17 February 1995
POLICY REVIEW BODY: REVIEW OF PAKISTAN
TPRB'S EVALUATION Back to top
The Trade Policy Review Body of the World Trade
Organization (WTO) and the GATT 1947 Council conducted its first review of Pakistan on 15
and 16 February 1995. The trade review of Pakistan was carried over from the 1994
programme of reviews under GATT 1947. The text of the Chairman's concluding remarks is
attached as a summary of the salient points which emerged during the two-day discussion.
The review enables the Council to conduct a
collective examination of the full range of trade policies and practices of each member
country at regular periodic intervals to monitor significant trends and developments which
may have an impact on the global trading system.
The review is based on two reports which are
prepared respectively by the WTO Secretariat and the government under review and which
cover all aspects of the country's trade policies, including: its domestic laws and
regulations; the institutional framework; bilateral, regional and other preferential
agreements; the wider economic needs and the external environment.
A record of the discussions and the Chairman's
summing-up, together with these two reports, will be published in due course as the
complete trade policy review of Pakistan and will be available from the WTO Secretariat,
Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.
Since December 1989, the following reports have been
completed: Argentina (1992), Australia (1989
& 1994), Austria (1992), Bangladesh (1992), Bolivia (1993), Brazil (1992), Cameroon
(1995), Canada (1990, 1992 & 1994), Chile (1991), Colombia (1990), Egypt (1992), the
European Communities (1991 & 1993), Finland (1992), Ghana (1992), Hong Kong (1990
& 1994), Hungary (1991), Iceland (1994), India (1993), Indonesia (1991 & 1994),
Israel (1994), Japan (1990 & 1992), Kenya (1993), Korea, Rep. of (1992), Macau (1994),
Malaysia (1993), Mexico (1993), Morocco (1989), New Zealand (1990), Nigeria (1991), Norway
(1991), Peru (1994), the Philippines (1993), Poland (1993), Romania (1992), Senegal
(1994), Singapore (1992), South Africa (1993), Sweden (1990 & 1994), Switzerland
(1991), Thailand (1991), Tunisia (1994), Turkey (1994), the United States (1989, 1992
& 1994), Uruguay (1992) and Zimbabwe (1994).
TRADE POLICY REVIEW BODY: REVIEW OF
CONCLUDING REMARKS BY THE CHAIRPERSON Back
This joint meeting of the Trade Policy Review Body
of the WTO and the Council of GATT 1947 has now completed the first review of Pakistan's
trade policies and practices. These remarks, made on my own responsibility, summarize
salient points raised during the discussion; they are not intended to substitute for the
collective evaluation and appreciation of Pakistan's trade policies and practices. Details
of the discussion will be reflected in the minutes of the meeting.
The discussion developed under four themes.
Macroeconomic reforms and structural adjustment
Participants commended Pakistan on its macroeconomic
adjustment and structural reform programme which had ended four decades of inward
orientation. Pakistan was encouraged to continue with its programme, thus ensuring the
basis for stable, long run growth.
Some participants noted that Pakistan's balance of
payments was still under pressure, due in part to natural disasters. They urged Pakistan
to disinvoke its use of the GATT balance-of-payments provisions as the situation improved.
Some members suggested that infrastructure
weaknesses impeded economic growth. The utility of improving education was stressed. In
this connection, attention was drawn to the low participation rate of women in the
economy. The private sector appeared to show little interest in research, contributing to
the low quality of Pakistani goods.
A number of participants felt that measures could be
taken to improve the flow of direct investment into Pakistan, including broader
application of national treatment, simplification of procedures and improved intellectual
property protection. The need to accelerate privatization was stressed and questions were
raised regarding local content legislation. Some concern was expressed about Pakistan's
adherence to internationally recognized labour standards, although others emphasized that
this was not a subject for discussion in this forum.
In reply, the representative of Pakistan affirmed
his Government's commitment to economic liberalization, deregulation and privatization,
despite various constraints. To this end, fiscal and monetary discipline was actively
pursued under the Structural Adjustment Programme; however, the external current account
situation remained difficult, both because of the debt service burden and a reduction in
worker remittances and despite an improved trade balance. The outward-orientated economic
policy would continue uninterrupted in the medium- and long term.
One of the primary objectives of economic planning
was to accelerate development in infrastructure, particularly in energy, transportation
and communications. Over 46 per cent of public expenditure in the Eighth Plan was assigned
to these areas. Partnership between the public and private sectors was being encouraged.
Women had historically lagged behind men in
Pakistan's development. High priority was now given to the rôle of women, with a special
Ministry for Women Development created in 1979 and specific programmes pursued under the
Sixth and Seventh Plans. The thrust of policy during the Eighth Plan was on education,
health, and encouraging income generation for women; in addition, removal of
discrimination in education and employment and better information and communication on
women's rights and responsibilities would be ensured.
