I.                   Introduction

1.                   This is Pakistan’s third trade policy review. Since the last review in 2002, extensive reforms have been carried out in almost all sectors of the economy. These reforms have helped in Pakistan being one of the faster growing economies in Asia. Both the size of economy and per capita income in dollar terms have almost doubled. GDP based on purchasing power parity has risen to about US$2,500, which is one of the highest in South Asia. Since 2001-02 Pakistan’s total trade has been showing a healthy annual increase of 18%. Pakistan’s stock market has been one of the best performing in the world with the KSE - 100 Index growing more than 10 fold from 1,400 to 14,500 during the past 6 years.

2.                   In terms of trade policy, Pakistan’s highest priority during this period has been the successful conclusion of the Doha Round. Pakistan believes that an ambitious Round would greatly improve its economic well-being and enable it to meet the United Nations’ Millennium Development Goals. Nevertheless, it has also been pursuing bilateral and multilateral market access opportunities.

3.                   During the period under review, while all facets of economy underwent extensive reforms, the most stellar results were achieved in the areas of telecommunication, finance, taxation and trade facilitation. The 2006 World Bank Doing Business Report ranks Pakistan as the top reformer in South Asia and 10^th out of 155 economies globally.

Recent Economic Performance

4.                   Since the last Trade Policy Review, Pakistan has taken various measures to deregulate, privatise and liberalise the economy. Over the period 2001-02 to 2006-07, GDP has grown at a rate of over 6% annually.  Per capita income (at constant prices of 1999-2000) has increased from US$503 in 2001-02 to US$925 in 2006-07. All sectors of the economy have contributed to GDP growth. Agriculture sector has grown at an average annual rate of around 3.3%. However, the growth rate has shown wide fluctuations due to changes in weather conditions. Growth would have been higher without drought conditions and limited water reservoirs. The rapid growth of GDP owes a great deal to the sharp growth in the manufacturing sector resulting from demand stimulus from higher incomes and relaxation of banking restriction on consumer credit. Higher levels of exports and investment have also contributed to this growth. The increase in investment has not only increased productive capacity but has also improved competitiveness. The services sector has also grown rapidly at 7% annually;  this is mainly due to the financial and telecommunication sectors.

5.                   The high growth has been accompanied by structural transformation of economy.  The share of the industrial sector in GDP has increased from 23.7% to 25.8% (within industry, the share of manufacturing has increased from 15.9% to 19.1%), that of services from 52.1% to 53.3%, while that of agriculture declined from 24.1% to 20.9%.

6.                   The higher growth of GDP has helped in generating employment. The reduction in the unemployment rate together with a sharp increase in remittances from just US$1 billion in 2001-02 to US$5.5 billion in 2006-07 has helped to alleviate poverty. The rate of unemployment has declined from 8.3% to 5.3% during the period under review. Although income inequality has increased, it remains far less than in many other developing countries. the major focus on Poverty Reduction Strategy Program (PRSP-2) is now on reducing income inequality. With an increase in the allocation of resources to human resource development activities, Pakistan has graduated to a Medium Human Development country and ranked 134^th out of 177 in 2006 compared to 142^nd out of 177 in 2002.

7.                   The growth of GDP and employment, and consequent decline in poverty, has been due to prudent macroeconomic policies and structural reforms. Efforts are underway to sustain high growth. and to ensure that the deriving benefits reach the economically disadvantaged layers of the population. Challenges and strategies for realising this and other objectives are reflected in the Medium Term Development Framework: 2005-10 and the draft report of PRSP-2 circulated recently. The long run challenges and strategies have been outlined in Vision 2030.

8.                   In order to further liberalize Pakistan's foreign direct investment (FDI) regime, minimum FDI levels in social, agriculture and infrastructure sectors have been reduced from US$0.5 million to US$0.3 million and in services, such as retailing and wholesaling, from US$0.3 million to US$0.15 million.  The maximum limit of foreign equity of 51% in life insurance was removed in September 2006. The number of countries with which Pakistan has signed bilateral investment treaties has increased from 18 to 48.

