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World Trade Organization |
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WT/TPR/S/193 | |
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(07-5393) |
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Trade Policy Review Body |
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TRADE POLICY REVIEW Report by the Secretariat PAKISTAN |
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This report, prepared for the third Trade Policy Review of Pakistan, has been drawn up by the WTO Secretariat on its own responsibility. The Secretariat has, as required by the Agreement establishing the Trade Policy Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the World Trade Organization), sought clarification from Any technical questions arising from this report may be addressed to Mr. Sergios Stamnas (tel.: 022 739 5382). Document WT/TPR/G/193 contains the policy statement submitted by |
Note: This report is subject to restricted circulation and press embargo until the end of the first session of the meeting of the Trade Policy Review Body on Pakistan.
CONTENTS
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SUMMARY OBSERVATIONS ix
(1) Economic Environment ix
(2) Trade Policy Framework x
(3) Trade Policy Developments xi
(4) Sectoral Policy Developments xiii
(5) Outlook xv
I. Economic environment 1
(1) Introduction 1
(2) Recent Economic Performance 2
(i) Growth, employment, and poverty 2
(ii) Inflation 5
(3) Main Macroeconomic Policy Developments 6
(i) Monetary and exchange rate policy 6
(ii) Fiscal policy 8
(4) Main Structural Policy Developments 8
(i) Tax and expenditure reforms 9
(ii) Privatization 10
(iii) Governance 10
(iv) Financial sector and capital market reforms 11
(v) Labour market 11
(5) Balance-Of-Payments Developments 12
(i) Current and trade accounts 12
(ii) External debt 13
(6) Developments in Merchandise Trade 13
(i) Merchandise trade 13
(ii) Services trade 16
(7) Trends and Patterns in Foreign Investment 17
(8) Outlook 18
II. trade policy regime: framework and objectives 19
(1) Overview 19
(2) General Constitutional and Institutional Framework 19
(3) Trade Policy Formulation And Implementation 20
(i) Objectives and strategies 20
(ii) Institutional and legal framework 21
(iii) Advisory bodies 22
(iv) Main trade laws and regulations 23
(4) Trade Agreements and Arrangements 24
(i) World Trade Organization 24
(ii) Regional and other preferential arrangements 26
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(5) Foreign Investment Regime 31
(i) Incentives 31
(ii) Bilateral investment treaties (BITs) and double taxation agreements 32
Annex II.1: Trade-related Technical Assistance (TRTA) 34
iII. trade policies and practices by measure 36
(1) Introduction 36
(2) Measures Directly Affecting Imports 37
(i) Registration and documentation requirements 37
(ii) Tariffs 39
(iii) Customs valuation, minimum import prices and preshipment inspection 47
(iv) Other levies, charges and taxes 48
(v) Import prohibitions, quotas, restrictions, and licensing 49
(vi) State trading 52
(vii) Government procurement 52
(viii) Local-content requirements and indigenization programmes 53
(ix) Contingency measures 54
(x) Standards and other technical requirements 55
(3) Measures Directly Affecting Exports 58
(i) Registration, documentation, clearance, inspection and minimum prices 58
(ii) Export duties and taxes 59
(iii) Export prohibitions, restrictions, and licensing 59
(iv) Export subsidies 60
(v) Duty and tax concessions 63
(vi) Export-processing zones 66
(vii) Export finance, guarantees, and insurance 66
(viii) Export promotion 67
(4) Measures Affecting Production and Trade 68
(i) Taxation 68
(ii) Production assistance 72
(iii) State-owned enterprises 75
(iv) Competition and consumer policy 77
(v) Intellectual property rights (IPR) 77
IV. trade policies by sector 80
(1) Overview 80
