WT/TPR/S/193 Trade Policy Review 
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IV. TRADE POLICIES BY SECTOR 
(1) OVERVIEW  
1. Since its last Review, Pakistan has continued to lower its average level of tariff protection.  
Nonetheless, border protection and domestic support still varies by sect or, thus constituting potential 
impediments to the efficient allocation of resources and Pakistan's sustainabl e economic development.  
Reform in key sectors has been under way but adjust ment toward a more diversified and efficient 
production pattern has not yet occurred. 
2. Agriculture remains the economy’s mainstay, d espite the decline of its GDP share from 
24.1% in 2001/02 to 20.9% in 2006/07;  it still account s for more than four out of ten jobs.  The 
sector’s productivity is low by international and domestic standards, undermined by inefficient 
resource use;  skewed distribution of farm holdings , accentuated by a thin land market that reflects 
insecure tenure, inefficient non-price allocation of water (involving significant irrigation subsidies), 
and irrigation systems in a drought-prone country;  as well as poor quality inputs and infrastructure.  Food security based on self-sufficiency, a potentially costly policy, is a major government priority.  
Reforms since 2001/02 have been directed at a gr eater role for the private sector, including in 
marketing, and supplying farm inputs.  Reportedly,  domestic support measures (price and non-price) 
hinder diversification, in some cases they periodi cally penalize farmers (e.g. recently for wheat and 
rice), and are biased towards relatively low-value, wa ter-intensive crops e.g. sugar cane;  sugar seems 
to be particularly inefficient, with domestic pric es exceeding world levels, by at times up to 50-60%.  
The edible oil manufacturing industry is protected  by relatively high specific tariffs.  Certain 
agricultural exports are covered by various contro ls, restrictions, and support measures, including 
direct and indirect subsidies, such as on freight, and income tax concessions.  The state-owned Trading Corporation of Pakistan still engages in si gnificant trade of several essential commodities e.g. 
wheat, sugar, and cotton as a means of providing su bsidized foodstuffs to poor households and to 
cover emergency situations.
  
3. State regulation (by seemingly independent statut ory regulators) of and participation in the 
energy sectors remains significant.  Petroleum, na tural gas (state duopoly), and electricity sales are 
subject to licences and extensive price controls, but are moving at variable speeds towards more 
competitive regulatory regimes.  The main vertic ally integrated state power company has been 
unbundled and is being privatized slowly, except for transmission.  Electricity tariffs are subsidized 
and there are substantial cross-subsidies favour ing residential users (as for natural gas).  
4. Government intervention in manufacturing remain s targeted at protecting infant industries, 
through tariffs and domestic s upport measures, including various tax concessions.  Textiles and 
clothing remains Pakistan's single most important industry; its recent growth has been aided by several assistance packages, incl uding research and development gran ts tied to exports, and freight 
subsidies, but minimal market diversification away from the traditional EC and United States’ 
markets has occurred.  Major reforms have occurre d in the engineering products sector, during the 
review period, where tariff-based schemes replac ed local-content-based deletion programmes on 
many products, including motor vehicles.  Howe ver, while tariffs on motor vehicles have been 
reduced substantially, they remain high (up to 90 %) and provide substantia l industry protection for 
assembly activities, where tariffs on imported CKD kits were reduced.  Some other engineering 
activities, such as certain equipment (e.g. electrica l and electronic goods), also benefited from recently 
increased tariffs and/or from tariff-based indi genization programmes. State involvement in 
manufacturing remains substantial especially in heavy engineering and steel. Pakistan WT/TPR/S/193 
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5. Strong state involvement persists in services (e specially in transport, communications, and 
life insurance), which account for well over half of  Pakistan’s GDP and s ubstantial employment.  
Financial sector reforms regarding prudential re quirements and other areas have increased the 
efficiency and soundness of banking and insurance operators.  Bank privati zation is well advanced, 
and banking has been transformed into a largely pr ivate-based system (unlik e life insurance), with 
substantial foreign presence, even though issuing li cences may be subject to reciprocity and equity 
limitations;  reforms to remove protection for the domestic majority state-owned reinsurance 
monopolist have been partly reversed.  The monopoly of the partially divested state-owned telecom 
company (PTCL) on fixed domestic and internationa l calls was terminated from 2003, and the sector 
has been exposed to more competition, including in  the rapidly growing mobile segment.  Substantial 
regulatory reforms were aimed at developing an op en telecom access regime and a more competitive 
market to eventually allow reduced tariff regulatio n.  Shipping and air services are relatively open, 
except for cabotage and foreign equity limits on supplying the latter;  major ports are being privatized through a "landlord" concessions system.  Road tr ansportation remains relatively closed, although 
recent regional agreements have expanded transit righ ts;  cabotage is banned.  Broadcasting is subject 
to foreign ownership controls. Pakistan has not ch anged its GATS commitments since its last Review, 
but has submitted initial offers  in the ongoing negotiations. 
(2) A
GRICULTURE , LIVESTOCK , FORESTRY , AND FISHERIES  
(i) Features 
6. The share of agriculture (including forestry and fishing) in GDP fell from 24.1% in 2001/02 
to 20.9% in 2006/07 (Table I.2).  The sector (inc luding hunting and fishin g) remains the economy’s 
mainstay, accounting for 43.4% of the labour force in 2006/07 (42.1% in 2001/02).  It contributes some two-thirds of merchandise exports.  While  the highly skewed farm land distribution is 
perpetuated by the thin land market (largely due to large transaction costs and concerns over land 
rights and security), land rental and share-farming is common (20% of cultivated land).  Small farms 
have highest productivity;  about two thirds of farms are below 25 acres.
1  As Pakistan is susceptible 
to drought, and 80% of cropped land is irrigated, wa ter access is a major lim iting factor;  agriculture 
uses 95% of total water resources.  Water is  used inefficiently and little is traded.2  The Pakistan 
Poverty Reduction Strategy Paper (PRSP) stresses the importance of improved water efficiency and 
assigns agriculture a key role in po verty alleviation (80% of the populat ion live in rural areas).  Farm 
productivity varies substantially nationally but is ge nerally low, especially for crops.  Total factor 
productivity (TFP) has stagnated and labour productivity has fallen, due partly to natural factors (e.g. 
drought).3  Environmental factors, e.g. rising soil salin ity and deteriorating groundwater quality, are 
also undermining productivity. 
7. Agricultural GDP is split roughly between livestoc k and crops.  Major crops (wheat, cotton, 
rice, sugar cane, and maize) account for about one  third of agricultural GDP, and wheat, cotton, and 
rice account for about 60% of cultivated land;  the main irrigated crops are wheat (staple food crop), 
cotton, rice, and sugar cane).  Cotton, the main crop , is susceptible to climatic conditions and pests.  
Livestock is dominated by dairy, sheep, and pou ltry, which has grown substantially.  Punjab, 
Pakistan's second largest province,  accounts fo r two thirds of national agricultural output. 
                                                      
1 World Bank (2004c), p. xi. 
2 Water is mainly allocated by the Indus River System Authority using the warabandi system to 
administratively regulate canal flows on a rotational basis.  Large landowners own 40% of the arable land and 
control most of the irrigation network. 
3 World Bank (2006b), p. 27. WT/TPR/S/193 Trade Policy Review 
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(ii) Policy framework a nd developments  
(a) Objective and plans 
8. Agriculture is a designated government priority.  Policy is focused on sustainable food 
security, increased productivity, greater commercializa tion, import substitution, diversification, and 
export orientation.4  The traditional goal has been to achie ve annual sectoral growth faster than 
population, or of at least 4.3%.  Food security policy covers mainly self-sufficiency in food grains (wheat, rice, and maize), edible oils, and sugar.  Pakistan does not maintain food security targets or 
desired levels by commodity.  It achieved wheat  self-sufficiency a few years ago, and maintains 
reserve stocks of about one million tonnes.  Pakistan  imports about 70% of its edible oil requirements, 
and is the world’s third largest cotton producer. 
9. Reforms since 2001/02 have been directed at increasing the role of the private sector, 
including in marketing, supplying farm inputs, wheat  procurement, constructio n of silos, establishing 
cold-chain facilities to collect, store, and tran sport perishable animal  products, and operating 
international standard export abattoirs;  improvi ng farm extension services; and enhancing pest and 
disease eradication.  Banks must meet bi-monthly credit targets set by the State Bank, of which at 
least 50% must go to small farmers.  Farm pr oductivity is being improved through better access to 
inputs, such as seeds, fertilizer, and credit.  S eed prices are market determined and a number of 
private suppliers, including multinational firms, compete freely with four public sector firms.  There are plans to raise certified seed use to 20% for wheat and rice (up from 14% and 15.5%), 100% for cotton (up from 60%) and 30% for maize (up from 15%).   Fertilizer prices are deregulated, and it is 
imported privately.   
10. Most provinces have legislation to regulate agricultural marketing, which remains poorly 
developed.  Post-harvest losses of perishable products are around 30%, accentuated by inadequate 
infrastructure and transport facilities.  To improve  export quality, a general system of compulsory 
quality and certification, in line w ith international requirements, is in place for most (41 items) crop 
and livestock products (Agricultural Produce (G rading and Marketing) Act, 1937).  These 
requirements have been superseded by enhanced  arrangements on some key products, such as 
horticultural exports handled by the Pakistan Ho rticultural Development and Export Board.  
11. Policies (price and non-price measures) reporte dly hinder diversification as they are biased 
towards relatively low-value water-intensi ve crops of non-basmati rice and sugar cane.
5  Pakistan's 
Water Vision 2025 action programme proposes major public investment to improve water storage and 
irrigation facilities.  A ten-year investment plan costing PRs 36 billion is also being implemented to 
develop the agricultural sector, including cons truction of much needed dams and canals. 
(b) Border measures 
Nominal tariff protection 
12. Between 2001/02 and 2007/08, Pakistan’s average level of MFN nominal tariff protection for 
agriculture fell from 15.4% to 8.7% on an ISIC basi s, and remained below the level for manufactured 
goods (Chart IV.1).6  Maximum agricultural tariff rates are 25%, down from 30% in 2001/02.  
Agriculture also derives substan tial assistance from tariffs protecting food processors;  the average 
                                                      
4 Ministry of Food, Agriculture and Livestock (2004), p. 1. 
5 World Bank (2006b). 
6 Tariff averages in this paragraph differ from those in Table III.1 because they are based on a different 
product classification. Pakistan WT/TPR/S/193 
 Page 83 
 
 
tariff in ISIC 2-digit category "food, beverages a nd tobacco" is 17.7% (24.8%  in 2001/02).  Although 
no regulatory duties currently exist these may provi de occasional additional assistance to agricultural 
(including processed food) products (Chapter III(2)(ii)(f)), imports of  which are also levied  income 
withholding taxes of up to 5% on the tax-inclus ive landed-duty-paid price (Chapter III(4)(i)). 
051015202530
Agriculture and
hunting
Forestry and logging
Fishing
Coal mining
Crude petroleum &
natural gas
Metal ore mining
Other mining
Food, beverages and
tobacco
Textiles and leather 
Wood and  furniture
Paper printing and
publishing
Chemicals
Non-metallic mineral
products
Basic metals
Fabricated metal
prod. & machinery
Other manufacturingPer centChart IV.1
Tariff averages by 2-digit ISIC category, 2001/02 and 2007/08
Note:          Excluding specific rates. MFN 2007/08 MFN 2001/02 Average 2001/02
(20.4%)
Average 2007/08
(14.5%)
Source:      WTO Secretariat calculations, based on data provided by the authorities of Pakistan; and Pakistan Customs 
                    online information.  Vi ewed at:  http://www.cbr.gov.pk/n ewcu/TARIFF/Tarri ff-2007-2008.asp.
 
Non-tariff measures 
13. Certain imports of agricultural products, including those eligible for concessionary duties, 
remain subject to prior import authorization to meet specific requirements (Chapter III(2)(v)).  All 
imports, including those of agricultura l products, are also restricted by, inter alia,  the ban on many 
imports from India.  Tea and betel nuts imported from Sri Lanka at concessionary tariffs are subject to tariff quotas under the FTA agreement (Cha pters II(4)(ii)(b) and III(2)(ii)(h)). 
Export measures 
14. Wheat exports remain effectively banned (Cha pter III(3)(ii)(b)) although they were allowed 
by an exceptional  export quota in January 2007, and subse quently suspended to stabilize domestic 
prices.
7  Export contracts on cotton must be registered .  Rice exporters must belong to the Rice 
Exporters Association and exporters of horticultural products must be registered with the Pakistan 
Horticulture and Development Board (Chapter III(3)(i)).   Cotton exports are subject to mandatory 
quality inspection and certification, and exports of basmati rice are also subject to quality pre-
shipment inspection.  Quality pre-shipment in spection is encouraged for other agricultural 
                                                      