9.                   There has been a sharp increase in remittances, which increased from US$1 billion in 2001-02 to US$5.5 billion in 2006-07;  as a result, the current account deficit was confined to US$7 billion (around 5% of GDP). Gross official reserves have grown from US$6.43 billion in 2001-2002 to US$16.4 billion by October 2007, which is equal to more than 6 months of imports. In the last financial year, one bank and an oil & gas company have successfully issued GDRs (global depository receipts) in the international market, which were heavily oversubscribed. Pakistan has also floated bonds in the international market, which received positive response, thus improving its international rating as an emerging economy.

10.               Pakistan’s total trade has increased from US$21.5 billion in 2001 to US$47.7 billion in 2007, a healthy annual increase of 18%. Various efforts have been made to diversify the mix of exported products as well destinations, but there has been only a limited success. Since 2001-02, the share of manufactured products in imports as well as exports has increased while that of the semi-manufacturing has declined. Imports remain concentrated in fertilizer, petroleum products, machinery, transport equipment, edible oils, chemicals, and iron and steel.

Fiscal Policy

11.               The fiscal deficit fell from 4.3% of GDP in 2001-02 to 2.4% in 2003-04 but since then it has increased to 4.3% in 2006-07 owing to massive expenditure on rehabilitation work on earthquake-affected areas.  The underlying fiscal deficit is still 3.5% of GDP and is expected to be around 4.0% during the current year. The increase in the deficit in recent years has also been caused by a sharp increase in public sector development expenditure that has increased from 2.2% of GDP in 2002-03 to 4.9% in 2006-07.

12.               Pakistan has enacted a Fiscal Responsibility Law (Fiscal Responsibility and Debt Limitation Act 2005) to restrain fiscal profligacy. A Monetary and Fiscal Coordination Board has been set up to co-ordinate monetary and fiscal policies. The Act calls for zero revenue deficit by June 2008 and surpluses thereafter and cuts in the debt-to-GDP ratios by 2.5 percentage points annually to reach a maximum of 60% by 2012-13.  However, the debt target was achieved in 2005/06 when it fell to 57.2% and by June 2007 it had fallen further to 54.6 %.

13.               Since the last Review, persistent efforts have been made to rationalize tax rates, broaden the tax base, shift tax incidence from imports to consumption and income, to improve the efficiency of tax administration and realize tax collection through enhanced voluntary compliance.  Various distortions in the tax system have been successfully removed and the tax administration greatly restructured. Numerous concessionary notifications (SROs) have been rescinded and tax net has been considerably widened. Tariffs have been rationalized and the sole purpose of tariff peaks, wherever existing, is to protect nascent industries. Excise tax has been reduced significantly and is being used primarily for reduction of undesirable consumption. Sales tax and direct taxes are the major tax earners. The tax revenue as a share of GDP had declined from 10.7% in 2001/02 to 10.1% in 2004-05 but has now increased to 10.5%. The share of direct taxes and sales tax has increased from 34.8% and 29.1% in 2000-01 to 37.3% and 30.4%, respectively, in 2006-07.

14.               With a view to improving public expenditure effectiveness, Pakistan started budgetary reforms in March 2003 under the Medium Term Budgetary Framework (MTBF).  So far these reforms have been successfully implemented in six ministries and are being progressively extended to other ministries. Under the MTBF, tax and total revenues are projected to rise slightly to 12.2% and 15.3% of GDP, respectively, and public expenditure to 18.6 % in 2010/11.

Monetary Policy

15.               The State Bank of Pakistan (SBP) is an autonomous organisation responsible for monetary stability in the country. The SBP targets monetary aggregates using market-oriented instruments to meet investment, GDP growth and inflation targets. The money supply expanded rapidly in the 2002‑04 period due to rapid capital inflows (especially the remittances) and the provision of consumer credit to stimulate demand.  However, monetary policy was tightened when the inflation rate increased to 9.3% in 2004-05. From 2004 to 2007 tighter monetary policy was pursued to curb excessive demand and the monetary overhang. However, money supply increased sharply at the rate of 19.5% in 2006-07 mainly because of massive inflows in the last quarter. The State Bank has taken various tightening measures, including slowing growth of reserve money, reduction in the inter-bank liquidity through cash reserve requirement, reduction in the money for the export finance scheme and increase in the bank rate and open market operations.

