Leaders all across the globe reach a consent to make immediate action against climate change and to keep global warming to 1.5 degrees Celsius above pre-industrial levels and to secure net-zero emissions by 2050, not only through controls on traditional trade and land activities but also through the sea. Some of the actions considered, affect directly the way in which firms will trade their output. These actions aim at ensuring the environmental externality associated with trade but the real question is that, how can a country like Pakistan facilitate the activities and ease trade process that is:
‘Green and Blue’
If we consider the land activities first, than we realize the fact that, technology is the basic need that may address the issue by treating water waste and transform their energy grid which should be an environmental good and services (EGS) that prevent or minimize environmental damage to water, air, soil, waste and noise to make it eco-friendly. Recent WB report highlights the important role of trade in ensuring access to EGS but the real question is, are the trade policies in Pakistan ease or restrict the access to these EGS?. Import duties are the prime trade policy instrument in Pakistan that can encourage investments in EGS because they alter their price. The lower they are, the easier it will be for Pakistani firms to pursue green production processes. If we looked at Pakistan’s import duties for a basket of EGS than the import duties of tariff lines revealed that,
Import Duties on Environmental Goods in Pakistan
On average, import duties on environmental goods in Pakistan is 15.7% are lower than the average import duty across the entire tariff schedule of 20%, also lower than the average duty on intermediate goods which is 20%, on capital goods which are 18.3% or on vehicles which is 91.9% but still, they are non-negligible, with substantial variations within broad categories like many goods are critical to clean energy supply like solar and wind powered generating systems, hydro turbines are already duty free as it ensure efficient water use like drip irrigation and sprinkler systems which is very fruitful for our Agriculture. However, duties are much higher for a range of other goods such as many solar PV and wind-turbine components, light fittings fitted with LEDs, filtering, or purifying machines for gases (used in air-pollution control) and water-filtration and purifying machinery. The Finance Act of FY22 reduced import duties on EGS by slightly more than it reduced overall import duties. Again, the cuts were uneven and some sectors such as electric vehicles, waste-water treatment and solid waste management were barely impacted.
This is not only the case, like our land we are also damaging our oceans which accelerates the pace of hurricanes, T-sonami and other damages to natural habitat of our blue sea and instead of being the part of many treaties which enforce environmental and biodiversity protection we are not able to protect our marine environment which not only depletes Pakistan’s resources but also affect human life adversely. Environment of our blue sea degraded via several modes of sea pollution. Despite of being the part of London Convention on prevention of Marine pollution we dump all types of wastage into our sea including plastic bags, bottles, sewerage and potentially infectious hospital waste which turn the natural blue-color of our sea water to black.
The world-famous ship breaking industry in Gadani is one the main source of discharging heavy metal impurities into the sea and due to non-adoption of green ship breaking we are losing our sea health accompanied with heavy financial losses in terms of revenues as countries are not utilizing our industry due to our act of non-green ship breaking. Karachi has many industrial zones but is deficient in proper waste management systems. The hazardous industrial waste eventually finds its way into the sea. The fish and other marine life swallows small particles of metals, plastic, and toxic substances which in turn damage of sea food exports. Completing the food chain, these fish are eaten by humans and the toxic substances can severely damage their immune systems. In other words, we can say that, humans are bringing death to themselves.
It’s high time to rethink about our planet (Land & Sea) keeping in mind the fact that, the world gifted by nature separated by our ego and power but connected by sea so, we need to take a pledge to build and envision a different kind of world which is not only healthy and beautiful for our generation but for our upcoming generations as well so, dire need to revisit our policies accompanied with its enforcement along with our daily practices to pollute environment which is not possible without the participation of citizens which demand to take the responsibility at the individual level and play a part by not throwing away waste at the coast and into the sea. They must bring out the best out of themselves to preserve the natural environment and at the end of state governance, Pakistan need to re-think its policies to achieve two objectives in parallel. First, it needs to encourage Pakistani firms (as well as government entities and households) access to EGS at world prices to achieve environmental benefits, and make sure that firms that use EGS to ‘green’ the trade activities through efficient accreditation services. Secondly, it needs to promote competitive production and exports of some EGS themselves. The two objectives require different policy instruments.
The first objective requires gradually reducing import duties on EGS to zero and eliminating services trade restrictions on associated environmental services. This will help to secure market access in various export-oriented sectors of the economy moving forward if market access becomes conditional on greening the trade. In practical terms, and through the China-Pakistan Free Trade Agreement (CPFTA), Pakistan already grants duty free imports for many of these goods. Reducing duties imposed on all other trading partners will increase the set of options firms face when choosing suppliers, without substantially reducing the import duty revenue collected by the government. It will also require strengthened systems and infrastructure to facilitate value chain traceability, including, for example, certification and inspection services to ensure products are genuinely environmentally preferable.
The second objective requires a smart approach for supporting manufacturers. To achieve it, Pakistan needs to leverage the opportunity that regional and global value chains provide. For example, given that China is the top exporter for a wide range of these environmental goods, and that the CPFTA is under implementation, Pakistan could actively promote FDI inflows in these segments. This will facilitate technology transfers and needed investments that could help strengthen Pakistan’s competitiveness in EGS sectors including for exports. Export rebates such as DLTL could also be used in a focused manner to give an additional boost to the production of EGS in which there’s a comparative advantage, as well as for products that benefit from incorporating green technologies in the production process.
Importantly, Pakistan should consider joining an Environmental Goods Agreement initiative to reduce trade-related tariffs and non-tariff barriers to environmental goods in case it is revived by World Trade Organization (WTO) members, as it could also send a positive signal for investors in the sector.