RESTRICTEDWORLD  TRADE
ORGANIZATIONWT/TPR/S/95
21 December 2001
(01-6419)
Trade Policy Review Body
TRADE POLICY REVIEW
PAKISTAN
Report by the Secretariat
This report, prepared for the second Trade Policy Review of Pakistan, has been
drawn up by the WTO Secretariat on its own responsibility.  The Secretariat has,
as required by the Agreement establishing the Trade Policy Review Mechanism
(Annex 3 of the Marrakesh Agreement Establishing the World Trade
Organization), sought clarification from the Government of Pakistan on its trade
policies and practices.
Any technical questions arising from this report may be addressed to
Mr. M. Daly (tel. 739 5077) or Mr. S. Stamnas (tel. 739 5382).
Document WT/TPR/G/95 contains the policy statement submitted by the
Government of Pakistan.
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/S/95
Page iii
CONTENTS
Page
SUMMARY OBSERVATIONS vii
(1) E CONOMIC ENVIRONMENT vii
(2) T RADE POLICY FRAMEWORK viii
(3) T RADE POLICY DEVELOPMENTS viii
(4) S ECTORAL POLICY DEVELOPMENTS xi
(5) P ROSPECTS xii
I. ECONOMIC ENVIRONMENT 1
(1) O VERVIEW 1
(2) R ECENT ECONOMIC PERFORMANCE 1
(i) Growth, employment, and poverty 1
(ii) Price inflation 4
(3) M AIN MACROECONOMIC POLICY DEVELOPMENTS 5
(i) Monetary and exchange rate policy 5(ii) Fiscal policy 7
(4) M
AIN STRUCTURAL POLICY DEVELOPMENTS 7
(i) Tax reform 7
(ii) Privatization 8(iii) Governance 8
(5) B
ALANCE OF PAYMENTS DEVELOPMENTS 9
(i) Current and trade accounts 9(ii) External liabilities/debt 10
(6) D
EVELOPMENTS IN MERCHANDISE TRADE 11
(i) Composition of trade 12(ii) Direction of trade 12
(7) T
RENDS AND PATTERNS IN FOREIGN INVESTMENT 12
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 16
(1) O VERVIEW 16
(2) G ENERAL CONSTITUTIONAL AND INSTITUTIONAL FRAMEWORK 16
(3) S TRUCTURE OF TRADE POLICY FORMULATION 17
(i) Executive branches of government 17(ii) Advisory bodies 17
(4) T
RADE POLICY OBJECTIVES 18
(i) General trade policy objectives 18
(ii) Sectoral trade policy objectives 18(iii) The WTO Agenda 19
(5) T
RADE LAWS AND REGULATIONS 19
(6) T RADE AGREEMENTS AND ARRANGEMENTS 20
(i) Multilateral agreements 20
(ii) Preferential, regional, and bilateral arrangements 20WT/TPR/S/95 Trade Policy Review
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Page
(7) T RADE DISPUTES AND CONSULTATIONS UNDER THE GATT/WTO 21
(8) F OREIGN INVESTMENT REGIME 22
III. TRADE POLICIES AND PRACTICES BY MEASURE 25
(1) O VERVIEW 25
(2) M EASURES DIRECTLY AFFECTING IMPORTS 26
(i) Registration and documentation requirements 26
(ii) Tariffs 28(iii) Customs valuation 40(iv) Import deposits 41(v) Other levies and charges 41
(vi) Import prohibitions, restrictions, and licensing 41
(vii) State-trading 45(viii) Government procurement 53(ix) Local-content requirements 54(x) Contingency measures 55(xi) Standards and other technical requirements 56
(3) M
EASURES DIRECTLY AFFECTING EXPORTS 59
(i) Registration and documentation 59(ii) Export duties and minimum prices 61(iii) Export prohibitions, restrictions, and licensing 61(iv) Export subsidies 63(v) Duty and tax concessions 64
(vi) Export-performance and value-added requirements 64
(vii) Export-processing zones 65(viii) Export finance, guarantees, and insurance 66(ix) State-trading 66
(4) M
EASURES AFFECTING PRODUCTION AND TRADE 67
(i) Taxation 67
(ii) Production assistance 70(iii) Competition and consumer policy 72(iv) Intellectual property rights 73(v) Other measures 76
IV. TRADE POLICIES BY SECTOR 78
(1) O
VERVIEW 78
(2) A GRICULTURE , LIVESTOCK , FORESTRY , AND FISHERIES 79
(i) Features 79(ii) Main policy issues 80(iii) Selected crops 90(iv) Livestock 91
(v) Forestry 92
(vi) Fisheries 92
(3) M
INING AND ENERGY 92
(i) Mining 92(ii) Energy 93Pakistan WT/TPR/S/95
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Page
(4) M ANUFACTURING 96
(i) Textiles and apparel 98(ii) Motor vehicles 100
(5) S
ERVICES 101
(i) Features 101
(ii) Overall commitments under the General Agreement on Trade in Services 101
