RESTRICTED  WORLD  TRADE  
ORGANIZATION  WT/TPR/S/193 
10 December 2007  
 
(07-5393) 
Trade Policy Review Body  
   
 
  
 
TRADE POLICY REVIEW 
 
Report by the Secretariat 
 
PAKISTAN 
 
  
 
This report, prepared for the third Trad e Policy Review of Pakistan, has been 
drawn up by the WTO Secretariat on its own responsibility.  The Secretariat has, 
as required by the Agreement establishing the Trade Policy Review Mechanism 
(Annex 3 of the Marrakesh Agreement Establishing the World Trade 
Organization), sought clarification from Pakistan on its trade policies and 
practices. 
 
Any technical questions arising from this report may be addressed to 
Mr. Sergios Stamnas (tel.:  022 739 5382). 
 
Document WT/TPR/G/193 contains the policy statement submitted by Pakistan. 
 
 
 
Note: This report is subject to restricted ci rculation and press embargo until the end of the 
first session of the meeting of the Trade Policy Review Body on Pakistan. Pakistan WT/TPR/S/193 
 Page iii 
 
 
CONTENTS 
    Page 
SUMMARY OBSERVATIONS ix 
 (1) E CONOMIC ENVIRONMENT  ix 
 (2) T RADE POLICY FRAMEWORK  x 
 (3) T RADE POLICY DEVELOPMENTS  xi 
 (4) S ECTORAL POLICY DEVELOPMENTS  xiii 
 (5) O UTLOOK  xv 
I. ECONOMIC ENVIRONMENT 1 
 (1) I NTRODUCTION  1 
 (2) R ECENT ECONOMIC PERFORMANCE  2 
 (i) Growth, employment, and poverty 2 
 (ii) Inflation 5 
 (3) M AIN MACROECONOMIC POLICY DEVELOPMENTS  6 
 (i) Monetary and exchange rate policy 6 
 (ii) Fiscal policy 8 
 (4) M AIN STRUCTURAL POLICY DEVELOPMENTS  8 
 (i) Tax and expenditure reforms 9 
 (ii) Privatization 10 
 (iii) Governance 10 
 (iv) Financial sector and capital market reforms 11 
 (v) Labour market 11 
 (5) B ALANCE -OF-PAYMENTS DEVELOPMENTS  12 
 (i) Current and trade accounts 12 
 (ii) External debt 13 
 (6) D EVELOPMENTS IN MERCHANDISE TRADE  13 
 (i) Merchandise trade 13 
 (ii) Services trade 16 
 (7) T RENDS AND PATTERNS IN FOREIGN INVESTMENT  17 
 (8) O UTLOOK  18 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 19 
 (1) O VERVIEW  19 
 (2) G ENERAL CONSTITUTIONAL AND INSTITUTIONAL FRAMEWORK  19 
 (3) T RADE POLICY FORMULATION AND IMPLEMENTATION  20 
 (i) Objectives and strategies 20 
 (ii) Institutional and legal framework 21 
 (iii) Advisory bodies 22  (iv) Main trade laws and regulations 23 
 (4) T
RADE AGREEMENTS AND ARRANGEMENTS  24 
 (i) World Trade Organization 24 
 (ii) Regional and other preferential arrangements 26 WT/TPR/S/193 Trade Policy Review 
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    Page 
 (5) F OREIGN INVESTMENT REGIME  31 
 (i) Incentives 31 
 (ii) Bilateral investment treaties (B ITs) and double taxation agreements 32 
Annex II.1: Trade-related T echnical Assistance (TRTA) 34 
III. TRADE POLICIES AND PRACTICES BY MEASURE 36 
 (1) I NTRODUCTION  36 
 (2) M EASURES DIRECTLY AFFECTING IMPORTS  37 
 (i) Registration and documentation requirements 37 
 (ii) Tariffs 39 
 (iii) Customs valuation, minimum import prices and preshipment inspection 47 
 (iv) Other levies, charges and taxes 48 
 (v) Import prohibitions, quotas, restrictions, and licensing 49  (vi) State trading 52 
 (vii) Government procurement 52 
 (viii) Local-content requirements and indigenization programmes 53  (ix) Contingency measures 54 
 (x) Standards and other technical requirements 55 
 (3) M
EASURES DIRECTLY AFFECTING EXPORTS  58 
 (i) Registration, documentation, clear ance, inspection and minimum prices 58 
 (ii) Export duties and taxes 59 
 (iii) Export prohibitions, re strictions, and licensing 59 
 (iv) Export subsidies 60 
 (v) Duty and tax concessions 63 
 (vi) Export-processing zones 66  (vii) Export finance, guarantees, and insurance 66 
 (viii) Export promotion 67 
 (4) M
EASURES AFFECTING PRODUCTION AND TRADE  68 
 (i) Taxation 68 
 (ii) Production assistance 72 
 (iii) State-owned enterprises 75 
 (iv) Competition and consumer policy 77 
 (v) Intellectual property rights (IPR) 77 
IV. TRADE POLICIES BY SECTOR 80 
 (1) O VERVIEW  80 
 (2) A GRICULTURE , LIVESTOCK , FORESTRY , AND FISHERIES  81 
 (i) Features 81 
 (ii) Policy framework and developments 82 
 (iii) Main subsectors 86 
 (3) M INING AND ENERGY  89 
 (i) Mining 89 
 (ii) Energy 90 
 (4) M ANUFACTURING  94 
 (i) Policy developments 94 
 (ii) Food processing 95  (iii) Textiles and apparel 95 
 (iv) Engineering sector 96 Pakistan WT/TPR/S/193 
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    Page 
 