(2) Agriculture, Livestock, Forestry, and Fisheries 81
(i) Features 81
(ii) Policy framework and developments 82
(iii)
(3) Mining and Energy 89
(i) Mining 89
(ii) Energy 90
(4) Manufacturing 94
(i) Policy developments 94
(ii) Food processing 95
(iii) Textiles and apparel 95
(iv) Engineering sector 96
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(5) Services 99
(i) Financial services 100
(ii) Communications 104
(iii) Transport 108
(iv) Information technology and software development 110
REFERENCES 111
APPENDIX TABLES 117
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CHARTS
I. ECONOMIC ENVIRONMENT
I.1 Product composition of merchandise trade, 2001 and 2006 14
I.2 Direction of merchandise trade, 2001 and 2006 15
I.3 FDI inflows by sector and origin, 2006/07 18
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Distribution of MFN tariff rates, 2001/02 and 2007/08 41
III.2 Average applied MFN and bound tariff rates, by HS section, 2001/02 and 2007/08 42
III.3 Tariff escalation by 2-digit ISIC industry, 2001/02 and 2007/08 44
IV. TRADE POLICIES BY SECTOR
IV.1 Tariff averages by 2-digit ISIC category, 2001/02 and 2007/08 83
TABLES
I. ECONOMIC ENVIRONMENT
I.1 Selected macroeconomic indicators, 2001-07 3
I.2 Basic economic and social indicators, 2001-07 4
I.3 Balance of payments, 2001-07 12
I.4 Trade in services, 2001-07 16
II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES
II.1 Main ministries and agencies responsible for trade-related issues, 2007 22
II.2 Main changes in trade-related legislation, 2001/02 to end-September 2007 24
II.3 WTO notifications, 2001 to end-September 2007 25
II.4 Investment incentives, 2007 32
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1
III.2 Preferential rules of origin and tariffs in trade agreements, 2007 46
III.3 Anti-dumping actions, as at July 2007 54
III.4 Sectoral export subsidies, 2006/07 62
III.5 Duty drawback rates on exports, 2006/07 64
III.6 Concessionary rates of WHT on imports, 2006/07 71
III.7 Income tax concessions assisting producers generally, 2006/07 72
III.8 Main state-owned enterprises and privatization plans, May 2007 76
IV. TRADE POLICIES BY SECTOR
IV.1 Procurement/support prices of agricultural commodities, 2001-07 85
IV.2 Tariff increases to protect engineering activities, 2005/06 and 2006/07 97
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APPENDIX TABLES
I. ECONOMIC ENVIRONMENT
AI.1 Contingent government liabilities, 2003/07 119
III. TRADE POLICIES AND PRACTICES BY MEASURE
AIII.1 Main duty and tariff exemptions and concessions, March 2007 120
AIII.2 Tariff concessions and exemptions for designated/authorized persons, March 2007 123
AIII.3 End-use tariff exemptions/concessions March 2007 126
AIII.4 Prohibited imports of second-hand plant, machinery and equipment, 2006/07 128
AIII.5 Restricted imports, 2006/07 129
AIII.6 Regulated exports, 2006/07 133
AIII.7 Privatizations from August 2000 to May 2007 134
1.
2. During the period under review, trade policies have been liberalized in several important areas. In particular, customs procedures have been greatly improved, overall tariff protection considerably reduced, tariff bindings increased, and intellectual property rights strengthened. In some other areas, however, trade liberalization has slowed; for example, support for production and exports has increased.
3. Continued trade liberalization and other productivity-boosting structural reforms to address these weaknesses together with steps to reduced political uncertainty would help improve Pakistan's international competitiveness, especially for sensitive sectors (such as textiles and clothing), and thus the prospects for sustained economic growth.
(1) Economic Environment
4.
5. Fiscal reforms have focused mainly on public expenditure, which dropped from 18.3% in 2001/02 to 17.6% of GDP in 2006/07, possibly insufficient to meet
6.
7.
8.
(2) Trade Policy Framework
9.