7 The authorities indicate that authorizing an export quota for wheat first required an assessment of the 
domestic demand and supply situation by the Ministry of Food, Agriculture and Livestock.  WT/TPR/S/193 Trade Policy Review 
Page 84 
 
 
commodities (e.g. horticulture products), sometimes by financial inducements, such as payment of the 
25% export fright subsidy, including on mangoes.  Seemingly generous income tax concessions (low 
rates of income withholding tax levied on the free- on-board value) also assist agricultural exporters, 
as do periodic payments of export subsidies on s ugar, fruits, vegetables, and occasionally wheat 
(amounting to PRs 500 million in 2002/03).8   
Other 
15. State-owned entities, especially the Trading Corporation of Pakistan, are still involved in the 
foreign trade of several essential commodities (e.g . wheat, sugar, and cotton).  For example, to 
stabilize cotton prices it purchased 2.4 million cotton bal es valued at PRs 21.7 b illion during 1999-05.   
(c) Domestic support measures 
16. As Pakistan has not updated its WTO agricultural notifications since its previous review and 
no relevant information was provided by the time of completion of this report, no appraisal was 
possible on the overall cost of domestic support a nd export measures since 2001/02;  the authorities 
indicate that these notifications will be updated by end 2007.  At the time of the previous review, 
Pakistan's notified domestic support to agriculture and livestock activities was focused in "Green box" 
measures, and had declined gradually to US$251.02  million (1999/00) or 0.4% of GDP and 1.7% of 
total government expenditure.9 
Market price support 
17. Market price support covers wheat, cotton, ri ce, and sugar cane;  non-traditional oilseeds 
(sunflower, soybean, safflower, and canola), gram , onions and potatoes were excluded in 2001.  
Minimum support (or "rescue") prices, except for s ugar cane, which was transferred to provincial 
governments in September 2002, are recommended a nnually by the Agricultural Prices Commission 
(Table IV.1).  The major criterion for determining prices is cost of production.10  The main federal 
implementing agencies, the Trading Corporation of  Pakistan for seed cotton, and the Pakistan 
Agricultural Services and Storage Corporation (PA SSCO) for paddy rice and wheat, intervene in the 
market to stabilize prices and provide support;  in r ecent years price support has been limited to wheat 
and cotton.11  Tobacco prices, including for exports, are also  set by the Pakistan Tobacco Board.   
18. According to Ministry of Food, Agriculture and Livestock data, domestic wheat prices have 
been on average 20% below import parity in recent years, suggesting that the market price support 
arrangements are penalizing wheat farmers.  This price data also indicates that the extent of the penalty facing cotton farmers has fallen as domestic  prices approached export parity in 2006/07, from 
some 5-10% below in previous years.  However, rice  growers, especially of basmati, appear to have 
been heavily penalized by these pricing arrangeme nts in recent years;  in 2005/06 and 2006/07 the 
domestic price of basmati paddy rice was some 25%  below export parity (s ome 10% for non-basmati 
paddy rice). 
                                                     
 
8 While Pakistan neither provided nor notified expo rt subsidies to the WTO in the base year 1986-90 
under the Agriculture Agreement, it has provided them under Article 9.4, which allowed developing members not to undertake commitments during the implementation period (now finished) on export subsidies used to 
reduce marketing, and international and internal freight costs. 
9 WTO (2002). 
10 Other criteria are domestic and world prices, pa rity prices, domestic and international supply and 
demand conditions, comparative economics of competing cr ops, real prices, profitability of input use, and the 
impact of support prices on other sectors and the economy generally.  
11 Provincial food departments also maintain substantial stock holdings. Pakistan WT/TPR/S/193 
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Table IV.1 
Procurement/support prices of agricultural commodities, 2001-07 
(PRs per 40 kg) 
Commodity 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 
Wheat 300 300 350 400 415 425 
Basmati rice Not fixed Not fixed  Not fixed  Not fixed  Not fixed  Not fixed  
Irri-6 rice Not fixed Not fixed  Not fixed  Not fixed  Not fixed  Not fixed  
Basmati paddy 385 385 400a 415 Not fixed Not fixed 
Irri-6 paddy 205 205 215a .. 300 306 
Sugarcane       
NWFP 42 42 42 42 48 60  
Punjab 42 42b 42b 40 45 60  
Sindh 43 43 45 45 60 67  
Baluchistan 43 43 .. 42 .. ..  
Cotton lint Not fixed  Not fixed  Not fixed  Not fixed  Not fixed  Not fixed  
Seed cotton (phutti)c 780 800 850 925 976 1,025 
.. Not available. 
a Indicative prices announced by the Government for 2003/04 crop. 
b Prices for 2002/03 has been repeated since the Federal Government  has not fixed its price in these years.  However, Punjab an d 
 Sindh Governments had fixed the minimum price at PRs 41 per 40 kg for 2001/02 at the mill gate.  This arrangement has 
 continued. 
c An intervention price for the base gr ade 3 with staple length 1-1/32" and mi cronaire range of 3.8-4.9 NCL fixed. 
Source: Pakistan Government, Economic Survey 2005-06 , Tables 2.12(A) and 2.12(B);  and Pakistani authorities.  
19. Provincial governments mainta in sugar support prices in c onjunction with the Federal 
Government.  According to data provided by the Mi nistry of Food, Agriculture and Livestock, the 
domestic price for sugar was some  10-15% above import parity in 2005/06 and 2007/08, but some 5% 
below in 2006/07.  Nevertheless, it seems that farmer s have been substantially more assisted, at least 
in earlier years, by domestic sugar prices be ing set at some 50-60% above world levels.12  Sugar cane 
prices are not linked to sucrose content.   Also, due  to a good potato crop in 2007, the Federal and 
Punjab Governments have pledged support to grower s, including a 25% freight subsidy, and to ban 
imported ware-potatoes.13  The authorities indicate that extending transport subsidies is rare and 
occurs generally when there is a su rplus of perishable commodities, to  avoid storage costs.  All inter-
provincial trade restrictions, especially of wheat, have been removed. 
Subsidies 
20. Subsidies ranging from PRs 98 to PRs 250 per 50 kg bag in 2006/07 are provided to farmers 
using phosphatic fertilizers,  extended from urea in 2006.14  Subsidies on imported fertilizers appear to 
have been terminated at end 2006 while they are still paid to domestic fertilizer producers, thereby 
potentially reducing the likelihood of the subsidy being passed on to farmers;  subsidies were 
increased in 2007/08 (Chapter III(4)(ii)(b)).  Sales ta x on fertilizers is based on "deemed" prices set 
equally for imported and domestic fertilizers below world levels to cushion its effects on farmers.15  
To help keep fertilizer prices below import parity, fertilizer manufacturers receive subsidized natural 
gas at a cost of about PRS 13 billion (US$0.2 b illion).  These subsidies were not phased out as 
                                                      
12 Ministry of Food, Agriculture and Livestock (2004), p. 6;  CBR (2004c). 
13 Punjab AgriMarketing Company (2007). 
14 Ministry of Food, Agriculture and Livestock (2006).  
15 CBR (2005b), p. 23. WT/TPR/S/193 Trade Policy Review 
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intended by July 2006 (Fertilizer Policy 2001).  Canal i rrigation is subsidized; in the Punjab by up to 
two thirds. 
Corporate agricultural farming (CAF) 
21. The Government supports CAF as a means of increasing farm productivity and improving 
efficiency.  It covers crops, fruits, vegetables,  livestock, agricultural processing and marketing, 
modernization and development of  irrigation facilities and water ma nagement, on-farm construction 
of silos, construction of non-commercial cold storag e facilities, and forest plantations.  To encourage 
CAF activity, the Government has recently remove d the 60% cap on foreign equity to allow 100% 
foreign ownership, and intends to permit land purch ases or 50-year leases (extendable for 49 years), 
and eliminate the minimum foreign investment level of US$0.3 million.  There are no size limits on 
land holdings.  Tax incentives include zero tariffs  on agricultural machinery and equipment for grain 
storage and cool-chain facilities, as well as zero G ST on all agricultural machinery and equipment. 
(iii) Main subsectors 
(a) Crops 
Wheat 
22. Government wheat policy remains directed at balancing the support of farm incomes and 
ensuring food security/self-sufficiency, with consum er interests of ensuring price stability and 
affordable prices.  While wheat was liberalized somewhat in 2000, it remains relatively regulated 
compared with other agricultural items;  regulator y arrangements have varied subject to market 
conditions.  Policies were last changed in 2005 to  raise procurement prices and encourage private 
imports, and the Punjab Government removed tr ansport restrictions on inter-provincial trade.16 
Government subsidies apply on quota sales to millers, which are sold at prices that are below market prices and do not cover the procurement costs of imported or domestic wheat plus storage and handling.  This discourages private wheat imports.  Subsidies accrue to millers who make significant 
profits on milling government wheat.  Flour mills are licensed (Flour Mills (Control) Order, 1959), 
and can be directed to buy wheat from particular sources and to regulate production, sale, and delivery 
of products, including to mill at specified rates.
17   
23. A new wheat policy, being implemented progr essively, is aimed at reducing government 
intervention and a more market-based approach  to achieve the dual objectives of achieving food 
security (ensuring food availability at affordable  prices) and guaranteeing minimum producer prices.  
Its essential elements are a clear distinction between guaranteed minimum prices (fixed and 
announced prior to the season) and procurement pric es (variable depending on market conditions);  a 
strategic reserve (initially of one million tonnes)  to be maintained for price stabilization and 
emergency purposes, as distinct from operational st ock used for regular releases onto the market 
during the transitional period to the new policy;   setting of a price band for procurement and 
marketing within which the private sector can ope rate freely;  imports and exports will remain 
generally open to the private sector subject to  occasional adjustments for food security reasons;  
producers are free to sell to the Government or privately.  
24. Provincial governments continue to intervene h eavily in the market, especially in the main 
wheat producing province of the Punjab.  Wheat st ocks held by PASSCO and provincial governments 
(Punjab, Sindh, and Balochistan)  consist of operational reserves sold to millers, as needed, and 
                                                      
16 Dorosh and Salam (2006), p. 1. 
17 SMEDA (2006). Pakistan WT/TPR/S/193 
 Page 87 
 
 
strategic holdings that are managed to support prices.   Since only one fifth of households have surplus 
wheat production and more farmers have to buy wh eat, raising prices is likely to penalize wheat 
farmers on balance as well as consumers generally , thus increasing rather than reducing poverty.18  
Domestic wheat prices have generally been well below import parity in recent years 
(section (2)(ii)(b)).  Imports are subject to a 10% MFN tariff;  previously they were exempt but 
subject to a "regulatory" duty of 10% imposed in 2004.19 
Cotton 
25. Cotton accounts for about 60% of Pakistan’s expor t earnings and 85% of domestic edible oil 
production;  over three-quarters is produced in th e Punjab.  It is exported as a raw material and 
provides an essential input to the domestic textil es industry.  Cotton Vision 2015, approved in 2006, 
calls for 20.70 million bales of production by 2015;  a cotton yield per acre of 1,060 kg;  exports of 
0.6 million bales;  and an improved yarn recovery  rate of 92% (current average is 84%).  The 
Government has made further efforts to encour age production of clean (contamination free) cotton 
during the review period (Chapter III).  Textile mill s must provide a premium on clean cotton, which 
is supported by government-set minimum procurement prices;  the authorities indicate that market-
determined premiums on clean cotton exceed these le vels.  The Pakistan Cotton Standards Institute 
has developed international standa rds to improve cotton quality (Cotton Standardization Ordinance, 
2002).  
Tobacco  
26. Tobacco is a leading cash crop, generally of lo w quality;  it is grown mainly in Punjab and 
North West Frontier Province (NWFP).  The Paki stan Tobacco Board regulates, controls, and 
promotes the export of tobacco (PTB Ordinance, 1968).  Pre-sowing marketing contracts between 
growers and the few manufacturers are negotiated based on minimum prices fixed by the Board.  Tobacco companies must notify it of their annual tobacco requirements in October and execute 
grower agreements by end-December of each year ;  these must be submitted to the Board.  Over-
quota production is purchased at lower prices a nd growers cannot carry over under-quota production 
to future years.  Minimum and maximum prices,  including for export, are set  by type and grade, 
which can vary across areas.  Two committees (one each in Punj ab and NWFP) calculate growing 
costs for consideration by the Price and Grade Revision Committee, which includes representatives of 
all stakeholders and recommends minimum prices to the Board.
20  The weighted average tobacco 
price received by growers from each tobacco manufact urer cannot be lower than the preceding year.  
The Board is funded by a cess levied on tobacco pr oduction, which must not exceed 3%.  According 
to the CRB, Board controls are frequently evaded.21   
Sugar cane 
27. The sugar industry, mainly producing from cane, seems inefficient (section (2)(ii)(b)).  Sugar 
exports are often subsidized, usually involving re bates and mandatory export conditions on mills that 
must pay a penalty on non-exported quantities.22  Provincial governments levy a cess that varies 
across provinces on sugar cane growers, to fund researc h and development.  Molasses is used to make 
                                                      