Privatization would continue; 35 additional units
had been identified for disinvestment and modalities for dis-investing two nationalized
banks were also being examined. The critical linkage between investment policy and
intellectual property rights was recognised, and inter-agency consultations were
continuing with a view to overcoming Pakistan's reservations on protection of patented
Pakistan was signatory to a large number of ILO
conventions, and had signed a Memorandum of Understanding with the ILO on the critical
area of child labour. The recommendations of the Task Force on labour were being
considered by the Government and adoption of these should remove the expressed concerns on
this "new issue". Pakistan was concerned, like other developing countries, that
linkage of labour standards with trade could be used as a cover for new forms of
Trade policy and trade régime
Participants welcomed Pakistan's trade
liberalization. Reductions in barriers had improved efficiency. The introduction of a
three-year tariff reduction programme was seen as a positive step. Some members asked
whether the continuation of trade liberalization was consistent with the objective of the
Eighth Plan (1993-1998) to limit the real growth of imports to 5 per cent a year.
Participants welcomed the abolition of Import Trade
Prices for customs valuation and the introduction of transactions value, as verified by
pre-shipment inspection. Pakistan was urged to move quickly to implement the provisions of
the Customs Valuation Agreement.
Concerns were expressed over:
- the general registration requirement for companies
engaging in foreign trade and the restrictions on employment of foreign managers;
- the high level of tariffs, with tariff peaks and
- the low number of tariff bindings and the
discretionary power available to state authorities under Statutes, Regulations and Orders
(SROs), which reduced transparency;
- the use of export prohibitions, particularly on
agricultural products, and of minimum prices, taxes and charges;
- the extension of export support through such
measures as tax credits on export earnings; Pakistan was urged to bring such measures into
conformity with the Uruguay Round Agreement on Subsidies and Countervailing Measures;
- lack of clarity in the use of standards on
- the justification for an additional 2 per cent
sales tax imposed on 28 import items.
Participants also welcomed the reduction of the
Negative Import List to 70 items and the elimination of the Restricted List. Questions
were raised about the inclusion of textile products on the Negative List.
Questions were also asked about remaining trade
privileges of the Trading Corporation of Pakistan and information was sought on advantages
given to domestic enterprises in government procurement; in this connection, Pakistan was
urged to join the Agreement on Government Procurement. Some members also urged Pakistan to
bring its laws on anti-dumping and countervailing measures into accordance with the
Uruguay Round agreements.
The representative of Pakistan stated that trade
policy was traditionally fairly transparent, with key instruments published in the
Official Gazette. Businesses were familiar with the SRO system; no official discretion was
involved. The number of SROs, tariff exemptions and concessions was being steadily
reduced. Fuller rationalization of the tariff structure by July 1996 should remove any
problem of perceived lack of transparency. Other trade policy instruments were not thought
to present any problem of transparency.
The 5 per cent real import growth target was
indicative, with no instruments to enforce it, and would not slow the liberalization
The general maximum tariff would be reduced to 35
per cent by financial year 1996/97, with minimum rates set at 10 per cent except for food,
fertilizer, pharmaceuticals and energy sector imports; tariff dispersion would be limited
through a 4-6 tiered tariff structure within the above maxima and minima; and further
integration of the Pakistan tariff into the Harmonized System would be undertaken. This,
together with the withdrawal of exemptions and concessions under SROs, would bring about
full transparency in the tariff régime. However, the SRO system could not be abolished
Pakistan aimed to increase its scope of GATT
bindings beyond 33 per cent. As a first step, imports of textiles were allowed at high
bound rates, to give the industry breathing space for adjustment. Pakistan agreed to
review its tariff peaks and would not escalate tariff rates beyond GATT bindings. The
National Tariff Commission (NTC) would identify items that might require temporary
protection as a result of tariff reductions. The NTC was also entrusted with anti-dumping
functions under the Tariff Act 1990. Regulations being drafted would reflect the Uruguay
Round standards and guidelines.
It was not yet practicable to extend the General
Sales Tax (GST) at retail level across the board; however, as a first step, a 2 per cent
fixed sales tax had been levied on the retail price of 49 items. Full details would be
provided. The GST net had also been expanded from 486 to 863 items.
Pakistan currently followed the Brussels Definition
of Value; this would be phased out under the Uruguay Round Agreement. As a first step,
Import Trade Prices had been abolished; the pre-shipment inspection agency was responsible
for verifying the transaction value of goods. Pakistan would need the five years'
transition period to implement the Uruguay Round Agreement.
The requirement that importers and exporters be
registered with a government agency and be members of a Chamber of Commerce and Industry
or an Exporters' and Importers' Association was originally intended to prevent frauds and
facilitate handling of trade complaints and disputes. It was recognized that the system
was outdated. Consultations with the business community, including foreign firms, on this
issue would be initiated in spring 1995.
The Negative List consisted of about seventy 8-digit
tariff lines, including 63 textile products on which restrictions were maintained for
balance-of-payments reasons. Under the Uruguay Round, Pakistan was committed to removing
quantitative restrictions on textile products form 1 July 1995; in addition, the
achievement of current account convertibility left little rationale for maintaining such
restrictions. The maintenance of remaining items on the Negative List was justified on
account of religious, moral, security considerations or under international treaties.
