RESTRICTEDWORLD TRADE
ORGANIZATIONWT/TPR/G/95
21 December 2001
(01-6456)
Trade Policy Review Body Original:  English
TRADE POLICY REVIEW
PAKISTAN
Report by the Government
Pursuant to the Agreement Establishing the Trade Policy Review Mechanism
(Annex 3 of the Marrakesh Agreement Establishing the World Trade
Organization), the policy statement by the Government of Pakistan is attached.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting
of the Trade Policy Review Body on Pakistan.Pakistan WT/TPR/G/95
Page 3
CONTENTS
Page
I. MACROECONOMIC REVIEW 5
(1) S TRUCTURAL REFORMS 5
(2) G ROWTH , SAVINGS , AND INVESTMENT 5
(3) P UBLIC FINANCE 6
II. EXTERNAL SECTOR 7
(1) B ALANCE OF PAYMENTS 7
(2) E XPORTS 7
(3) I MPORTS 7
(4) E XCHANGE RATE REGIME 8
(5) F OREIGN EXCHANGE RESERVES 8
III. TRADE POLICY DEVELOPMENTS 8
(1) P OLICY OBJECTIVES 8
(2) I MPORT REGIME 9
(3) T ARIFF POLICY 9
(4) E XPORT REGIME 10
IV. TRADE REMEDY LAWS 11
V. INTELLECTUAL PROPERTY RIGHTS 11VI. SECTORAL POLICIES 11
(1) A
GRICULTURE 11
(2) I NDUSTRY 11
(3) P RIVATIZATION 12
(4) F OREIGN INVESTMENT 12
(5) B ANKING , CAPITAL MARKETS , AND INSURANCE 12Pakistan WT/TPR/G/95
Page 5
I. MACROECONOMIC REVIEW
(1) STRUCTURAL REFORMS
1. Over the last two years Pakistan has undertaken, with a resolve that is matched with the
enormity of the challenge, deep and wide-ranging structural reforms.  These reforms, designed to be
of a sustainable nature, embrace almost the entire range of fiscal and monetary instruments, banking
system, governance aspects, trade and tariff measures, agriculture sector policies, and the extent ofGovernmental role in areas of economic endeavour.  It is our expectation that these reforms will help
bring the macroeconomic fundamentals back on track.  Indeed, the economy is already beginning to
show unmistakable signs of stabilization.
2. As is to be expected these reforms have not been painless and there have been adjustment
costs.  We are grateful to the IFI's and countries who have supported us and helped us soften theimpact of these reforms.
3. On the political front, too, there have been significant reforms.  The ambitious Devolution
Plan that provides for fundamental changes in the administrative apparatus and seeks to fully
empower the elected representatives at the local government level, has been put in place.  Elections to
the local government tier have been completed, while those at National and Provincial levels arescheduled to be completed by October 2002.
(2) G
ROWTH , SAVINGS , AND INVESTMENT
4. Buffeted by adverse shocks, including the most severe drought in the history of the country,
the economy of Pakistan has experienced an uncharacteristic slowdown during the last five years, the
period since its last Trade Policy Review in 1995.  In contrast to its robust performance in the 1980s
and the first half of the 1990s, the growth of its real GDP has remained well below its traditional rate.
Despite an impressive 8.4% growth in the large-scale manufacturing sector, FY 01 ended with abelow target GDP growth rate due to a 2.5% negative growth in the agriculture sector that was badly
affected by the persisting draught conditions.
5. With low GDP growth, the population growing by 2.5% per annum, and the Rupee
depreciating, per capita income in Pakistan in Dollar terms has not shown much of an improvement
and hovers around US$450.
6. Production structure of the economy has remained largely unaltered since the last Review:
while the services sector has grown, share of the manufacturing sector has somewhat declined.
GDP/GNP growth rates and GDP sectoral shares since 1994-95 are reflected at Tables 1 and 2
respectively.