18 Dorosh and Salam (2006), p. 3. 
19 Customs Notification SRO No. 457 (I)/2004. 
20 Minimum prices are fixed taking into account increases in growers' costs of production;  minimum 
prices and weighted average prices of tobacco;  inflation;  world tobacco trends;  price rises allowed for other 
agricultural commodities;  and the industry’s  wholesale price index of raw materials. 
21 CBR (2004b), p. 19. 
22 CBR (2004c). WT/TPR/S/193 Trade Policy Review 
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industrial alcohol (ethanol), and legislation is bei ng considered for its mandatory mixture with petrol 
(10%) to make gasohol.  Imports of sugar are su bject to an MFN tariff of 15% (the additional 
"regulatory" duty of 5% levied in 2006 was w ithdrawn).  Reducing tariffs on sugar (and sugar 
confectionery (of 25%) would raise efficiency.23 Exports are subject to a "regulatory" duty of 15%.   
Edible oils 
28. The Pakistan Oilseed Development Board promotes the oilseed sector (canola, sunflower, and 
oil palm).  It is funded by the Ministry of Food, Agriculture and Livestock from a cess of Rs. 0.05 per kg levied on imported edible oils and from 10% of the tariff duty collected on oilseeds imported for 
crushing.  The Board no longer sets support prices and oilseed prices are set in the open market.  The 
All Pakistan Solvent Extractor’s Association, in coordination with the Board, sets voluntary 
procurement prices for sunflower and canola, based on the cost of imported edible oils and prevailing 
domestic market conditions;  for the 2006/07 cr op year these are PRs 830 per 40 kg bag and PRs 750 
per 40 kg bag, respectively.  The Board operat es three mini-oilseed processing plants for processing 
quality sowing seed on a non-profit basis.  Ghee is require d to contain a 65 to 35 ratio of hard to soft 
oil for quality and health considerations, which also increases the demand for domestic soft oil. 
(b) Livestock 
29. Dairying accounts for over half the value of livest ock output, and has been declared a priority 
sector.  The five-year Prime Minister’s Special In itiatives in Livestock, implemented in early 2006, 
aims to improve livestock health and extension ser vices using a public-private partnership approach;  
it is expected to cost PRs 1.696 billion.  Two "not-for-profit" private-sector-led companies were 
established in 2005, the Livestock and Dairy Deve lopment Board (with an initial capital cost of 
PRs 54.3 million) and the Pakistan Dairy Developmen t Company (Dairy Pakistan) (with a total grant 
of PRs 480 million).  The Board became operational in January 2007, and its primary objectives are to 
plan, coordinate, and promote de velopment of the livestock, poultry, dairy, and meat sectors, 
including through financial assistance.  It is curren tly implementing three development projects worth 
PRs 3.12 billion to improve milk and meat producti on.  Dairy Pakistan becam e operational in 2006, to 
improve the dairy sector;  a government grant of PRs 200 million has helped improved milk collection 
and set up model dairy farms.  A new Livestock Development Polic y, approved in 2006, is being 
implemented to foster private-sector-led developm ent within an enabling public sector environment, 
and to build capacity to facilitate market-oriented farming. 
(c) Fisheries 
30. The fishery sector's share in GDP declined fro m 0.4% in 2001/02 to 0.3% in 2003/04, where 
it has remained.  Steps are being taken to stre ngthen the sector, including improved extension 
services, introduction of new techniques, devel opment of value-added products, and improved 
management and conservation practices.  For exampl e, there is still a prohibition on catching marine 
turtles outside the 12 nautical miles limit, as well as on their domestic consumption, and export;  
catching shrimps during June-July is also prohibited.  Under the Fisheries Policy, the sector is targeted 
to grow at 10% annually, with exports reaching US$1 billion by 2015;  the policy is being largely 
implemented by establishing a non-profit Fisheries Development Board. 
31. Deep sea fishing (managed by the Marine Fish eries Department of the Ministry of Food, 
Agriculture and Livestock) remains governed by  the 1995 Deep Sea Fishing Policy (amended in 
2001) and associated laws (e.g. Exclusive Fishing Z one (Regulation of Fishing) Act, 1975 (amended 
1993) and Pakistan Fish Inspection and Quality Cont rol Act, 1997 and associated rules, 1998).  Deep 
                                                     
 
23 Ministry of Industries, Production an d Special Initiatives (2005), pp. 177-178. Pakistan WT/TPR/S/193 
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sea fishing is categorized into two zones:  medium-s ized vessels in Zone II (20-35 nautical miles) and 
Zone III (beyond 35 nautical miles) for larger fishing vessels and tuna long liners.24  The number of 
fishing licenses is fixed at 20 for Zone II and 10 fo r Zone III:  there are 18 vacant licences and no 
Zone III licensees;  47 applications were received  at end-August 2006.  No licensed foreign vessels 
operate in Pakistan’s Exclusive Economic Zone (E EZ).  Such licences may be granted in exceptional 
cases where a foreign firm makes a "sizeable" inv estment in establishing value-added shore-based 
facilities, such as canning and processing, and transfers technology.   The provincial governments of 
Sindh and Balochistan have separate legislation affecting fisheries.  For example, the Sindh 
Government requires trawlers with over six crew to have turtle excluder devices.  
(3) MINING AND ENERGY  
32. The Ministry of Petroleum and Natural Resources formulates and implements petroleum, gas, 
and mining policies.  All minerals (except petrol eum and nuclear minerals) are constitutionally owned 
by the provinces.  Each provincial government has its own Department of Mines and Mineral 
Development to negotiate mining agreements, issue licences and leases, regulate and monitor mining, 
and collect royalties.  The Federal Government’s role  is to provide geological data, assist in provincial 
coordination, and to facilitate foreign investment in the mining sector.  It also finances mineral 
projects.  Small-scale mining (capital under PRs 300 million) is reserved for Pakistani nationals. 
(i) Mining 
33. The main Pakistani mining operation, Saindak Me tals Limited, is state owned and produces 
copper, gold, and silver.  Blister copper is exported.  The Government provided funding of 
PRs 1.3 billion for the mine’s development, in the late 1990s;  in November 2002, it was leased for 
ten years to a Chinese firm under a US$350 million development.25  Saindak was de-listed from 
privatization in September 2006 due to it being lease d.  The Duddar zinc-lead mine, a joint venture 
between the state-owned Pakistan Mineral Deve lopment Corporation (PMDC), the Balcohistan 
Government, and Chinese interests, is due to st art in 2009.  A major copper mine at Rekodik is 
planned with foreign interests that could involve investment of US$1 billion by 2012. 
34. The PMDC operates four coal mines (10% of  the country’s coal deposits), four salt 
mines/quarries (45% of total salt production) and a si lica sand quarry.  It is being restructured, and the 
Government has decided to privatize some of its co al and salt mines.  The state-owned Lakhra Coal 
Development Authority, the sole coal provider to the only coal-fired power plant, is being 
privatized.26 
35. The 1995 National Mineral Policy has been revi ewed and updated recently.  The Government 
remains keen to attract foreign operators, including jo int ventures.  Foreign investment must be in the 
form of a joint venture, and minimum fo reign equity levels vary with location.27  The provinces 
operate Mineral Concession Rul es consistent with national po licy.  Mining and value-added 
                                                      
24 Zone I (up to 12 nautical miles) is reserved for small-scale fishermen from Sindh and Balcohistan 
provinces.  There is a "buffer zone" from 12 to 20 nautical miles in which no medium or larger trawlers can fish. 
25 The lessee pays annual rent of US$0.5 million, ro yalties of 2% of sales, pr esumptive taxes of 1.25% 
and 0.5% to the Export Processing Zone Authority, and shares equally in any cash surplus after loan 
repayments.  
26 It is a joint venture between the PMDC (50%), Water and Power Development Authority (WAPDA) 
(25%) and the Sindh Government (25%), and is to be privatized by the Sindh Privatization Commission as a 
package with WAPDA’s thermal power station at khanote. 
27 Minimum foreign equity is 15% in Balochistan, 20% in the Punjab and parts of NWFP, and 25% 
elsewhere. WT/TPR/S/193 Trade Policy Review 
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processing is classified as a "category A" industr y, and thus pays a concessionary tariff of 5% on 
imported machinery for minerals exploitation.  Investors are protected against expropriation. 
36. Provincial governments levy royalties of 10% fo r precious stones, 3% for precious metals, 2% 
for base metals, 1% for other minerals, and existi ng rates for coal, which vary between PRs 20 per 
tonne in Baluchistan and PRs 60 per tonne in Sindh.  No other provincial taxes are imposed.  Mining 
companies pay income tax at 35%.  Additional profits tax is "negotiable".    
(ii) Energy 
37. Pakistan’s energy needs are met principally from natural gas (50% in 2006), oil (28%) and 
coal (7.0%).  Hydro-electricity accounts for 12.7% and nuclear power 0.8%.  The main change in 
recent years has been the continued increase in gas use at the expense of oil.  Pakistan imports about 
three-quarters of its crude oil requirements, and has la rge reserves of natural gas at Sui in Balochistan.  
These are plans to import natural gas by pipeline from Turkmenistan, Iran, and Qatar to meet shortages expected to occur by 2010.  Pakistan is  also considering constr ucting several regional gas 
pipelines, e.g., Iran-Pakistan-India, Turkmenist an-Afghanistan-Pakistan, and Qatar-Pakistan. 
(a) Hydrocarbons 
38. Private sector oil and gas development is a government priority.  The independent Oil and 
Gas Regulatory Authority (OGRA) started regulatin g the oil and gas sectors in March 2002 (Oil and 
Gas Regulatory Authority Ordinance, 2002).
28  It issues licences, ensures efficient practices in oil and 
gas marketing, storage and distribution, and aims to promote effective competition.  OGRA is responsible for providing open access to networks, where it is deemed to be in the public interest and 
where it believes excess capacity exists, subject to  the owner being adequately compensated.  The 
regulatory functions of the midstream and downs tream petroleum industry, including liquefied 
petroleum gas (LPG) and compressed natural g as (CNG) activities, and petroleum product pricing 
functions, were transferred to OGRA in March 2 006.  The Ministry of Petroleum and Natural 
Resources formulates and implements measures to re gulate upstream oil and gas activities.  The state-
owned Government Holdings (PvT) Ltd administers the Government’s working interests in various 
joint ventures and is independent from the Ministry’s regulatory functions. 
Petroleum 
39. Onshore and offshore oil exploration policies announced in 2001 and 2003 respectively 
provided incentives to attract foreign investme nt, including encouragement of joint ventures 
(Petroleum Exploration and Production Policy, 2001).
29  Minimum Pakistani equity limits apply for 
onshore zones and, if unmet, the Government Holdings (PvT) Ltd may acquire the minimum 
interest.30  Firms must meet minimum employment requi rements, training, and welfare expenditures; 
special arrangements apply to offshore areas, in cluding contracting a minimum of 10% of computer 
software to local suppliers if competitive.  Exploration licences are auctioned based on minimum work commitments.  Most oil is  produced by the majority state-owned Oil and Gas Development 
                                                     
 
28 OGRA online information.  Viewed at: http://w ww.pakistan.gov.pk/cabinet-test/reg-autorities/ 
ogra.jsp[11 October 2007] 
29 Regulations for onshore areas based on "petroleum concession agreements" were introduced in 2001 
(Pakistan Petroleum (Exploration and Production) Rules,  2001) and for offshore areas based on production-
sharing contracts in 2003 (Pakistan Offshore Petroleum (Exploration and production Rules, 2003).  Offshore 
and onshore areas have been zoned and separate incentives provided.        
30 Minimum Pakistani working interest is 15% for Zone  I (high-risk, high-cost areas), 20% for Zone II 
(medium risk to high/medium cost), and 25% for Zone III (low cost, low risk).   Pakistan WT/TPR/S/193 
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Company Ltd (OGDCL) (about 57% of total output) a nd Pakistan Petroleum Ltd (PPL) (about 23%).  
These companies have been partially privatized dur ing the review period and further divestments are 
planned.  Exports of oil and gas must be approved.31 
40. Petroleum income (offshore and onshore) is ta xed at 40%.  Royalties of 12.5% of the "fair 
market value" are paid to the Federal Govern ment for onshore areas along with production bonuses 
per concession.32  Offshore production-sharing contracts are subject to royalties  of 5% during the 
5th year of production; 10% during the 6th year; and 12.5% thereafter.   The sliding scale production-
sharing arrangement depends on whether the field is in shallow, deep or ultra deep areas, and rises 
according to cumulative production levels.  The G overnment’s profit share ranges from 20% to 80% 
for crude oil/LPG/condensate;  from 10% to 80% for na tural gas in shallow grid areas;  5% to 70% for 
all types of output in deep grid areas;  and from 5%  to 60% for all products in ultra deep grid areas).33  
Crude oil prices are based on the c&f price of comp arable Arabian/Gulf crude oil adjusted for quality 
differences (and for gas associated with oilfields,  the c&f price of internationally comparable 
condensate).   
41. A draft 2007 Petroleum Policy, circulated fo r comment, is aimed at accelerating domestic 
exploration and production, incr easing foreign investment and technology transfer, employment 
generation, and activity in unexplored areas.  
42. OGRA licenses oil pipelines, testing, storage or blending facilities, oil installations, refineries, 
and marketing companies of refined products (Ref ining, Blending, Transportation, Storage and 
Marketing Rules, 2006).  There are many refineries,  the largest being Pak-Arab Refinery Ltd and the 
National Refinery Ltd (partially privatized in May 20 05 with divestment of 51% of state equity), as 
well as oil marketing companies, including foreig n companies.  The two largest oil marketing 
companies (OMCs), the state-owned Pakistan State Oil and Shell, have 80% market share;  the former has about two-thirds of the market.  The refinery pricing formula is linked to import parity (Singapore 
mean fortnightly f.o.b. spot price).  Maximum wholesale (ex-depot) and retail prices of various 
petroleum products, including mainly aviation fuel, petrol, diesel, kerosene, and light diesel oil are set 
fortnightly by OGRA (previously the Oil Compani es Advisory Committee).  Since May 2004, these 
domestic prices have been periodically capped, whic h has sheltered consumers from on average about 
half of the international price rises, at a budgetary cost of PRs 74.5 billion by 15 June 2006.  Prices of 
kerosene, diesel, and light diesel oil are cross-s ubsidized by the Petroleum Development Levy (PDL) 
applied on various products e.g. petrol.  New crite ria for licensing OMCs were introduced in 2006.  
They cannot be affiliated with an existing OMC ope rating in Pakistan; must have a minimum up-front 
equity of PRs 3 billion and a three-year investme nt programme of at least PRs 6 billion; develop 
minimum storage of 20-days projected sales; and have a maximum 60:40 debt equity ratio.  They 
must first buy locally refined products before importing. 
                                                     