II.                TRADE POLICY

16.               Being a founding member of GATT in 1947 and the WTO in 1995, Pakistan is a keen supporter of an open, transparent and rules-based multilateral trading system. Most of its trade is conducted on an MFN basis. However, it believes that the current trading system suffers from several distortions that adversely affect trade opportunities for developing countries. Through a successful and ambitious result in the Doha Development Agenda (DDA) negotiations, such imbalances can be minimized. If the DDA is completed at an early date, it would facilitate Pakistan and other developing countries' achieving Millennium Development Goals within the United Nation’s target date of 2015.

Multilateral Liberalization

17.               Pakistan is actively participating in all DDA negotiations, but its key interests lie in market access and rules areas.  Since 2003, it has taken part in all Ministerial level meetings. It has issued a large number of papers, either on its own, or in collaboration with other countries. Its foremost objective in these negotiations is to ensure removal of tariff peaks and high tariffs on products of export interest to Pakistan. To this end, Pakistan has been an active player in the non-agricultural market access (NAMA) negotiations.  It believes that its proposal for reducing tariffs through application of a simple Swiss formula with two coefficients based on the current tariff averages of developed and developing countries with adequate flexibilities for developing countries, could provide a fair solution for both sides. At the Hong Kong Ministerial Conference in December 2005, Pakistan’s pre-eminent and constructive role in the NAMA negotiations was fully recognized when its Commerce Minister was asked by the WTO members to be the NAMA facilitator.

18.               Pakistan believes that preference erosion is a predictable and unavoidable outcome of multilateral trade liberalization negotiations. In committing to the Doha Round, all Members, including all developing countries, committed to an erosion of all kinds of preferences, reciprocal and non-reciprocal. Market access gains for all developing countries should not be held hostage by the present distortions. The gains of market access, which are the core of the development objectives of the Round, should be fair for all developing countries. Pakistan also believes that modalities on market access in all areas of the negotiation should not in any way allow developed countries to delay liberalization in their own markets. This would correspond to special and differential treatment in favour of developed countries and constitute prolonged discrimination among developing countries. Furthermore, all developing countries should have the right to benefit from the gains achieved in market access in all areas of negotiation. Any special treatment to prolong discrimination would not only contradict this basic right but be a serious breach of the mandate of the development objective of the Round, and of the very raison d'être of multilateral trade negotiations.

19.               Given the role of agriculture in its economy, Pakistan has a fundamental interest in further strengthening international rules governing agricultural trade and achieving far-reaching agricultural trade reform.  This could be achieved through early elimination of all forms of export subsidies and the substantial reduction of trade-distorting domestic support, which should go beyond paper-cuts, and substantial improvements in market access for agricultural products. With a view to achieving these objectives, Pakistan is closely working with other countries in G20 and the Cairns Group and hosted Ministerial level meetings of these Groups in Pakistan to formulate and push the objectives of these Groups.  Pakistan is also a member of G33 as it believes that developing countries are unable to compete against dumping of subsidized food products and need to protect essential requirements through designating a limited number of agricultural products as Special Products.

20.               In services our interests lie in getting predictable market access in all four Modes of supply, particularly in Mode 4 and Mode 1. A number of papers have been tabled in Mode 4 jointly with other developing countries, seeking removal of barriers to market entry like onerous qualification requirements and procedures, labour market tests, etc.  Papers have also been co-sponsored asking for balanced disciplines in domestic regulations for less burdensome qualification, licensing requirements and procedures in order to facilitate market access for service providers without compromising regulatory autonomy. Pakistan has been actively participating in plurilateral and bilateral negotiations with regard to services and looks for ambitious results in this sector.

21.               Pakistan is also a strong supporter of the need for improvement and clarification of Rules governing the use of trade remedies and subsidies (including fisheries subsidies).  It believes that most of trade remedy measures are being used for protectionist purposes and need to be subjected to strong disciplines.

22.               Pakistan has been making a significant contribution to trade facilitation negotiations since the beginning.  It sponsored and co-sponsored several documents in collaboration with developing as well as developed countries to clarify and improve the current rules. It also shared with other WTO members its national experience of computerized customs clearance, which has resulted in a major transformation of its clearance procedures.