 (5) S ERVICES  99 
 (i) Financial services 100 
 (ii) Communications 104  (iii) Transport 108 
 (iv) Information technology and software development 110 
REFERENCES   111 APPENDIX TABLES  117 
 
  WT/TPR/S/193 Trade Policy Review 
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    Page 
CHARTS 
 
I. ECONOMIC ENVIRONMENT 
 I.1 Product composition of merchandise trade, 2001 and 2006 14 
I.2 Direction of merchandise trade, 2001 and 2006 15 
I.3 FDI inflows by sector and origin, 2006/07 18  
III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
III.1 Distribution of MFN tariff rates, 2001/02 and 2007/08 41 
III.2 Average applied MFN and bound tariff rates, by HS section, 2001/02 and 2007/08 42 III.3 Tariff escalation by 2-digit ISIC industry, 2001/02 and 2007/08 44 
 
IV. TRADE POLICIES BY SECTOR  
IV.1 Tariff averages by 2-digit ISIC category, 2001/02 and 2007/08 83 
  
TABLES 
 
 
I. ECONOMIC ENVIRONMENT 
 I.1 Selected macroeconomi c indicators, 2001-07 3
  
I.2 Basic economic and soci al indicators, 2001-07 4
  
I.3 Balance of payments, 2001-07 12 
I.4 Trade in services, 2001-07 16 
 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES  
II.1 Main ministries and agencies res ponsible for trade-related issues, 2007 22 
II.2 Main changes in trade-related legislation, 2001/02 to end-September 2007 24 II.3 WTO notifications, 2001 to end-September 2007 25 
II.4 Investment incentives, 2007 32 
 III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
III.1 Pakistan's tariff structure, 2001/02 and 2004/08 40 III.2 Preferential rules of origin and tariffs in trade agreements, 2007 46 
III.3 Anti-dumping actions, as at July 2007 54 
III.4 Sectoral export subsidies, 2006/07 62 III.5 Duty drawback rates on exports, 2006/07 64 
III.6 Concessionary rates of WHT on imports, 2006/07 71 
III.7 Income tax concessions assisting producers generally, 2006/07 72 III.8 Main state-owned enterprises and privatization plans, May 2007 76 
 
