LAHORE: Pakistan’s approach stands in sharp contrast to the principles outlined in recent analysis by consultancy firms, resulting in failure to unlock export growth, attract investment, and integrate the country into global value chains.
Modern trade agreements, McKinsey & Company argues, succeed when they are built on clear rules of origin, phased implementation, enforceable regulatory standards, services and investment protocols, dispute settlement mechanisms, and capital commitments aligned with industrial priorities. Pakistan’s approach falls short on nearly every pillar. Tariff cuts were front-loaded, regulatory compliance remained weak, dispute mechanisms were rarely used, services trade was neglected, and large investments, such as those under the China-Pakistan Economic Corridor (CPEC), were infrastructure-heavy but weakly linked to export development.
Responsibility for flawed outcomes lies primarily at home. Trade negotiations were conducted without coordination with industrial, fiscal and energy policies. Tariff concessions were offered without ensuring that domestic firms had the capacity to compete. Weak enforcement of rules of origin allowed transshipment and misuse, while ministries operated in silos. Where Pakistan did perform better, such as under GSP+, progress was driven largely by external conditionalities rather than an internally coherent strategy.
The evidence suggests that, with a few notable exceptions, Pakistan’s trade partners emerged as the larger beneficiaries. The most prominent example is the Pakistan-China Free Trade Agreement. Since its implementation in 2007, Pakistan’s imports from China have expanded dramatically, from roughly $3 billion in the mid-2000s to over $23 billion by 2024. Exports to China, however, have remained stuck around $3-4 billion, largely concentrated in low-value textiles and agricultural commodities. The core issue was not the agreement itself, but the fact that Pakistan reduced tariffs far more rapidly than it built the industrial competitiveness needed to penetrate the Chinese market.
A similar pattern is visible in Pakistan’s agreements with ASEAN countries such as Malaysia and Indonesia. These economies entered Pakistan’s market with diversified and competitive industrial products, while Pakistan struggled to export beyond a narrow basket. In contrast, the EU’s GSP+ scheme stands out as a relative success. Since Pakistan received GSP+ status in 2014, exports to the European Union have nearly doubled, rising from around 4.5 billion euros to over 9 billion euros by 2023.
Pakistan has trade agreements with China, Malaysia, Indonesia, Sri Lanka, Iran, Turkey, members of SAARC under SAFTA, and access to the European Union and the UK through preferential schemes such as GSP+. Yet, despite this expanding web of agreements, Pakistan’s exports have stagnated around $30 billion, while imports have surged, raising a critical question: did these agreements benefit Pakistan or its trading partners more?
The cost of flawed approach has been substantial. Engineering goods lost an estimated 30-40 per cent of potential regional market share to competitors such as China, India, and Vietnam. Import penetration in chemicals and plastics rose from roughly one-third of domestic consumption in the mid-2000s to nearly two-thirds by 2024. Consumer electronics became almost entirely import-dependent, while local auto-parts manufacturers struggled to upgrade standards as cheaper imports flooded the market following tariff reductions.
The lesson is not that trade agreements are inherently harmful, but that they must be anchored in a broader economic strategy. Successful economies negotiate from a position of industrial clarity: they know which sectors they want to promote, which capabilities they must build, and how trade can accelerate that process. Pakistan too often treated trade policy as diplomacy rather than economic transformation.
Unless future agreements are tied to sector-specific competitiveness, enforceable reciprocity, and export-linked investment, Pakistan risks repeating the same cycle — signing agreements that look promising on paper but deepen imbalances in practice. Trade can be a powerful engine of growth, but only for countries prepared to compete.
