RESTRICTEDWORLD TRADE
ORGANIZATIONG/C/W/288
9 August 2001
(01-3956)
Council for Trade in Goods Original:  English
REPLIES BY PAKISTAN TO QUESTIONS FROM THE UNITED STATES,
THE EUROPEAN COMMUNITIES AND JAPAN REGARDING THE
PAKISTAN REQUEST PURSUANT TO ARTICLE 5.3
OF THE AGREEMENT ON TRIMS
Reply to written questions from the United States
1. Please describe in detail the measures that are included in the government of Pakistan’s
request. Could the government of Pakistan please elaborate beyond the description
provided in the previous submission for example?
The measures included in Pakistan’s request relate to Deletion Programmes (DP).  The
Deletion Programmes is aimed at promoting the local content in the items/equipments being
assembled/manufactured in Pakistan.
(a) What Domestic and Foreign producers are entitled to take advantage of the program?
All foreign and domestic producers, irrespective of ownership can take advantage of
the programme.
(b) In what sector do the producers affected by these measures operate? When was each of these
sectors added to the program?
It is a voluntary programme. The units can operate within the framework of
programme or outside the framework. The producers can operate under the programme in the
Automotive Sector, Domestic Appliances, Engineering Goods Industry, Textile Sector andElectrical Capital Goods. These sectors were included since the commencement of the
deletion programme.
(c) What percentage of local content is currently required for each of the producers affected by
these measures?
The level of local content requirements range from 30% to 70%.
(d) What kinds of local goods qualify to meet the local content amounts (anything? Some parts
but not other? etc.) ?
All parts/goods selected by the OEM`s and Vendors for which technology is available
in the country can be localized. The decision about the kind of products to be
qualified/classified as local contents is taken by stakeholders.G/C/W/288
Page 2
2. How have the measures changed over time?
(a) Have there been any changes to the measures covered by your extension request since
1 January 1995?  If so, what are they?  For example have these measures increased the
amount or percentage of local content required since 1 January 1995? Please provide copiesof any laws, regulations, notices or other documents implementing or announcing anychanges.
The Deletion Programmes have been converted mostly from “firm” specific to
“Industry” specific. The schedule of percentage of local contents as already decided is being
followed.
(b) Your notification (G/TRIMS/N/I/PAK/I) states that “the programme encompasses the
engineering, electrical goods and automobile industries” while your extension request seemsto describe a broader programme which includes such sectors as general engineering,
electrical goods, agriculture equipment and automobile industry, etc. Has Programme been
expanded to more sectors since your initial notification?
The programme has not been expanded between the period of initial notification and
request for extension. The difference in coverage is a secretarial oversight.
(c) Your TRIMs Notification states that there is an advantage given to participants in this
Programme in the form of concessionary rates of Tariff for the import of special components
and parts, is this still accurate? If so please list the concessionary Tariff rates provided for
each participant in the programme.
The Tariff structure is cascading in nature. The general pattern of import levies are:
Raw Materials                    10%
Sub Components                15%
Components                        25%CKD                        25% to 35%
Spare Parts              25% to 35 %
(Commercial Imports)
A 10% differential exists in the commercial imports and those made under Deletion
Programmes.
(d) What methodologies are used to decide what the rates will be and which products will be
eligible for the reduced rates?
The general structure of the tariff regime  determines the applicable rates. The
products, eligible for reduced rates, are determined by sector specific committees formed
under the auspices of Engineering Development Board (EDB). Representatives in theseCommittees consist of all stakeholders including the private sector.
(e) What is the total value of these reduced Tariffs over the entire economy?
This exercise involves an immense amount of work and since no time frame has been
given, we presume that the question involves calculations since the inception of theprogramme. Our experts are currently carrying out this exercise, which needless to say
involves very complex and comprehensive calculations. We would respond specifically to
this question in due course of time.G/C/W/288
Page 3
3. The implementing agency, as listed in th e GOP's TRIMs notification and extension
request is the Ministry of Industries and Production
(a) What responsibilities does this organization have generally?
The implementing agency for these programmes is the ‘Engineering Development
Board’, which draws members from Ministry of Industries & Production, Ministry of
Finance, Ministry of Science & Technology, Board of Investment and representatives from
Public and Private Sector.
Specifically, it is the Indigenization Committee of the EDB which monitors and
implements these programmes.
(b) What are its responsibilities with respect to both the TRIMs measures and more generally the
sectors covered by the TRIMs Programme?
Encourage local/ foreign investments, widen the engineering base in the country, and
promote local industry in the sectors covered by the deletion programme.
(c) Are there any other Government of Pakistan agencies or other entities or persons with
responsibility for implementing or otherwise supervising the measures identified in
question 1?
The Ministry of Commerce, being the focal point for all WTO Agreements, is also
responsible for implementing and supervising the measures pertaining to TRIMs.
Basis for the extension request
4. The government of Pakistan’s extension request provided to the council for trade in
goods provides several reasons why an extension is necessary. Please elaborate on thebasis for your request for example:
(a) How was the seven-year period determined?
This period has been determined on the basis of an in house assessment and cost
calculations, involving all stakeholders.
Pakistan's economy has been facing serious macroeconomic difficulties for the last
several years. The difficult economic environment prevailing in Pakistan is a result of heavyexternal debt burden, adverse balance of payment and trade deficit, and decrease in the
foreign direct investment.