Table 1
GDP/GNP growth rates (percent at constant factor cost), FY 1995-2001
Sector 1995 1996 1997 1998 1999 2000 2001
Commodity Sector 5.69 8.45 0.37 5.34 3.42 3.02 0.77
Services Sector 4.82 4.99 3.61 3.20 4.99 4.79 4.38
GDP 5.26 6.76 1.93 4.30 4.18 3.89 2.55
GNP 5.78 5.63 1.50 4.17 4.29 3.49 2.39
Memo item:
GNP at current market prices
(billion rupees)1,896 2,134 2,438 2,653 2,912 3,138 3,411WT/TPR/G/95 Trade Policy Review
Page 6
Table 2
Sectoral Shares
(Percent at constant factor cost)
Sector 1995 1996 1997 1998 1999 2000 2001
Agriculture 24.65 25.79 25.33 25.95 25.40 25.95 24.67
Manufacturing 18.17 17.84 17.73 17.10 17.02 16.67 17.40
Construction and mining etc. 8.41 8.41 8.18 8.38 8.58 8.01 7.68
Services Sector 48.77 47.96 48.75 48.57 49.00 49.37 50.25
7. National Savings (current market prices) recorded a marginal increase of 0.8%.  Domestic
savings as a ratio of GDP increased from 12% in FY 96 to 15.2% in FY 2000, before falling to 14.4%
in FY 01.
8. Ratio of total investment to GDP exhibited a declining trend, falling from 18.8% in FY 96 to
14.7% in FY 01.  With signs of economic revitalization investment levels are expected to gather
momentum.  For foreign private direct investment Oil and Gas, Cement, Electronics, and Transport,
storage and communications were the preferred sectors.
Table 3
Investment and Savings
(Percent of GDP)
1996 1997 1998 1999 2000 2001
Total investment 18.8 17.7 17.3 15.6 15.6 14.7
Domestic Savings 12.0 12.4 15.2 12.3 15.2 14.4
National Savings 11.6 11.6 14.3 11.4 13.8 12.7
9. Prudent implementation of monetary and fiscal policies has helped contain inflation.  The
consumer Price Index declined from 10.8% in FY 96 to 4.6% in FY 01.
10. Incidence of inflation in FY 01 was higher for the upper income groups and the lowest for
middle income groups.
(3) PUBLIC FINANCE
11. Despite weaker than expected growth it was possible, through strong fiscal management, to
realize significant increase in tax revenue and to contain expenditure.
12. Total revenue as percentage of GDP is show ing signs of improvement, rising from 15.8% in
FY 97 to 16.4% in FY 01.  The total expenditure:   GDP ratio fell from 24.4% in FY 96 to 20.8% in
FY 01, thus reducing the fiscal deficit from 7.5%to 5.3% of GDP.
13. With fiscal deficit continuing to exceed the GDP growth rate there has been a significant
increase in domestic and external debt, which now constitutes 49.2% and 64% of GDP respectively.
The debt-servicing burden is expected to ease with the on-going negotiations with multilateral and
bilateral donors.Pakistan WT/TPR/G/95
Page 7
II. EXTERNAL SECTOR
(1) BALANCE OF PAYMENTS
14. Despite the global slowdown, Pakistan's balance of payments showed signs of improvement
in FY 01.  Most encouraging was the current account surplus (first time ever) of US$331 million.  A
lower trade deficit, but more importantly, a sharp in crease in current transfers, was able to cover
higher payments on account of services.
15. Trade deficit improved from US$3,704 in FY 96 to US$1,527 million in FY 01, despite a
decline in unit values of exports and higher international oil prices.
(2) EXPORTS
16. Performance of the export sector has been erratic.  Growth fell from 19.6% in FY 95 to
3.70% in FY 98.  A negative growth rate of 9.80% foll owed in the next year.  Exports then rebounded
to register an increase of 10.15% in FY 00 and 7.4% in FY 01.
17. Of late terms of trade have deteriorated.  Most of Pakistan's export products face a buyers
market and have witnessed a declining trend in unit values.
