WT/TPR/S/95 Trade Policy Review
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IV. TRADE POLICIES BY SECTOR
(1) OVERVIEW
1. Since its previous Review, in 1995, Pakistan has lowered the average level of tariff protection
by nearly two-thirds and assumed WTO market access commitments in most non-sensitive sectors.
Nonetheless, border protection and domestic support still varies by sector, thus constituting potential
impediments to the efficient allocation of resources and Pakistan's economic development.  Reform inkey sectors has been hesitant and may have impeded adjustment toward a more diversified production
pattern.
2. The agriculture, livestock, fisheries, and forestry sector has continued to be the backbone of
the Pakistani economy, accounting for around a quarter of GDP and nearly half of total employment.
But Pakistan remains a net food importing country, dependent on a few major crops.  The sector hasreceived little government support, except in the cases of certain essential items, particularly wheat.
Although average import tariff protection has been greatly reduced and bindings have been expanded,
the considerable gap between applied and bound rates provides ample scope for tariff increases.  A
few sensitive items continue to be subject to specific or compound (until 2000/01) duties.  In addition,
certain non-tariff measures have been put in place;  they include an import prohibition for a certaintype of raw sugar (as of September 2000, but seemin gly no longer in force), and technical or religious
requirements.  Exports of certain strategic items have been subject to prohibition (wheat and its
milling products (until 2000/01), edible oil, wood, and timber), temporary quantitative restriction
(potatoes), preshipment registration (rice, cotton) or  export (regulatory) duties.  At the same time,
export subsidies covering freight costs (for fresh fruit, vegetables, flowers, and fish products) and
direct financial support (sugar) have been provided.
3. State involvement in foreign trade of essentia l commodities has been limited to one entity in
2001/02.  While some minor regulatory and institutional reforms have been undertaken, the type,
level, and structure of domestic support granted has, by and large remained untouched;  such support
includes the provision of infrastructure and other services (involving research and development,
distribution of improved seeds, and spraying), commodity price support, subsidies for the purchase of
locally made tractors and electricity, low water charges, and tax incentives.  Pakistan has keptdomestic support within the bounds set by WTO reduction commitments, and overall support for the
agriculture sector has dropped, with attention being focused almost exclusively on "Green Box"
support.
4. Pakistan remains heavily dependent upon three energy-related mineral resources and thermal
power pants.  State involvement seems to remain in the mining and energy sectors, despiteprivatization plans.  Nevertheless, new policies for attracting foreign investment have been
implemented leading to joint ventures with foreign firms and independent power producers.
5. Notwithstanding its moderate contribution to GDP (15.7%) and employment (10.2%),
manufacturing has continued to account for a large share of merchandise exports (84.7% of the total
in 2000).  Border protection, which is now largely confined to tariffs, has been reduced drasticallythrough unilateral cuts;  the applied MFN average tariff on imports of manufactures is 20.9%, which
is close to the overall average.  Certain activities have been protected from foreign competition by
prohibitively high tariffs (motor vehicles), prohibitions (e.g. certain textiles items, chassis for trucks
until 2000/01), import duty/sales tax concessions applied to foreign-made machinery/equipment used
in Pakistan, or subsidized sales (tractors).  State involvement in manufacturing seemingly remains
widespread, although disinvestment in certain activities is scheduled for 2002.Pakistan WT/TPR/S/95
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6. Services continue to account for more than ha lf of Pakistan's GDP but for a substantially
lower proportion of domestic employment.  GATS scheduled commitments in financial and
telecommunications services have been improved;  the implementation of these undertakings is
seemingly under way.  State involvement has remained strong in virtually all services.  Financial
services are dominated by domestic and nationalized institutions, and the progressive introduction of
the Islamic (interest-free) banking principles may discourage foreign banks.  Interest rates have beenderegulated and prudential regulations and independent supervision are being strengthened.  Private
sector involvement in telecommunications has increase d in activities other than the fixed line services,
where the state monopoly is to be abolished by the end of 2002.  Shipping has been assisted by a
domestic shipbuilding subsidy.  More competition has been introduced in airport transportation.
Software development and exports have been a priority and are being encouraged in several ways.