The extension of seven-year period extension is necessary for the industries covered
under TRIMs to become viable. Above all, this is linked to reversin g the declining growth
pattern and recovery of Pakistan’s economy.
(b) What was the empirical evidence examined to gauge that at least seven years would be
required?
The assets and projections made by the industry indicate that a minimum of seven
years will be required.G/C/W/288
Page 4
(c) Describe the “forward and backward linkages” that would be “adversely affected” if the
TRIMs are removed.
These measures could have adverse affects in following manner:
- Local automobile manufacturers who are controlled/influenced by their principals
will purchase parts from home countries, creating further loss to the Pakistan’s
economy.
- Foreign parts manufacturers, with their large markets and large economies of scale
having amortized their investments can offer prices, which cannot be matched by the
local vendors. The local assembler will find no incentive to further localize or even
use the parts that have already been localized.
- The development of parts by local vendors will be reduced.- Most of the local manufacturers will face closure due to markets contraction.
- Accordingly, this will lead to:
- Increased unemployment.
- Widening of Trade deficit.- Affect balance of payments adversely, which will result in devaluation and
increased inflation
(d) What would be the specific “Negative impact” on investment mentioned in your request?
What research has been undertaken to show that investment would decrease if the measureswere removed?
Please see answer to the question (4-e) below.
(e) What would be specific effect on the balance of payments situation in Pakistan if the TRIMs
were removed? Provide any statistical or other information that demonstrates any such effectand the linkage of this effect to the removal of TRIMs.
As indicated, the economic downturn has adversely affected the local industry. The
situation is compounded by the absence of market access resulting in stagnation of exports,
which during the past few years has not increased more than US$ 8 billion. Whereas the
import bill has shown an increasing trend over the same period of time, which stands at
around US$ 11 billion. This trade deficit, which led to the depletion of our foreign exchange
reserve, necessitates reliance on foreign economic assistance.
(f) Describe the technology transfer that would be impeded if the TRIMs were removed. What
studies have been done to verify this statement?
The assessment done by the Government has revealed that among other industries,
technology transfer relating to engine block, moving parts, stamping rubber, and plastic high
finish goods, identified in phased deletion programme will become unfeasible, if TRIMs is
removed. This is bound to increase the reliance on imports and reversal in Transfer of
Technology to Pakistan.
(g) Article 5.3 of the TRIMs Agreement requires the Council for Trade in Goods to conclude that
applicant for extension has demonstrated “particular difficulties” How does the Governmentof Pakistan consider the difficulties it has described for this requirement?
Pakistan’s GDP growth, which had averaged  5-6% p.a. in the 1980s slowed down to a
little over 3% p.a. in the latter half of the 1990s. Although growth never turned negative and
inflation was brought down to single digits, increases in per-capita incomes have beenG/C/W/288
Page 5
negligible in recent years given high population growth of 2.6% per year. Industry has been in
a persistent recession, exports stuck at around US $8 billion per year, and agriculture trapped
in a low-productivity, weather-dependent slow-growth mode. Employment generation lagged
far behind the growth of the labour force, leading to rising unemployment and associated
social tensions.
Following the May 1998 nuclear tests and the ensuing sanctions from major industrial
countries, Pakistan’s economy suffered a major shock which aggravated the balance of
payments problems, import restrictions, public expenditure cuts, tax increases, substantial
external debt service arrears and a slowdown in growth. A sizable terms of trade shock in
1999/2000 and 2000/01, resulting from rising prices of petroleum and wheat imports and
declining prices of cotton. Restrictions on Pakistan’s textile exports to the developedcountries market has been another additional and a central difficulty.
The drought has wreaked havoc in 58 of the total 106 districts of the country,
especially impacting barani  and rangeland areas. Causing devastation and loss of human lives
in semi-arid regions, the drought eliminated of US$ 247 million worth of livestock in the firstfive months of this year alone. Given that 70 % of the entire population of Pakistan is rural
based and dependent on agriculture for its livelihood, negative agriculture growth of 2.5%
(estimated) has not only impacted agro-based industry, but displaced a large number of the
rural poor.
As a result of poverty in Pakistan, which had fallen substantially in the 1980s, has
risen in the 1990s, and the poverty ratio is currently estimated by the government at 29% in
caloric terms. Social indicators are dismal and well below those of other countries with
comparable per-capita income levels.
(h) What makes these difficulties different from other Members' situation?
There is clear and perceptible evidence that the growth performance of Pakistan’s
economy has deteriorated in the 1990s. Against an average growth rate of 6% per annum in
the 1980s, the real GDP growth slowed to an av erage of 5% in the first half and 4% in the
second half of the 1990s. More so, the real GDP  growth slowed to an average of 3.1% during
1996-99. Fixed investment averaged almost 17% of GDP in the 1980s but declined to an
average of 15% in the second half of the 1990s and culminating in a steep fall in 1998-99 toabout 13%, National saving also declined from  an average of almost 15% of GDP in the
1980s to 12% by 1998-99.
In addition, Pakistan is also confronted with particular difficulties emanating from an
inhospitable external environment, including unilateral sanctions and unstable politicalsituation in the region.
5. Another key factor focus on employment
(a) What is the basis for the statement that removal of TRIMs would cause “displacement of
labour and unemployment”?
Pakistan’s total population is estimated at 140.5 million this year, which is growing at
2.1% per annum. Today, Pakistan is the seventh most populous country of the world.
