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). While these trade measures emerge from different motivations, they highlight similar structural weaknesses in Pakistan’s trade framework that demand urgent attention.

As Pakistan grapples with the dual pressures of economic stability and climate vulnerability, an often-overlooked dimension deserves urgent attention: how trade barriers impact our ability to meet climate commitments. The tariffs announced by the Trump administration have made it imperative for Pakistan to examine the underlying factors driving these barriers, quantify their potential impact, and adopt a strategic roadmap to not only mitigate these challenges but transform them into competitive advantages.

Structural factors behind US trade barriers

The Trump administration’s approach to trade with Pakistan reflects concerns about several longstanding structural issues evident in the relationship. According to the National Trade Estimate Rep-ort on Foreign Trade Barriers (NTE Report), Pakistan maintains an average Most-Favoured-Nation appli--ed tariff rate of 10.3 per cent, with agricultural pro-ducts facing even higher rates at 13pc. This protectionist framework runs counter to the administration’s focus on reciprocity in trade relations.

The administration has targeted Pakistan’s use of statutory regulatory orders that provide sector-specific exemptions and protections. These SROs, often issued without stakeholder consultations, cre----ate an unpredictable business environment that disadvantages US exporters. Despite pledges to limit SROs to genuine emergencies under previous IMF programmes, their continued issuance sig---nals a resistance to transparent trade practices.

Both the US and EU demand similar reforms to Pakistan’s trade framework.

Administrative barriers are equally concerning for the US as Pakistan’s customs valuation lacks uniformity — the officials often using minimum values rather than declared transaction values. Requirements mandating physical documentation within shipping containers create compliance burdens that contradict modern electronic commerce practices.

Intellectual property protection remains another crucial concern. These structural weaknesses have provided the US with a justification for imposing tariffs, framed as responses to unfair trade practices rather than arbitrary restrictions.

The same structural limitations identified by the NTE Report will likely impede Pakistan’s ability to comply with the EU’s CBAM. These will initially apply to carbon-intensive goods, including cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen, imposing stringent reporting and verification requirements regarding the carbon content of imports.

Pakistan’s difficulties with customs procedures and digital infrastructure create a challenging environment for implementing the carbon accounting required under CBAM. The reported “lack of uniformity in customs valuation” will only be exacerbated when customs authorities must additionally verify carbon content documentation.

Digital limitations pose another shared barrier. The NTE Report notes Pakistan’s data localisation requirements and limitations on cross-border data flows through the Personal Data Protection Act. CBAM compliance necessitates strong digital systems for tracking carbon throughout production processes and supply chains. The frequency with which internet services are suspended further undermines the digital infrastructure needed for modern trade compliance.

Investment restrictions, including equity caps and repatriation hurdles, similarly hinder Pakis-tan’s ability to attract the foreign capital needed to modernise industries to meet both US trade expectations and EU carbon requirements. The reported contract enforcement difficulties further discourage long-term international partnerships.

Divergent motivations, convergent requirements

While the Trump administration and the EU operate from fundamentally different policy objectives, their impact on Pakistan creates a convergent set of reform pressures. The US administration’s focus on economic nationalism and reciprocity shares little philosophical ground with the EU’s climate-centred approach. However, both demand similar underlying reforms to Pakistan’s trade framework.

While the US focuses on market access and economic competitiveness, CBAM emerges as a climate policy tool to prevent carbon leakage and ensure imports reflect appropriate carbon pricing. Despite these divergent motivations, both systems ultimately require Pakistan to increase transparency, modernise customs procedures, strengthen rule of law, improve digital infrastructure, and create more predictable regulatory environments.

This convergence creates a potential silver lining: reforms undertaken to address US concerns could simultaneously prepare Pakistan for CBAM compliance. For instance, addressing the reported weaknesses in customs procedures would benefit both relationships. Similarly, creating a more transparent system for regulatory orders would improve both US trade relations and provide the predictability needed for EU carbon reporting.

Expanding global challenge

The dual pressure from US tariffs and EU carbon measures likely represents just the beginning of a broader global shift. Some major economies are exploring or implementing similar carbon border measures. Even countries without explicit carbon border taxes are increasingly incorporating climate considerations into trade agreements and policies. These emerging systems create a complex matrix of compliance requirements for Pakistan.

Envisioning Green CPEC Framework

China faces similar pressures from US tariffs and European carbon border measures, creating potential for cooperation on compliance strategies. CPEC could evolve to incorporate green infrastructure and low-carbon manufacturing capabilities that would help Pakistani exports meet emerging standards.

CPEC presents a strategic opportunity to address both trade challenges through a Green CPEC Framework with three components: a) Low-Carbon Industrial Zones prioritising renewable energy in CPEC Special Economic Zones, b) Supply chain integration developing joint Pakistan-China standards for carbon accounting, and c) Technology transfer focusing on clean technology in future CPEC agreements.

From barriers to bridges

Ultimately, Pakistan’s response to these dual pressures will determine whether they represent insurmountable barriers or catalysts for necessary reform. By recognising the convergent nature of these seemingly disparate trade measures, Pakistan can pursue strategic reforms that strengthen its position in the evolving global trade architecture. The arbitrarily calculated barriers represent a stringent but straightforward list of complaints that Pakistan can address with speed, if the strategic objective is to regain lost trading space, and fill the void created by even higher tariffs on regional competitors.

The writer is a climate change and sustainable development expert.

Published in Dawn, April 10th, 2025