(2) A
GRICULTURE , LIVESTOCK , FORESTRY , AND FISHERIES
(i) Features
7. Agriculture has maintained its dominant position in the economy, remaining the main source
of employment.1  The sector (including fisheries) has continued to provide work for 47.3% (2 000) of
the active population, a slightly higher share than in 1995 (46.8%).  While the sector's annual growthhas fluctuated widely, between 11.7% (1995-96) and 0.1% (1996/97) before recovering to 5.5%
(1999/00) as a result of a bumper cotton crop and good rice and wheat crops
2, its share of GDP has
remained at around 26%, though a declining trend was recorded after 1997/98, a peak year
(Table I.2);  agriculture growth suffered a severe setback during 2000/01 due to unprecedented
drought and shortage of irrigation water.  The sector's labour productivity remains much below the
national average.  This relatively poor productivity performance is thought to be explained largely by
adverse weather conditions and pest attacks on crops, traditional methods of farming and associatedlow yields, shortage of key inputs (e.g. credit, fertilizer, improved seed, adulterated pesticides),
volatile prices, and insufficient attention to subsectors other than crop farming.
8. By the year 2000, although agriculture met 90%-95% of domestic food needs, agricultural
production had been unable to keep pace with the country's rapidly changing food requirements;  thus,
the sector has not made the contribution to poverty reduction that had been expected.
3  At the time of
the previous Review, self-sufficiency targets were set for commodities like wheat, sugar, and milk;
self-sufficiency ratios for 2001/02 were 100% (wheat, sugarcane), 118% (rice), and 130% (cotton).4
Pakistan is among the net food-importing developing countries eligible for measures in the context ofthe Marrakesh Ministerial Decision on Measures Concerning the Possible Negative Effects of the
Reform Programme on Least-Developed and Net-Food Importing Countries (i.e. availability ofadequate supplies of basic foodstuffs from abroad on reasonable terms and conditions);  between 1995
and 1998 it received 412,000 tonnes of cereals and non-cereals.
5
9. Productivity improvements in some areas (wheat, cotton, rice, maize)  have been achieved
through increased investment in irrigation facilities, increased availability of fertilizers, and
mechanization (section (2)(ii)(b)).6  However, main sectoral constraints include:  imperfections in the
land market and distribution;  irrigation inefficiencies and increasing deterioration of land;  inadequate
                                                     
1 Ministry of Finance (2000c);  and Asian Development Bank (2000a).
2 Ministry of Finance (2000c), Appendix Tables 1.2, 1.3, and 12.10.
3 World Bank (2000);  Ministry of Finance (2000c).
4 GATT (1995).
5 WTO document G/AG/5/Rev.2, 17 March 1997, and WTO document G/AG/NG/S/3, 25 April 2000,
Attachment 4.
6 Asian Development Bank (2000a);  and World Bank (2000).WT/TPR/S/95 Trade Policy Review
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rural transport network;  import costs;  inefficiencies in public-sector marketing of certain agricultural
inputs and outputs;  poor quality of research;  restricted access to credit by small farmers;  and
remaining price distortions.
10. The pattern of production has remained virtually unchanged during the review period.  The
sector is highly dependent on a few major crops (e.g. wheat, rice, cotton, and sugarcane account for
nearly 90% of value added in the crop sector), as well as livestock (e.g. cattle, buffalo, sheep, goats,camels, horses, asses, and mules) and several minor crops (e.g. barley, millet, sorghum, pulses,
sunflower seed, rapeseed, mustard, sesame, tobacco, potatoes, onion, and chillies).
7
11. Agriculture (including raw and processed cotton, rice, leather, textiles, and carpets) generates
directly and indirectly about 70% of the country's export earnings.8  Nonetheless, its average annual
trade deficit more than doubled from US$448 million (1991-94) to more than US$1 bi llion (1995-99)
as a result of increased imports of wheat, tea, edible oils, and sugar, thus worsening Pakistan's
position as a net-food importer.
(ii) Main policy issues
Objectives and plans
12. Sectoral objectives have remained disproportionately focused on agriculture (rather than
livestock and fisheries) and have included:  annual growth of about 4% to meet anti-poverty targets
and reduce external imbalances;  reduced role of the public sector by transferring management to the
private sector9;  removal of policy distortions and deficiencies in factor markets (e.g. land ownership
and registration process, fertilizers, credit) and output markets;  formulating commercially viable
trade policies for inputs as well as outputs;  removal of income inequalities and regional disparities;
ensuring long-term availability of irrigation water;  and assistance in natural resource management
and environmental protection.10  The restructuring/reorientation of the Water and Power Development
Authority's water wing was also envisaged.11
13. The authorities consider that further sectoral growth depends on:  increased wheat and oil
seeds production;  market-based agricultural prices;  larger credit disbursement for agriculture and
better access to ADBP (Agricultural Development Bank of Pakistan) credit;  allotment of large tracts
of agricultural land to poor, landless farmers;  and the promotion of fisheries.12  Furthermore, a policy
for introducing "corporate agriculture" (e.g. large farm holdings to be listed in the stock exchange)
was to be made public during the year 2001.13
                                                     
7 State Bank of Pakistan (2000a).
8 Asian Development Bank (2000a).
9 For example, by 1999 the Pakistan Oil Seed Development Board was being re-organized and its
management was being transferred to the private sector (Central Board of Revenue, 1999b).