23.               Pakistan is also an active participant in the negotiations for the improvement of the dispute settlement system, including issues like special and differential treatment for developing countries, greater transparency, alleviation of litigation costs, enhanced rights for WTO Members as third parties and for clarifying current rules for amicus participation. These reforms would enable developing and least developed members to better access the system for settlement of disputes, thereby lending further integrity to and strengthening of a rules-based multilateral discipline.

24.               As regards the development component of the Doha Round, Pakistan believes that development concerns are spread all over the DDA. If an ambitious result is achieved in the DDA through removal of trade distorting agricultural subsidies and reduction of tariff peaks in Agriculture and NAMA, liberalization of Services in modes and sectors of interest to developing countries and formulation of more transparent Rules on anti-dumping and trade facilitation, an overall development package will emerge. Pakistan also supports effective operationalization of the remaining proposals on special and differential treatment provisions for developing countries in existing WTO Agreements presently under review. Pakistan also stands for early settlement of all remaining implementation issues in favour of developing countries.

25.               Pakistan believes that provision of Aid for Trade and technical assistance would play a very significant role in implementing the results of Doha Round and improving supply side capacity in developing countries.

Regional and Bilateral Initiatives

26.               While Pakistan fully believes in the multilateral trading system, it is also cognizant of the proliferation of regional and bilateral Preferential Trading Arrangements.  Many such arrangements place Pakistani exporters at a disadvantage vis-à-vis their competitors.  In order to counter these negative effects, Pakistan has been actively involved in seeking such arrangements on bilateral or regional level. Since the last review, Pakistan has either finalized or is close to finalizing several such agreements. At the same time, it is exploring the possibility of such deals with many more economic blocks and countries. Pakistan believes that multilateral and regional initiatives will lead to more trade creation and thus both initiatives would be mutually supportive.

Regional Agreements

27.               In the context of regional arrangements, SAFTA (South Asian Free Trade Area Agreement) among Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka has become operative since 1^st July 2006.

28.               The ECO Trade Agreement signed by Afghanistan, Iran, Pakistan and Turkey along with six Central Asian states in July 2003 has still not entered in force for want of ratification. As a member of the D-8 Group of eight most populous developing Islamic countries, Pakistan signed the Preferential Trade Agreement in 2006. Member states have not yet ratified the agreement.

29.               Pakistan is one of the 18 signatories to the Framework Agreement on the Trade Preferential System among OIC Member States, which came into force in 2002. Under this arrangement, a preferential tariff scheme is being negotiated, and is likely to conclude by January 2009. Pakistan also signed a Framework Agreement for negotiating an FTA with MERCOSUR (Argentina, Brazil, Paraguay and Uruguay) in July 2006, paving way for technical negotiations to commence soon.

30.               Pakistan is actively engaged in a dialogue for negotiating a FTA with Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates). Negotiations have also started with EFTA (Iceland, Liechtenstein, Norway and Switzerland) for deepening of mutual trade and investment relations.

31.               Pakistan is also participating in the Sao Paulo Round of the GSTP (Globalized System of Trade Preferences among Developing Countries) launched by the UNCTAD for enhancing South– South trade.

Bilateral Initiatives

32.               Pakistan’s FTA with China covering goods as well as investments has become effective from 1^st July 2007.  Now most of Pakistan's exportable products, such as textiles, fruits and vegetables, gems & jewellery, engineering goods, leather products, sports goods, surgical goods, marble products and industrial alcohol, can enter the Chinese markets at zero duty or concessionary duties.  The Pakistan – Sri Lanka FTA has been operational since June 2005, and the PTA with Iran has been operative since September 2006.

33.               Pakistan is working on a two-pronged strategy for deepening its trade relations with ASEAN countries.  The first is to have bilateral FTAs with major countries of the ASEAN like Indonesia, Malaysia, Singapore, Thailand and Vietnam; the second is to negotiate a bilateral agreement with the entire association on a 10+1 basis (i.e. one Non Member with the ten Members of ASEAN). FTA negotiations with Malaysia, covering trade in goods, services, investment and customs cooperation have been successfully concluded, and the agreement is likely to enter into force this year. FTA negotiations with Indonesia and Singapore are making good progress and are likely to be concluded in the near future. While PTA negotiations are in progress with Thailand and Vietnam, a joint study is being launched to examine the potential of long term partnership between Pakistan and ASEAN. Pakistan and Japan have recently agreed to launch a joint study on the potential for preferential trade agreement between the two countries.