18. The structure of Pakistan's exports has undergone considerable change over time.  The share
of primary commodities in total exports gradually decreased from 16% in FY 96 to 13% in FY 01.Similarly, the share of semi-manufactures in total export earnings fell from 22% in FY 96 to 14% in
FY 01.  Share of manufactured goods in total exports has steadily increased from 62% in FY 96 to
73% in FY 01.
19. Lack of Product and Market diversification lends vulnerability to Pakistan's exports.  On
average, over 50% of Pakistan's exports have be en marketed in only seven countries (USA, Germany,
Japan, UK, Hong Kong, Dubai, and Saudi Arabia).  While E.U., as a group, remains the single biggest
market for Pakistan's exports, share of exports destined to the United States has increased from 17.7%in FY 97 to about 24% last year.  Textile Group constitutes almost 60% of Pakistan's exports.
(3) I
MPORTS
20. Total imports increased from US$11,805 million in FY 96 to US$11,894 million in  FY 97,
before falling consecutively for the next two y ears to US$10,118 million in FY 98 and to US$9,432
million in FY 99, due as much to the import compression policy necessitated by economic sanctionsimposed in 1998 as subdued economic activity.  Imports have since risen to US$10,309 million in FY
00 and to US$10,728 million in FY 01.
21. Composition of Pakistan's imports has not shown any significant changes during the  period.
Share of capital goods in total imports fell from 35% in FY 96 to 25% in FY 01 because of the
declining levels of investment within the country.  Share of industrial raw materials for capital goodsfluctuated between 5% and 6%, whereas the share of industrial raw materials for consumer goods
increased from 45% in FY 96 to 56% in FY 01.  Th e combined share of industrial raw materials in
total imports remained close to 50% for most of the period.  This indicates a relatively heavy
dependence of the economy on imported raw materials.   Share of consumer goods did not show much
variation over the years, ranging between 14% and 18% over the period.WT/TPR/G/95 Trade Policy Review
Page 8
22. Historically, Pakistan has met its import needs from a select group of countries, and this trend
has continued into the recent years.  On an average, around 49% of imports originated from only
seven countries (USA, Japan, Kuwait, Saudi Arabia, Germany, UK, and Malaysia).
Table 4
Trade Balance
(US$ million)
1997 1998 1999 2000 2001
Imports 11,894 10,118 9,432 10,309 10,729
Exports 8,320 8,628 7,779 8,569 9,202
Balance 3,574 1,490 1,653 1,740 1,527
(4) EXCHANGE RATE REGIME
23. As part of the stabilization programme, Pakistan's Central bank allowed a free float of its
currency and dismantled the Rupee band that had been in place during FY 00.  This, coupled with the
emphasis on accumulating foreign exchange reserves, sh ifted the thrust of State Bank's exchange rate
management from direct intervention, and moving the Rupee/Dollar band, to monetary policy.
24. The Rupee/Dollar parity depreciated by 18.6 pe rcent during FY 01.  (Of late, however, rupee
has been strengthening – by about 6.5% over the last few months).
(5) FOREIGN EXCHANGE RESERVES
25. Pakistan's gross official foreign  reserves (excluding gold) peaked at around US$3.0 billion in
1995.  After a draw down of reserves in 1998, to help finance a large current account deficit in that
year, reserves were restored to over US$1.5 billion in FY 00.  At present the State Bank liquid
reserves (excluding the reserves of  the banking sector ) exceed US $3 billion.
III. TRADE POLICY DEVELOPMENTS
(1) POLICY OBJECTIVES
26. The trade policy for the year 2000-2001 laid emphasis on market-driven measures;
government intervention was limited to ensuring a level playing field, removal of structural
impediments, and to guiding investments to the more productive sectors.  The policy specified the
following broad objectives:
- Reduce anti-export bias through reduction in import duties and trade liberalization,
competitive exchange rates, and improvement in the export infrastructure.
- Achieve sustainable and consistent growth in export earnings through diversification of
export base and greater value addition in goods and services.
- Liberalize the import regime to enhance competition in the economy with a view to achieving
significant quality and productivity gains.
- Simplify and streamline trade procedures and practices.