IV. TRADE POLICIES BY SECTOR 
 
IV.1 Procurement/support prices of  agricultural commodities, 2001-07 85 
IV.2 Tariff increases to protect engineering activities, 2005/06 and 2006/07 97 
 Pakistan WT/TPR/S/193 
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    Page 
 
APPENDIX TABLES 
 
 
I. ECONOMIC ENVIRONMENT 
 
AI.1 Contingent government liabilities, 2003/07 119 
 
 
III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
AIII.1 Main duty and tariff exemptions and concessions, March 2007 120 AIII.2 Tariff concessions and exemptions for designated/authorized persons, March 2007 123 
AIII.3 End-use tariff exemptions/concessions March 2007 126 
AIII.4 Prohibited imports of second-hand plant, machinery and equipment, 2006/07 128 AIII.5 Restricted imports, 2006/07 129 
AIII.6 Regulated exports, 2006/07 133 
AIII.7 Privatizations from August 2000 to May 2007 134  
 
  
 Pakistan WT/TPR/S/193 
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SUMMARY OBSERVATIONS 
 
1. Pakistan's economic growth has been 
impressive since its previous Trade Policy 
Review in 2002, mainly as a result of its 
relatively open trade and investment regimes, generally accommodative macroeconomic policies and structural reforms.  Moreover, Pakistan's ranking on the UN human 
development index has risen from "low" to 
"medium".  Poverty has fallen in line with the Government's 2003 poverty reduction strategy, although income inequality has widened slightly and rural poverty remains high. 
2. During the period under review, trade 
policies have been liberalized in several 
important areas.  In particular, customs procedures have been greatly improved, overall tariff protection considerably reduced, tariff bindings increased, and intellectual 
property rights strengthened.  In some other 
areas, however, trade liberalization has slowed; for example, support for production and exports has increased.  Pakistan's economic fundamental have improved considerably during the period under review 
and would now seem reasonably sound.  At 
the same time, structural weaknesses, including infrastructural  bottlenecks, excessive 
regulatory controls and labour market rigidities as well as problems concerning 
governance, have inflated the costs of doing 
business. 
3. Continued trade liberalization and 
other productivity-boosting structural reforms to address these weaknesses together with 
steps to reduced political uncertainty would 
help improve Pakistan's international competitiveness, especially for sensitive sectors (such as textiles and clothing), and thus the prospects for sustained economic growth. 
(1) E
CONOMIC ENVIRONMENT  
4. Pakistan's improved macroeconomic 
policies have contributed to strong economic growth (7% in 2006/07) and lower unemployment (6.2% at the end of 2006).  Nevertheless, inflati on (7.8% in 2006/07) has exceeded targets, largely due to belated 
monetary tightening to curb the economy's overheating, and the resulting real appreciation of the rupee since 2003/04 may have 
contributed to the erosion of Pakistan's 
international competitiveness.  Despite monetary tightening, the effectiveness of monetary policy remains hampered by a widening fiscal deficit,  greater reliance on 
government borrowing from the State Bank of 
Pakistan (SBP), and increasingly generous SBP concessionary credits to the industrial export sectors (especially textiles and clothing).  Better alignment of monetary and fiscal policies as foreshadowed in the 2005 
Fiscal Responsibility and Debt Limitation Act 
(FRDLA), whose intent is to generate "revenue surpluses" from mid 2008 onwards, should help achieve greater macro stability. 
5. Fiscal reforms have focused mainly on 
public expenditure, which dropped from 
18.3% in 2001/02 to 17.6% of GDP in 2006/07, possibly insufficient to meet Pakistan's developmental needs.  Tax reforms are aimed at, inter alia , improving the 
administration and collection of taxes, which 
amounted to only 10.5% of GDP.  This low 
level of taxation in rela tion to GDP constrains 
spending on infrastructure and other social priorities. The administratively complex tax system is largely the outcome of widespread 
exemptions and incentives that erode the tax 
base and facilitate avoidance, if not evasion (registered taxpayers account for only 1.5% of the population).  The resulting weak fiscal governance also leaves considerable scope for 
widespread administrative discretion.  The 
Medium Term Budgetary  Framework is being 
implemented progressively to improve budgeting, and to help meet the FRDLA targets, which include lowering the public debt-to-GDP ratio progressively to 60%, an 
objective attained ahead of schedule in 
2005/06.  
6. Pakistan's external trade deficit 
reached 6.8% of GDP in 2006/07.  This deficit, aggravated by rising negative balances 
on services trade, has been partially financed 
by workers' remittances (amounting to 3.8% of WT/TPR/S/193 Trade Policy Review 
Page x 
 