34.               Improving market access conditions and institutional strengthening of trade relations with our major trading partners remain the long term policy objectives and high priority agenda for the Government of Pakistan. In order to facilitate these negotiations with the EU, an institutional mechanism - the Sub-Group on Trade, under the aegis of the Pakistan-EU Joint Commission - has recently been set-up. Pakistan, however, remains cognizant of the fact that the GSP scheme of the EU is discriminatory as similarly placed countries are being treated differently on the basis of a closed list. With the United States, its single largest trading partner, Pakistan signed TIFA (Trade and Investment Framework Agreement) in 2003. Efforts are in hand to initiate a dialogue on a bilateral free trade deal.

35.               Pakistan has negotiated a PTA with Mauritius; and is pursuing negotiations of FTAs with Egypt and Jordan. Besides, preferential market access negotiations are also in hand with many other countries, including Afghanistan, Bangladesh, Bosnia, Kazakhstan, Kenya, Mexico, Morocco, Russian Federation, Serbia, Syria and Tajikistan.

Trade Policy Instruments

36.               The tariff remains Pakistan’s main trade policy instrument. The basic objective of tariff policy is not to limit imports or to generate revenues, but to provide protection to infant industries. The tariff structure in Pakistan is designed to provide a level playing field to local industry by keeping the duty on raw materials at the minimum level. Virtually all tariffs (99.5%) are ad valorem. There are 28 different tariff rates which consist of 14 ad valorem and 14 specific rates. Although the specific rates are 14 in number, these are restricted to 44 tariff lines only. Similarly, while there are 14 different ad valorem rates, the general scheme of tariff revolves around only 6 slabs including zero.  The other slabs involve only a few tariff lines.

37.               Maximum tariff, except for few products like automotives and alcoholic beverages, has been reduced to 25% with simple average applied MFN rate in 2006/07 of 15.0% compared to 20.4% in 2001/02. Presently, the simple average tariff is 14.5%, the import weighted average tariff 8% and the average effective rate 7.6%. Except for textiles and clothing where tariffs are bound at low applied rates, in most other cases applied rates are much lower than the bound rates. This is due to the fact that Pakistan has constantly been trying to bring down the applied tariff rates. Currently 388 tariff lines are duty free. 

38.               Regulatory Duty (RD) is levied under compelling circumstances prevailing at a specific time and is automatically rescinded on the expiry of the respective financial year. This year, Customs Act was amended to ensure that the cumulative incidence of customs duties does not exceed the rates agreed under any international commitment. The number of regulatory duties has considerably declined.

39.               The only import restrictions Pakistan maintains are for health, safety, security, religious, cultural and environment reasons. Standards applied are in line with international requirements and are applied uniformly to imports and domestic goods. Since the last Review, ban on imported iron and steel waste/scrap and cotton waste has been removed. Imports from India are allowed on the basis of a positive list of goods, which is ever expanding and subject to applied MFN or preferential tariffs under SAPTA and SAFTA Agreements. Imports from India are growing at a much faster pace than exports to India.

40.               There is only one state-owned corporation authorised to engage in imports and exports (i.e. Trading Corporation of Pakistan), but it does not have monopoly on the import or export of any product. It normally intervenes to cope with domestic demands of essential commodities under the express decision of the Cabinet. A transparent system of public bidding is observed before any imports or exports are made.

Trade Remedy Measures

41.               There has been only one case of safeguards investigation (on footwear), which was terminated in August 2005. Pakistan has conducted 24 anti-dumping investigations and imposed duties in 19 cases. At present anti-dumping duties are in place on seven different products from eleven countries.

Dispute Settlement

42.               Since the last Review, "Egypt- anti dumping duties on matches" was the only case where Pakistan invoked the DSU as Complainant, but before the composition of the Panel, the dispute was resolved to the satisfaction of both Parties. However, it has been involved as a third party in several cases, including the EC- India dispute on conditions for the granting of tariff preferences to developing countries, the US-Brazil dispute on subsidies for upland cotton, and the Turkey-US dispute on measures affecting the importation of rice.