27. The policy announced for the fiscal year 2001-2002 aims to continue the thrust of trade
liberalization and promotion of exports through redu ction of anti-export bias, with particular emphasis
on durability, consistency and predictability of economic policies.Pakistan WT/TPR/G/95
Page 9
28. The monopolistic role of state enterprises in trade has been done away with.  The Cotton
Export Corporation and the Rice Export Corporation have been wound up.  The private sector is now
actively involved in the export of these products.  Trading Corporation of Pakistan occasionally
intervenes in the cotton market, in terms of its charter.  Its role is, however, quite limited – this year,
for instance, its purchase plans are for 230,000 bales, which is about 2% of the total cotton to be
traded in Pakistan.  Rice export is entirely in private sector hands.
(2) IMPORT REGIME
29. Law governing the import regime has been comple tely rewritten with a view to augment trade
facilitation and remove any implicit technical barriers.
30. There has been a radical pruning of the "negative list" i.e. items subject to import bans/QR's.
As a consequence, there are now only 57 items (8-digit HS Code basis) whose import is not allowed.1
These restrictions are strictly on grounds of public health and morality, environmental concerns or
national security considerations.  Similarly, there are 192 items on the "restricted list".  Import of
these items is allowed upon meeting the health and safety requirements.  Import of certain used
machinery is not allowed for safety reasons.
31. There is no licensing requirement or cash margin requirements or public sector monopoly in
imports.  With the dismantling of its apparatus of quantitative restrictions and other barriers tariffs is
now Pakistan's principal trade policy instrument.
(3) TARIFF POLICY
32. Reliance on Customs Duties as a source of government revenues had been one of the major
factors compelling Pakistan's high tariff rates.  This compulsion has been largely mitigated by tax
administration reforms and a major shift to the General Sales Tax regime.  The share of customs
duties in tax receipts has come down fr om 33% in FY 96 to 16% in FY 01.
33. Despite its acute fiscal imbalances Pakistan has sought to substantially reduce the level and
dispersion of its tariffs.
34. The period since the last Review has seen elimination of para-tariffs and a very significant
reduction in tariffs.  The maximum tariff has now been brought down to 30% (with few exceptions
that relate to automobiles and alcoholic beverages) and the number of tariff slabs reduced to four.During the current year duty was reduced on 4,000 of the 5,440 items (8-digit HS Code) in the
Pakistan Tariff Code.
35. It has already been decided to further reduce the maximum tariff to 25% effective
1 July 2002.
36. Reduction and rationalization of tariffs has been accompanied with simplification of
procedures.  Regulations having a distortionary effect (e.g. user-specific concessions) are being done
away with.  The number of such Statutory Regulato ry Orders (SRO's) has already been halved over
last year and we are committed to totally eliminate them over the next couple of years.
                                                     
1 Pakistan removed the QR's on textile goods, for which a special dispensation had been obtained on
Balance of Payment grounds, considerably before the ex piry of the period allowed by the Balance of Payment
committee.WT/TPR/G/95 Trade Policy Review
Page 10
37. A major exercise to reform and restructure the Central Board of Revenue is under way.  This
is expected to contribute to greater transparency and trade facilitation.
Table 5
Tariff and their dispersion
Description 1997 1998 1999 2000 2001
N u m b e r  o f  r a t e s 1 35554
Maximum rate (%) 65 45 35 35 30
Average ratea (%) 23 21 18 18 17
Average rateb (%) 17 16 14 12 11
a Duty collected divided by value of dutiable imports.
b Duty collected divided by value of total imports.
38. Customs valuation has been switched from the traditional ITP (Import Trade Price) system to
the WTO complaint transaction based system.  Necessary amendments to give effect to this have been
made in the Customs Act.
(4) EXPORT REGIME
39. Export regime has been liberalized to do away  with public sector monopolies to permit full
private sector participation.  For reasons of environment, public health and morality, or Pakistan'scommitments under multilateral conventions, export of 13 products (e.g. drugs, endangered species
etc.) is not allowed.