The total labour force comes to 41.2 million and has increased at an annual average
rate of 2.2%. Out of the total labour force, 38.8 million individual are employed at present,leaving approximately 2.4 million unemployed. Agriculture is still the largest employerG/C/W/288
Page 6
(47.2%), followed by trade (13.9%), finance (16.2%), and manufacturing and mining (10.2%)
etc.
To accelerate economic development and reduce unemployment through creation of
new job opportunities, the government is implementing a multi-pronged economic revivalplan of which significant components include the Khushal Pakistan Programme. The
programme is aimed at creating employment opportunities through small public works, whilst
small entrepreneurship is being encouraged through the micro credit initiative.
Given this backdrop, the removal of TRIMs protection is expected to lead to further
unemployment particularly when the principals of local assembly units would find it cheaper
to buy parts from home countries, as the local manufacturing cost per unit would increase.
(b) What was the total employment in the firms that  participate in the programme covered by the
request before the TRIMs policy was implemented?
These figures are being tabulated and will be provided in due course of time.
(c) What is the current total employment in the firm s that participate in the firms covered by the
request?
The total employment including OEM’s and vendors is around hundred and twenty
five thousand persons including technicians, engineers and management staff only in the
automotive sector while for other sectors, statistics are being gathered.
(d) Is there any basis for an assumption that jobs will be created by the continuation of the
TRIMs related policy after 1 January 2000?
The TRIMs have significantly contributed to the economic growth especially in the
automotive parts and component sector. These measures encouraged local manufacturingcompanies to grow. The new investments resu lted in employment opportunities. In view of
the contracted market, the task is to ensure market preservation for the existing participants
until such time the economic recovery is well under way thus enabling the government for
phase out of TRIMs.
(e) Which entity, agency or persons analyzed your employment estimates?
Ministry of Labour and Manpower.
6. With respect to “development, financial and trade needs” referenced in Article 5.3
(a) How is the maintenance of these TRIMs part of the development plans and needs of Pakistan?
The maintenance of TRIMs has cushioned the sectors under the program against the
negative effects of large scale fiscal and current account deficits and the associated build up
of public and external debt. As a result of the program, the performance especially that of themanufacturing sector in general and large-scale manufacturing in particular has improved.
These sectors have shown 7.1% and 7.8% growth respectively in 2000-01. The removal of
TRIMs, at this stage, would adversely the manufacturing industry in general and TRIMs
related specific industries in particular.
(b) How long have such TRIMs been part of the development plans and needs?
Since 1988.G/C/W/288
Page 7
(c) How can it be determined that these same de velopment policies will not still be used and
needed after a seven year period? Why should one expect that this policy will be different 1,
2, 5, or 10 years from now especially given that Pakistan is requesting a “minimum” of seven
years?
The deletion programme is part of an overall development policy and it is expected
that, this programme, if allowed, to continue for the next seven years, will reach a state where
most of the objectives would be achieved.
(d) Were the Government of Pakistan’s policies part of the development needs and plans of the
Government of Pakistan prior to the Uruguay Round?
Yes.
(e) What are the financial needs of the Government of Pakistan related to maintenance of the
TRIMs?
The relevant financial needs of Pakistan must be understood in the context of the
depressed state of the Pakistan’s economy. For instance Pakistan’s public debt is not onlyunsustainable but the growing debt servicing over the years has also made fiscal adjustment
more difficult. Public debt grew from Rs 155 billion in 1980 to Rs 802 billion in 1990 and
jumped to Rs 3198 billion by mid 2000. In other words, public debt grew at an average rate of
16% per annum over the last two decades. Consequently, the public debt burden increased
from 66% of GDP in 1980 to almost 100% by mid-2000. The outstanding stock of public debtwas roughly 400% of government revenue in 1980 but increased to 624% by mid-2000.
By all standards, Pakistan’s public debt burden is much higher than many developed
and developing countries. The growing debt burden accounts for 60% of government revenue
today, constraining government’s ability to spend on key development activities. The rise inpublic debt is attributed to the size of fiscal deficit that Pakistan experienced over the last two
decades.
This has also depleted the forex reserves and constrained economic growth. The
immediate impact is that the industry, al ready running under capacity, would be unable to
maintain even the present state of growth and employment.
(f) What analyses have been conducted to determ ine whether the elimination of TRIMs would
actually increase, decrease, or be actual concerning the financial needs of Pakistan?
In the event that the measures are eliminated  at this stage, it would result in increased
imports, decreased exports resulting in trade imbalance, which inter alia would mean
enhanced requirement of foreign exchange adversely affecting the balance of paymentposition. This vicious cycle would not stop here; it would also lead to unemployment, loss of
capital investment and revenue to the government - resulting in enhanced poverty.
The Government of Pakistan has launched two programmes; one known as Poverty
Alleviation Programme with a total allocation of Rs. 21,200 million during 2000-2001 andother through Social Action Programme, the allocation of which is Rs. 10,300 Million during
2000-2001 (44% of this amount is foreign assistance which has to be repaid in foreign
exchange). Elimination of TRIMs at this stage would thus be counter productive to the efforts
by the Government to fight poverty.G/C/W/288
Page 8
7. Regarding other particular issues that the government of Pakistan believes should be
taken into account, please describe and discuss how the policy serves to:
(a) Optimally exploit domestic resources.