 
GDP in 2006/07).  Current account deficits 
(4.8% of GDP in 2006/07), reflecting a re-emergence of a shortfall in national savings relative to investment, have been met by 
capital account surpluses, largely from record 
net inward FDI.  Rising gross official reserves during the review period have not kept up with import growth;  import cover had fallen before rising to 5.5 months in 2006/07.  Public 
external debt, still substantial at 
US$38.7 billion in 2006/07, has dropped considerably to 26.9% of GDP, as has the debt service ratio to 12.6% of current earnings (from exports and private transfers).  Most debt is with Paris Club creditors, bilateral 
donors and multilateral institutions.  
7. Pakistan still depends heavily on 
textiles and clothing exports (two thirds of total exports in 2005/ 06), which have faced 
stronger competition in major markets since 
quotas relating to the Agreement on Textiles 
and Clothing were abo lished in 2005.  Little 
export diversification away from low value-added products or in markets has occurred since 2001/02.  The main change in merchandise trade patterns has been the rising 
share of mining and agriculture exports.  The 
United States and the European Communities remain Pakistan's main export markets. 
8. Pakistan's investment framework has 
hardly changed since its previous Review.  
Only a few sectors (e.g. media, tourism, and 
air transport) remain closed to foreign investment or subject to restrictions.  Investment incentives are available to all, including foreign, investors.  Boosted by 
greater openness and privatization, FDI rose 
substantially, from 0.7% of GDP in 2001/02 to 3.5% in 2006/07.  Inflows originated largely from the United States, EC, and China, and were channelled mainly into telecommunications, information technology, 
and financial business services.  Privatization, 
considered a key factor in promoting efficiency and private-sector-led growth, is being revitalized.   (2) T
RADE POLICY FRAMEWORK  
9. Pakistan is an original WTO Member 
and grants at least MFN treatment to all trading partners.  However, many imports 
from India remain prohibited, although there 
has been some progressive liberalization, and trade with Israel is banned.  
10. Trade is an important part of 
Pakistan's development and poverty-reduction 
strategy.  Vision 2030, adopted in May 2005, 
aims to turn Pakistan into a developed country by 2030 through rapid and sustainable development by, inter alia , deploying 
knowledge-intensive import items.  Overall, trade policy has been focused on reducing 
protection, achieving a more outward-oriented 
trade regime, obtaining better market access for Pakistan's exports, and promoting greater integration into the global economy through increased economic efficiency, and thus 
international competitiveness, which would 
contribute to export-led growth.  
11. Since the last Review, there have been 
few major changes in the institutional framework for formulating and implementing trade-related policies.  The Trade 
Development Authority, which focuses on 
product and market diversification, progressively replaced the Export Promotion Bureau; the role of the independent National Tariff Commission (NTC) was re-directed 
from that of the Government's main tariff-
setting advisory body to that of the entity responsible for contingent protection.  The NTC no longer advises on imposition of "regulatory" duties.  
12. Customs and tax provisions are 
incorporated at budget time in the annual Finance Act;  customs regulations enter into force after being posted on the Central Board of Revenue website.  Legislative changes were made in some areas (e.g. customs, and key 
services like finance, energy, and 
telecommunications) with more under way or pending.  Pakistan WT/TPR/S/193 
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13. Pakistan has participated actively in 
the Doha Round and attaches high priority to an effective rules-b ased trading system.  
Nevertheless, its trade policy has focused 
recently on regional trade liberalization by 
deepening and expanding existing plurilateral commitments (e.g. with SAFTA, OIC, D-8 and ECO).  At the same time, it has been expanding its network of bilateral free-trade 
agreements, including with China, Iran, 
Malaysia, Mauritius, and Sri Lanka.  While Pakistan's agreements appear to be largely in response to their global proliferation, more gains might be expected from unilateral and multilateral trade liberalization.   