(iii) Financial services 102(iv) Communications 106(v) Transport 109(vi) Information technology and software development 111
REFERENCES 113
APPENDIX TABLES 119
CHARTS
I. ECONOMIC ENVIRONMENT
I.1 Exchange rate developments, 1994-2001 6
I.2 Product composition of merchandise trade, 1993/94 and 1999/2000 13I.3 Direction of merchandise trade, 1993/94 and 1999/2000 14
I.4 Inflows of foreign direct investment, 1994-2001 15
III. TRADE POLICIES AND PRACTICES BY MEASUREIII.1 Distribution of MFN tariff rates, 1996/97 and 2001/02 31
III.2 Applied and bound tariffs on agricultural products, 2001/02 33III.3 Average tariff rates on manufactured products by HS chapter, 2001/02 and 2004/05 34III.4 Share of customs duties collection in total import value and indirect tax revenue, 1994-2001 35
III.5 Tariff escalation by 2-digit ISIC industry, 1996/97 and 2001/02 36
IV. TRADE POLICIES BY SECTORIV.1 Applied MFN tariff averages by 2-digit ISIC category, 1996/97 and 2001/02 82
IV.2 Domestic support for rice and wheat, 1994-2001 89IV.3 Interest rates on loans and deposits, June 1995-February 2001 105
TABLES
I. ECONOMIC ENVIRONMENT
I.1 Economic developments, 1994-2001 2
I.2 Structure of the economy, 1994-2001 4I.3 Balance of payments, 1994-2001 10I.4 External liabilities structure, 1994-2000 11
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES
II.1 Foreign direct investment (FDI) limitations, as of 1997 23WT/TPR/S/95 Trade Policy Review
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Page
III. TRADE POLICIES AND PRACTICES BY MEASUREIII.1 Structure of tariffs in Pakistan, 1996-2002 29
III.2 Main duty and sales tax concessions, as of 2000/01 37III.3 Main import prohibitions, restri ctions, and rights, as of 2001 42
III.4 State involvement in enterprises in Pakistan, 2001 46
III.5 Export prohibitions, rights, and authorization, as of September 2001 60
III.6 Structure of direct and indirect tax revenue, 1994-2001 67III.7 Subsidies notified under WTO provisions, 1993-2000 70III.8 Budgetary outlay for certain sectors, 1997-2001 71
IV. TRADE POLICIES BY SECTOR
IV.1 Developments in domestic support to agriculture and livestock notified to the WTO,
1995/96-1999/2000 84
IV.2 Budgetary outlays and loan disbursement in agriculture, livestock, and fisheries, 1994-2001 85IV.3 Market price support for items notified to the WTO, 1995/96-2000/01 87IV.4 Manufacturing in Pakistan, 1995/96 97IV.5 Cotton textile industry developments, 1994-2000 99
IV.6 Structure of the financial system, 1994-2000 103
IV.7 Telecommunications market structure, as of June 2001 107
APPENDIX TABLES
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES
AII.1 Notifications by Pakistan under the WTO legal framework, as of September 2001 121III. TRADE POLICIES AND PRACTICES BY MEASURE
AIII.1 Tariff escalation and tariff ranges, 2001/02 124
IV. TRADE POLICIES BY SECTORAIV.1 Pakistan's MFN tariff by ISIC category, 1996/97 and 2001/02 127
AIV.2 Summary of Pakistan's sector-specific commitments under the GATS 131Pakistan WT/TPR/S/95
Page vii
SUMMARY OBSERVATIONS
(1) ECONOMIC ENVIRONMENT
1. Economic growth in Pakistan has
moderated relative to that in the period
immediately prior to its previous Trade PolicyReview in 1995.  After accelerating in 1993-
96, real GDP growth fell from 5.0% in
1995/96 to 1.2% in both 1996/97 and 1997/98
and has since fluctuated around 4%.  Natural
factors, including a severe drought, financialimbalances, particularly fiscal, and structural
weaknesses have been important elements in
this reduced economic performance.  In
consequence, Pakistan launched a
Comprehensive Economic Revival Programmein 1999, including liberalization of its trade
and investment regimes.  This programme has
been forcefully pursued resulting both in the
successful implementation of a Stand-By
Arrangement with the IMF and subsequent
substantial support by the Fund under its
Poverty Reduction and Growth Facility.