Local content requirement is an essential tool from developing countries point of
view to promote domestic economic activities for processing and manufacturing in rawmaterial and intermediate inputs. Pakistan’s Deletion Programme is voluntary in nature and
open to both foreign and domestically owned companies. It is designed as a framework to
encourage the establishment and development of industries in the country. It aims at
facilitating the exploitation of available resources, transfer of technology and promoting
linkages between large, medium and small-scale industries.
(b) Promote Transfer of Technology.
The deletion policy has played a useful role in the widening of the engineering base
in country. The deletion policy has contributed to the development of vendor industries and
local technological base. The deletion schedules are established in consultation with
enterprises concerned and the related vendor industries by taking into account the potential of
the local industrial base, the availability of te chnical knowledge and the facility with which
the transfer of technology could be arranged from abroad.
(c) Enhance linkages between large medium and small-scale industries
Please see answers to question 7(a & b) above.
(d) Safeguard the external financial position of the economy
Import substitution reduces our foreign exchange requirements and helps reducing the
trade imbalance. Pakistan’s trade deficit during the last three years was about 4% of GDP.
Development of an engineering base in the country with technological collaborations would
help to industrialize, increase exports and reduce the trade deficit.
(e) Contribute to a steady growth in per capita income in real terms thus raising the living
standard of the people.
The Deletion Programme facilitates the Government’s efforts aimed at raising
standard of living, ensuring increased employment opportunities, and a steady growth in real
income.
8. Please describe industries covered by your extension request in detail. What efforts have
they taken to modernize or be more compet itive internationally over the last 5 years?
The following industries are covered under Deletion Programme:
- Automotive and other transport sector.
- Plant and machinery and vapour generating equipment.- Agriculture machinery and implements and material handling equipment.
- Textile machinery.
- Metal working machinery.
- Domestic appliances (Fans, Air conditioners, Refrigerators,
Deep Freezers).
- Electrical capital goods (Transformers, Switch gears, Generators).G/C/W/288
Page 9
The developed vendor industry is now looking for new markets since the economies
of scale in these industries is being consolidated. Numerous technology transfer agreements
have been put in place. The local producers have improved the quality of their product and are
becoming competitive.
A product approved by an OEM, satisfies all the international requirements of
quality. Over the last 3 years a number of industries have attained ISO 9000 certification to
ensure international acceptability of their products.
9. Prior to making the decision to request for and extension, what measures had the
relevant industries and the Government of Pakistan undertaken to begin the transition
to a system that did not rely on TRIMs?
(a) What type of liberalization adjustments were or were not completed?
The current deletion policy supports the domestic industry. The vendors and industry
submit localization programs to be approved by Engineering Development Board (EDB).
Since there are no restrictions on import of CKD or raw materials on normal tariff and both
imports in most cases enjoy the same rate of duty, therefore those who do not opt for theDeletion Programme are still free to import and maintain manufacturing activities as vendors
or assemblers without any major financial disadvantage.
(b) At what point did the Government of Pakistan make the decision to stop this process of
becoming TRIMs consistent?
The Government decided to request for extension of the TRIMs in June 1999 after
having determined that the industry will not recover from the effects of market contraction,
balance of payment position and freeze on financial aid/loans to Pakistan since June 1998.
(c) What would be the process for changing the local content requirements (administrative
changes, legislative changes)?
The local content requirements are determined by the Engineering Development
Board (EDB), which draws representation both fr om the public as well as the private sector.
This Board is high powered autonomous body which makes its recommendations to the
Central Board of Revenue, and, therefore, does not require legislative action by the Assembly.
The powers are derived from the Customs Act.
(d) How quickly could such changes be conducted?
The Engineering Development Board meetings are held regularly, largely at the
request of stakeholders, where the decisions are taken through consensus amongst all the
stakeholders.
10. What types of efforts were undertaken to prepare the relevant industries for the
removal of TRIMs on 1 January 2000?
With a view to phase-out TRIMs, the Government of Pakistan has reduced the tariff
differential between commercial imports and concessionary imports. The differential between the two,
as of now, is at 10%.G/C/W/288
Page 10
(a) Did the Government of Pakistan conduct discus sions with the private sector and with labour
organizations at that time and even well before the completion of Uruguay Round to inform
them that these policies would be eliminated in 2000?
The Government conducted the discussions well before the completion of Uruguay
Round. EDB in this regard invited suggestions/proposals from concerned quarters. Theproposals were deliberated by the Committee of EDB in the series of meetings and it was
decided with consensus that a mechanism be devised for restructuring, the tariff structure to
provide some minimal protection to the local industry and to request for extension in time
period, if required.
(b) What kind of domestic consultation process concerning TRIMs has been conducted over the
past 5 years?
The measures concerning local content and foreign exchange requirements in place as
of 1 January 1995 remain unchanged. The deletion policy was announced in the Year 1988.
The industry is well informed of our international obligations.
11. Has the government of Pakistan consider ed other non-TRIMs options that would
protect the domestic industries but would allow for the elimination of your TRIMs
regime as it currently exists? For example
(a) Why is it necessary to retain the local content requirements in all sectors?
Local requirement are not being maintained in all sectors but only in the engineering
sector. Local content requirement is very important because it promotes domestic economicactivities in raw material and intermediate inputs, encourages ancillary industries to upgrade
the production level and establishes a relationship between foreign direct investment and
growth level.
(b) Please describe the analysis/research that Government of Pakistan undertook to ensure that all
measures need to be retained .