14. Pakistan participates in the Global 
System of Trade Preferences among Developing Countries (GSTP) and the GATT Protocol Relating to Trade Negotiations Among Developing Countries, and receives 
GSP preferences.  However, as its main 
exports (textiles and clothing) are classified as "sensitive products", they receive limited EC GSP preferences and are generally ineligible for such preferences in other major markets (e.g. the United States and Japan).  
15. Pakistan has submitted WTO 
notifications in certain areas (e.g. tariffs, anti-dumping, safeguards, technical barriers to trade, subsidies and countervailing measures, state trading, and intellectual property); 
nonetheless, some notifications have not been 
updated (e.g. on agricultural support and export subsidies) by the end of June 2007 more than 12 regular notifications were outstanding (notably those on import licensing 
procedures, agriculture, and services).  
Pakistan has benefite d from numerous trade-
related technical assistance activities, including on notification requirements, provided by the WTO.   
(3) T
RADE POLICY DEVELOPMENTS  
16. The tariff is Pakistan's main trade 
policy instrument and, despite widespread concessions, an increasing source (about one fifth) of tax revenue, due mainly to import growth.  Unilateral tariff reduction programmes largely ceased in 2002/03 and 
gave way to "piecemeal" reforms.  Almost all rates are ad valorem , which significantly 
enhances transparency.  The tariff comprises 
seven main bands (29 in total), ranging from 
zero to 90%;  peak rates, mainly on alcoholic beverages and automotive items, have dropped from 250%.  The average applied MFN tariff rate was reduced from 20.4% in 2001/02 to 
14.5% in 2007/08;  nevertheless, in 2006/07 it 
rose slightly to 15% (owing to increases on some 600 industrial items), before dropping to its 2007/08 level (mainly as a result of the re-introduction of zero tariffs).  Since 2001/02, applied MFN tariffs have declined most on 
agricultural products (WTO definition), falling 
continuously from 22.1% to 14.8% in 2007/08 (14.5% on non-agricultural goods).   
17. Pakistan's coverage of bound tariffs 
has risen considerably as a result of 
rectifications and modifi cations of its Schedule 
of Commitments involving textiles items;  97.2% of tariff rates are now fully bound and 0.8% partially bound (36.6% were fully or partially bound in 2001/02).  Most bindings exceed applied MFN rates and average bound 
levels are more than four times the average 
applied rate;  this reduces predictability, especially in agriculture where gaps are wider, by providing substantial leeway to raise applied tariffs.  This option has been used to 
raise rates, especially in 2006/07.  Pakistan 
eliminated its last breach in bindings noted at its last Review (on aluminium waste and scrap) in 2007/08.  The transposition of its binding commitments into the HS07 tariff 
nomenclature is pending.  
18. "Regulatory" import duties have been 
used temporarily to provide extra protection to some goods during the review period;  however, no such duties are in place currently.  Domestic taxes (sales, excise, and income 
withholding taxes) seemingly discriminate 
against imports, are distorting, administratively complex (e.g. some require the setting of minimum values to levy the tax) and therefore lack transparency.   The capital 
value tax (CVT) on motor-vehicle imports was 
merged with the tariff in 2007/08.  Import WT/TPR/S/193 Trade Policy Review 
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levies fund development boards (e.g. the 
Pakistan Oilseed Development Board).  Recourse to anti-dumping action has risen, but no other contingency measure has been in use. 
19. Pakistan applies the transaction value 
for customs valuation purposes;  reference prices seem to be used to check declared values.  Declared transaction values reportedly apply to 90-95% of imports.  Customs' general 
merchandise "take over" provisions (i.e. 
purchase of under-invoiced merchandise by Customs at the declared value) have been used 
in one case (motorcycle parts since October 2006) to guard against under-invoicing.  MFN tariffs of 20% on certain cement products are 
based on specified world prices.  Special 
customs valuation procedures apply to motor vehicles.   
20. Customs is being reformed and 
automated, with clearance times generally 