10 IMF (1998);  and State Bank of Pakistan (2000a).
11 IMF (1998).
12 State Bank of Pakistan (2000a).
13 Reportedly, under this package foreign investors will be able to own 60% of a commercial
agricultural project, and to obtain land on a leasehold basis for an initial period of 30 years, extendable by a
further 20 years.  To transfer it to another foreign company, express approval of the federal and regionalgovernment is to be required.  Specific agricultural  machinery will be exempt from import tariffs (World
Markets Research Centre online information.  Available at:  http://www.impactglobal.com/subscribers/countries_retrct.cfm?location=country&homepage=1 [24 November 2000]).  Ministry of Finance (2000a).Pakistan WT/TPR/S/95
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(a) Border measures
Average nominal tariff protection
14. Between 1996/97 and 2001/02, Pakistan's average level of nominal applied tariff protection
for the sector was reduced from 38.8% to 14.9% (Table AIV.1, Chart IV.1)14;  it is now slightly lower
than the average tariff for imports of manufactured goods.  As from 2001/02, peak rates are 30%.15  In
addition to ad valorem  duties, Pakistan has continued to use specific or compound (until 2000/01)
duties on a few sensitive agricultural items (e.g. certain oil seeds, vegetable plaiting materials,
soyabean, and palm oil) (Chapter III(2)(ii)(d));  regulatory duties have been reinstated on imports of
edible oil and oil seeds for crushing (Chapter III(2)(ii)(h)) and also affect exports of bones.16
Binding and tariff quota commitments
15. As discussed earlier (Chapter III(2)(ii)), Pakistan has extended considerably its binding
commitments in agriculture, and no applied rate seem s to exceed the relatively high ceiling levels for
this sector.  Most agricultural products are bound at a rate of 100%, while ceilings for certain sensitive
items are set at 150% (tea, certain types of wheat and maize, sugar, and products thereof) and 200%
(betel nuts).  A gap of 79.8 percentage points between average applied MFN and bound rates allows
for substantial flexibility in raising the former's le vel (Chart III.2); this gap is more than three times
that for manufactured items.
Non-tariff border protection
16. Certain agricultural products have remained subject to import prohibition for religious or
health purposes as well as to prior authorization so as to meet specific requirements (Table III.3);
imports of a certain type of raw sugar have been prohibited as of September 2000.  The authorities
indicated that this prohibition was suspended.
Export measures17. Despite a recent statement that all export restrictions on agricultural products have been lifted
with a view to enabling farmers to obt ain the best prices for their produce
17, prohibitions have affected
wheat and its milled products (until 2000/01), as well as edible oil, wood, and timber (Table III.5),
while quantitative restrictions have applied temporarily to potatoes (Chapter III(3)(iii)(b));
preshipment registration of export contracts has been required for rice, cotton, potatoes, and urea.  Asubsidy covering 25% of freight costs for exports of fresh fruit and vegetables, fresh fishery products,
and flowers has been continued but is now limited to potatoes only (Chapter III(3)(iv))
18;  sugar
exports have received direct financial support (about US$90 per tonne).
                                                     
14 This tariff average is lower than that indicated  in Chapter III(2)(ii)(e)) due to different product
classification (i.e. the average rate of 21.8% (Chart III.2) is based on HS calculations).
15 Due to ISIC classification definitions, peak rates on beverages (up to 200%)  are covered in
calculations under the manufacturing sector (section (4), and Table AIV.1) rather than the primary agricultural
sector.
16 Edible oil is Pakistan's fourth major import item (8.7% of total imports in 1998/99), thus reflecting
the large and chronic gap between demand and domestic production of this type of oil (U.S. Commercial
Service, 1999a;  and Ministry of Finance, 2000c, Appendix Table 8.10).