 
31 For example, before gas is exported, provision must be made to cover projected domestic demand 
(allowing for firm import commitments) for the next 15 years.  Exports must be at "fair market prices". 
32 Production bonuses of US$0.5 million apply on commencement of commercial production, and of up 
to US$5 million on meeting production milestones.   
33 Onshore and offshore companies are also subject to a "windfall" 50% levy, except for natural gas 
sold to the Government.  For onshore companies, the tax base is the extent to whic h the crude oil market price 
exceeds the base price set at US$30 pe r barrel in 2001 and indexed upward s by US$0.25 per ba rrel per year.  
For offshore companies it is the extent  to which the crude oil market pri ce exceeds the base oil price, set at 
US$24 per barrel, indexed upwards annually by US$0.50 per barrel (for gas sales the base price is US$2.50 per million British Thermal Units (MMBTU) inde xed annually by US$0.10 per bbl).  WT/TPR/S/193 Trade Policy Review 
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Natural gas 
43. Natural gas production has risen by 50% since 2002/03.  OGRA licenses natural gas (and 
LPG, LNG, and CNG) pipelines, testing or storag e facilities, and any installation, transmission, 
distribution or sale.  LPG investment has been a bout PRs 9 billion.  LPG prices were deregulated in 
2000.  Policy is to replace furnace oil with gas in power generation.  Gas and oil fields are taxed on 
the same basis. 
44. Transmission, distribution, and sale of natu ral gas is under a duopoly of two state-owned 
firms, Sui Southern Gas Pipelines (SSGCL) and Su i Northern gas Pipelines (SNGPL), which operate 
in geographically different areas and earn, under the regulated regime, a guaranteed annual pre-tax 
rate of return of 17.0% and 17.5% of  net operating fixed assets, respectively.34  The Government is 
considering introducing a third party access (T PA) regime and the phased unbundling of 
transportation, distribution, and sales. 
45. OGRA sets maximum consumer prices of gas so ld by all companies, including SSGCL and 
SNGPL, for various types of consumer (e.g. resi dential, commercial, and industrial) as well as 
cement, fertilizer, and chemical factories.35  OGRA-approved tariffs must provide "reasonable" 
returns and avoid anti-competitive pricing.  Tariffs  should meet several criteria, including reflecting 
average costs of services, identifying and applying co nsumer or regional cross-subsidies transparently, 
and promoting reasonable investment and return on assets (Natural Gas Tariff Rules, 2002).  Consumer gas prices are reviewed bi-annually.  Residential consumers ar e cross-subsidized by 
industrial, power, and commercial gas users.  Dome stic gas subsidies are be ing withdrawn gradually 
and rationalized.  Fertilizer factories and a chemical  plant pay a substantially  lower (subsidized) price 
on gas used for feedstock (generally about one thir d of that paid for other uses).  In 2005/06, gas 
subsidies to fertilizer manufacturers and resi dential users amounted to PRs 5.4 billion and 
PRs 13 billion, respectively.
36  Severe gas shortages occur in winter months, when natural gas is 
allocated among industrial users, including power sta tions and fertilizer users, after meeting demand 
of residential consumers.  Pipeline losses are s ubstantial (22.1% in 2006/07 ), and OGRA has applied 
targets to lower these to 4% by 2011.37  
46. In 2005/06, an LNG policy was released aimed at encouraging imports by the private sector.  
LNG operators must be licensed by OGRA (LNG  (Licensing) Rules, 2006).  Any licensee must 
provide for non-discriminatory open access to its f acilities where excess capacity exists, on mutually 
agreed terms and conditions, if technically feasible. 
47. LPG regulation was transferred to OGRA in March 2003, and OGRA licenses production, 
storage, filling, and distribution facilities (LPG (Production and Distribution) Rules, 2001).  LPG 
marketing companies must supply a mi nimum share of their sales in re mote areas:  all LPG marketing 
companies receiving LPG from the Punjab and NWFP must sell at least 7% of their local LPG in Northern Areas, 7% in AJK, and 6% in FATA;  and all marketing firms receiving LPG from Sindh 
and Balochistan must sell at least 10% of their local LPG in Balochistan.  The LPG Production and 
Distribution Policy was released in 2006.  LPG pric es must be "reasonable" and notified to OGRA, 
                                                     
 
34 OGRA recommends "prescribed" prices to the Government which sets higher national uniform 
consumer prices;  the difference is paid to the Gove rnment by the gas companies as the Gas Development 
Surcharge (Natural Gas (Developmen t Surcharges) Ordinance, 1967). 
35 OGRA online information.  Viewed at: http://w ww.pakistan.gov.pk/cabinet-test/reg-autorities/ 
ogra.jsp [11 October 2007] 
36 Fertilizer manufacturers are sold feedstock gas (80% of the raw material cost) at about 50% below 
rates charged other commercial users (M inistry of Finance, 2007a, p. 43). 
37 Ministry of Finance (2007a), p. 239. Pakistan WT/TPR/S/193 
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which may determine "reasonable" prices if they are considered unreasonable and in the "public 
interest";  OGRA determines the reasonableness of prices taking into account import parity, producer prices, and the audited accounts of LPG marketing comp anies over the previous two years.  It notifies 
the maximum base-stock LPG price, based on the wei ghted f.o.b. Saudi price of propane and butane 
for the previous 12 months, based on the current US $/PRs exchange rate.  LPG exports require prior 
approval. 
(b) Electricity 
48. Hydro-electricity provides about one third of power consumed.  About 70% of Pakistan’s 
electricity is supplied by two vertically integrated  state-owned entities, the Pakistan Water and Power 
Development Authority (WAPDA) (60%), and the Karachi Electric Supply Corporation (KESC).  
Although occurring slowly, WAPDA has been restru ctured into a network consisting of nine 
distribution companies (DISCOs) serving different areas, four thermal generation companies (GENCOs), one hydro-generation company, and th e National Transmission and Dispatch Company 
(NTDC), in preparation for unbundling and priva tization.  Three supply companies (Jamshoro, 
Faisalabad, and Peshawar) are planned to be priv atized in early 2008, and 73% of KESC, also a 
licensed transmission company, was sold in late 2005.  Sixteen independent power producers (IPPs) 
also operate under mainly "build-own-operate" (BOO) arrangements;  14 supply WAPDA and two 
supply KESC.  FDI into the power sector is a bout US$4 billion.  WAPDA’s operating losses in 2004 
were PRs 27.9 billion, when the average cost of supplying electricity exceeded the average tariff of 
PRs 4.09 per kWh by 13%.
38  KESC also had losses some PRs 15 billion.  Total losses, equivalent to 
about 1% of GDP (US$500 million annually), also re flect billing and collection inefficiencies;  an 
increasing shortage of electricity has re-emerged since 2006;  imports and e xports require government 
approval. 
49. The sector regulator remains the National Electric Power Regulatory Authority (NEPRA).  It 
licenses generation, transmission, and distribution companies, sets or approves tariffs, and prescribes standards;  the goal is to set economically efficient pricing and to minimize cross-subsidies that favour 
residential consumers.
39  Independent power producers (I PPs) and generators are assured non-
discriminatory access to the transmission system.  Generators and distributors cannot charge discriminatory prices between consumers unless attributed to costs, or discriminatory prices that would restrict competition or cause "uneconomic pricing" Distributors must provide non-discriminatory electricity to all their consum ers (NEPRA Eligibility Criteria for Consumers of 
Distribution Companies, July 2003).  However, in practice cross-subsidies generally appear to favour 
residential and certain industrial consumers. 
50. The Government issued guidelines for determini ng IPP tariffs in November 2005;  they can 
be determined either by NEPRA, based on negotiatio n, or by competitive bidding administered by the 
Ministry of Water and Power in consultation with  NEPRA and the Ministry of Finance.  NEPRA 
issued the Interim Power Procurement (Procedures and Standards) Regulations in March 2005, for 
procurement covering licensed power generators, distributors, and the NTDC.  Distribution and 
transmission companies must file with NEPRA a "request for power acquisition" before entering 
contractual negotiations.  Contracts must conform to NEPRA requirements.  NEPRA also released 
transmission and distribution performance rules in  2005, which require operators to submit annual 
performance reports (NEPRA Performance Standa rds (Transmission) Rules, 2005 and NEPRA 
Performance Standards (Distribution) Rules, 2005) .  A Transmission Sector Road Map for 2007/2016 
                                                     
 
38 Ministry of Industries, Production and Special Initiatives (2005), p. 93. 
39 Automatic tariff adjustments take into account production costs whereby NEPRA adjusts electricity 
prices based on price variations in fuel and in th e case of KESC, the cost of  purchasing electricity. WT/TPR/S/193 Trade Policy Review 
Page 94 
 
 
was released to upgrade the transmission network.   Policy is to introduce a bilateral competitive 
electricity market.  
51. Generation capacity is being increased, includi ng by expanding hydro facilities, based on 
private sector investment assisted by incentives, such as income tax exemptions (Power Policy for 
Power Generation, 2002).  The Private Power a nd Infrastructure Board facilitates private sector 
investment in power generation.  The Alterna tive Energy Development Board was formed in 
May 2003 to implement the Government’s target of  increasing the share of alternative energy to 10% 
by 2030 and devoting 2% of power investment to such measures by 2015.40  Private investment is also 
being encouraged (Renewable Energy Policy, N ovember 2006) through fiscal incentives, such as 
income tax exemptions and mandatory purchases of electricity produced. 
(4) MANUFACTURING  
52. The manufacturing sector’s GDP share rose fro m 15.9% in 2001/02 to 19.1% in 2006/07, 
while its share of employment remained at 13.9% (Table I.2).  The sector’s expansion reflects substantial growth in the "large scale" segment;  its GDP share rose from 10.2% to 13. 6%, while that 
of the "small scale" segment fell from 5.3% to 4.5%.
41  State involvement in large-scale 
manufacturing remains significant, although it is d eclining as privatization continues.  Textiles, 
clothing, and footwear accounted for 24% of manuf acturing value added in 2000/01, food processing 
(especially vegetable ghee, sugar, tobacco, beve rages, and cooking oil) for 14%, and chemicals 
(especially pharmaceuticals and industrial chemicals) for 15%.42 
53. Average manufacturing tariffs have fallen from 20.9% in 2001/02 to 15.0% in 2007/0843, and 
peak ad valorem  rates have fallen from 250% to a maximum of  90% (Chart IV.1).  Tariffs have fallen 
substantially, on average, across all aggregated in dustries;  non-metallic mineral products had the 
highest average tariff in 2006/07, of 20.8%, followed by textiles and leather with 18.9%. 
(i) Policy developments 
54. Industrial policy is based on accelerated indus trialization aimed at increasing manufacturing 
value added and share of GDP to US$188 billion and 30%, respectively, by 2030.  The sector’s 
diversification is a key goal, moving away fro m textiles and clothing into food processing, 
petrochemicals, motor vehicles, non-metallic  mineral products, and electronics.   
55. The traditionally based "old fashioned" indust rial policy approach of promoting specific 
industry groups at the expense of  others has been unsuccessful.44  Structural weaknesses include the 
concentration on textiles, low-technolog y intensity, slow productivity growth45, and weak positioning 
in the international market.46  Domestic firms, generally small, have been unable to reap economies of 
scale or become sufficiently export-oriented to be  exposed to international competition.  Future 
                                                      
40 Alternative Energy Development Board online in formation.  Viewed at: http://www.aedb.org. 
41 The large-scale segment consists mainly of textiles, food and tobacco , petroleum products, 
pharmaceuticals, chemicals, non-metallic minerals, motor ve hicles, metal industries, fe rtilizers, and electronics.  
42 Ministry of Industries, Production and Special Initiatives (2005), p. 10. 
43 This tariff average is higher than that indicated in Table III.1 due to different product classification 
(i.e. the average rate of 14.9% is based on HS calculations). 
44 Annual average labour productivity growth in Pakistan during 1992-01 was 2.23%, slightly above 
the economy’s modest overall average growth of 1.48%.  Moreover, total factor productivity from 1990/91 to 2000/01 in manufacturing slumped to 1.64% (Ministry of  Industries, Production and Special Initiatives, 2005).  
45 Productivity growth was handicapped by periods of investment stagnation due to political instability, 
macroeconomic risks, banking-sector difficulties, and high costs of doing business. 
46Ministry of Industries, Production and Special Initiatives (2005). Pakistan WT/TPR/S/193 
 Page 95 
 
 
industrial policy is to be based on getting the right incentives for investment by lowering costs and 
relying more on the market and the private sector to  generate manufacturing sector growth.  This will 
require tariff reforms, including: reducing dispersion  by lowering the number of rates outside regular 
bands;  converting specific tariffs to ad valorem  duties;  closing loopholes created by special 
exemptions;  improving customs procedures;  and, a cascading or escalating tariff structure to protect 
infant and pioneering industries.47  As liberalizing trade with India would also increase industrial 
competitiveness through availability of cheaper impor ts, benefit Pakistan consumers, and raise 
revenue from taxing existing illegal trade, Pakistan  might consider allowing MFN-based trade with 
India and developing strategic partnershi ps and collaborating with Indian firms.48  
(ii) Food processing 
56. Food (and beverages) processing, one of Pakistan’s  major industrial sectors consists mainly of 
fresh (fruit juice and pulp) and processed (dried) fruits (mangoes, citrus, apples and guavas) and 
vegetables (potatoes, onions, and mushrooms), conf ectionery, cereals, biscuits, and bread.  Significant 
components of food processing are the edible oil (manufacturing mainly vegetable ghee and cooking 
oil) and sugar industries.  Processed foods (includi ng beverages) are consumed mainly domestically, 
many assisted by relatively high tariffs.  For example, while the edible oil indust ry is based largely on 
imported unrefined oil, the domestic oil extraction indu stry is protected by high specific tariffs on oils 
and seeds, equivalent to ad valorem  rates of 65-70%; lowering tariffs would raise efficiency and 
benefit the meat processing and seafood industries.49  
(iii) Textiles and apparel 
57. Pakistan is a leading exporter of textiles and clothing, and production remains its single most 
important industry, accounting for 10.5% of GDP.  Based on locally grown and imported cotton, and 
concentrated in the preliminary processing stages, it is dominated by cotton textiles (cotton yarn and 
cloth, made-up textiles), clothing, synthetic/manmade fibres (polyester yarn and acrylic fibres), carpets, and jute products.  The sector comprises  a well organized large-scale segment (mainly the 
integrated textile mills) and a highly fragmented co ttage/small-scale segment;  the three state-owned 
cotton textile mills have been privatized and the remaining woollen mill is being divested.  Most 
textile exports are lower-value coarse and medium  yarns.  The industry has been substantially 
modernized and restructured during the review peri od, with total investment of some US$6 billion 
(mainly in spinning and weaving) and substantial imported textile machinery.
50  Current goals 
formulated by the Ministry of Textile Industry, cr eated in September 2004, are for exports to increase 
to US$14.5 billion by 2009, and for reduced relian ce on cotton, given rising trends towards using 
synthetic and blended fabrics, by raising the shar e of man-made fibres from 18% to 50%;  tariffs, of 
up to 35% in 2007/08, are the main border measure as sisting the industry, and they may have hindered 
production of non-cotton textiles. 
58. Recent growth has been aided by several assi stance packages.  The Textile Vision – 2005 
adopted in 2001, focussed on developing a globally  competitive market-oriented industry by 2005, 
capable of realizing the opportunities arising from th e removal of global textile quotas.  It proposed 
minimum investment of US$5 billion over four years to increase exports by at least 12%, including to new markets, so that Pakistan would become a top -five Asian textile exporte r.  However, despite on-
                                                     