43.               On 8th November 2006, Pakistan issued implementing legislation on the "ICSID Convention" on the Settlement of Investment Disputes between States and Nationals of Other States. Before this, the "New York Convention" also entered into force in Pakistan on the 12 October 2005. Both these measures are major steps forward in demonstrating Pakistan's commitment to transparency in the resolution of international investment disputes.

III.             KEY POLICY REFORMS

44.               A broad set of reforms have been carried out in almost all facets of economy. Economic philosophy has been reoriented towards de-regulations, liberalization and privatization. As a result of these reforms, the government’s role has been reduced to formulating policies, providing an enabling environment, and facilitating independent regulators. Almost all sectors of economy have been opened up with a level playing field for both domestic and foreign investors. Key areas of reforms are highlighted below.

Telecommunication

45.               Since the last Trade Policy Review, the telecom sector has been totally transformed. In 2003, the new Telecom Deregulation Policy and in 2004 the Cellular Mobile Policy were announced to liberalize this sector.  These policies resulted in large investments and new players entering the telecom market. Since July 2003, regulators have handed out more than 900 fixed, mobile, and long-distance licenses to some 50 companies. Already teledensity has increased from 4% to about 45% of the population. The number of mobile subscribers has increased from 8 million in 2003 to over 70 million in 2007. This sector has become a major provider of skilled jobs as its exponential growth has resulted in creation of 80,000 jobs directly and 500,000 jobs indirectly. An unprecedented amount of foreign investment flowed into the sector. This success has been achieved due to the well thought-out telecom policy, which was prepared after intensive discussions and debates involving all stakeholders. Besides deregulation, the government provided several tax incentives to attract investments.

46.               The Universal Service Fund (USF) Company has been established under the administrative control of Ministry of IT to provide universal access to telecom services and to increase the outreach of these services to rural communities. The USF nation-wide target is coverage of 85% of the population by the end of 2010. Telecom reforms have been widely appreciated nationally and internationally. In recognition of these achievements, Pakistan has been awarded Government Leadership Award by the Global System of Mobile Association (GSMA), and due to its best regulatory and policy reforms, Pakistan has been recognized by the ITU as a centre of excellence for policy and regulations.

Financial Sector

47.               The financial sector has also undergone major reforms. The control of pre-dominantly state owned banking system has been transformed to the private sector. The legislative framework and the State Bank supervisory capacity has been improved substantially. More specifically, all the nationalized commercial banks, except one, have been privatized. A number of regulatory measures have been put in place to ensure transparent corporate governance. Minimum paid up capital requirements of the banks has been raised from Rs. 50 million to Rs. 2 billion. This led to several mergers and consolidation of banks.

48.               The foreign exchange regime has been further liberalized.  The Pakistani corporate sector has been allowed to acquire equity abroad. Foreign registered investors can bring in and take back their capital, profits, dividends, remittances, royalties, etc. free from any restriction. Restrictions imposed on banks to allow consumer financing have been removed. This resulted in a major stimulus to the domestic manufacture of consumer durables. New recovery laws have been enforced to ensure the right of purchase and sale of mortgaged property with or without intervention of the Courts to avoid delays in the recovery of defaulted loans. To provide access to credit by small and medium enterprises (SME), a SME bank has been established. To ease access of credit in rural areas, licensing and regulatory environments have been made less stringent for micro financing.

Taxation

49.               The highlights of tax reforms include:  reorganization of the Central Board of Revenue (now renamed Federal Board of Revenue); simplification of tax laws and procedures; introduction of universal self-assessment in all taxes; establishment of Large Tax Payer units, Model Customs Collectorates, Regional Tax Offices and Tax Facilitation Centres; promotion of a new tax culture based on voluntary compliance; emphasis on Human Resource Management: improved transparency; improved efficiency of tax administration through capacity building and skills training and timely dissemination of information to all stakeholders.

50.               As regards income tax, the corporate rate structure, which varied substantially across banking, public and private companies, has been made uniform by lowering rates on banking and private companies to 35%. For individuals, the tax-free basic threshold has been increased from Rs. 50,000 - 60,000 in 2001-02 to Rs. 80,000 - 100,000. Similarly for small companies, a low rate of 20% was introduced in 2005-06.