2. The economic slowdown has had
social consequences.  With population
growing at a steady rate, Pakistan's real GDP
per capita has dropped gradually below its
early 1990s level and there has been a rise inthe incidence of poverty:  nearly one third of
the population, particularly in rural areas,
now fall below the poverty line, compared with
one fifth a decade ago.
3. The fiscal imbalance is reflected in a
high level of total net public debt, which
reached an estimated 92.6% of GDP in
2000/01, more than half involving external
liabilities.  The fiscal deficit widened from
5.6% of GDP in 1994/95 to 7.7% in 1997/98before declining to 5.3% in 2000/01, close to
the target under the Revival Programme of
5.2%.  Support for loss-making state-owned
enterprises and a weak domestic tax base are
critical elements in the recurring fiscal
deficits.  These, in turn, impair the
Government's capacity to undertake essentialexpenditures (including on poverty alleviation,
health, education, and infrastructure), thus
hampering economic growth and development.4. Pakistan has also had a persistent
current account deficit, although this has been
reduced considerably, from 7.2% of GDP in
1995/96 to 1.9% in 2000/01,  largely owing to
a substantial fall in the trade deficit.
Nevertheless, total external liabilities haverisen from 41.5% of GDP (1994/95) to 50.4%
(1999/00), equal to four times export earnings,
and making debt rescheduling a priority.  As
part of its adjustment strategy, Pakistan has
successfully shifted to a floating-exchange rateregime (as from July 2000), with the rupee
subsequently depreciating sharply.  Pakistan
has also periodically consulted with the
WTO Committee on Balance-of-Payments
Restrictions;  indicative of its reform strategyand its implementation, Pakistan has phased-
out its import restrictions that were being
maintained for balance-of-payments reasons
(the phase-out was to have been completed by
end-June 2002).
5. Structural problems have played a
role in Pakistan's slower growth.  Inparticular, the State retains a prominent direct
role in the economy and the tax system has
been used extensively as a means to provide
incentives, to the possible detriment of revenue
collection  Further, protectionist policies haveshielded domestic producers from foreign
competition and have contributed to an anti-
export bias.  Political instability and weak
governance have also had an adverse effect on
the economy.  These issues are beingaddressed in the Revival Programme,
including through the implementation of a
privatization programme, steps to strenthen
the tax base and improve governance, and
further trade liberalization.
6. Pakistan has a narrow export base,
concentrated in low-value-added products and
a few markets.   Minor changes in the
composition and direction of imports have
been due largely to the recent rise in oil
prices;  the EU, the United States, and Japan
have maintained their positions as Pakistan'smain trading partners.  Despite the 1997
opening of most sectors of the economy to
foreign direct investment (FDI), inflows have
dropped, reflecting, inter alia, a decline inWT/TPR/S/95 Trade Policy Review
Page viii
investors' confidence.  However, the continued
successful implementation of the Revival
Programme could well serve to improve
confidence.
