Regulatory Paralysis: Govt’s Barter Expansion Undermines Efforts to Curb Grey Trade

ISLAMABAD: Pakistan’s chronic failure to enforce trade regulations such as SRO 237 (1)/2019 has once again come under scrutiny, as the government moves to expand barter trade with Afghanistan, Iran, and Russia — a policy that industry leaders say rewards informality and penalises compliance. Over the past few years, several multinational corporations (MNCs) have scaled down or exited Pakistan, citing regulatory inconsistency and an unlevel playing field that favours undocumented operators.

Earlier last month, the Economic Coordination Committee (ECC) approved amendments to the barter trade framework, allowing local businesses to exchange goods under non-monetary settlements. Officials claim the decision will relieve pressure on foreign exchange reserves and maintain regional commerce amid persistent dollar shortages.

However, industry stakeholders argue the move contradicts the government’s repeated pledges to formalise trade and expand the tax net. SRO 237, introduced in 2019, mandates that imported food items retain two-thirds of their shelf life, carry bilingual labelling, and possess halal certification from accredited bodies — standards that legitimate importers must meet but which informal channels routinely ignore.

In an October 7 letter to the Ministry of Commerce, the Pakistan Dairy Association warned that unchecked grey-channel imports have inflicted “enormous fiscal damage.” A 2022 report by the Lahore Chamber of Commerce & Industry estimated Pakistan’s annual smuggling losses at US $2.6 billion, with smuggling-prone food items worth nearly US $9 billion, or three percent of GDP.

Critics say that expanding barter trade risks widening this informal sector by blurring the lines between regulated and unregulated commerce, undermining both consumer protection and fiscal discipline.
“On one hand, the government demands compliance; on the other, it legitimises a trade mechanism outside the tax and customs net,” said a senior executive of a multinational firm. “It’s the compliant investor that suffers most.”

Grey-market goods, once confined to border regions, now dominate urban retail shelves from Karachi to Lahore, undercutting companies that follow all import, labelling, and halal standards. Despite repeated appeals, enforcement remains sporadic while porous borders continue to leak non-duty-paid goods.

Officials insist the new barter framework includes verification procedures and will be limited to registered businesses. Yet analysts warn that without reconciling barter inflows with customs data, the policy risks institutionalising grey trade under a state-approved umbrella.

With fiscal stress mounting under IMF revenue targets, economists caution that Pakistan cannot afford “mixed policy signals.”
“If SRO 237 is to retain meaning, it must be enforced consistently,” said an Islamabad-based economist. “Otherwise, credibility and investor confidence will keep eroding — as seen in the recent flight of foreign firms.”