ISLAMABAD: Pakistan is developing a national compliance entity to help exporters meet increasingly strict international standards, regulate export-related auditors and resolve disputes between businesses and auditors, officials said on Monday, as Islamabad seeks to boost exports and diversify into higher-value markets.

The proposed National Compliance Entity (NCE), which has yet to be formally approved, would offer exporters guidance, training and practice audits, and license the auditors who inspect them, giving businesses a way to challenge audit findings, according to Shahzad Ejaz, a spokesperson for Pakistan’s Ministry of Industries and Production.

The plan comes as Pakistan’s merchandise exports fell 5.93 percent to $30.14 billion in fiscal year 2025-26 that ended in June from $32.04 billion a year earlier, according to provisional Pakistan Bureau of Statistics data. The decline has widened a longstanding gap between Pakistan’s actual exports and its potential.

“A national compliance entity is being developed for which consultation with around 55 stakeholders has been done,” Ejaz told Arab News, adding that once finalized, “the entity will be sent to the cabinet for approval.”

The World Bank has estimated that Pakistan’s export potential is substantially higher than current shipments, with the country export goods and services at a level far below comparable economies in South Asia. The gap reflects structural constraints including limited diversification, low productivity and barriers to accessing international markets.

Pakistan’s export basket also remains concentrated in a relatively small number of products and destinations. Textile and apparel exports were virtually flat at $17.93 billion, still almost 60 percent of the total merchandise exports. Other important export sectors include leather, sports goods, rice and other agricultural products, surgical instruments and carpets.

Islamabad has sought to expand pharmaceuticals, processed food, chemicals, engineering goods and other value-added products, but exporters in these sectors often face more demanding certification, testing, traceability and buyer requirements in developed markets.

The United States and European countries remain among Pakistan’s most important destinations, while China, the United Arab Emirates and Britain are also major markets. The concentration means that expanding access to markets with higher standards could be an important route to increasing both export volumes and the value earned from individual products.

A senior commerce ministry official involved in discussions on the proposed entity pointed to Disney’s decision in 2013 to pull its sourcing from Pakistan over labor standards.

“Pakistan has paid a heavy price for standard non-compliance,” said the official, who was not authorized to speak to the media. “One fine morning, they announced, ‘We will withdraw our sourcing from Pakistan starting next March.’ It causes immense panic when $500 million goes away.”

Similar gaps continue to hamper exports in sectors ranging from agriculture to pharmaceuticals and leave many exporters selling into less demanding markets at lower prices, according to the official.

“Your firms that are exporting to Africa, if you talk to them or interview them, they say ‘there are no standards there, whatever you send works, there’s no issue’,” the official said. “But while it works when sent there, do they pay you as much as Europeans do? The answer is no. That same product of yours sells for a higher price in Europe.”

Pakistan has preferential access to European markets under the GSP+ scheme, but the official said products often fail to reach them because of weak traceability, certification and government monitoring.

“In the EU, we have zero-duty access on 91 percent of tariff lines, products. That includes honey. Yet not a single drop of honey goes to the EU,” he said.

Global compliance requirements have also expanded in recent years to include environmental, social and governance standards, alongside requirements imposed directly by international buyers.

“If you want to trade in the modern world, you must comply with these standards. Otherwise, you cannot trade with them,” the official said.

The proposed NCE will support exporters through guidance, a repository of applicable standards, workshops, capacity-building programs, documentation and, on request, demo-audits to prepare them for brand audits. It will also regulate bodies conducting export-related compliance audits through licensing or accreditation, set standards for auditors, monitor their performance, and provide a mechanism for exporters to challenge audit findings, methods, procedures or auditor’s conduct, according to officials.

Its regulatory jurisdiction will be limited to export-related compliance auditors and audit activity, rather than exporters or industry directly. The consultations included export associations, 10 leading chambers of commerce, provincial industry departments, the Small and Medium Enterprises Development Authority (SMEDA), testing laboratories and the safety auditing agency, ACCORD.

Ejaz said the proposal will be presented to Prime Minister Shehbaz Sharif before being sent to the cabinet for formal approval.

The commerce ministry official said smaller firms would be key if Pakistan wished to broaden its export base, but many still see compliance as an expense.

“For SMEs, they view such measures as a cost rather than an investment, even though this is an investment,” the official said. “Marketing, branding, standard compliance, these are investments that increase your returns.”