(2) TRADE POLICY FRAMEWORK
7. Despite its economic and political
difficulties, Pakistan has taken steps since its
previous Review to liberalize its trade and
investment regimes, either unilaterally or in
the context of commitments made in the WTO,
IMF, and the World Bank.  Over the pasttwo years, efforts in several crucial areas have
seemingly intensified, with the result that
Pakistan is becoming a more open and secure
market for its trading partners.
8. Pakistan's trade policies have been
based on the principles of multilateralism and
non-discrimination.  Consequently, its
involvement in preferential and regional trade
arrangements has been limited.  Indeed, it has
expressed concern about the proliferation of
regional trade agreements and initiatives.  The
scope of Pakistan's own commitments underthe seven-member South Asian Association for
Regional Cooperation (SAARC) Preferential
Trading Arrangements (SAPTA), and the
additional Protocol on Preferential Tariff of
Economic Cooperation Organization (ECO)have remained limited.
9. In line with its multilateral trade
commitments and other obligations, including
those with international financial institutions,
and with domestic political developments,Pakistan has undertaken changes in its
legislative and institutional framework.  The
Ministry of Commerce was strengthened with
the establishment of a WTO-cell and, as from
October  2000, a "WTO Council" has lookedinto the effects of WTO-related policies on
trade and production.  Pakistan has
participated actively in numerous aspects of
the WTO's work.  New legislation was or is to
be enacted on safeguards, anti-dumping and
countervailing measures, and intellectual
property rights as well as in several otherareas.10. Pakistan has acted to significantly
improve the external transparency of its trade
and investment regimes.  It has largely met its
regular GATT/WTO notification requirements
and responded to most questions raised by
WTO Members in a number of areas (e.g.state-trading, and domestic support in
agriculture);  tariff information has been
submitted to the WTO Integrated Data Base,
but there is still scope for improving
notification in a number of fields.  In additionto regulatory reforms aimed at simplifying and
reducing trade-related regulations, and the
presence of Internet websites at several public
sector agencies, Pakistan has made efforts to
make legislation pertaining to trade (includingthe customs tariff) and investment publicly
available in English through a web-based
computer network.
(3) T
RADE POLICY DEVELOPMENTS
11. The tariff remains Pakistan's main
trade policy instrument;  its relative
importance has increased as a result of therecent elimination of non-tariff barriers on
several items.  At the same time, it is a major,
albeit declining, source of tax revenue.  As a
result of a major restructuring of Pakistan's
customs tariff in 2001/02, the average appliedtariff rate has fallen to 20.4% from 56% in
1993/94.  Nevertheless, tariff protection is still
relatively high, especially for a few sensitive
items, and although efforts have been made to
reduce tariff peaks and dispersion, tariff ratesvary widely.  Consequently, the tariff remains
a potential restraint on domestic competition
and thus an obstacle to the efficient allocation
of resources, with adverse consequences for
the economy's productivity and local firms'export competitiveness.  However, the scope
for improving efficiency through further
substantial cuts in tariffs may be limited in the
near future by the importance of the customs
tariff to the Government as a source of
revenue, and by the internal tax system's
vulnerability to avoidance and evasion (seebelow).
12. Roughly one third of tariff lines
(including all agricultural items) are currentlyPakistan WT/TPR/S/95
Page ix
bound.  Given the reduction in applied rates,
there is a widening gap between bound and
applied rates;  the average bound rate
considerably exceeds the average applied rate.
This imparts an element of uncertainty to the
tariff, with the Government retaining freedomto raise applied rates within bindings.
13. During the period under review,
Pakistan's tariff has been considerably
simplified and rates significantly reduced.
Almost all rates now fall into four tiers,although some peaks, e.g. 250% on
automobiles, and specific and compound rates,
raises the number of distinct rates to 26, still
considerably down from the 49 in 2000/01.
Nevertheless, widely different tariff rates canprovide considerable scope for
misclassification of imports by customs
officials.  The new-found transparency of the
tariff is somewhat clouded by concessions (for
goods not manufactured locally), but their
scope has seemingly been reduced recently.   
