OPINION
Muneeb Sikandar
Four losers and one winner from the import ban “Many people want the government to protect the consumer. A much more urgent problem is to protect the consumer from the government.” —Milton Friedman
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ypically, “saving foreign exchange” is the reason given by developing countries for implementing protectionist trade measures including a ban on select import of goods. The argument goes something like this: foreign producers of a product are offering Pakistani consumers a more attractive price or better quality product than they can get from Pakistani producers of the same product. This can occur for any number of reasons. For example, foreign producers may be more efficient than the Pakistani producers. Otherwise, foreign producers may receive subsidies in its home country, thereby allowing it to charge lower prices to Pakistani consumers. The fact is that the particular reason will make no difference with respect to the arguments presented here. The main argument used to defend protectionism is that the less expensive or higher quality foreign products are “costing the leakage of foreign reserves.” In other words, if more of these products were produced domestically and fewer were imported, then more people would need to be em-
The writer is an economist and strategy consultant. He can be reached at muneebsikander@hotmail. com
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ployed in the Pakistan Industries manufacturing the product allowing the country to save valuable sources of foreign exchange. Hence, if Pakistan. imposed a ban on imported products, Pakistani would drastically purchase fewer products from foreign firms. Conceptually, more of the product would be produced in Pakistan, fewer would be imported, and more foreign exchange could be saved by such a ban of select items.
Winners and losers from protectionism
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he typical argument for protectionism is accurate in that it identifies those Pakistani interests that gain from the protectionist policies, but it does so while ignoring those who lose. In particular, it ignores those whose jobs are put in peril from trade barriers. Here is how the winners and losers from protectionism break down :
The Winners
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conomically, as opposed to politically, there is only one winner from protectionism and ban on imports – the domestic industry being protected from competition. Because of reduced competition, the Pakistani or domestic industry will produce and sell more. For instance this shall benefit Pakistani automobile and mobile industry as the ban targets finished cars or mobiles but not their component parts. With a captive Pakistani consumer who has limited options to purchase consumer options, they are likely to generate higher profit margins and shall enjoy the ability to set higher prices. Another example is how Pakistani pet food manufacturers will benefit from the ban being imposed as imports previously had met up to 75-90% of the total demand for such products in urban areas of Pakistan. Furthermore, limited supply of pet food is likely to result in higher prices of both previously stocked imports as well as local pet food.
Neutral territory
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he Ministry of Commerce has projected that the imports of Pakistan would now only grow to $77 billion by the end of June as a result of the measures taken by the government. The projected saving from banning the import of 38 products therefore is estimated at $600 million or around 5% of the annual bill. It is also noteworthy that a ban on certain goods such as cigarette imports is likely to result in massive savings of foreign exchange as up to 20% of the local market currently consists of cigarettes sold which are smuggled by illegal