The three state trading enterprises were established
in 1972-73 partly to protect farmers against exploitation and malpractices. These
corporations no longer enjoyed any trade monopolies. Their rôle now was, in part, to
undertake procurement where the private sector did not yet have the necessary financial
resources. The Cotton Corporation's rôle in exports had diminished because of absence of
surpluses; in fact the Corporation was engaged in 1994/95 in purchasing cotton from
Central Asian states, because the private sector was not equipped to handle the difficult
logistic problems involved in transportation through Afghanistan.
Like many other developing countries, Pakistan had
not signed the Tokyo Round on Government Procurement Code. The bulk of government
procurement business in Pakistan remained with foreign firms under foreign financing of
major projects. Small-scale procurement remained with Pakistani firms, partly because of
lack of sufficient interest by foreign firms; in addition, most local firms acted on
behalf of foreign businesses. Price preferences for domestic suppliers were recognized by
international institutions as a measure conducive to developing the private sector; and
tolerated because of complaints regarding dumping practices by some State trading
Pakistan's standards requirements did not apply to
imported products. Relevant ministries were authorized to establish quality and safety
requirements for imported goods, with Customs ensuring compliance.
There were no duties on exports. However, exported
goods were subject to provincial levies and to an export development surcharge of 0.25 per
cent of the f.o.b. value. Twenty-six products were prohibited for export; items subject to
quota restrictions, minimum price restrictions, special procedures and quality control
restrictions and contract registration requirements were published. Export earnings were
exempt from tax on a scale ranging from 25 to 90 per cent, but exports were subject to an
across-the-board tax of 1 per cent of f.o.b. value.
Participants welcomed the market-oriented measures
introduced in agriculture and industry. Questions were asked about Pakistan's
self-sufficiency in dairy products, subsidies on domestic and imported wheat and
restrictions on imports of meat.
Participants recognized that, with about 60 per cent
of exports in the cotton group, Pakistan was vulnerable to changes in the external
environment. Questions arose about diversification of exports.
The representative of Pakistan emphasized that the
self-sufficiency goals of the Eighth Five Year Plan were essentially indicative. Moves
towards market-oriented agricultural polices had been accelerated; self-sufficiency would
be achieved through such policies. Cotton and rice were not subsidized; however, wheat, as
a basic food, received consumption subsidies, which were also extended to imports.
Government imported wheat through open tender, and wheat imports had been opened to
private trade. Although tariffs on dairy products were high, they would be reduced under
tariff reforms. Ceiling bindings on agricultural commodities, at 100 to 150 per cent,
compared favourably with those of other countries.
To subject the textile and clothing industry to
increased competition, the concessional credit facility and dual cotton pricing system had
been phased out; moreover, access to fibres, yarns and cotton substitutes had been
improved by allowing imports at reduced tariffs. Pakistan was committed to removing
textiles from the Negative List by 1 July 1995; tariffs would be reduced to 35 per cent
for garments, 25 per cent for fabrics and 15 per cent for fibres and yarns. It was hoped
that diversification of the export sector would result, including into non-traditional
Participants commended Pakistan for its active
participation in the Uruguay Round, especially in the textile and clothing area.
Participants urged Pakistan to implement fully its obligations under the WTO as soon as
Questions were raised about Pakistan's policy
towards regional integration, including exchanges of concessions under the South Asian
Association for Regional Cooperation.
Participants recognized that a favourable external
economic environment was needed for the consistent implementation of Pakistan's reform
programme. In this regard, the full implementation of the Uruguay Round commitments,
especially on textiles and clothing, was of crucial importance.
The representative of Pakistan replied that Pakistan
had ratified the WTO in full recognition of the higher level of obligations required.
Ministries were currently working out measures necessary to implement individual
agreements. The success of the WTO would, however, hinge on the implementation of the
obligations by the major trading nations and the understanding they might display towards
the adjustment difficulties of countries representing small shares of world trade.
Despite reservations about the drift towards
regional arrangements, Pakistan recognized that, if kept within the legal confines of the
GATT, these could contribute to increased trade.
Most quotas on Pakistan's textile exports remained
in place. However, modification of the existing agreements had mitigated the rigour of the
quotas; some had been removed and in other cases enhanced flexibility had been extended.
There was considerable concern about the erosion or withdrawal of GSP for textiles in the
European Union. The rigorous implementation of standards, combined with rapid enforcement
of pre-shipment inspection and quality controls, had reached the point of becoming a
technical barrier to trade. NAFTA rules of origin were encouraging a shift of textiles
production from Pakistan to the NAFTA region.
Conclusion Back to top
My conclusion from this review is that Pakistan has
been warmly praised for its adjustment efforts and the liberalization being undertaken.
Pakistan was encouraged to continue this process steadfastly. The proposed tariff reform
and the elimination of textiles from the Negative List are particularly welcome; members
clearly hope that these will be reinforced by an increased number of tariff bindings. At
the same time, a supportive external environment is important.