 
 47 Ministry of Industries, Production and Special Initiatives (2005). 
48 Ministry of Industries, Production and Special Initiatives (2005). 
49 Ministry of Industries, Production and Special In itiatives (2005), p. 178 and (2004), p. 84.  The 
authorities indicate that specific rates currently apply to 38 types of edible oils, and that their ad valorem  
equivalents range from 5% to 24%, for sunflower crude oil, on which the rate is 50%. 
50 Ministry of Finance (2006), p. 29. WT/TPR/S/193 Trade Policy Review 
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going policy priority, minimal export diversifica tion away from the traditional quota-protected EC 
and U.S. markets has occurred (Chapter II).  Other measures include incentives to upgrade 
technology, such as income tax concessions, and gradual lowering of tariffs on imported textile 
machinery and parts to encourage investment for ba lancing, modernization, and rehabilitation, along 
with various tariff and sales tax concessions/exceptio ns on raw materials.  Research and development 
grants based on exports to most markets also apply,  and coverage has been expanded since July 2006.  
The State Bank provides long-term financing for export-oriented projects at concessionary rates (Chapter III(3)(vii)).  Labour law amendments in 2006 benefited the industry, especially by fixing 
minimum labour wages on an hourly basis.
  The Textile Garment Skill Development Board, created in 
2006 under the Ministry of Textile Industry, promotes worker training.  The Federal Textile Board has 
been reactivated to develop programme support fo r the sector.  A major government initiative is the 
establishment of textile and garment cities, based on  private-public partnership in Karachi, Lahore, 
and Faisalabad, to promote value- added production by providing mode rn infrastructure and clustered 
development based on foreign investment.  The G overnment is also considering another major 
incentives package totalling over PRs 29 billion foll owing recommendations by the National Textile 
Strategy Committee.51 
59. Because of its competitiveness, Pakistan is one of the countries expected to benefit most from 
the new quota-free regime.  However, while textil e production is likely to expand, the clothing 
segment may contract as it faces greater overseas co mpetition:  its real income could decline overall 
unless productivity improves substantially to capture the potential benefits arising from abolishing 
quotas.52  The authorities indicate that so far Pakist an has been unable to benefit from the quota 
abolition due to its high costs, low labour productiv ity, and inefficient production processes.  Raising 
productivity by 60% to match Chinese levels could r esult in annual welfare gains to Pakistan of over 
US$1 billion.53 
(iv) Engineering sector 
60. The engineering sector, a government priority, consists of the heavy segment (e.g., cement, 
sugar plants, industrial boilers a nd construction equipment) and the light segment (motor vehicles, 
bicycles, and surgical instruments);  much of the sector has been privatized.  The Engineering Vision 
2010 Plan aims to raise its share of manufacturing to 30% by 2010 and to increase total exports fourfold to 10-12%, as well as increasing investme nt to US$10-12 billion.  The re-structured 
Engineering Development Board (EDB), which is being replaced by the Engineering Development 
Authority, oversees the sector’s development and h as identified several "thrust" sectors e.g. motor 
vehicles, domestic appliances, electrical products , and capital goods.  The EDB’s policies are to 
ensure at least 30% local sourcing of plant, machin ery, and equipment, especially for energy projects, 
and progressive indigenization of the engineerin g industry in the power sector; out-sourcing of 
procurement of engineering goods and services to domes tic firms, where expertise is available, or if 
not foreign collaboration, conditio nal on technology transfer; a nd local government procurement.
54  A 
government operated Technology Development Fund a llocates grants matching private investment in 
the engineering sector.  Several tariffs were increa sed in 2006/07 to protect engineering industries, 
such as in the motor vehicle and textile sectors  (Table IV.2). 
                                                      
51 Daily News , "Rs. 29.76 billion package for textiles sector in the offing", March 2007. 
52 World Bank (2006b), p. 33, and World Bank (2004a);  and Ministry of Industries, Production and 
Special Initiatives (2005), p. 12. 
53 Ministry of Industries, Production and Special Initiatives (2005), p. 13. 
54 EDB (2007c). Pakistan WT/TPR/S/193 
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Table IV.2 
Tariff increases to protect engine ering activities, 2005/06 and 2006/07 
(Per cent) 
Tariff Sector HS code Description 
2005/06 2006/07 
Auto 7326.9020 Tool box of agricultural tractors of sub-heading 8701.9020 10 35 
 8425.4200 Other jacks and hoists, hydraulic 5 35 
 8425.4900 Other 5 35 
 8704.1010 Components for assembly/manufacture of dump trucks for off-road use 5 30 
 8707.1000 Components for vehicles of heading 87.03 45 50 
 8712.0000 Bicycles and other cycles (incl uding delivery tricycles), not motorized 30 35 
Textile 7508.9010 Nickel rota ry printing screen 10 15 
8415.9010 Evaporators enameled and coated for anti-rust purposes 5 15 
8415.9020 Condensers 5 15 Air conditioners 
8415.9030 Covers for inner body 10 15 
Textile machinery 8448.3330 Spinning rings 10 20 
Electrical  8539.3910 Energy saving lamp 10 15 
Cable 8544.5910 Multi core, flexible, fl at type copper, insulated 5 10 
Source: EDB, Federal Budget 2006-07 .  Viewed at:  http:// www.engineeringpakistan.com/ EngPak1/Annexure-IV%20_ 
Duty%20Raised_.pdf].  
(a) Motor vehicles and bicycles 
61. The motor vehicle industry grew at an impressive annual average of 38% growth from 
2003/04 to 2005/06, but lacks economies of scale.55  Some 65% of production is passenger cars, and 
ownership has risen above traditionally low and sta gnant levels of around 9%.  The industry consists 
of many assemblers, most having substantial fo reign affiliations with major Japanese, Korean, 
Chinese, and other manufacturers;  Pak Suzuki has about  half of the vehicle market.  The industry and 
its indigenization remains a government priority , as reflected in the five-year Auto Industry 
Development Plan (AIDP) adopted in 2007.  It ai ms at doubling the industry’s GDP share to 5-6% in 
2011/12 by raising car production from 200,000 units in 2005/06 to 500,000 units, and motor cycles 
to 1 million units, and increasing annual exports to US$350 million, based on total investment in the 
sector of PRs 250 billion.56  In addition to tariffs (see below) , the Plan provid es for incentives for 
acquiring technology, productive asset investment, r esearch and development, as well as targets and 
incentives to encourage production and export of va lue-added components;  these details are being 
finalized.57  The state-owned Sindh Engineering Comp any assembles Chinese buses and trucks and is 
stated for privatization in 2007.  Commercial impor tation of used vehicles, including CNG dedicated 
buses, is prohibited, in order to promote the domestic industry. 
62. Vehicle tariffs were substantially reduced befo re the deletion programmes were terminated on 
1 July 2006.  Tariffs on passenger cars fell from 100-250% in 2001/02 to 50-75% in 2005/06;  from 
120% to 20% on light commercial vehicles;  30% to  0-10% on tractors; 105% to 90% on motorcycles;  
and remained at 20% on buses and 60% on trucks.  While the deletion programmes had raised local-
content levels for passenger cars (62-71% by June 2005), buses (48-52%), trucks (43-68%),  tractors 
                                                      
55 Ministry of Finance (2006), p. 34. 
56 EDB (2007a), p. 5. 
57 Ministry of Finance (2007a), p. 42. WT/TPR/S/193 Trade Policy Review 
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(53-85%), and motorcycles (84-90%), protection cr eated inefficiency, including rent seeking by 
vested interests, global non-competitiveness,  low capacity utilization, and higher prices.58  
63. Further customs tariff changes for vehicles we re introduced when the Tariff Based System 
(TBS) replaced the deletion programmes;  this was designed to raise employment by protecting 
existing and planned investment, including further localization of components production, and to re-
structure the industry to improve efficiency and develop "fair" competition.  Only registered assemblers may import completely-knocked-down (CKD)  kits.  The TBS maintained existing tariff 
rates on non-indigenized components imported by  assemblers/manufacturers in any kit form 
(SRO No. 565(I)/2006, 22 June 2006) ;  set 50% tariffs on all localized components of cars, motor 
cycles, and trucks (of below 5 tonnes carrying cap acity) and of 35% on common parts for tractors, 
buses, and larger trucks;  applied a specialized ta riff of 15% on localized parts of 412 tariff lines;  
placed a 35% tariff on all other non-indigenized replace ment parts, irrespective of vehicle type and 
category;  reduced tariffs from 5% and 10% to zer o and 5%, respectively, on raw materials and sub-
components for manufacturing components and car, bus, truck, and motorcycle assemblies;  lowered 
tariffs on CKD and completely-built-up (CBU) im ported prime movers from 10% and 30% to zero 
and 15%, respectively; reduced tariffs on larger trucks (over 5 tonnes) from 20% to 10% and from 
60% to 30%, on trailers from 60% to 30%, and on C KD kits to 5%; and lowered tariffs from 20% to 
15% on CNG dedicated buses.  However, as the hi gh tariffs on imported vehicles were unchanged, 
substantial protection was maintain ed.  Subsequently, some component tariffs were raised in 2006/07 
(Table IV.2).  Tariffs were raised on vehicles in  2007/08 with the merger of the capital value tax 
(Chapter III(2)(iv)(a)).  Further rationalization, including lower and more uniform tariffs on motor 
vehicles and components could promote a more competitive industry.
59  The 2007/08 Budget 
announced the Five Year Pre-announced Tariff Progr amme for CBU and CKD imported vehicles, and 
a New Entrant Policy for cars and light commercial vehicles based on a three-year exemption from 
the Tariff Based System.60  The Engineering Development Board has also been mandated to develop a 
road freight strategy focusing on m odernization of the trucking sector.  
64. The bicycle industry, dominated by one domestic manufacturer, is struggling to compete with 
smuggled Chinese bicycles.  MFN tariffs were not re moved as planned by 2005, and were raised from 
30% to 35% in 2006/07 as part of a five-y ear plan to improve the industry’s viability.61  Allowing 
imports from India would reportedly threaten domestic producers.62  
(b) Cement 
65. Annual cement capacity has increased to 35 million tonnes, and demand has grown rapidly, 
fuelled by the expanding construction sector.  There are 21 listed cement manufacturers.  The state-owned State Cement Corporation, which accounted for about 40% of cement and 7% of clinker 
production, has been privatized.  The Government introduced several measures to curtail escalating 
cement prices during early 2006, including a fre ight subsidy of PRs 60 per bag on imports in 
April 2006, and allowing concessionary duty-free im ports.  An MFN tariff of 20% on certain cement  
is based on a world price of US$450 per tonne.
63  A moratorium on cement exports was also applied 
                                                      
58 CBR (2005a). 
59 World Bank (2006b), pp. 129-130. 
60 Ministry of Finance (2007a), p. 42. 
61 SMEDA (2007), p. 3. 
62 SMEDA (2007), p. 3. 
63 BOI (2007), p. 5. Pakistan WT/TPR/S/193 
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during most of April 2006;  exports are now unrestrict ed and expected to rise.   Domestic production is 
claimed to be cartelized.64  
(c) Other 
66. Deletion programmes on the assembly and manufac ture of engineering and electrical goods 
were removed by end 2003.  They have been repl aced with the TBS, which generally provides for 
lower tariffs on imported CKD kits so as to encour age local assembly.  Indigenization of manufacture 
of domestic appliances is  some 75-100% and 80-100%  for electrical capital goods.  The EDB 
encourages the local assembly of machine tools.  The electronics industry mainly repairs and 
assembles CKD kits.  An Emerging Electronic Produc ts Assembly Scheme (EEPAS) introduced in 
2003 suspended indigenization of certain products for five years and allowed imported CKD kits at a 
5% tariff.65  
(5) SERVICES  
67. The share of services in GDP (including elect ricity, gas, and water) has changed little during 
the review period, and was 57.4% in 2006/07 (Table I. 2).  Its share in total employment fell slightly 
from around 44.0% to 42.6% in 2005/06.  Wholesale and retail trade, and transport, storage, and 
communications have remained by far the leading service activities.  Pakistan generally incurs a 
substantial deficit on services trade, mainly due to negative receipts on transportation (freight), travel 
(personal), business services, construc tion, and insurance (Chapter I).  
68. Pakistan's GATS Schedule of Specific Commitme nts covers 47 activities within the financial 
(banking and insurance), business, communicati ons, construction/engineering, health, and 
tourism/travel services.66  Certain general (i.e. horizontal) market-access and national-treatment 
limitations relate to commercial presence or the presence of natural persons (e.g. presence of foreign 
executives/specialists, expenses of representative office,  authorization for acquisition of real estate by 
foreign firms).  Cross-border supply of services is unbound for all sectors.  Commercial presence in 
certain sectors (e.g. insurance, banking) is subject to equity limits and/or other specific conditions.  
Pakistan withdrew exclusive rights of the Pakistan Telecommunication Company Limited (PTCL) in 
advance of its commitment to do so by end 2003.  It listed MFN exemptions in financial services to 
preserve reciprocity requirements, Islamic financ ing transactions, and joint ventures among Economic 
Cooperation Organization countries (Chapter II),  as well as in telecommunications, favouring 
countries/operators with bilateral ag reements with PTCL on accounting rates.67  Pakistan did not 
participate in the WTO negotiations on maritime tran sport services.  Its initial services offer under the 
current Doha Round of multila teral negotiations was subm itted in May 2005 and covered 
65 activities, improving substantially according to  the authorities, on Uruguay Round commitments.68  
Pakistan has not submitted a revised offer. 
                                                      