A by-product of the tariff simplification hasbeen the apparent breaching of WTO-bound
rates on some 90 lines.  The authorities are
fully aware of this difficulty and have already
taken steps to address it in the next Budget,
when there will be a further lowering of rates,including a reduction in the maximum rate
from 30% to 25%.
14. Protection from imports is also
provided by several other border taxes and
charges.  So-called "regulatory" duties appearto have been reinstated (for imports of edible
oil and oil seeds for crushing).  Moreover,
withholding taxes are levied on imports (and
exports);  these taxes, which may be
deductible from income taxes, are apparentlyintended to combat income-tax evasion.  In
addition, a capital-value tax is levied on
imported motor vehicles, while locally
manufactured television sets and air
conditioners have been exempt from excise tax
since 1997, with the stated objective of
discouraging smuggling.
15. Efforts have been made to streamline
customs clearance procedures by, inter alia,
introducing an Express Lane Facility and anElectronic Assessment System.  In the context
of the implementation of the WTO Agreement
on Customs Valuation, Pakistan has
discontinued the use of the Brussels Definition
of Value but maintained provisions for
reference prices; a Customs ValuationInformation System containing a database on
assessed import values of each individual
consignment may be accessed by the general
public through the Internet.
16. Import prohibitions and restrictions
have been maintained on a number of
grounds, although they appear to affect fewer
items than at the time of the previous Review;
their implementation continues to depend
largely upon the status of the importer (e.g.public sector or industrial consumers), origin
(e.g. Israel, India), prior approval or other
conditions.  Restrictions on balance-of-
payments grounds have been phased out
ahead of schedule while those affecting
numerous textiles and clothing articles and
chassis were eliminated in 2000/01.  Nocontingency measures have been applied.
17. Government procurement has
continued to be used as an instrument to
support local industry.  Price preferences of
up to 25% may be accorded to domesticsuppliers, particularly in engineering goods
contracts, and 10% of the annual procurement
budget of public sector agencies may be
allocated to domestic purchases.  Pakistan has
a local-content scheme (Indigenization/Deletion Programme) for which it has secured
an extension for its elimination under the WTO
Agreement on Trade-Related Investment
Measures.
18. The scope of export prohibitions
seems to have been reduced by, inter alia,
putting greater emphasis on compliance with
international commitments (including those
aimed at protecting intellectual property
rights).  Exports of certain textiles and
clothing items have remained subject to
access-related restraints in several majormarkets (e.g. the European Union, Canada
and the United States).  Preshipment
registration of export contracts is required forWT/TPR/S/95 Trade Policy Review
Page x
certain sensitive items (cotton, rice, urea) and
preshipment inspection requirements have
applied to rice;  potato exports have been
temporarily subject to quantitative
restrictions.  Regulatory duties now affect
exports of a few items (crushed/uncrushedbones, raw/wet blue hides, and skins).  State
involvement in rice and cotton exports was
recently reduced and is being curtailed for
wheat exports;  the public sector's exclusive
export rights have been limited to furnace oiland high-speed diesel oil.
19. Export subsidies, largely linked to
export-performance requirements, have been
provided in different forms, including direct
financial support, concessionary exportfinance (now being reduced), and tax breaks
in export-processing zones. Drawback
amounts, now reportedly based on input-
output coefficients, correspond to duties and
other charges actually paid on imported raw
materials used for the manufacture of export
products.
20. Several forms of support to production
and trade have been strengthened;  such
measures include a variety of tax and non-tax
incentives.  Priority has been given to science
and technology (e.g. hi-tech industries) andsmall and medium-sized enterprises.  State
participation in production and trade remains
mainly in chemicals, transport equipment,
fuels, machine tools, mining and energy, and
in engineering, financial, telecommunication,transport, and tourism services.  Other forms
of support have included preferential
electricity pricing for farmers and
manufacturers.