Vending industry alone has 2000 vending units in the organized and unorganized
sectors with an investment of around Rs. 50 billion. The total investment made by Toyota,
Suzuki, Honda, Nissan, Hyundai and Fiat is more than Rs. 10 billion. With this huge
investment and an employment of 125,000 in  automotive sector alone, the Government
decided to retain the measures but the advantage to operate under the programme hascontinuously been reduced and in most cases it is zero now.
12. What is the government of Pakistan’s estima tion of future foreign investment in its
domestic market by manufacturers that participate in TRIMs programme covered by
extension request?
13. What is the history of investment infl ows due to the Pakistan TRIMs programmes
specifically?
(a) Has the investment in the sectors covered by the TRIMs Programme increases since the
policy was introduced? If so, detail the increased?
Yes, the total investments for manufacture of parts and components alone increased
to Rs 50 billion to date and for assembly plants to Rs 10 billion.G/C/W/288
Page 11
(b) From which WTO members have the investment originated?
Such investments have originated mainly from Japan, Korea and Italy.
14. What are the destinations for exports from Pakistan for 1998(i.e. what countries) for the
firms covered by the measures under discussion and what are the values and thequantities of the exports to each market?
Negligible exports at present.
15. What are the figures for production and sale s of the items manufactured by the firms
covered by the measures under discussion for 1996, 1997, 1998, and if available 1999? In
addition, what is the forecast for these firms for the year 2000?
Production of Vehicles during the y ear 1995-96, 1996-97, 1997-1998 and 1998-1999 is a at
Annex-I.G/C/W/288
Page 12
Annex-I
PRODUCTION OF VEHICLES
1995-96 1996-1997 1997-98 1998-99
CARS
Honda (Civic) 4666 3922 4071 3928
Suzuki (Margalla) 6028 3174 3074 -
Suzuki (Baleno) - - - -
Suzuki (Khyber) 5720 6280 5019 6991
Suzuki (Mehran) 8986 13482 14936 16501
Toyota (Corolla) 4731 5164 5651 8369
Nissan (Sunny) - 599 933 481
Naya Daur (Kia Pride, Kia
Classic)948 1120 0 0
Total 31079 33741 33684 38619
TRUCKS
Hinopak (Hino) 1533 1164 240 261
Ghandhara (Nissan) 383 795 483 251
Sind Engg (Mazda) 825 737 784 486
Trans Mobile (Yasoob) 124 179 5 0
Valvo (Volvo) - 4 112 85
National Motors (Isuzu) 165 79 59 N.A.
Total 3030 2958 1683 1083
Cars
Passengers Cars Deletion level
achieved till date
1)  Category-I (Up to 800 CC) 58%
2)  Category-II (Above 800 up to 1200 CC) 39%
3)  Category-III (Above 1200 CC) 34%
Commercial Vehicles
Category-2(A) (S/C 4x2 above 1500 up to 2499
CC GVW above 2 Ton to 5 ton)23%
2)  Category 4 (4x2 above 8 ton) 40%
3)  Category 5-A(6x2 above 8 to 30 tons) 38%
4)  Category 5-C(6x4 GCW up to 30 tons) 38%
Tractors
1) Category-2 (Above 40 and up to 55 HP (2x2) 70%
2) Category-3 (Above 55 up to 80 HP (2x2) 46%
3) Category-4 (Above 55 up to 88 HP (4x4) 34%
Motorcycle
1)  Category(Up to 100 CC) 67%
2)  Category (Above 100 and up to 175 CC) 60%G/C/W/288
Page 13
REPLY TO WRITTEN QUESTION FROM THE EUROPEAN COMMUNITIES
1. Please describe in detail the measure for which the government of Pakistan is requesting
an extension (local content percentage, sectors and type of investment, type of producersto which it applies, product coverage etc.)
The following are the local content percentages achieved so far, in the automotive sector.
Sr.
No.Product Categories Local Parts
Deletion %
1 Cars Cat-1: Up to 800 cc 58
Cat-2:. Above 800 up to 1200cc 36
Cat-3:. Above 1200cc 30
Up to 1500cc 40 2 Light
Commercial
VehicleAbove 2 Ton up to 5 Ton 25
3 Heavy Cat-2a. 4x2GCW not exceeding 8 Ton 42
Commercial Cat-4. 4x2-GCW exceeding 8 Ton 44
Vehicle Cat-5a. 6x2-GLW exceeding 8 TON 42
Cat-5c. Prime mover GCW up to 40 Ton 35
4 Van/Buses a. Up o 10 Passengers 25
b. Above 11 up to 30 Passengers 35
5 Tractors Cat-2. Above 40 up o 55HP, 2x2 (DIN) 76
Cat-3. Above 55HP up to 80 HP (2x2) 50
Cat-4. Above 55HP up to 88  HP (4x4) 40
7 Auto
Rickshawa. 175cc 69
8 Motorcycles/
Scootera. Up to 100cc 76
Five years period agreed in Uruguay Round was not sufficient to abolish the TRIMs.
Assemblers and manufacturers are at present bound by their commitments with foreign vendors for
development of local capabilities through transfer of technology. This exercise is progressive in
nature hence; at this stage any deviation would inflict a substantial loss to the local/foreign investors.
After 5 to 7 years period the increased local contents and improved quality at competitive prices is
bound to result in the improvement of the balance of payment position.
2. We understand that fulfilment of TRIMs is a condition to obtain certain advantages, in
the form of “concessionary rate of import of tariffs”.