64 Attempts by the Monopoly Control Authority to bust the cartel in 1998 were unsuccessful due to 
weak enforcement and political pres sures;  attempts in 2003 also failed (CBR, 2003a, pp. 28-29). 
65 Products covered were TVs, cellular mobile phones, laser video disc players, DVD players, 
electronic calculators, compact disc pl ayers, stereo car cassette players, hi-tech systems, pocket-size cassette 
players and CD players, radios, microwave ove ns, and caller-line identification apparatus.  
66 WTO (2002), pp. 101-102. 
67 WTO documents GATS/EL/67, 15 April 1994, GATS/EL/67/Suppl.1, 11 April 1997, and 
GATS/EL/67/Suppl.2, 26 February 1998. 
68 WTO document TN/S/O/PAK, 30 May 2005. WT/TPR/S/193 Trade Policy Review 
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(i) Financial services 
69. Reforms since the last Review have improve d efficiency and contributed to economic 
performance.  They seem essential for Pakistan's successful economic restructuring and long-term 
development, since an efficient financial sector a llocates savings into more productive investments.  
The banking sector has been restructured and transformed from a predominantly weak, state-owned 
system to a sound, market-based one reliant on pr ivate ownership.  Pakistan is a moderately 
intermediated economy, and requir es further financial deepening.69   
(a) Banking 
70. Pakistan has continued to deregulate banking;  privatize state-owned banks;  strengthen the 
prudential supervisory and regulatory functions of the State Bank of Pakistan (SBP), including its 
independence;  promote bank re-str ucturing and consolidation;  improve transparency;  and enhance 
corporate governance.  Currently, there are 37 commercial banks (4 majority state-owned, 
26 domestic, and 7 fully foreign owned) and 4 specialized banks.70  Major divestments of state banks 
have occurred since the last Review, and further sal es are planned of shares in Habib Bank, of 10% 
equity in United Bank, and of the Nationa l Bank’s remaining state equity in 2007.71  At end 2006, 
majority state-owned banks had 21% of total de posits (22% of total banking assets), and domestic, 
majority private-owned banks 74% (5% held by foreign banks).   
71. Bank financial soundness and profita bility have increased.  The market share (assets) of the 
largest five banks had fallen from over 60% to  around 52% in December 2006, albeit still highly 
concentrated.72  Net (after allowances) bank non-performi ng loans (NPLs), concentrated in state-
owned banks, remained on average a bove 10% of total loans until 2006, but have fallen to under 1.6% 
(end-December 2006).  Bank interest rate spreads,  a measure of competitiveness and efficiency, 
declined from just over 5 percentage points in 2001 to 3.5 percentage points in 2004, but jumped to 
5.2 percentage points in 2006.73 
Prudential supervision  
72. The SBP retains prudential supervision and licensing of commercial banks, development 
financial institutions, and microfinance banks.  Its su pervisory capacity has been enhanced broadly in 
line with the Basel Core Principles for Effective Banking Supervision.74  Compliance was seemingly 
increased by the adoption of country risk guidelines and capital charges for market risk in late 2004, 
and correcting for risk-weighting misclassifications in 2003.75  This is, reportedly, less than full 
compliance in the legal provisions regarding the regulator’s independence, and arrangements for 
                                                      
69 IMF (2005a), p. 33. 
70 The majority state-owned commercial banks are the National Bank of Pakistan, First Women Bank 
Ltd, the Bank of Khyber, and the Bank of Punjab.  The four specialized banks, also  state-owned, are the Zarai 
Taraqiyati Bank Ltd (formerly Agriculture Development Bank), the loss-making Industrial Development Bank, 
the Punjab Provincial Co-operative Bank, and the SME Bank, which gained a banking licence in 2005.   
71 United Bank Ltd is 55.2% private-owned following divestment of 51% equity overseas in 
October 2002 and a further 4.2% in August 2005;  51% equity of Habid Bank was sold in December 2003;  30% 
of Bank Alfalah overseas in December 2002; the larg est bank (some 20% market share), National Bank of 
Pakistan, was partially divested (23.2% equity) in two sales in November 2002 and November 2003;  the 
Muslim Commercial Bank was fully privatized in October 2002  with the final sale of state equity of 18.6%;  and 
the remaining 49% state equity in Allied Bank was sold in August 2004. 
72 IMF (2006b), p. 49. 
73 SBP (2006e), p. 54. 
74 IMF (2005b), p. 4. 
75 IMF (2005a), p. 42. Pakistan WT/TPR/S/193 
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consolidated supervision.76  However, according to the authorities the inspection of overseas branches 
of Pakistani banks has strengthened consolidation supervision.  The SBP issued a road map for 
implementing Basel II (the new ca pital adequacy framework) in Marc h 2005, and detailed instructions 
on implementation in June 2006;  full implementati on is planned from 2008.  To further strengthen 
risk-focused supervision, an Institutional Risk A ssessment Framework (IRAF) has been developed. 
73. The SBP has issued prudential regulations77, adopted methods for on and off-site supervision 
and can enforce a range of remedi al measures, including controlling bank risks.  The average capital 
adequacy ratio for banks was 12.7% as at Dece mber 2006, when three banks were below the 
minimum 8% limit.  Bank minimum paid-up cap ital levels were raised from PRs 1 billion to 
PRs 1.5 billion from end 2004, to PRs 2 billion by end 2005, to PRs 3 billion at end 2006, and are 
progressively to rise to PRs 6 billion by end 2009;  nine had not achieved the minimum PRs 3.0 billion level at mid 2007.
78  The SBP issued a Handbook of Corporate Governance 
prescribing detailed corporate governance standard s for bank management, and has prepared a 
Problem Bank Manual that sets out progressive reme dial actions to be taken by problem banks, 
ranging from signing an MOU with the SBP to liquida tion.  The SBP regulates Islamic banks and has 
issued prudential regulations based on Sharia principles.  The Banking Laws Review Commission, 
formed to modernize financial sector legisl ation, issued a draft new Banking Act in 2006.79 
Foreign banks 
74. Foreign branches and wholly foreign-owned loca lly incorporated subsidiaries are permitted, 
provided that the foreign bank's home country belong s to a regional grouping in which Pakistan is a 
member and/or it has global tier 1 minimum paid- up capital of US$5 billion.  Otherwise, foreign 
banks may operate only as a locally incorporated subsidiary, with foreign equity capped at 49%.  
Pakistan permits MFN exemptions in financial ser vices.  Existing foreign banks as well as those 
formed under the above criteria are allowed to open up to 100 branches as per Branch Expansion 
Plans submitted and approved by the SBP.   Commercial banks with over 100 branches must open 
20% of their branches in regional centres where no bank branch exists.   
(b) Capital market 
75. The capital market, consisting mainly of th e stock exchanges (Karachi, Lahore, and 
Islamabad) and an increasing numbe r of non-bank financial intermediari es (NBFIs), is supervised by 
the Securities and Exchange Commission of Pakistan  (SECP);  NBFIs were supervised by the SBP 
before 2003.  The SECP administers the core supe rvisory functions relating to the capital market, 
corporate and financial (non-banking) sectors, and can  amend or implement new rules or regulations, 
with the approval of the Ministry of Finance.   Prudential supervision has been strengthened since 
2001/02 with the introduction of various rules and re gulations to enhance the regulatory framework.  
A new Securities Act has been drafted to address several shortcomings in the Securities and Exchange Ordinance, 1969, and to ensure adoption of internati onal best practices and standards.  The SECP also 
updated and unified prudential regulations for al l NBFIs (NBFI (Establishment and Regulation) 
Rules, 2003).  It also issued a Code of Corpor ate Governance in March 2002 to improve disclosure 
                                                     
 
76 The SBP assessed in 2005 that Pakistan met "mos t" of the Core principles  (SBP, 2006e, p. 31). 
77 SBP issued separate updated prudential regulations in 2003 on corporate/commercial banking, SME 
Financing, and consumer financing, for compliance by 2004.  Separate prudential regulations for agricultural 
financing were issued in October 2005. 
78 Foreign bank branches whose head offices hold a minimum paid-up capital of US$100 million (net 
of losses) and a capital adequacy ratio of at least 9% can continue to maintain a minimum capital level of 
PRs 2.0 billion (net of losses). 
79 SBP (2006e), p. 32. WT/TPR/S/193 Trade Policy Review 
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and financial reporting broadly in line with OECD principles.80  Independence of company auditors 
has been enhanced, and they are to be changed or ro tated every five years.  Pakistan has adopted all 
but one International Accounting Standards and, according to the authorities, is very close to 
compliance with the International Financial Reporti ng Standards (IFRS).  Its accounting and auditing 
standards are generally high.81 
76. Minimum capital levels are specified for different types of NBFI.82  The minimum capital 
requirement of brokers has been raised from PRs 250,000 to PRs 2.5 million, and capital adequacy 
ratios lifted to 25 times the firm’s equity.83  Mutual funds are limited to investing US$15 million 
overseas.84  Demutualization of the stock exchanges is  progressing and a draft Demutualization Act is 
awaiting government approval.  The National Commodi ty Exchange Limited has been launched.  The 
SECP has proposed draft legislation for private pe nsion schemes and issued the Voluntary Pension 
System Rules in 2005.  It has also prepared a dr aft regulatory framework governing private equity and 
venture capital funds.  
77. The SBP created an Anti-Money-Laundering Unit in January 2003, revised "know your 
customer" guidelines in March 2003, and issued prudential anti-money-lau ndering regulations in 
June 2004;  these regulations were  strengthened in July 2006. 
(c) Insurance 
78. The underdeveloped insurance market has grown su bstantially in recent years, averaging 25% 
annually.85  Total premiums in 2006 were PRs 57.2 b illion (60% from life assurance).  There are 
58 private insurance companies (including one regist ered Takaful insurer), two of which are foreign 
(June 2007)86;  52, including 2 foreign firms, provide non-life insurance and 4 provide life 
assurance.87  Two are fully state-owned companies:  State Life Insurance Corporation (SLIC), and 
National Insurance Company Limited (NICL), wh ich has a monopoly on insurance of all public-
sector-owned properties and interests, including by  statutory corporations, and does not engage in 
insuring private assets.  The 51% state-owned Pakistan Reinsurance Company Limited (PRCL) 
provides reinsurance.  NICL and PRCL are to be privatized.  Life assurance is dominated by SLIC, 
which has about 70% of the market (down from 87% in 2001).  Over 86% of the non-life insurance 
market is held by private domestic companies (fore ign firms have about 4%);  the top eleven firms 
(including NICL) had over 85% market share in 2006 (top five 73%).  Insurance premiums are market 
determined.  "Bancassurance" (banks collaborating with  insurers to distribute insurance to customers) 
is permitted.  Operating efficiency of in surance companies has improved since 2001/02.88   
                                                      
80 IMF (2005b), p. 9. 
81 IMF (2005b), p. 10. 
82 These are investment finance services (PRs 300 million), leasing (PRs 200 million), venture capital 
investment (PRs 5 million), discounting services (P Rs 200 million), investment advisory and management 
services (PRs 30 million), and housing finance services (PRs 100 million). 
83 Ministry of Industries, Production and Special Initiatives (2005), p. 29. 
84 Ministry of Finance (2006), p. 111. 
85 Density levels (gross premiums per capita) of 4% and penetration levels (gross premiums as a per 
cent of GDP) of 0.7% were still low in 2004 (SBP, 2006e , p. 105).  The penetration rate  was 0.75% in 2006, 
and is especially low in life insurance. 
86 Takaful is Islamic insurance.  Regulatory arrange ments were introduced in September 2005 based on 
the Islamic concepts of wakala (insurance risk) and modarba (investment) (Takaful Rules, 2005). 
87 The SECP has prevented six firms from taking on new business since 2003 due to inadequate capital.   
88 SBP (2006e), p. 113. Pakistan WT/TPR/S/193 
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Prudential regulation 
79. The SECP as apex regulator prudentially supe rvises and monitors the insurance industry 
(Insurance Ordinance, 2000, Insurance Rules, 2002,  and SEC (Insurance) Rules, 2002).  However, 
there remains some confusion between its resp ective regulatory responsibilities and those of the 
Ministry of Commerce;  they bo th issue rules and SECP cannot revoke licences without consulting the 
Ministry.89  Composite insurance (firms offering both lif e and non-life insurance) is prohibited.  
Licensing/registration requirements are the same for foreign and domestic insurers.  Minimum capital requirements have recently been raised from PR s 150 million to PRs 500 million for life assurance 
and from PRs 80 million to PRs 300 million for non- life insurance;  existing insurance companies 
must phase in these higher levels by 2010 and 2011, respectively.   All insurers must maintain a 
statutory deposit of 10% of paid-up capital (or if higher PRs 10 million), or such other amount set by the SECP, with the SBP either in cash or approved secu rities.  Certain types of insurance are restricted 
and require separate approval.
90  Minimum solvency requirement for non-life insurers is 
PRs 50 million.  Chairman, chief executives, direct ors, and key staff must meet "fit and proper" 
criteria (Insurance Ordinance, 2000).  An Insu rance Ombudsman’s Office investigates alleged 
mismanagement of insurance firms and redresses grie vances, and an Insurance Tribunal with civil and 
criminal jurisdiction, and a Small Dispute Resolu tion Committee have been established.  Despite 
these regulatory gains, including developing off-site in spection of insurers, more in-depth surveillance 
is needed, such as on-site inspecti on and enhancing co nsumer protection.91   
80. The Ministry of Commerce reviewed the sector in early 2007 and a number of proposals 
designed to encourage insurance penetration were adopted, including on a number of fiscal incentives, 
especially for life insurance (e.g. income tax de ductibility of premiums a nd requiring payments of 
pensions from approved pension sch emes to be made through life assurance companies), to remove 
certain taxation anomalies, and to  develop a framework requiring all insurers to write a certain 
proportion of their business in rural areas as well as amongst the socially deprived.92  Legislation in 
2007 (Finance Act) increased the SECP’s supervis ory powers, including by allowing on-site 
inspections, including rights of entry to company pr emises to search and seize relevant records and 
documents.  Revised Takaful rules were promulgate d in September 2005; it is proposed to include 
Postal Life under the SECP’s regulatory net.  SLIC is  to be converted to a company as a pre-requisite 
for eventual partial privatization;  its Alpha Insura nce Company is to be privatized.  Public property 
insurance is to be opened by removing NICL’s monopoly, subject to a minimum of PRs 500 million 
(NICL’s current retention) of the risk remaining within Pakistan, to prevent excessive outflow of 
reinsurance. 
Foreign operations 
81. Foreign life and non-life insurance firms must be  locally incorporated (after promulgation of 
the Ordinance any new branches are prohibited);  fu lly foreign-owned firms are permitted following 
removal of the 51% foreign equity cap in September 2006.  Foreign companies must bring in 
minimum foreign exchange of US$4 million in equity towards minimum capital requirements;  the balance may be raised locally.  Residents are generally prohibited from insuring with overseas 
companies (Insurance Rules, August 2002). 
                                                     