10. Trade is an important part of
11. Since the last Review, there have been few major changes in the institutional framework for formulating and implementing trade-related policies. The Trade Development Authority, which focuses on product and market diversification, progressively replaced the Export Promotion Bureau; the role of the independent National Tariff Commission (NTC) was re-directed from that of the Government's main tariff-setting advisory body to that of the entity responsible for contingent protection. The NTC no longer advises on imposition of "regulatory" duties.
12. Customs and tax provisions are incorporated at budget time in the annual Finance Act; customs regulations enter into force after being posted on the Central Board of Revenue website. Legislative changes were made in some areas (e.g. customs, and key services like finance, energy, and telecommunications) with more under way or pending.
13.
14.
15. Pakistan has submitted WTO notifications in certain areas (e.g. tariffs, anti‑dumping, safeguards, technical barriers to trade, subsidies and countervailing measures, state trading, and intellectual property); nonetheless, some notifications have not been updated (e.g. on agricultural support and export subsidies) by the end of June 2007 more than 12 regular notifications were outstanding (notably those on import licensing procedures, agriculture, and services).
(3) Trade Policy Developments
16. The tariff is
17. Pakistan's coverage of bound tariffs has risen considerably as a result of rectifications and modifications of its Schedule of Commitments involving textiles items; 97.2% of tariff rates are now fully bound and 0.8% partially bound (36.6% were fully or partially bound in 2001/02). Most bindings exceed applied MFN rates and average bound levels are more than four times the average applied rate; this reduces predictability, especially in agriculture where gaps are wider, by providing substantial leeway to raise applied tariffs. This option has been used to raise rates, especially in 2006/07.
18. "Regulatory" import duties have been used temporarily to provide extra protection to some goods during the review period; however, no such duties are in place currently. Domestic taxes (sales, excise, and income withholding taxes) seemingly discriminate against imports, are distorting, administratively complex (e.g. some require the setting of minimum values to levy the tax) and therefore lack transparency. The capital value tax (CVT) on motor-vehicle imports was merged with the tariff in 2007/08. Import levies fund development boards (e.g. the Pakistan Oilseed Development Board). Recourse to anti-dumping action has risen, but no other contingency measure has been in use.
19.
20. Customs is being reformed and automated, with clearance times generally shortened from 7-10 days to 6-8 hours. Enhanced risk management has lowered physical inspection rates from 100% to 4% of imports (2% of exports). Pre-shipment inspection applies to various types of used machinery/equipment for health or safety reasons. Smuggling is rife, but being reduced.
21. Import prohibitions have been removed (e.g. on cotton waste) or relaxed (especially on used machinery/equipment and iron and steel waste/scrap) since the last Review. Prohibitions and import licensing remain mainly for health, safety, security, religious or environmental reasons. Commercial imports of used vehicles are prohibited to promote the domestic industry. Imports of alcoholic beverages are banned for religious reasons, although these are brewed locally for non-Muslims by a private monopoly. Some imports eligible for tariff exemptions/concessions require ministerial or other governmental agency approval. Only public sector or industrial users can import some items (e.g. pesticide ingredients). A few import quotas exist (e.g. for used refrigerated trucks).
22.
23. Prohibited exports focus on health, social, religious, or environmental protection under international treaties (e.g. CITES), but also cover mainly wood and timber. Wheat and fertilizer (including urea) exports are licensed but effectively banned, while certain other exports (e.g. vegetable ghee and cooking oil) must meet specified conditions. Other export requirements have been eased, but certain export contracts (e.g. cotton and urea) must be registered. Mandatory minimum export prices on rice and cotton yarn have been removed. A temporary ban was applied to cement exports in 2006 owing to domestic shortages.
24. While export taxes are prohibited under the customs legislation, "regulatory" duties apply periodically to some exports (e.g. 15% on sugar), especially when there are domestic shortages. More-profitable exporters benefit from paying income withholding tax levied at a rate of 1% of f.o.b. export value (before the 2007/08 Budget, rates ranged from 0.75% to 1.5%) instead of income tax. A surcharge of 0.25% of the f.o.b. export value finances the Export Development Fund. Export quality inspections remain either mandatory (e.g. cotton) or encouraged, including by monetary inducements (e.g. freight subsidy).