51.               As regards sales tax, a single uniform rate of 15% has been introduced, replacing different rates of 15%, 18%, 20% and 23% prevailing during 2001-2003.

52.               In the area of customs duty, Pakistan has continued the policy of simplification of tariff structure. During the budget of 2007-08, a slab of zero has been created for duty free imports. The number of concessionary notifications (SROs) has been reduced substantially. Pakistan also continued the policy of autonomous liberalization and bound more than 3,000 tariff lines to increase the scope of tariff binding to 98.7%. All compulsory local content conditions commonly referred to as indigenization/deletion programs have been abolished. This includes the deletion program for auto sector, abolished on 1 July 2006.

Trade Facilitation

53.               During the period under Review, Pakistan has started working on three major initiatives. One of these relates to improving Customs Clearance Systems, another relates to placing all international trade-related procedures on a par with best international practices, and the third is the medium term transport master plan for up-grading of infrastructure and services to improve trade logistics.

54.               With a view to reducing transaction time and the cost for trade, Pakistan has continued to reform its trade and customs procedures.  A single Administrative Document (SAD) replaced 10 documents in 2003. Various laws and procedures were modified in 2004 to make them compliant with the revised Kyoto convention. Pakistan has also committed itself to the WCO Framework of Standards and for facilitation of international trade in a secure environment. Pakistan has entered into partnership with US Customs & Border Protection and has established an Integrated Cargo Container Control terminal (IC3) at Port Qasim, which affords real time viewing of the results of scanning containers destined for USA besides allowing simultaneous results of radioactivity checks.

55.               For improving customs clearance procedures, work began in 2002 on a new fully automated programme known as Pakistan Customs Computerized System (PaCCS). PaCCS as an integrated, web-enabled, paperless, real-time system launched in 2005 is successfully working for Customs clearance.  Almost 25% of imports and 38% of exports are now cleared through this system. Work is in progress to roll it out in all ports (including inland ports) and to cover all goods exported or imported. The roll out envisages an automated nation-wide commercial community single window system called PACCS (Pakistan Commercial Community System) for integration of all stakeholders engaged in international trade (along with its domestic linkages). It is expected to be rolled out at all Customs stations including Ports, Airports, Dry ports across the country by the end of 2008. This initiative will be implemented through a public-private partnership (PPP) and envisions integrating all stakeholders involved in international trade and the logistic supply chain.

56.               With the implementation of PaCCS, steps to clear vessels have been reduced from 26 to one. Previously, 34 signatures and 62 verifications were required to clear a consignment; these have now been replaced with a single electronic declaration. Clearance time for any consignment has been reduced from 7‑10 days to less than a few hours. Under this system, physical cargo inspection rates have been lowered from 100% to 4% (2% for exports) and port dwell times reduced from 11 to 4 days. With the effective implementation of PaCCS and other administrative measures, Pakistan Customs compliance to the revised Kyoto Convention has increased substantially. PaCCS alone has contributed to compliance of 26 standards of the General Annex and overall general compliance level has risen to a very high level.

57.               The second initiative commenced in August 2001 and involved setting up the National Trade and Transport Facilitation Committee (NTTFC). This is a World Bank funded Trade and Transport Facilitation Project (TTFP) with technical assistance from UNCTAD. The work of this Committee covers all Ministries relating to trade, transport and finance. It covers public sector organizations dealing with finance, customs, trade and transport and also private sector trade bodies representing commerce and industry, transport, finance and insurance. This project is also working on the principle of public/private partnership. The Committee conducts reviews of trade and transport procedures and coordinates efforts of concerned organizations in the area of facilitation of international trade and transport. The Committee also promotes adoption of standard trade and transport terminology and international codes for trade and transport legislation in order to bring them up to par with the best in the world.