 
89 IMF (2005b), p. 11;  SBP (2006e), p. 38. 
90 These include accident and health business for life assurance;  and motor, third-party compulsory 
insurance, and workers’ compensation for non-life insurance (Insurance Rules, August 2002). 
91 SBP (2006e), pp. 115 and 119. 
92 Press Release, April 2007.  Viewed at: h ttp://www.commerce.gov.pk /read.asp?newsID=208. WT/TPR/S/193 Trade Policy Review 
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82. Reinsurance overseas is generally prohibited (Insurance Rules, 2002), and SEPC’s permission 
is mandatory for "facultative" reinsurance placed ab road.  Only PRCL offers  these services;  granting 
such licences to private domestic and foreign re-insurers would reportedly help develop re-
insurance.93  Under an Asian Development Bank progra mme, protection for PRCL on reinsurance is 
gradually being phased out.  A compulsory quota share regime (originally 30%) from local non-life 
insurance companies has been  fully phased out (as of 2005).  In a ddition, PRCL’s right to be granted 
first refusal of 35% of reinsurance treaties of priv ate insurers, representing 32% of total premiums in 
2006 (23% in 2004), was to be phased out by 2010.94  However, removing the compulsory cession in 
2005 reduced PRCLs gross premiums by 20% and its ma rket share from 25% in 2004 to 16% in 2005;  
it was decided to reinstate this right of first refusal  of 35% of reinsurance treaties so as limit outflow 
of reinsurance premiums, and to raise its capital base.95 
83. Minimum paid-up capital is set at PRs 10 million (US$0.2 million) for local registered 
insurance brokers or US$0.3 million for foreign brokers ;  in addition, cash or approved securities of at 
least PRs 0.5 million must be deposited w ith a bank (Insurance Rules, August 2002). 
(ii) Communications 
(a) Telecommunications 
84. Ongoing sectoral reforms in telecommunications, which was declared a priority sector in 
2004, have increased competition and contributed to its growth; they also raised private participation, 
and improved access to better quality services at reduced prices.96  The authorities indicate that since 
2001, telephone connection ch arges have fallen by 86% in rural areas and by 80% in cities;  domestic 
and international call charges have fallen by some  90%.  Total teledensity rose from 3.7% in 2001/02 
to 43.5% in May 2007, due mainly to mobile services, which rose over the same period from 1.2% to 39.2%.  However, rural teledensity remain s very low (including mobile services).  
Telecommunications accounted for 2.0% of GDP in 2005/06 (up from 1% in 2001/02) and has been a 
major destination for foreign direct investment (US$1.8 billion from 2003/04 to March 2006).  The 
Ministry of Information Technology formulates and implements policy, while the statutory 
independent Pakistan Telecommunication Authority (PTA) regulates the sector.  Its powers and 
functions were revised in 2006 (Pakistan Telecommunication Aut hority (Functions and Powers) 
Regulations, July 2006). 
85. The fixed-line monopoly held by the state-owned Pakistan Telecommunication Company 
Limited (PTCL) on local, long-distance and in ternational services was terminated from 2003 
(Deregulation Policy for the Telecommunications Sector, 13 July 2003, Pakistan Telecommunication 
Rules, 2000).
97  The policy aims to liberalize the sector by encouraging "fair" competition and 
                                                      
93 SBP (2006e), pp. 115 and 118. 
94 PRCL (2007).  The mandatory requirement that domestic non-life insurers reinsure a certain 
proportion (5% of thei r portfolio) with PRCL ceased  in 2004, and they can now  reinsure with foreign 
companies;  life insurance companies have always been able to reinsure with foreign companies (SBP, 2006e, 
pp. 115 and 117).  Consequently, PRCL’s premiums from compulsory cession were zero in 2006 (32% of gross 
premiums in 2004) while its share of premiums from "f acultative" reinsurance has risen from 45% to 65% over 
the same period. 
95 Ministry of Commerce, Press release, April 2007.  Viewed at:  ht tp://www.commerce.gov.pk/ 
reak.asp?newsIK=208. 
96 Ministry of Finance (2006), p. 209. 
97 Small fixed line networks are also run by the state-owned National Telecommunications Corporation 
(NTC) to meet government and defence force requirements, and the Special Communications Organization to provide facilities (including mobile) in the Azad Jammu,  Kasmir, and Northern areas.  Following damage to its Pakistan WT/TPR/S/193 
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maintaining an effective international best practic e regulatory regime.  PTCL, originally 88% state 
owned, had a further 26% equity divested overseas in July 2005 (current state equity 62%);  there are 
no further divestment plans.  Many companies now  compete with PTCL in providing fixed-line long-
distance and international services (LDI licences) and local calls (local loop or LL licences) using 
PTCL’s network.  There are six mobile carriers following auctioning of two new licenses (Telenor 
and Warid) in July 2004;  the market leader Mobilink had 44% of the market in March 2007 (down 
from 64% in 2003/04), and Ufone (PTCL) 21%.98   
86. Liberal rules govern foreign investment in telecommunications;  100% foreign equity is 
allowed in all telecommunication services, including the liberalized basic telephony services.  There 
are no joint-venture requirements or foreign-equity caps.  The minimum foreign equity investment in 
services, which was reduced from US$0.5 million to US$0.3 million in 2000 and further lowered to 
US$0.15 million in 2004, was removed from telecommunications in 2004. 
87. A number of developments have occurred in ke y regulatory areas, during the review period. 
Licensing 
88. Pakistan has a simplified class licensing syst em.  Initially the number of fixed line licences 
(LL and LDI) was open and unlimited, subject to  meeting the PTAs licensing requirements, but 
currently there is a seven year "watch" period on i ssuing new licences, including for cellular services.  
While the PTA will not normally consider licen ce applications unless first releasing a public 
invitation, expressions of interest can be lodged at  any time.  Criteria for issuing a licence include 
economic viability, Pakistani owners hip, and contribution to universal  service goals and other social 
or economic development objectives.  Companies mu st register with SEPC.  Carriers can hold both 
LL and LDI licences, and PTCL guarantees licensees co-location rights (PTCL Framework for Co-Location Agreements).  LDI licensees must build at  least one point of interconnection in five of 
PTCL’s regions within one year and in all fourteen  regions within three years, and own initially at 
least 10% of its network (rising to 30% and 50% in  the following two years, respectively), or have 
negotiated a five-year infrastructure lease with PTCL.  A performance bond of US$10 million is 
required.  LL licensees must operate one point of  interconnection in each PTCL region they operate 
within a prescribed time.  Carriers (including m obile operators) pay an annual fee to the PTA not 
exceeding 0.5% of the previous year’s gross reve nue, less inter-operator and related PTA payments, 
contribute 1.5% to the Universal Service Fund, and pay 1% (0.5% for mobile operators) to the 
Research and Development Fund. 
89. LL carriers receive a portion of the premium ea rned on net international incoming calls by 
LDI carriers from bilaterally agreed settlement ra tes that exceed termination costs, to expand 
infrastructure (called the Access Promotion Contribution or APC)  (Access Promotion Regulations, 
September 2005 and Access Promotion Rules, 2004).  The APC is administered by the PTA, which regulates and approves international traffic agreem ents negotiated jointly by PTCL and other LDI 
licensees with foreign carriers;  a common settlement rate must be negotiated for all LDI licensees 
("one-country-one-rate principle").  The APC was set initially at the settlement rate less up to 
US$0.06 per minute for retention by the LDI carrier;  the APC is currently set at US$0.025 per minute 
compared with an international settlement rate of US$0.075 per minute.  Disputes are to be resolved 
                                                                                                                                                                    
 
mobile facilities in the October 2005 earthquake, four othe r carriers were licensed to provide competing services 
in these areas, thereby ending SCO’s monopoly (Ministry of Finance, 2006, p. 209). 
98 Mobilink is a joint venture between Orascom Tel ecom Egypt (80%) and Safe Telecom of Pakistan;  
Paktel between Millicom International Cellular (98%) a nd Hasan Associates (Pvt.) Ltd.;  Instaphone (Pakcom) 
between Millicom International Cellular S.A. (68%) and Afreen Internationa l (32%);  and Ufone is a wholly-
owned subsidiary of PTCL.  Telenor and Warid are wholly owned by Norway and the UAE, respectively. WT/TPR/S/193 Trade Policy Review 
Page 106 
 
 
by the PTA under the interconnection dispute settleme nt procedures.  Cellular operators are excluded 
from APC (any premium goes to the Universal Service Fund). 
90. The Frequency Allocation Board (FAB) manages the radio spectrum, which is allocated by 
auction to mobile and other users (Mobile Cellula r Policy, January, 2004).  Mobile operators must 
achieve coverage of at least 70%  of Tehsil headquarters in four years with a minimum 10% Tehsil 
coverage in all provinces.  Mobile number porta bility was launched in April 2007 (Mobile Number 
Portability Regulations, 2005).   
Universal Service (USF)  and Research Development (RDF) Funds 
91. The RDF and USF, established in November and December 2006 respectively, are 
administered by two independent companies and are controlled by the Ministry of Information 
Technology (Pakistan Telecommunication (Amendme nt) Ordinance, August 2005, Universal Service 
Fund Policy, 2005, and Research and Development Policy, September 2006).99  The PTA has no 
particular role in their administration.    
92. The USF is used solely to provide access to telecommunications services in remote and un-
served (or under-served) rural areas;  it is to be  funded mainly by prescribed licensee contributions.100 
Its goals are to achieve by 2010 access of 85% (95% by 2015) of the population to desired services, 
total rural teledensity of 5%, and at least one telecentre for every 10,000 people (Universal Service 
Fund Policy, 2005).  Provision of USF services is to be auctioned among licensed operators, and 
awarded to the firm bidding (requiring) the lo west subsidy, who will be allowed to earn a 
"reasonable" return.  The RDF, funded mainly by  prescribed licensee contributions, finances research 
and development in priority areas of informati on and communications technology e.g. market and 
product development (The Research a nd Development Fund Rules, 2006).  
Interconnection 
93. Interconnection to the domestic network is gua ranteed so as to promote "fair" competition 
between incumbents and new operators (PTA Inte rconnection Guidelines, 2004).   Interconnection 
terms are to be public (unless determined confid ential by the PTA); charges "cost-based"; not 
"unfairly" discriminatory between new entrants; and should encourage "efficient and sustainable 
competition".  Operators with significant market power  (SMP) must submit to the PTA their reference 
interconnect offer (RIO) within one  month of gaining such status, which becomes public;  PTCL, the 
only fixed-line SMP submitted its RIO in Octobe r 2003 (approved in May 2005).  The mobile SMP 
carrier, Mobilink’s RIO, was approved in July 2006.   Interconnection parties may adopt the RIO as 
the default interconnection offer or negotiate a lternative charges;  interconnection disputes are 
referred to the PTA for resolution (Interconnection Dispute Resolution Regulations, September 2004).  
The PTA must approve interconnection agreemen ts, including proposed charges, which should 
"reflect underlying costs" and be set on objective tran sparent criteria;  they should not include hidden, 
particularly anti-competitive, cross-subsidies.101  The longer term objective is to move interconnection 
charging to LRIC-based pricing.  In this resp ect, PTA is currently determining cost-based 
interconnection charges for fi xed and mobile networks. 
                                                      
99 The USF is administered by an independent state-owned company (Universal Service Fund 
Guarantee Ltd).  A state-owned co mpany implements the RDF.   
100 PTCL must meet universal service obligations until end 2008;  this includes installing a minimum of 
83,000 new lines annually in rural/unserved areas.   
101 Fixed costs should, where possible, be recovered through fixed charges and variable costs from per 
unit charges, and peak and off-peak charges set where costs differ significantly.  The network operator must prove to the PTA that charges are based on relevant costs, including a "reasonable" rate of return.   Pakistan WT/TPR/S/193 
 Page 107 
 