40. Food security considerations had obliged Pakistan to restrict the export of wheat and its
milled products.  This restriction has been removed and these products are now freely exportable.
41. In a significant departure from traditional policies Pakistan has taken the decision to allow
intra-trade in all agricultural products, regardless of the level of domestic production.
42. In effective terms support price policies for agricultural produce have also been done away
with.  There are no Minimum Export Prices.
43. In sharp contrast to the long entrenched practice to announce fiscal and other benefits for
exports, this year's trade policy chose to chart an altogether different course:  instead of concessions,
that create distortions and rent seeking opportunities, the policy concentrated on making Pakistan's
export base more competitive through on shore capacity development, supply-chain management, andgreater value addition.
44. It is our endeavour to do away with all export subsidies, explicit or otherwise.  We no longer
resort to freight subsidies, there are no compensatory rebates, the duty drawback rates have been
rolled back and rationalized on input-output coefficient basis, and the element of subsidy in export
finance completely eliminated.
45. New measures have been introduced to cater to genuine export needs.  These consist of:
- Notification of Duty and Tax Remission for Expo rt (DTRE) rules.  These provide for duty-
free import of inputs required for exports.
- Setting up of Input-Output Coefficient Organi zation (IOCO) to work out, on a professional
basis, duty drawback rates for domestically procured (duty paid) goods.Pakistan WT/TPR/G/95
Page 11
- Establishment (in the private sector) of Pakistan Export Finance Guarantee Agency (PEFGA),
to provide bankable guarantees that may be used as collateral.  This scheme is of particular
interest to small and medium-sized exporters.
- Creation of Foreign Currency Export Finance (FCEF) facility that will allow exporters to
borrow on LIBOR PLUS basis and repay out of their export proceeds.
- Setting up of Pakistan National Accreditation Council (PNAC) that will provide accreditation
services to certification bodies operating for ISO 9000, ISO 14000 etc.  This will contribute to
better quality standards for Pakistan's exports.
IV. TRADE REMEDY LAWS
46. WTO compliant Anti-dumping and Countervailing Duties Laws have been introduced.  Law
on Safeguard Measures is being finalized.
47. The National Tariff Commission Act is being revised to make the Commission more
professional and autonomous.  With these amendments it will be better placed to respond to genuine
complaints of unfair trade practices, rather than being used, often unwittingly, as a vehicle for
protectionism.
V. INTELLECTUAL PROPERTY RIGHTS
48. In compliance with its obligations under TRIPS Pakistan has promulgated fresh legislation for
Copyrights, Trade Marks, Patents, Industrial designs, and Integrated Circuits.  Legislation on Plant
Breeders Rights is being finalized.
49. To provide for greater synergy, as also better client service, it has been decided to house
various agencies dealing with IPR under one organization, instead of their being under the
administrative control of different Ministries.  The Pakistan Intellectual Property Rights Organization
(PIPRO) is in the final stages of being set up.  It will be run along private sector lines with strongstakeholder participation on its Board of Governors.
VI. SECTORAL POLICIES
(1) A
GRICULTURE
50. Agricultural policy in Pakistan in recent years has moved towards market-driven pricing
policies leading to a greater role of the private sect or in trading agricultural commodities.  As part of
the modernization programme of the agriculture sector, Federal and Provincial development
programmes have focused increasingly on developing agricultural infrastructure and have contributed
towards enhancing productivity through the provision of extension services, timely availability of
inputs and ensuring greater access to agricultural credit.  We have recently undertaken, with ADB
assistance, an Agriculture Sector Restructuring Programme that, inter alia,  seeks to eliminate
remaining implicit subsidies as also public sector role in procurement, storage, and distribution of
wheat.
(2) INDUSTRY
51. Pakistan's industrial policy is embedded in the broader programme of economic liberalization,
aimed at reducing market distortions, increasing investment and enhancing the role of the privatesector.  Considerable progress has been achieved in implementing structural reforms, especially inWT/TPR/G/95 Trade Policy Review
Page 12
liberalization of the exchange and trade system, fina ncial sector reforms, liberalization of the domestic
and foreign investment activities, and in initiating a wide ranging privatization programme.
