RESTRICTEDWORLD TRADE
ORGANIZATIONS/C/W/164
17 August 2000
(00-3332)
Council for Trade in Services Original:  English
COMMUNICATION FROM PAKISTAN
Review of Article II Exemptions
Replies to Questions Posed on Pakistan's MFN Exemptions in Financial Services
in the Course of the Review of Article II Exemptions
The attached communication has been received from the delegation of Pakistan with the
request that it be circulated to Members of the Council for Trade in Services.
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Pakistan had been asked questions regarding MFN Exemptions in Financial Services by
Korea, Japan and Australia.  Our response to the specific questions are as under.
I. AUSTRALIA
Question:
A number of Members have created an exemption for "All Countries" or similar, on the basis
of reciprocity.  In the interest of transparency, we ask Members to list the countries with which they
(Pakistan in this case) have reciprocal arrangements and the basic terms of the Agreement.
Answer:
List of domestic banks as well as foreign banks functioning on the basis of reciprocity is
given at Annex I.
II. JAPAN
Question:
Have there been any cases to date where Pakistan has actually not granted due to reciprocity
"Licences" to the foreign service suppliers?  If so please explain.
Answer:
There have been two cases of Iranian banks, which were denied permission, due to reciprocity
basis under Section 27 (3) c of ECO 1962, to open business branches in Pakistan.
Question:
Please describe what is meant by "favourable treatment".  What does the term Islamic
financing transaction mean?
Answer:
Favourable treatment  in the context of financial institutions set up to undertake Islamic
financing transactions means any exemption or relaxation from regulations to such institutions for
their smooth operation which may not be available to other financial institutions.  "Islamic financing
transaction"  means financing transactions conducted in accordance with the injunctions of Islam.S/C/W/164
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These transactions include, but not limited to, financing on profit and loss sharing basis, leasing rent
sharing (in case of housing finance), sale on deferred payment basis, interest free loans, etc. since
"Interest or Riba" is prohibited in Islam, therefore, Islamic financial institutions cannot undertake the
interest based transaction.
Question:
It is not clear, whether the listed measure accords differential treatment by country.  Please
provide an explanation why this measure is inconsistent with Article II.
Answer:
Most banking in the world is on interest based system.  The listed measure accords
differential treatment, because it is based on Non Interest bearing system.  This measure is conductedin accordance with the injunctions of Islam.  The In terest or Riba is forbidden in Islam, as such this
measure is inconsistent with Article II.
Question:
Please describe in concrete terms what the "Treasury Function" and the "Commodity
Operation Programs" mean.
Answer:
Treasury Function:  Collections of taxes and other receipts of Federal and Provincial
Governments.  This function is performed by State Bank of Pakistan (SBP) on behalf of Government.
Where the branches of SBP do not exist this function is performed by the National Bank of Pakistan.
These are non-profitable transactions of the bank.
Commodity Operation Programs:   Commodity operation financing is an essential
Government function undertaken through banks to finance Federal and Provincial Governments andtheir agencies for carrying out their commodity and buffer stock operations.  The rate of mark-up of
such financing by the banks is currently 12 per cent per annum.  To finance commodity operation
program of the Government and their agencies all scheduled banks are allocated limits for the purpose
according to the limits fixed by the Finance Division on quarterly basis.
III. KOREA
Question:
Please clarify the meaning of "favourable treatment" indicated by Pakistan in the banking and
other financial services.
Answer:
Favourable treatment in the context of financial institutions set up to undertake Islamic
financing transactions means any exemption or relaxation from regulations to such institutions for
their smooth operation/running on non interest base which may not be available to other financial
institution.
Favourable treatment in the ECO or other pr otocols signed by ECO members has also been
called for.
Question:
Please provide a list of specific financial institutions that were established pursuant to the
"Treaty of Izmir and the Istanbul Summit" as mentioned in column.
Answer:
In pursuant of "Treaty of Izmir and the Istanbul Summit for establishment of ECO Trade and
Development Bank is under way.S/C/W/164
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ANNEX I
List of Pakistani banks as well as foreign banks
functioning on reciprocity basis
Foreign Bank in Pakistan Pakistani Bank in Foreign Countries
Name of Bank Nc. of
branchCountry Name of Bank Nc. of
branch
1. Albarake Islamic Bank 4 Bahrain 1.  HBL 4
2.  MCB 1
3.  NBP 1
4.  UBL 3
2. ABN Amro Bank 5 Netherlands 1.  HBL 1
3. American Express Bank 4 USA 1.  HBL 1
4. Citibank 6 USA 2.  NBP 4
3.  UBL 1
5.  Mashreq Bank 2 UAE (Dubai) 1.  HBL 8
6. Emirates Bank 10 UAE (Dubai) 2.  UBL 8
7. Bank of Tokyo 1 Japan 1.  NBP 2
8. Crédit Agricole 2 France 1.  HBL 1
9. Société Générale Bank 4 France 1.  NBP 1
10.  Deutsche Bank 3 Germany 1.  NBP 1
11. Doha Bank 2 Qatar 1.  UBL 1
12. Hong Kong Bank 2 Hong Kong, 1.  NBP 2
China 2.  Habib Finance Intl.
(Subsidiary)1
13. Habib Bank A.G. Zurich 6 Switzerland 1.  UBAG Zurich
(Subsidiary)1
14. IFIC 2 Bangladesh 1.  HBL 2
15. Rupali Bank 1 Bangladesh 2.  MCB 3
3.  NBP 1
16. ANZ Grindlays Bank 15 Australi a 1.  Habib Fin. (Australia)
(Subsidiary)1
17. Standard Chartered Bank 6 UK 1.  ABL 4
2.  HBL 6
3.  NBP 7
4.  UBL 4
18. Bank of Ceylon 1 Sri Lanka 1.  HBL 3
2.  MCB 3
19. Oman Intl. Bank 2 Oman 1.  HBL 12
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