17 Ministry of Finance (2000a).
18 This freight costs subsidy represented 2.9% of the total value of exports of fruit, vegetables, and
flowers in 1996/97 (WTO documents G/AG/R/11, 28 July 1997 and G/AG/R/14, 30 April 1998).WT/TPR/S/95 Trade Policy Review
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010203040506070Per centChart IV.1
Applied MFN tariff averages by 2-digit ISIC category, 1996/97 and 2001/02
Source :WTO Secretariat calculations, based on data provided by the authorities of Pakistan. 1996/97
 2001/02Average 1996/97
(42.7%)
Average 2001/02
(20.4%)
Other
18. State involvement in foreign trade of esse ntial commodities has persisted through the
operations of entities such as the Trading Corporation of Pakistan, the Cotton Export Corporation, and
the Rice Export Corporation (Table III.4);  until 2000/01 wheat was imported only by the public
sector.
(b) Domestic support measures
19. Since 1995/96, Pakistan's notified domestic support to agriculture and livestock activities has
been focused in "Green box" measures, and has declined gradually by more than 44% (1999/00)
overall to reach US$251.02 million (Table IV.1).  Between 1995/96 and 1999/00 a cut of one third (in
US dollar terms) was recorded in federal and provincial product-specific subsidies available for wheat
and sugar production (Table IV.2).
20. Domestic support has been largely aimed at fostering price support/stabilization, food
security, and raising productivity/competitiveness in the sector.  Since the previous Review, the type
of instruments (e.g. provision of infrastructure and other services, price support, subsidies, tax
incentives) and allocation of domestic support have remained unchanged, although some initiatives
have been taken in livestock and fisheries (sections (2)(iv) and (2)(vi)).  Although Pakistan did not
undertake specific commitments to reduce support to agricultural producers, "negative"product-specific price support (e.g. wheat) and non-exempt input subsidies have been granted to
agriculture in general (non-specific support) (Table IV.1, section (2)(ii)(b) and Chapter III(4)(ii));  thePakistan WT/TPR/S/95
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share of non-specific support to total value of agricultural output was equivalent to 0.06% in 1995/96,
0.08% in 1996/97, and 0.13% in 1997/98.19
21. In the context of the WTO Committee on Agriculture, some Members have raised questions
or expressed concern on certain aspects of Pakistani measures, including the negative Aggregate
Measurement of Support (AMS) values, and th e methodology used for these calculations.20 In its
WTO notification, Pakistan explained:  the reasons for submitting AMS data expressed in U.S. dollarsrather than rupees (inflation and depreciation of the 1990s distorted the picture of the domestic
support);  the negative value of AMS was an implicit tax on producers (to be subtracted from the
current total AMS);  the non-inclusion of operation and maintenance costs in spending on
infrastructural services or water supply facilities;  the nature and calculation of the electricity subsidy;
the granting of agricultural credit under commercial conditions;  the phase-out of the fertilizersubsidies;  criteria for eligible production for procurement or support prices;  and, the reasons for non-
inclusion of a new crop (canola).  It also supplied information on the total annual value of agricultural
production and the rate of inflation.
Tax incentives
22. As of 2000/01, agricultural income has been subject to a two-tier income tax
(Chapter III(4)(i)(b)).  The introduction of an agri culture income tax had been announced in Punjab in
1997, and in Sindh, N.W.F.P., and Baluchistan in 2000.
Credit
23. Agricultural credit disbursement rose until 1999/00;  it has declined as a result of lower
demand for loans (Table IV.2).
21  Sectoral loans are largely disbursed by the state-owned Agricultural
Development Bank of Pakistan (ADBP);  ADBP loans have been mainly allocated for the purchase of
fertilizer, tractors, and seeds.  To ensure increased access of small-scale farmers to credit, 75% of thetargeted loans under ADBP General Banking during 1999/00 were allocated to them (most were
operating land areas up to 25 acres, including landless peasants).  Agricultural credit seems to be
granted on commercial terms, although ADBP loans for locally built tractor purchases appear to
contain subsidy elements (see subsection on Mech anization below) and payment of ADBP loans may
be deferred.
22  In 1998 and 1999, the authorities indicated to the WTO Committee on Agriculture that
payment of subsidies in connection with agricultural loans and concessionary finance were
discontinued as of 11 July 1990.23
                                                     
19 As a developing country, Pakistan may exempt from current total AMS calculations the non-product-
specific support equivalent to an amount of up to 10% of the total value of its agricultural production
(WTO Agreement on Agriculture, paragraph 4:(b) Article 6).  Ratio is based on total value of agriculturalproduction indicated in WTO documents G/AG/R/11, 28 July 1997, G/AG/R/14, 30 April 1998, andG/AG/R/20, 22 October 1999.
