Navigating Trade and Climate Pressures
Navigating Trade and Climate Pressures: In today’s complex global trade environment, Pakistan finds itself navigating between two competing demands: the Trump administration’s protectionist tariffs and the European Union’s emerging Carbon Border Adjustment Mechanism (CBAM). Although these measures arise from different motivations, they both point to similar structural weaknesses in Pakistan’s trade framework that require urgent attention.
As Pakistan struggles with the dual challenges of economic stability and climate vulnerability, one often-overlooked issue demands focus: how trade barriers affect our ability to meet climate commitments. The tariffs introduced by the Trump administration highlight the need for Pakistan to understand what’s driving these restrictions, assess their possible impact, and create a strategic plan to not only manage these pressures but also turn them into advantages.
Structural roots of U.S. trade concerns
The U.S. approach to trade with Pakistan reflects long-standing structural concerns. According to the National Trade Estimate Report on Foreign Trade Barriers (NTE Report), Pakistan applies an average Most-Favoured-Nation tariff rate of 10.3 percent. Agricultural goods face even higher tariffs, at 13 percent. This protective structure conflicts with the U.S. administration’s focus on fair and reciprocal trade.
In addition, Pakistan’s use of statutory regulatory orders (SROs) has drawn criticism. These orders often provide specific industries with exemptions and protections but are issued without proper stakeholder consultation. This creates an unpredictable business environment, making it difficult for U.S. exporters to operate. Despite earlier promises to limit the use of SROs to emergencies under IMF programmes, their continued use shows a reluctance to embrace transparent trade practices.
Other concerns include inconsistent customs valuation practices. Officials frequently rely on minimum values instead of declared transaction prices. Further complications arise from physical documentation requirements placed inside shipping containers, which go against modern digital trade practices.
Intellectual property rights also remain a major issue. These weaknesses have given the U.S. a reason to impose tariffs — not as random restrictions, but as a response to what it considers unfair trade practices.
Similar challenges with EU’s CBAM
The same structural issues highlighted in the NTE Report could also prevent Pakistan from meeting the EU’s CBAM requirements. This new mechanism, aimed at reducing carbon emissions, will first apply to products like cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen. It demands strict reporting and verification of the carbon content in these imports.
Pakistan’s existing customs procedures and weak digital systems make it difficult to meet CBAM’s detailed carbon tracking requirements. The lack of consistency in customs valuation will become a larger problem when carbon content must also be verified.
Digital infrastructure is another shared concern. Pakistan’s data localisation rules and restrictions on international data flows, as outlined in the Personal Data Protection Act, complicate matters further. CBAM compliance depends on reliable digital tools for monitoring carbon emissions throughout the production and supply chains. Frequent internet shutdowns only make it harder to build a modern trade system.
Investment barriers, such as equity limits and restrictions on moving profits out of the country, also make it harder to attract the kind of foreign investment needed to modernise industry. Weak contract enforcement discourages long-term international cooperation.
Different policies, similar demands
Although the Trump administration and the EU have different goals — one focused on economic interests and the other on climate policy — they both push Pakistan toward similar trade reforms. The U.S. wants greater market access and competitive fairness, while CBAM aims to stop carbon leakage and ensure climate accountability. But both systems call for better transparency, more efficient customs operations, stronger legal frameworks, and improved digital infrastructure.
This overlap may offer a silver lining. The same reforms that address U.S. trade concerns could also help Pakistan meet EU climate requirements. For example, fixing customs procedures or making SROs more transparent would improve relations with both partners.
An expanding global landscape
These pressures from the U.S. and EU are likely just the beginning. Other major economies are exploring or already applying similar carbon-related trade policies. Even countries without formal carbon border taxes are integrating climate factors into trade agreements. This growing trend will make global trade more complex and demanding for countries like Pakistan.
A green opportunity through CPEC
China faces many of the same external pressures from U.S. tariffs and EU carbon rules, opening a door for collaboration with Pakistan. The China-Pakistan Economic Corridor (CPEC) could evolve into a platform for low-carbon growth and sustainable trade.
A Green CPEC Framework could include:
a) Low-Carbon Industrial Zones using renewable energy in Special Economic Zones
b) Joint carbon accounting standards developed with China
c) Clean technology transfers built into future CPEC agreements
These steps could help Pakistan align its exports with new global expectations.
From trade risks to reform paths
How Pakistan responds to these challenges will shape its future in global trade. If seen only as roadblocks, U.S. tariffs and EU climate rules will restrict growth. But if recognised as signs of needed reform, they could become opportunities for real progress. The issues raised by these policies are clear and actionable. With timely and strategic responses, Pakistan can not only regain lost trade ground but also prepare itself for an evolving international market.
Navigating Trade and Climate Pressures – Navigating Trade Barriers.
Published in Dawn, 10th April 2025