 
Tariff regulation 
94. PTA regulates prices of fixed line SMP operators  (currently only PTCL) (Fixed Line Tariff 
Regulations, July 2004).102  Prices of LL and LDI operators are set using a price-cap formula to 
control the overall weighted and individual prices of  the "basket" of services provided, based largely 
on consumer price index movements, annual set pr oductivity factors, and individual service caps.  
Operators can change prices within these restrictions  at any date and frequency, provided the PTA is 
informed 30 days in advance;  they may be reject ed or amended if considered anti-competitive.  The 
retail price caps for all mobile operators, irrespect ive of SMP operator status, were terminated in 
June 2005;  the PTA must approve all mobile opera tors' charges.  It sets maximum tariffs on leased 
lines of SMPs, based on cost.  While prices of non- SMP operators are unregulated, they must be 
notified to the PTA 30 days in advance;  the PTA can amend them if it considers them "unfair and 
burdensome". 
Anti-competitive rules 
95. No licensee, acting alone or collectively, may co mpete "unfairly" or drive competitors out of 
the market;  they must operate "fairly and hon estly" (Pakistan Telecommunication Rules, 2000 and 
PTA (Functions and Powers) Regulations, 2006).  SMP operators must not abuse their market 
dominance through anti-competitive conduct, and i ndividual licences prohibit such conduct.  The 
PTA is to investigate promptly all allegations of  anti-competitive conduct (e .g. predatory pricing, 
margin squeeze, withdrawal of es sential facilities, discrimination, and cross-subsidization) and to take 
remedial measures.  It may not issue exclusive licences and must promote "fair and sustainable" 
competition so as to provide consumers the best possible service in terms of quality, choice, and value 
for money.  The PTA is to protect consumers intere sts (subject to national interest and security), and 
is responsible for approving telecom mergers.  The PTA’s  frameworks for mergers/acquisitions and 
for prohibition of anti-competition conduct are being prepared, and it is in the process of announcing 
anti-competitive regulations. 
Equipment standards 
96. The PTA accepts international telecom equipm ent standards and applies them equally to 
domestic and imported products.  Ty pe approval is required for specified equipment, and tests 
conducted by internationally accredited laborator ies are accepted (Type Approval Regulations, 
September 2004).  The PTA may require re-testing, but  this has never happened.  Self-certified test 
results are unacceptable. 
(b) Broadcasting and audiovisual 
97. The sector regulator, the Pakistan Electronic Media Regulatory Author ity (PEMRA), formed 
in 2002, licenses radio and television operators; PEM RA aims to promote competition.  The national 
state-owned Pakistan Broadcasting Corporation (P BC) and Pakistan Television Corporation Limited 
(PTV with four channels) are outside PEMRA’s author ity and are supervised directly by the Ministry 
of Information Broadcasting.  PEMRA has license d (as at end-June 2007) 105 FM stations in 
74 cities, 24 satellite television stations and landing rights for 36 operators from abroad, and 
1,765 cable television stations (the  fastest growing media segment);  the penetration rate of cable TV 
is 4.3%.  It also initiated bidding to award two te leport earth station licenses in Islamabad, Karachi, 
and Lahore in 2006.  There are no plans to privatize PBC or PVT.  A licensees must be a citizen or resident of Pakistan, or a locally incorporat ed minority foreign-owned or -managed company.    
                                                     
 
102 SMP is generally where the operator has more th an a 25% market share in a particular telecom 
market.  However, the PTA may determine otherwise in li ght of the operator’s ability to alter market conditions. WT/TPR/S/193 Trade Policy Review 
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(iii) Transport 
98. Efforts have continued during the review period to reform transport policies to improve the 
sector’s efficiency.  An integrated transport policy has been drafted.  Long distances from the sea to 
markets and production centres as well as inadequate  infrastructure compound the industry’s cost 
disadvantages.  Of key significance in road and rail transport is the Indus Trade Corridor, running 
northwards from the Arabian Sea, which provid es the gateway to central Asian economies and 
Afghanistan.  It covers 80% of Pa kistan’s urban population and the area contributes to some 85% of 
GDP;  some 45 million tonnes of external cargo and 500 million tonnes of internal freight passes through the corridor annually.  Poor transport perform ance is estimated to co st the economy 4-6% of 
GDP a year, and annual investment of almost 1% of GDP over the next 5-7 years is needed to 
modernize the transport and logistic sector.
103  Road transportation accounts for 89% of passengers 
and 94% of freight;  the remainder is carried by the highly inefficient and loss-making state-owned 
Pakistan Railways, which carries mainly public sect or freight and has certain monopolies over transit 
trade.  The Government has launched a national trade corridor initiative, aimed at revamping the 
whole transport sector, including ports, roads, railways and aviation.  
(a) Shipping 
99. A third international port, at Gwadar, was ina ugurated in March 2007.  Congestion at Karachi 
Port, which handles 75% of national sea freight, and Qasim Port increases waiting times and inflates 
shipping and trade costs.  At Karachi port, for ex ample, long dwell times, internationally high port 
entry charges (especially the high "wet" relative to "d ry" charges), and the inefficient and costly work 
practices of the Dock Labour Boar d are major drags on competitiveness.104  Efforts have been made to 
significantly reduce "wet" charges and are under way to  "retrench" the Board.   Ports remain state-
owned and mostly state-run.  However, the Kara chi Port Trust and Qasim Port Authority were 
converted to landlord status, whereby private fi rms are offered concessions on a BOT (build-own-
transfer) or public/private joint venture basis to cons truct and operate terminals.  All port terminals at 
Karachi and Qasim Ports are run by international contractors and face competition from the terminal 
at Port Qasim operated by P&O Ports.  Gwa dar Port signed a 40-year concession with the 
international PSAI-AKD Group as port operator in Fe bruary 2007.  All services can be outsourced 
without restrictions on foreign investment, and furthe r privatization is planned.  Certain port services, 
including pilot and tug services, are reserved for the public sector. 
100. Maritime transport remains dominated by forei gn ships, and, according to the authorities, no 
foreign investment restrictions apply to shippi ng companies operating in Pakistan.  Cabotage is 
prohibited.  The national fleet of 15 vessels, run by the state-owned Pakistan National Shipping 
Corporation (PNSC), is inadequate, despite th e 2001 policy target to increase the share of cargo 
carried by Pakistan flagged vessels from 5% to 40% (currently 23%).  PN SC (and its subsidiary 
National Tanker Company) still has a monopoly (first ri ght of refusal) in transporting government or 
public-sector cargo and crude oil/petroleum products  imported by three oil refineries.  Ships  
(including floating craft, tugs, dredgers, survey v essels) bought or chartered by a Pakistani entity and 
flying the country’s flag are exempt from import duties and surcharges until 2020 provided they are 
not demolished within five years.  No restricti ons apply to foreign carriers operating from or into 
Pakistani ports.  Pakistani flagged vessels have been able to transport cargo from Indian ports or third-
country cargoes destined for India since December  2006 when maritime transport between the two 
countries was liberalized on a non-discriminatory  basis (Protocol on Shipping Services Between 
Pakistan and India, 14 December 2006).  The stat e-owned Karachi Shipyard and Engineering Works 
Ltd. constructs and repairs ships. 
                                                      
103 World Bank (2005b). 
104 Ministry of Industries, Production and Special Initiatives (2005), p. 98. Pakistan WT/TPR/S/193 
 Page 109 
 
 
(b) Air transportation 
101. The Civil Aviation Authority (CAA) is the ec onomic regulator responsible for licensing air 
service suppliers and maintaining safety;  it also s upervises airfares, to contain predatory pricing and 
"unfair" competition.  The Market Clean-up Bo ard (with representatives from the state-owned 
Pakistan International Airways (PIA) and private ai rlines) "reviews" international and domestic air 
fares filed by national a nd international airlines.105  Domestic fares are deregulated (subject to filing 
requirements).  A further 5.8% equity in PIA w as divested locally in July 2004, reducing state 
ownership to 84.2%.  It remains the dominan t domestic operator, accounting for 72% each of 
passenger and cargo traffic in 2004/05.  Shaheen Air International is Pakistan’s second public national 
carrier.  They compete domestically with three private operators (Aero Asia, Royal Airlines, and 
Airblue).  Aero Asia and Shaheen  Air International, along with 26 other international carriers, 
compete on overseas routes with PIA, which carried 25% each of international passenger and cargo traffic in 2004/05.  Domestic carriers (passenge r and freight) must be controlled by Pakistani 
investors;  foreign equity is capped at 49%.  Domestic carriers must also operate a minimum of two trunk routes (one of which must be Peshawar, Quet ta, Multan or Faislabad), and serve a minimum of 
two weekly services on a defined socio-economic or tertiary route, or pay a monthly royalty of 
PRs 500,000 to PIA.  Cabotage (cargo and passengers) is prohibited.  Government subsidies apply to 
certain of PIA’s loss-making socio-economic routes.
106  
102. Pakistan continues to allocate international r outes according to bilateral "open skies" policy 
based on reciprocity of "5th  freedom" air landing rights107;  selective concessions may be made to 
quality airlines.  It has conclude d 94 bilateral air services agreemen ts, but many are non-operative.  
Unused PIA entitlements may be re-allocated to pr ivate airlines, including on routes where it is 
designated the national carrier.  The CAA aims to maintain "fair and reasonable" competition for Pakistani carriers from foreign airlines.  No flight s servicing Pakistan (including overflying rights) 
with Israel are permitted, including  through third-countries.  Forei gners exercising Pakistan traffic 
rights to operate charter flights in or out of the country must charge fares no lower than ordinarily 
charged by a regular airline on the route (or on a co mparable route or distance if no such service).  
Pakistan pursues unilateral "open skies" policies and charter flights are unrestricted.  Passenger 
chartered flights, including by foreigners, are unrestricted on routes not adequately covered by 
scheduled airlines. 
103. There are 25 operational airports in Pakistan.  A new international airport is being built 
privately at Gwadar, on a BOO basis; there are current ly two private airports, at Sialkot (owned by the 
Chamber of Commerce) and Sui (owned by Pakist an Petroleum Company).  A new international 
terminal was completed at Lahore international air port in 2006, and a new terminal is being built at 
Islamabad International Airport.  Landing slots are allocated on a first-come first-served basis and are maintained historically.   Terminal and related services (landside services) are privately operated, but 
auxiliary flight services are still provided by state,  semi-private, or private operators.  Airline 
operators may handle their own ai rcraft ground services, or use PIA or ground handling agencies 
licensed by the CAA.  There are no restricti ons on foreign suppliers of such services.   
Roads 
104. Transit trade with Afghanistan and Iran is r estricted.  The Afghan Transit Trade Agreement 
restricts entry of Afghan trucks into Pakistan;  th ey may not move cargo directly from Karachi Port, 
                                                     
 
105 The authorities indicate that tariffs are "reviewed" in line with market forces to establish a minimum 
baseline fare.  
106 World Bank (2005a), p. 21. 
107 Carry rights from one's own country to a second country and from that country to a third country. WT/TPR/S/193 Trade Policy Review 
Page 110 
 
 
and Pakistani trucks must be used to tranship at the border unless the state-owned National Logistics 
Cell (NLC) is used.  Under a recently concluded bilateral agreement, the NLC has a monopoly on 
Afghan transit trade from Karachi to Kabul and Kandaha r.  Pakistan allows Af ghan trucks to transport 
certain Afghan exports to India via the Wagah borde r.  The Bilateral Transit Trade Agreement with 
Iran allows Pakistani trucks to carry goods to Zahi dan while Iranian trucks can  operate to Quetta.  A 
road transportation agreement between Pakistan, Iran,  and Turkey is not being implemented; this is 
restricting Pakistan-Turkey trade as Iran does not allo w Pakistani trucks to enter and prevents Turkish 
haulers from transiting to Pakistan.  Pakistan is negotiating revised agreements with Afghanistan and 
Iran aimed at allowing free movement of transit trade;  the agreement with Iran is awaiting 
ratification. 
105. Pakistan has signed a number of regional road transport agreements since its last Review.  
The 1995 Quadrilateral Agreement with China, Ky rgyzstan, and Kazakhstan was finally implemented 
in November 2004, and Implementation Rules were  issued in April 2005.  The Pak-Afghan Bus 
Service Agreement, signed in March 2005, allows  bus services between Peshawar and Jalabad, and 
Quetta and Kandahar.  In December 2005, Pakistan signed an agreement with India to allow limited 
bus services between Nankana and Amritsar;  cabotage is  excluded.  Pakistan’s operations to India are 
provided exclusively by the state-owned Pakistan Tourism Development Authority, which also has 
monopolies on other overland transit routes.108  In October 2005, Pakistan ratified ESCAP’s Inter-
Governmental Agreement on Asia n Highway Network designed to promote regional international 
road transport. 
(iv) Information technology and software development 
106. Pakistan has continued to promote developm ent of information technology and computer 
software, with particular export focus.  Developmen t has been assisted by sever al tax, financial, and 
regulatory incentives e.g., exemption from income  tax on software exports until end-June 2016, 
allowing 100% foreign equity, and promotion by the Pakistan Software Export Board, which plans to 
raise the industry’s size five-fold, to US$10 billion by end-2010, and increase exports in 2006/07 to 
US$108 million.  Pakistan’s goal is to increase broadband penetration nationally from current low 
levels of 0.1% to 1% by 2010;  internet penetr ation is only slightly hi gher at 0.2%, and personal 
computers at 1.85%.  Broadband growth has been restricted by high prices (60 times higher than Korea) and poor quality services;  current policy is to establish a broadband enabling environment (Broadband Policy, December 2004).  The number of  broadband subscribers and services provided is 
unrestricted, and PTA’s regulatory framework for value-added services was changed to a simplified 
class licensing system in October 2005;  almost 200 such licences have been issued.  CVAS licences 
are classified mainly as either data or voice type;  they have allowed more than 15 individual licence 
categories to be merged into these two categories.   VoIP services may be only provided by telecom 
operators (not ISPs). 
 
 
                                                     
 
108 World Bank (2005a), p. 17. Pakistan WT/TPR/S/193 
 Page 111 
 
 
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