(a) What is the level of the “concessionary rates” as compared to normal rates?
Engineering sector is the major sector covered by TRIMs having advantage in applied
tariff. CKD (kits) or raw materials can be imported on normal tariffs. Therefore enterprises,which do not opt for the deletion programme, are free to import and maintain manufacturing
activities as assemblers or vendors. There is no compulsion for an enterprise to follow the
deletion programme. In case, an enterprise opts for deletion programme it is entitled to the
concessionary tariff rates, which normally does not provide any advantage exceeding 10%.G/C/W/288
Page 14
Following are the current tariff rates.
Items Tariff
CKD 25% to 35%
Raw Materials 10%
Sub-Components 15%
Components 25%
Spare Parts 25% to 35%
(Commercial imports)
(b) What is the basis for calculation of concessionary rates?
In certain cases protection to local industry has been provided but this protection is
normally limited to 10% and does not exceed 25% in any case.
3. Please quantify the total value of these benefits (foregone customs duties) on a yearly
basis for the period 1987-1999 and describe how they accrue to beneficiaries?
No such formal analysis has been carried out for lack of availability of data.
4. The sectors mentioned in your request for extension (G/C/W/73) are:  general
engineering, electrical goods, agriculture equipment and automobile industry.
These are the sectors in which certain assemblers/ manufacturers have opted for Deletion
Programmes.
(a) Are there other sectors to which TRIMs have applied in the past? If so please describe how
the TRIMs applied thereto and when and how they were phased out?
There are no other sectors to which TRIMs have been applied.
(b) Were all sectors mentioned in your request for extension originally covered by the legislation
establishing TRIMs or has any been included after the coming into force of the legislation?
These are the sectors, which had originally opted for the Deletion Programmes. No
subsequent additions have been made.
(c) Please describe the evolution (if any) of the present legislation as compared to the original
1987 legislation.
Originally, Firm Specific Deletion Programmes were being followed but
subsequently Deletion Programmes in the Automotive Sector have been made Industry
Specific. The annual deletion targets have been set for the specific categories in Automotive
Sector by Committee of Engineering Development Board (EDB) where the concernedindustry is fully represented.
(d) Please describe main features of the Pakistan Industry in the sectors at stake (Including parts
and components)
The Deletion Programme encompasses the engineering, electrical goods, domestic
appliances, Automotive sectors etc. Industrial enterprises, which elect to opt for the Deletion
Programme, are entitled to import the components and parts (other than those deleted) for theG/C/W/288
Page 15
assembly and manufacture at concessionary rate of import duty. Enterprises, which do not opt
this programme, are free to import their requirements at normal rate of duty. For the last two
years there has been no difference in the concessionary rate of duty and the rate of duty for
commercial imports. But normally a protection of nearly 10% is provided for those opting for
Deletion Programme. Under Deletion Programmes specific time schedules are laid down forvarious industrial sectors, during which th e concerned enterprises should progressively
increase the use of locally produced components/parts. These schedules are established by
Indigenisation Committee of EDB, which draws its representation from Ministry of Industries
& Production, Central Board of Revenue, Defence Production Division, concerned enterprises
and private sector members. The Indigenisation Committee also takes into account the
potential of the local industrial base, the availa bility of technical know how, and the facility to
arrange transfer of technology. The targets for deletion are determined by a Committee, whichdraws its representation from the whole of the industry. There is no compulsion for an
enterprise to follow the Deletion Programme.
(e) Please describe the facilities in question (investors, level of investment, location and type of
production, markets)
Assembly plants of Suzuki, Toyota, Honda and Nissan established at a total
investment of Rs. 6.328 billion. The foreign investment in these plants is a major component.
To cater for the needs of these plants the local vendors investment to the tune of Rs. 50.00
billion have been made. Doing away with TR IMs would mean that the local product would
face the price structure of Korea and China. We have a very limited market and oureconomies of sale cannot match those of Korea and China. The local units of assembly/
manufacture will not be able to compete, thus, resulting in their closure. This would not only
affect the local and foreign investment but wo uld also increase unemployment, resulting in
balance of payments difficulties etc.
The local equity, the foreign equity, additional investments and total project cost of
each assembler in car manufacturing is given below:
Investments:
Rs. in Million
Name of Industry Local
EquityForeign Equity/
OriginTotal
EquityTotal
Project Cost1997-98Add
Investment1998-99Total
ProjectCost
Indus Motor Co. 305 481 Japan 786 1,545 496 2,041
Pak Suzuki Motors 444 1,190 Japan 1,634 2,384 419 2,803
Honda Atlas Cars 445 464 Japan 909 800 23 823
Ghandhara Nissan 86 14 Japan 100 661 Nil 661
Total 1,280 2,149 - 3,429 5,390 938 6,328
Dewan FarooqueMotors-- K o r e a -- - 1,800
Raja Motor Co. - - Italy - - - 1,200
Net Total 1,280 2,149 3,429 5,390 938 9,328
(Approximately Rs. 59 =US$ 1, Feb 2001)G/C/W/288
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5. What has been according to the government  of Pakistan, the effect of legislation
establishing TRIMs on foreign direct investment (FDI) in the relevant sector? Do you
consider that the existing TRIMs have attracted or rather discouraged inflows of FDI?
(a) Please provide a breakdown of FDI by country of origin in each of the relevant sector for the
period 1980-1987 and for the period 1987-1999
As in 4 (e) above.