shortened from 7-10 days to 6-8 hours.  
Enhanced risk management has lowered physical inspection rates from 100% to 4% of imports (2% of exports).  Pre-shipment inspection applies to various types of used machinery/equipment for health or safety 
reasons.  Smuggling is rife, but being reduced.  
21. Import prohibitions have been 
removed (e.g. on cotton waste) or relaxed (especially on used machinery/equipment and iron and steel waste/scrap) since the last 
Review.  Prohibitions and import licensing 
remain mainly for health, safety, security, religious or environmental reasons.  Commercial imports of used vehicles are prohibited to promote the domestic industry.  
Imports of alcoholic beverages are banned for 
religious reasons, although these are brewed locally for non-Muslims by a private monopoly.  Some imports eligible for tariff exemptions/concessions require ministerial or other governmental agency approval.  Only 
public sector or industrial users can import 
some items (e.g. pesticide ingredients).  A few import quotas exist (e.g. for used refrigerated trucks).   22. Pakistan's standards do not distinguish 
between foreign and domestic products and are being harmonized to international standards;  about two thirds of its 27,000 national 
standards are aligned to international standards 
(e.g. ISO).  Only specified food colouring can be imported.  Importe d foodstuffs, including 
ingredients, must have at least 50% of their original shelf life left on importation.  Pakistan 
still has no uniform labelling and marking 
system.  Administration of SPS arrangements, while generally internationally recognized, seems complicated.   
23. Prohibited exports focus on health, 
social, religious, or environmental protection 
under international treaties (e.g. CITES), but 
also cover mainly wood and timber.  Wheat and fertilizer (includi ng urea) exports are 
licensed but effectively banned, while certain other exports (e.g. vegetable ghee and cooking 
oil) must meet specified conditions.  Other 
export requirements have been eased, but certain export contracts (e.g. cotton and urea) must be registered.  Mandatory minimum export prices on rice and cotton yarn have been removed.  A temporary ban was applied 
to cement exports in 2006 owing to domestic 
shortages. 
24. While export taxes are prohibited 
under the customs legislation, "regulatory" duties apply periodically to some exports (e.g. 
15% on sugar), especially when there are 
domestic shortages.  More-profitable exporters benefit from paying income withholding tax levied at a rate of 1% of f.o.b. export value (before the 2007/08 Budget, rates ranged from 
0.75% to 1.5%) instead of income tax.  A 
surcharge of 0.25% of the f.o.b. export value finances the Export Development Fund.  Export quality inspections remain either mandatory (e.g. cotton) or encouraged, including by monetary inducements (e.g. 
freight subsidy).  
25. Exporters are also assisted via general 
schemes (e.g. 25% freight subsidy, SBP concessionary finance) and various sector-specific schemes (e.g. on R&D subsidy for 
garments and footwear, and freight subsidies).  Pakistan WT/TPR/S/193 
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Proceeds from  computer software and 
information technology exports are exempt from income tax.  Export assistance schemes complicate Pakistan's trade regime and 
seemingly undermine transparency.  
Producers/exporters also benefit from many tariff concessions (covering 26% of lines in 2006/07) and indirect tax concessions, mainly on raw materials, intermediate inputs, and 
equipment, and tariff refunds up to specified 
limits (expressed mainly as a percentage of f.o.b. value) on many raw materials used to make specified exports.  Pakistan's administratively complex duty drawback (DDB) scheme, which is based on input-output 
coefficients, may under- or over-compensate 
exporters.  Registered exporters can also use the duty and tax remission for exports (DTRE) scheme to import inputs tariff and tax free.  Firms located in export processing zones must 
export 80% of output; they are also eligible for 
several incentives e.g. income tax holidays.  Export promotion, including by several sectoral boards (e.g. Horticulture Development and Export Board and the Software Export Board), has increased. 
26. Despite substantial divestment, the 