21. Pakistan relies heavily on indirect
taxes (including customs tariffs), which
account for 71% of total tax revenues.  The tax
system involves a multiplicity of taxes, often
narrowly based as a result of numerous
concessions, if not exemptions, and some
involving high tax rates.  It can thus distort
domestic prices, thereby constituting apotentially important obstacle to the efficient
allocation of resources, and is unduly complex
(and therefore opaque).  Moreover, taxadministration tends to be weak and tax
evasion endemic owing to the large size of the
"informal" economy (reportedly, less than 1%
of the population paid any income taxes in
1999).  In order to address these deficiencies,
steps have been taken to reform the tax system.They include: significant changes to the
General Sales Tax (GST), which has replaced
taxes on international trade as the main
indirect tax since the previous Review;  a Self-
Assessment Scheme intended to broaden theincome tax base;  reduced personal contact
between taxpayers and tax collectors;  a
clampdown on tax evasion;  and the
imposition of an agriculture income tax on
farmers with high incomes at the provinciallevel, thereby placing agriculture and non-
agricultural activities on a more equal footing.
In addition, the wealth tax and two local taxes
(Octroi, Zilla) were abolished.
22. To ensure compliance with the
WTO Agreement on Trade-Related Intellectual
Property Rights (TRIPS) commitments,Pakistan amended its patent legislation in
1997 to implement "patent mailbox" TRIPS
obligations, and in 2000/01 passed new
legislation on patents, trade marks, layout
designs of integrated circuits, and copyrights.Efforts are being made to increase its limited
adherence to international treaties in this
area, and border enforcement rules are under
preparation.
23. Although progress on privatization
(divestment) appears to have been rather slow,
judging from privatization receipts, efforts in
this regard have been reinforced with, inter
alia, the establishment of short, medium, and
long-term divestment plans affecting therestructuring and divestment of numerous
entities.
24. On competition policy, the elimination
of business entry restrictions seems to have
reduced industrial concentration.  State
entities are not subject to competition rules.Pakistan WT/TPR/S/95
Page xi
(4) SECTORAL POLICY DEVELOPMENTS
25. Reflecting a policy largely focused on
a few major crops (e.g. wheat, cotton, rice,
and sugarcane) and sensitive essential items,
overall the agriculture, livestock, fisheries,
and forestry sector has received littlegovernment support.  Pakistan remains a net
food importing country as production had
been unable to keep pace with the rapidly
expanding food requirements.  Over the review
period average tariff protection has beenreduced, from 38.8% to 14.9%.  A few
sensitive items continue to be subject to
specific, compound, or regulatory duties.  An
import prohibition for a certain type of raw
sugar was introduced as of September 2000,although appears to be no longer in force.
Technical or religious requirements are
maintained for other items (e.g. meat).
Exports of several strategic items have been
subject to prohibition (edible oil, wood, and
timber), temporary quantitative restriction
(potatoes), preshipment registration (rice,cotton, potatoes) or minimum export prices.
At the same time, export subsidies covering
freight costs (for fresh fruit, vegetables,
flowers, and fish products) and direct financial
support (for sugar) have been provided.  Stateinvolvement in foreign trade of essential
commodities is now limited to one entity, the
Trading Corporation of Pakistan.  As of
2000/01, trade in wheat and its milling
products is being liberalized.  Domesticsupport has, by and large, remained
untouched and within the bounds set by
WTO reduction commitments;  it has involved
almost exclusively "Green Box" measures,
including the provision of infrastructure andother services, procurement prices, subsidies
for the purchase of locally made tractors
(1999/00), electricity and water charges below
cost, and tax incentives.
26. New policies have contributed to the
setting up of joint ventures with foreign firms
in mining and energy activities.  Stateinvolvement has remained largely intact,
although efforts have been made to privatize
some state-owned enterprises.  Cross-
subsidization has persisted, through complexconcessionary electricity tariffs (depending on
the user).  A price adjustment mechanism for
petroleum products has allowed changes in
world oil prices to be reflected in the domestic
prices of petroleum products;  trade in furnace
oil was liberalized.