25. Exporters are also assisted via general schemes (e.g. 25% freight subsidy, SBP concessionary finance) and various sector-specific schemes (e.g. on R&D subsidy for garments and footwear, and freight subsidies). Proceeds from computer software and information technology exports are exempt from income tax. Export assistance schemes complicate
26. Despite substantial divestment, the state remains significantly involved in commercial activities (e.g. steel, engineering, and services). The state-owned Trading Corporation of
27.
28. Monopoly oversight remains weak; state-owned entities are not covered by the existing legislation. Planned improvements include new legislation and the replacement of the Monopoly Control Authority with a Competition Commission. Consumer protection, mainly a provincial responsibility, is being upgraded slowly.
(4) Sectoral Policy Developments
29. Agriculture remains the economy's mainstay although its GDP share has fallen from 24.1% to 20.9% during the review period. Agricultural productivity is low. Food security, a major but seemingly costly government priority, is based on self‑sufficiency with regard to several items (e.g. wheat, rice, maize, edible oils, and sugar). As a result, sugar prices, for example, have exceeded world levels at times by up to 50‑60%. Reforms since 2001/02 have raised the private sector's role in, inter alia, marketing and supplying inputs. Relatively high tariffs protect certain commodities, such as edible oils, which are subject to specific tariffs with an ad valorem equivalent of 65-70%. Some agricultural exports are covered by various controls, restrictions, and support measures, including subsidies (e.g. on freight), income tax concessions, and at times product-specific export subsidies (sugar and wheat). Market price support, occasionally involving provincial governments, was limited recently to wheat, cotton, rice, and sugar. Tobacco prices, including those for exports, are set by the Pakistan Tobacco Board. The All Pakistan Solvent Extractor's Association sets voluntary procurement prices for oil seeds. Other types of support include tax incentives (direct and indirect), concessionary credit, and irrigation, power, and fertilizer subsidies; manufacturers of urea, an important input for fertilizer production, can also buy natural gas at subsidized rates, thus lowering fertilizer prices.
30. Seemingly-independent regulators oversee the energy sectors, and state participation remains significant. Majority state-owned companies (partially privatized since the last Review) produce most of
31. The National Electric Power Regulatory Authority (NEPRA) licenses power generation, transmission, and distribution, and sets tariffs. Power is subsidized; around 70% is supplied by two state-owned companies, residential users seem to be among those cross-subsidized by other consumer groups. Electricity reforms are moving towards a competitive market. The main vertically integrated state power company has been unbundled and is being privatized slowly (excluding transmission).
32. Industrial policy is based on accelerated industrialization, aimed at raising manufacturing's share of GDP to 30% by 2030 (19.1% in 2006/07), and diversification away from textiles and clothing. Government intervention remains directed at protecting infant and pioneer industries, using escalating tariffs and domestic support measures (e.g. tax concessions). Liberalizing trade, including imports from
33. Services account for well over half of GDP; there is strong state involvement, especially in transport, communications, and life insurance. During the review period, financial sector reforms, including to prudential requirements, have enhanced bank and insurance efficiency and soundness. Privatization has transformed banking into a largely private-based system (unlike life insurance) with substantial foreign presence, even though preferential equity limits may apply to foreign licences. Reforms that opened reinsurance have been partially reversed. The monopoly of the majority state-owned telecom company on fixed domestic and international calls was terminated in 2003. Regulatory reforms are aimed at developing an open telecom access regime. Shipping and air services are relatively open, except for cabotage and foreign equity limits. Major ports are being privatized via "landlord" concessions. Road transport remains relatively restricted, but recent regional agreements have expanded transit rights; however, cabotage is banned.
(5) Outlook
34. By and large,
35. Future economic performance will also depend on world economic growth.