state remains significantly involved in commercial activities (e.g. steel, engineering, and services).  The state-owned Trading Corporation of Pakistan trades in major 
agricultural commodities (e.g. cotton, wheat, 
sugar, and urea), albeit non-exclusively, mainly to provide consumer food subsidies to the poor and relief in emergency situations.  Some state entities may import certain raw 
materials exclusively at exempt/concessionary 
tariffs. While government procurement still supports domestic industry (e.g. through price preferences linked to value added of up to 25% for domestic suppliers, especially of engineering goods) regulatory and institutional 
reforms have improve d transparency and 
management of procurement operations.  Pakistan has not expressed any intention to join the WTO Agreement on Government Procurement.  
27. Pakistan has strengthened intellectual 
property rights protection and enforcement (especially with regard to optical piracy) by 
acceding to the Paris Convention (2004), creating the Intellectual Property Organization (2005), and transferring copyright crime 
enforcement to the Federal Investigation 
Agency.  
28. Monopoly oversight remains weak;  
state-owned entities are not covered by the existing legislation.  Planned improvements 
include new legislation and the replacement of 
the Monopoly Control Authority with a Competition Commission.  Consumer protection, mainly a provincial responsibility, is being upgraded slowly.  
(4) S
ECTORAL POLICY DEVELOPMENTS  
29. Agriculture remains the economy's 
mainstay although its GDP share has fallen from 24.1% to 20.9% during the review period.  Agricultural productivity is low.  Food security, a major but seemingly costly 
government priority, is based on 
self-sufficiency with regard to several items (e.g. wheat, rice, maize, edible oils, and sugar).  As a result, sugar prices, for example, have exceeded world levels at times by up to 50-60%.  Reforms since 2001/02 have raised 
the private sector's role in, inter alia , 
marketing and supplying inputs.  Relatively high tariffs protect certain commodities, such as edible oils, which are subject to specific tariffs with an ad valorem  equivalent of 65-
70%.  Some agricultural exports are covered 
by various controls, restrictions, and support measures, including subsidies (e.g. on freight), income tax concessions, and at times product-specific export subsidies (sugar and wheat).  
Market price support, occasionally involving 
provincial governments, was limited recently to wheat, cotton, rice, and sugar.  Tobacco prices, including those for exports, are set by the Pakistan Tobacco Board.  The All Pakistan Solvent Extractor's Association sets voluntary 
procurement prices for oil seeds.  Other types 
of support include tax incentives (direct and indirect), concessionary credit, and irrigation, power, and fertilizer subsidies;  manufacturers of urea, an important input for fertilizer 
production, can also buy natural gas at WT/TPR/S/193 Trade Policy Review 
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subsidized rates, thus lowering fertilizer 
prices.  
30. Seemingly-independent regulators 
oversee the energy sectors, and state 
participation remains significant.  Majority 
state-owned companies (partially privatized since the last Review) produce most of Pakistan's crude oil, although more divestments is planned.  Minimum Pakistani 
equity limits apply to companies operating in 
onshore oil zones, and offshore projects are subject to production-sharing contracts (with government profit shares ranging from 5% to 80%).  The Oil and Gas Regulatory Authority (OGRA) sets maximum wholesale/retail prices 
for aviation fuel, petrol, diesel, kerosene, and 
light diesel oil linked to import parity using a revised pricing formula.   Prices have been 
capped periodically to subsidize consumers (at a budgetary cost of PRs 74.5 billion by 
June 2006).  Kerosene, diesel, and light diesel 
oil prices are cross-subsidized by the Petroleum Development Levy (PDL), which is imposed on various products (e.g. petrol).  New licensing criterion apply to oil marketing companies;  they must use locally refined 
products rather than imports.  OGRA also sets 
maximum prices for various users of natural gas, the transportation, distribution, and sale of which is under a state monopoly.  These operations may be unbundled progressively.  
Residential and some other consumers (e.g. 
fertilizer factories) are cross-subsidized by industrial, power, and commercial gas users.  LPG prices were deregulated in 2005/06.  