27. Manufacturing accounts for a large
share of merchandise exports (mainly textiles
and clothing).  Border protection, which is
now largely confined to tariffs, has been
reduced drastically through unilateral cuts;average tariff protection has declined from
42.1% to 20.9% more as a consequence of
unilateral reductions than of implementation
of the limited Uruguay Round binding
commitments in this sector.  Following thedismantlement of import prohibitions on
textiles and clothing, protection is now largely
focused on the automotive sector, which
registered effective rates of protection
exceeding 5,000%.  Protection has taken the
form of high tariffs (motor vehicles), import
duty/sales tax concessions applied to foreign-made machinery/equipment, or temporarily
subsidized sales (tractors).  State involvement
has persisted, although disinvestment in
certain activities is now scheduled for the
year 2002.
28. In the period under review, steps have
been taken to reduce state involvement in the
services sector and encourage private
investment in several activities.  Financial
services have been dominated by domestic andnationalized institutions, while the progressive
introduction of the Islamic (interest-free)
banking principles may discourage foreign
banks.  Interest rates have been deregulated
and the gap between non-subsidized andsubsidized lending rates for priority sectors
has been gradually reduced.  The autonomy of
the State (central) Bank of Pakistan (SBP) has
been reinforced and prudential regulations are
being strengthened.  New legislation was
passed to deregulate and strengthen the
insurance market minimum solvency marginrequirements;  moreover, efforts are being
made to reduce impediments to the operation
of foreign insurance firms.  Private sector
involvement in telecommunications hasWT/TPR/S/95 Trade Policy Review
Page xii
increased in activities other than the fixed line
services, although the state monopoly here is
to be abolished by the end of 2002;  tariff
re-balancing by increasing line rental and
local call charges is under consideration.
Despite the exclusive rights of state entities inbroadcasting and audiovisual, audiovisual
services have been opened to joint ventures
with foreign investors;  cable television
service became legal and subject to licensing.
Declining use of foreign shipment has led toincreased handling of cargo by the sole state-
owned company;  a domestic shipbuilding
subsidy has been made available under certain
conditions to local shipowners.  In air
transportation the state-owned nationalcarrier has been faced with private-sector
competition on domestic routes.  Software
development and exports have been a priority
and are being encouraged in several ways
(mainly through tax incentives).
29. Pakistan has commitments under the
General Agreement on Trade inServices (GATS) in 47 activities, in financial
(banking and insurance), business,
communications, construction/engineering,
health, and tourism/travel services;  those
concerning financial and basic telecomsservices improved, inter alia, conditions for
foreign presence, and were ratified.
Pakistan's GATS MFN exemptions cover
financial services, with a view to preserving
reciprocity requirements, Islamic financingtransactions, and joint ventures among
ECO countries, as well as accounting rates
agreed bilaterally.
(5) P
ROSPECTS
30. Despite severe economic and political
difficulties, Pakistan has, by and large,
resisted protectionist pressure and opted formarket-based reforms, including the adoption
of a more liberal attitude to imports and
foreign investment.  By fostering domestic
competition, these reforms should contribute
to a more efficient allocation of domestic
resources, which would enhance theeconomy's productivity and local firms' export
competitiveness.
31. There are signs that the economy may
be improving;  they include the recent
appreciation of Pakistan's currency and rise inthe local stock market.  These developments
are perhaps partly due to the perceived
improvement in the prospects of Pakistan
obtaining substantial debt relief from its
international creditors.  Such relief wouldreduce the cost to Pakistan of servicing its
large foreign debt, thus helping to redress the
current fiscal imbalance and providing more
scope for the Government to tackle the
country's social problems (notably in the areas
of poverty, health, education, housing, and
governance), and the presence of somethree million refugees.
32. Pakistan's long-term economic
growth, however, depends importantly on the
continued implementation of the Revival
Programme, particularly in the reduction ofdirect state intervention in the economy and
improvements in the tax base.  Long-term
growth of the economy is also dependent on
Pakistan's success in diversifying its exports,
which in turn depends on its trading partners'willingness to keep their markets open, or even
open them further, to Pakistani goods and
services, notwithstanding the present global
economic slowdown.