52. Special focus is being placed on development and promotion of small and
medium-enterprises.  Small and Medium Enterp rises Development Authority (SMEDA) provides
technical, managerial, and marketing advice.  Seve ral changes in the regulatory framework are being
made on the basis of the extensive study undertaken by SMEDA on the problems of these enterprises.
53. A new Bank (SME Bank) has been set up (through the merger of Small Business Finance
Corporation and Regional Development Finance Co rporation) to focus on the financing needs of
SME's.
(3) PRIVATIZATION
54. The Government of Pakistan is firmly committed to privatization of state-owned enterprises.
A Privatization Ordinance has been promulgated to provide comfort to investors and to ensure
transparency in the sale process.
55. The Privatization Commission is currently focusing on the sale of some large companies
where the buyer would assume management control.  Plans are also under way to carry out several
smaller capital market transactions.  Some of the main public sector enterprises offered forprivatization till June 2003 include:  Banking and financial institutions (e.g. Habib Bank Ltd, United
Bank Ltd, National Investment Trust, etc.), Oil and Gas Companies (Pakistan State Oil, Pakistan
Petroleum Ltd, Sui Southern Co, Sui Northern Pipeline Ltd), Insurance (State Life Insurance
Corporation, Pakistan Reinsurance Co. Ltd), Tele communications (Pakistan Telecommunications Co.
Ltd, Telephone Industries of Pakistan), Power (Kar achi Electric Supply Corporation) and various
other industrial units (cement, vegetable oil, fertilizer, etc.).
56. Till 1995 the PC had carried out 66 privatization transactions but by end 2000 the number
rose to 106.  The units privatized so far incl ude commercial banks, automobile plants, cement
manufacturing plants, chemical and fertilizer plants, power plants, and engineering units besides
assorted smaller units.
(4) F
OREIGN INVESTMENT
57. Pakistan's Investment Policy regime is amongst the most liberal in the region.  All economic
sectors are now open for foreign direct investment and in almost all sectors 100% foreign ownership
is allowed.  No government sanction is required for making investment in any sector of the economy
(except arms and ammunitions; security printing, currency and mint; high explosives, and radioactive
substances).  Pakistan provides full protection to foreign investment under the Foreign Private
Investment (promotion & Protection) Act, 1976, and the Protection of Economic Reforms Act, 1992.The capital, profits and dividends are freely repatriable.  Pakistan has signed bilateral investment
Agreement with 40 countries and Agreements on avoidance of double taxation with 51 countries.
Foreign investors, and technical and managerial manpower does not require work permits and
business work visas are issued liberally.
(5) B
ANKING , CAPITAL MARKETS , AND INSURANCE
58. Pakistan considers an efficient and modern financial services sector to be an important pre-
requisite for promoting economic and commercial growth.  Pakistan's financial services are quite
liberal and encourage foreign participation.  Currently 78 branches of foreign banks are operating in
the country.Pakistan WT/TPR/G/95
Page 13
59. The banking sector has been undergoing a complex and comprehensive phase of restructuring
since 1997.  Supervisory framework of the Central Bank  viz.  State Bank of Pakistan, consistent with
international norms, covers risk monitoring factors and uses indicators like capital adequacy, asset
quality, management soundness, earnings and profitability, liquidity and sensitivity to market risk to
evaluate the performance of banks.
60. Capital markets are recognized as an important source for funding of investment activities.
With a view to increasing the efficiency of these markets and strengthening investor confidence, the
Government has upgraded the capacity and capability of the Securities and Exchange Commission of
Pakistan (SECP) and introduced a series of reform s in this area.  A modern national clearing and
settlement system has been operationalized whereby all transactions will be settled on the third day.
The regulatory framework has been comprehensiv ely strengthened to curb insider trading and
facilitate mergers, acquisitions and liquidation of companies.
61. The Insurance Law has been completely rewritten to better protect the policy holder interests
and to support the capital market.  Public sector insurance companies are being privatized.
__________