31. The National Electric Power 
Regulatory Authority (NEPRA) licenses 
power generation, transmission, and distribution, and sets tariffs.  Power is subsidized;  around 70% is supplied by two state-owned companies, residential users seem to be among those cross-subsidized by other 
consumer groups.  Electricity reforms are 
moving towards a competitive market.  The main vertically integrated state power company has been unbundled and is being privatized slowly (excluding transmission).   32. Industrial policy is based on 
accelerated industrialization, aimed at raising manufacturing's share of GDP to 30% by 2030 (19.1% in 2006/07), and diversification away 
from textiles and clothing.  Government 
intervention remains directed at protecting infant and pioneer industries, using escalating tariffs and domestic s upport measures (e.g. tax 
concessions).  Liberalizing trade, including 
imports from India, could raise industrial 
efficiency and thus competitiveness.  Despite several textiles and clothing assistance packages (e.g. R&D grants tied to exports and freight subsidies), minimal market diversification has occurred away from the 
traditional EC and United States markets.  
Greater productivity would help Pakistan compete internationally, but reliance on government support to exports may jeopardize such efforts.  The engineering sector has been 
reformed by replacing the local-content based 
"deletion" programmes (e.g. on motor vehicles) with tariff-based schemes.  However, despite substantial reduc tions, tariffs on motor 
vehicles reach as much as 90%.  The 2007/08 Budget contained a Five Year Pre-announced 
Tariff Program for Completely Built Up and 
Completely Knocked Down imported vehicles.  A tariff-based Emerging Electronic Products Assembly Scheme (EEPAS)  was introduced in 
2003.  The state remains heavily involved in 
steel and heavy engineering, which the 
Engineering Development Board oversees for developing "thrust" activities.   
33. Services account for well over half of 
GDP;    there is strong state involvement, 
especially in transport, communications, and 
life insurance.  During the review period, financial sector reforms, including to prudential requirements,  have enhanced bank 
and insurance efficiency and soundness.  Privatization has transformed banking into a 
largely private-based system (unlike life 
insurance) with substantial foreign presence, even though preferential equity limits may apply to foreign licences.  Reforms that opened reinsurance have been partially 
reversed.  The monopoly of the majority state-
owned telecom company on fixed domestic and international calls was terminated in 2003.  Pakistan WT/TPR/S/193 
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Regulatory reforms are aimed at developing an 
open telecom access regime.  Shipping and air services are relatively open, except for cabotage and foreign equity limits.  Major 
ports are being privatized via "landlord" 
concessions.  Road transport remains relatively restricted, but recent regional agreements have expanded transit rights;  however, cabotage is banned.  
(5) O
UTLOOK  
34. By and large, Pakistan's economic 
fundamentals would now seem to be good.  Sustained growth rests upon macroeconomic stability and micro-economic reforms to improve efficiency, promote diversification, 
and sustain export-led growth.  While much 
progress has been made to establish the necessary pre-conditions for such growth, more must be accomplished to further reduce downside risks to Pakistan's growth.   35. Future economic performance will 
also depend on world economic growth.  Pakistan stands to gain from this provided it can improve domestic efficiency, and thus its 
international competitiveness.  Improved 
efficiency depends on domestic policy reforms, as well as on Pakistan's capacity to benefit from market openings and other opportunities abroad.  Successfully concluding 
the Doha Round could help stem Pakistan's 
drift to increasing export assistance and preferential trade liberalization, thereby potentially strengthening the multilateral system and facilitating its unilateral reforms.  The Doha Round negotiations could also help 
improve the predictability and stability of 
Pakistan's trade and investment regime (e.g. by reducing the gap be tween its bound and 
applied tariff rates and expanding its GATS commitments).