6. Why do you consider that the TRIMs have been effective in developing Pakistan’s
industry in the sectors concerned?
The Automotive industry has served as a cataly st in overall industrial development. The
multiplier effect of this industry is such that any increase in automotive demand would result in the
growth of whole economy. Presently there are seven major organisation involved in car productionhaving total installed capacity of 125, 000 vehicles against actual production of around 50,000 with an
average capacity utilization of 40%. Because of the consistent policy coupled with Deletion
Programme, the Auto Industry has made a substantial progress. This has helped develop the local
vendor industry to the extent that except the high technology parts other components are being
manufactured locally. We have a network of about 2000 vendors (in organized and unorganisedsector) for the automotive industry alone. The deletion policy has resulted in large revenue
contribution to the national exchequer, technology transfer, brought new investments local as well as
foreign and increased employment.
(a) Please provide annual data for the period as regards:
- Value and Volume of production
- Main export markets.
PRODUCTION OF VEHICLES
1995-1996 1996-1997 1997-1998 1998-1999
CARS
Honda (Civic) 4666 3922 4071 3928
Suzuki (Margalla) 6028 3174 3074 ---
Suzuki (Baleno) --- --- ---- 2349
Suzuki (Khyber) 5720 6280 5019 6991
Suzuki (Mehran) 8986 13482 14936 16501
Toyota (Corolla) 4731 5164 5651 8369
Nissan (Sunny) --- 599 933 481
Naya Daur (Kia Pride) 948 1120 0 0
Total 31079 33741 33684 38619
PRODUCTION OF VEHICLES
1995-1996 1996-1997 1997-1998 1998-1999
TRUCKS
Hinopak (Hino) 1533 1164 240 261
Gandhara (Nissan) 383 795 483 251
Sind Engg (Mazda) 825 737 784 486
Trans Mobile (Yasoob) 124 179 5 0
Valvo (Valvo) --- 4 112 85
National Motors (Isuzu) 165 79 59 N.A
Total 3030 2958 1683 1083G/C/W/288
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1995-1996 1996-1997 1997-1998 1998-1999
BUS
Hinopak (Hino) 186 206 186 258
Gandhara (Nissan) 50 79 108 266
Sindh Engg (Mazada) 118 33 220 600
National Motors (Isuzu) 84 101 77 N.A.
Total 438 419 591 1124
LCV
Suzuki (Potohar) Jeep 2274 792 657 622
Suzuki (Bolan) Van 3288 4411 4992 4245
Suzuki (Ravi) Pickup 1743 2376 2602 2034
Indus (Hinlux 4x4) Pickup 163 113 30 119
Hilux (4x2) Pickup 766 2064 2193 1681
Naya Daur (Kia-Ceres) 864 853 51 0
Total 9098 10609 10525 8701
TRACTOR
Al-Ghazi (Fia) 6503 4939 2288 12198
Millat (MF) 9590 5478 7856 14446
Total 16093 10417 10144 26644
MOTORCYCLE
Atlas (Honda) --- 68637 63463 59639
Dawood (Yamaha) --- 38160 25040 23435
Suzuki (Suzuki) ---- N.A. 4475 4430
Total 106697 92978 87504
With the growing realization for the need to acquire international accretions and
technological  collaboration, the local products have attained the required quality standards
and as far as quality is concerned these can compete with the world market. Due to economies
of scale our price structure continues to be detrimental in the increase of our exports. In casethe TRIMs are abolished, even the local demand would decrease and would ultimately result
in collapse of the local industry.
7. What measures has the government of Pakistan undertaken, in the periods 1995-1999,
to prepare for the elimination of TRIMs in qu estion, please explain in detail (legislative
process, industrial policy elements, consultations with industry etc.?
The government decided to request for extension of TRIMs after having determined that the
industry will not recover from the effects of market contraction, political instability, the unfavourable
balance of payment position etc. The recovery of economy remained slow throughout the period.
Pakistan’s Deletion Programme is implemented under statutory authority and not under any
legislative process. With the active involvement of industry Pakistan is devising a mechanism for
tariff re-structuring to eliminate the advantage and make the region compatible with WTO.
8. Why did the government of Pakistan wait until 28 December 1999 to notify its requests
for extension?
The Government decided to request for extension of TRIMs in June 1999 after having
determined that the industry will not recover from the effects of market contraction, politicalinstability, balance of payment position, and freeze on financial aid/loan since June 1998.G/C/W/288
Page 18
9. Please describe in detail why maintaining the TRIMs essential for Pakistan’s
development, financial and trade needs?
An extension of the transition period, pursuant to article 5.3 of the TRIMs Agreement would
be helpful to avoid the adverse effects of market contraction, and unfavourable balance of payment
position. Over the years because of the financial crises and market contraction the industrial activitieshad been slow which brought the domestic industries at the verge of closure, which have resulted in
the laying off workers. In automotive sector there had been drop in sale volume and capacity
utilization. The industry foresee that after the removal of TRIMs coupled with continuous contraction
of sales volumes would result in further retrenchment of employees /unemployment.
The Vendor Association has already reported large-scale retrenchment due to decreased
volume of orders by OEMs. The OEM’s are resorting to freezing of Indigenisation due to uncertaincircumstances.  The social impact of such prospects cannot be over emphasised. The temporary
maintenance of TRIMs and their gradual phase out would ensure the possibility of smooth structural
adjustment. In the circumstances the Pakistan’s request for extension is deemed essential.