58.               The latest major initiative is the National Trade Corridor Improvement Program (NTCIP) approved in August 2005.  This is a medium-term transport master plan for the country systematically covering infrastructure and services that support trade logistics. This is a holistic and integrated plan which encompasses public and private sectors, services and infrastructure, reforms and investments and various other sectors responsible for the desired level of performance of the corridor i.e. (highways, road transport, ports and shipping, civil aviation, railways, customs and trade logistics). This initiative is expected to substantially reduce the cost of doing business in Pakistan and to enhance export competitiveness, accelerate industrialization and sustain the high economic growth achieved in recent years.

59.               Pakistan’s geographical location on the world map finds it surrounded by landlocked countries like Afghanistan and the Central Asian States. Transit trade takes on immense importance demanding smooth and quick flows across borders in which Pakistan has a key role to play. The age old Transit Trade Agreement with Afghanistan is being revised and new transit trade agreements, like the Transit Trade Framework Agreement with ECO countries and a Quadrilateral Agreement with China, Kazakhstan, Kyrgyzstan, are being made operative to enhance transit trade traffic through the region in synchronization with the spirit of WTO (GATT Article V).

60.               All these measures for trade facilitation have been taken by Pakistan with a view to promoting and enhancing legitimate trade in a secure and safe environment.

Competition and Regulatory Bodies

61.               A new competition law has been enacted and the Monopoly Control Authority working since the sixties has been replaced with the Competition Commission. This is one of the key "second generation" initiatives. It will prohibit abuse of market dominance, certain types of anti-competitive agreements, deceptive market practices, and mergers or undertakings that substantially reduce competition. Various independent regulatory bodies have been formed to regulate utilities.

62.               To ensure healthy competitive markets, independent regulatory bodies have been established or strengthened. These include regulators for energy, the environment, tourism, legal, maritime transport, engineering, architectural, accounting and higher education services. The postal sector is in the process of acquiring one to have balanced regulations for structured and properly sequenced development of the sector. In the health sector, the Pakistan Medical and Dental Council is also introducing changes in its regulations.

Protection of Intellectual Property Rights

63.               Pakistan has upgraded its regime for the protection of intellectual property rights (IPRs) in line with its commitments in the agreement on Trade Related Intellectual Property rights (TRIPS). This includes strengthened protection of intellectual property rights and enhanced enforcement mechanisms. An integrated umbrella in the form of "Intellectual Property Organization of Pakistan" has been established for dealing with all aspects of IPRs.

64.               In terms of legislation, Pakistan is a member of the Paris and Berne Conventions.  New legislation was introduced to meet international obligations on copyrights, industrial designs, integrated circuits, patents and trademarks. Specifically, it promulgated the "Registered Layout-Designs of Integrated Circuits Ordinance, 2000",  "Patents Ordinance 2001 as amended by Patents Amendment ordinance 2002",   and "Patent Rules 2003". In July 2004, Pakistan acceded to the Paris Convention for the protection of industrial property and issued the Trade Mark Rules 2004 the same year. Draft laws on Plant Breeders Rights and Geographical Indications are in the final stages for legislation.

65.               To enhanced enforcement and surveillance mechanisms of IPR, several steps have been taken. The civil and criminal remedies provided by the law with implementation mechanisms through police, federal investigation agency and border control agencies (customs etc) have shown a marked improvement in recent years. Enforcement Committees among relevant agencies in several cities and "anti-piracy" cells at major international airports exist to effectively interdict pirated goods e.g. in the case of anti-piracy cells by inspecting all exports of compact discs, DVDs, etc. These substantial improvements in IPR protection, and especially enforcement, are well recognized internationally.

IV.              CONCLUSION

66.               Pakistan has come a long way from the days of tightly regulated economy, when the public sector owned and controlled banks, insurance, telecommunications, utilities, and industries. The challenge now is to continue on this reform path and fully embrace 21^st century business principles of openness, competition, and quality.  Pakistan will continue to pursue trade liberalization goals multilaterally, regionally/bilaterally and unilaterally. In particular, it needs to prepare itself for the opportunities that may be arising through the Doha Round and other such market access opportunities.

67.               With its financial position being more stable now, Pakistan needs to give more attention to enhancing the educational and skill levels needed to export value-added and high technology goods and services. At the same time, it needs to further improve its infrastructure to reduce costs associated with international trade. With these changes, there is no reason why Pakistan should not soon be able to join the ranks of more successful countries when it next presents its trade policies for review in 6 years time.

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