong base and abundant human capital, focus should be on developing policies that prevent labour prices from becoming uncompetitive,” he emphasised. He said providing incentives and arranging training programs to enhance labour skills and capacity are vital for upgrading Pakistan’s position on the GVC ladder.

Shoaib said Pakistan’s logistics sector predominantly relies on smaller trucks that do not meet international standards. He said encouraging the utilisation of larger vehicles and improving fleet standards would enable shipment consolidation, and enhance cost competitiveness. He said per-unit cost of transporting goods via larger trucks is lower than that of smaller trucks. Muhammad Zeeshan, trade expert at the Pakistan Institute of Development Economics (PIDE), told WealthPK that the global trade facilitated by GVCs amounts to approximately $15 trillion, and added that 70% of global trade comprises the exchange of intermediate goods and services.

Zeeshan said the contribution of Pakistan to the global value added in GVCs stands at a mere 0.5%. This can be attributed to factors such as insufficient infrastructure and a scarcity of skilled workers. The trade expert emphasised the need for a comprehensive policy framework to fully capitalise on the advantages offered by GVCs. He further stated that integration into GVCs holds substantial potential to elevate firm productivity and enhance export competitiveness. “Through participation in GVCs, domestic enterprises can gain access to new markets, acquire advanced technologies, and get exposure to the best global practices,” he added.

Zeeshan said integration into GVCs stimulates innovation, efficiency, and competitiveness, leading to enhanced productivity across various industries. He also emphasised the importance of firms specialising in specific stages of the value chain, enabling them to concentrate on areas where they possess a comparative advantage. This strategic focus allows for greater efficiency and cost reduction.

He said such specialisation plays a crucial role in boosting exports, as Pakistani products become more competitive and appealing in global markets. He further stated that realising the full potential of the GVCs requires an active role from the government.

Credit: INP-WealthPk