10. Please provide an evaluation of the direct impact on employment, existing investment,
foreign direct investment flows in the rel evant sectors and desirable the methodology
used to arrive at your assessment
Please see answer to question 9 above.
11. Why did the government of Pakistan request for 7 years, until 31december 2000?
 Assemblers of automobiles made commitments with their foreign vendors for buying their
technology through local vendors. Some commitments have been completed and there are numerous
in the process and likely to mature within next 5 to 6 years. On removal of TRIMs at this stage the
commitments will not be met, which could result in lo ss of confidence, adversely affect the transfer of
technology and employment opportunities in the country. After 5 to 7 years when the local contentsincrease then the local assemblers may increase volumes through export of their products. Pakistan
therefore, needs certain longer transition period for elimination of TRIMs. In order to meet the long-
term social as well as trade commitments.
In view of the aforesaid ground realities, the Government of Pakistan was forced to request
for an extension of seven years.
(a) How did the Government of Pakistan arrive at the conclusion that this period of extension is
needed? Please explain in detail.
The Engineering Industry is a strategic industry and most of the enterprises are small and
directly linked to employment generation and poverty alleviation. The deletion levels
achieved so far entail components and parts, which relate to medium and low technologies.Foreign collaborations for technology transfer part development and successful incorporation
in case of Engineering Goods takes no less than Five to Seven years.
12. What further measures does government of Pakistan plan to enforce during the period
of requested extension, to prepare for elimination of TRIMs?
Due to substantial Tariff reductions the concessions available to the industry operating under
deletion policy have already narrowed down and ul timately these would be abolished during the
extended transition period. The Government of Pakistan is committed to elimination of TRIMs The
Government of Pakistan will therefore, make all efforts for the first 5 years to achieve technologicalG/C/W/288
Page 19
objectives in engineering goods manufacturing industries and the remaining two years will be used for
all necessary adjustments to ensure smooth abolishing of TRIMs.G/C/W/288
Page 20
REPLY TO THE QUESTIONS RAISED BY JAPAN
1. Please explain in detail and in concrete terms the efforts your government has made to
abolish the TRIMs by December 1999, includ ing the legal schedules leading to the
abolition?
The custom duties have been reduced from maximum level of 65% to 35%, which has created
competitive environment for both foreign and loca l industry so as to eventually eliminate the
advantage accruing to the enterprises for operating advance system. The gap between the
concessionary rate of duty for operating under the scheme and outside the scheme has now been
reduced from 45% to 10%.
2. Please explain in detail, the factors that prevented your government from abolishing the
TRIMs as scheduled?
The following factors prevented the Government of Pakistan to abolish the TRIMs: -
I. The average GDP growth rate in industrial sector over the last five years since the conclusion
of Uruguay round in 1994 is 4.34% as compared to the planned 7%. This slow rate of GDP
growth had adverse effects on market size, and production volumes, which frustrated the
expected results from Uruguay Round Agreements.
II. The Government of Pakistan is faced with acute problems of the balance of payment, which
remains under constant pressure. During 1997-98 the current account deficit was US$ 921
million that jumped to US$ 2381 million $ during 1998-99 which was 4.09% of GDP. The
unlimited provision of foreign exchange is bound to further aggravate Pakistan's problems.
The worst hit would be SMEs, which accounts for more than 90% of engineering industry.
The protection/development of SMEs is curtail as it provides employment at a lessor cost andits capital requirement is also low. It provides 80% of employment, in manufacturing sector,
which has direct bearing on poverty alleviati on, creation of employment, and generate one
fourth of the export earnings.
3. Please explain in detail the TRIMs for whic h your government seeks an extension of the
transition period. Also, please provide us with the domestic legal basis on which such
TRIMs measures are taken?
The engineering industry being a strategic industry needs to be seriously developed by
acquiring latest technologies in engineering goods manufacturing which would render direct benefits
to agriculture and textile industries.
Pakistan has sought extension of transitional period for elimination of the Deletion Policy.
Domestic Legal Basis
The policy is implemented under statutory authority vested in Federal Government under
customs and sales tax act.
4. Any extension must be limited to the minimum necessary to phase out the TRIMs.
Please explain the reason why your government  has judged that the specific length of
the extension you seek is necessary?G/C/W/288
Page 21
Based on our national experience it is felt that present indigenization would require at least
seven more years for our industry to attain the desired levels objectives and also meet the
commitments made by the government.
The engineering industry comprises of more than 90% SMEs, which employ/train workers as
cottage industry. The development of SMEs on modern lines is crucial because for provision of
employment. It provides 80% of employment, in manufacturing sector, which has direct bearing on
poverty alleviation, creation of employment, and generate one fourth of the export earnings.
5. Please explain in details the phase-out schedule (including necessary legal actions to be
taken leading to the ultimate abolition of TR IMs, assuming that a transition period is
granted.  In this light, please note that Japan  is of the view that even if an extension was
granted this time, another extension after the initial extension should not be granted.
Due to substantial Tariff reductions, the concessions available to the industry operating under
deletion policy have already narrowed down and ul timately these would be abolished during the
extended transition period. The major part of our industry would be able to stand without such
protection. As regards further extension under Article 5.3 of TRIMs Agreement any Member country
has a right to request for another extension. The decision for second extension would be reviewed at
the expiry of present extension.
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