20 These Members are Argentina, Australia, Canada, New Zealand, Switzerland, Thailand, and the
United States (WTO documents G/AG/R/11, 28 July 1997, G/AG/R/14, 30 April 1998, G/AG/R/15,
3 August 1998, and G/AG/R/20, 22 October 1999).
21 Ministry of Finance (2000c).
22 For example, in November 1999, the ADBP was asked to defer the principal repayments for a certain
type of loan (Kharif crops) up to PRs 50,000 (US$967) for six months (State Bank of Pakistan, 2000a).
23 WTO documents G/AG/R/14, 30 April 1998 and G/AG/N/PAK/6, 12 August 1999.WT/TPR/S/95 Trade Policy Review
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Table IV.1
Developments in domestic support to agriculture and livestock notified to the WTO, 1995/96-1999/00
(US$ million and per cent)
1995/96 1996/97 1997/98 1998/99 1999/00
Total domestic support (I(b)+II+III) 451.7 407.9 335.0 290.52 251.02
Share of total domestic support to GDP 0.7% 0.6% 0.5% 0.5% 0.4%
Share of total domestic support to total tax revenue 4.9% 4.9% 4.1% 3.5% 3.2%
Share of total domestic support to total government
expenditure2.9% 2.9% 2.3% 2.1% 1.7%
I. Aggregate Measurement of Support (AMS) .. .. .. .. ..
Current total AMSa.. .. .. .. ..
(a) Product-specific AMS -202.6 -72.38 -143.42 -191.29 -257.54
Wheat -172 -72.41 -143.42 -191.29 -257.37
Seed cotton n.a. n.a. n.a. n.a. n.a.
Rice basmati -20.1 n.a. n.a. n.a. n.a.
Rice coarse -10.4 n.a. n.a. n.a. n.a.
Sugarcane n.a. n.a. n.a. n.a. n.a.
Onion -0.1 n.a. n.a. n.a. -0.10
Potato n.a. n.a. n.a. n.a. -0.05
Grain n.a. n.a. n.a. n.a. n.a.
Soybean n.a. n.a. n.a. n.a. n.a.
Sunflower n.a. 0.03 n.a. n.a. -0.02
Safflower n.a. n.a. n.a. n.a. n.a.
(b) Non-product-specific AMSb10.8 15.5 22.5 26.7 12.60
Electricity subsidy 10.4 15.5 22.5 26.7 12.60
F e r t i l i z e r  s u b s i d y 0 . 4----
C r e d i t  s u b s i d y -----
II. Measures exempt from the reduction
commitment – "Green box"4 3 9 . 93 9 2 . 4 43 1 2 . 4 52 6 3 . 8 22 3 8 . 4 2
(a) General services on research (e.g. development
of high yielding varieties)12.8 7.36 7.55 2.44 3.18
(b) General services on plant protection 0.5 0.03 0.02 0.70 0.01
(c) Government storage facilities (wheat storage for
food security programmes)0 . 80 . 3 10 . 2 00 . 0 00 . 0 8
(d) Marketing services 0.1 0.09 0.01 0.11 0.00
(e) Extension/advisory services (transfer of latest
crop technology)2 . 42 . 2 11 . 6 22 . 4 41 . 8 6
(f) Infrastructural services (irrigation, drainage,
flood control)369.6 328.57 288.96 243.7 220.25
(g) Water supply facilities 53.7 53.87 14.09 14.43 13.04
III. Measures exempt from the reduction
commitment – Special and Differential
Treatment – "Development" programmes1----
Tubewell subsidy (investment relating to rural
development)-----
F e r t i l i z e r  s u b s i d y  ( f o r  r e s o u r c e - p o o r  p r o d u c e r s ) 1----
n.a. Not applicable.
.. Not available.- Negligible.
a Current total AMS excludes items under the de minimis  clause.
b Level of support covered under the de minimis  clause.
Note: Based on most recent data available to the Secretariat as at September 2001.
Source: WTO documents G/AG/N/PAK/3, 28 May 1997; G/AG/N/PAK/5, 19 February 1998; G/AG/N/PAK/6,
12 August 1999; G/AG/NG/S/1, 13 April 2000;  G/AG/NG/S/12, 15 June 2000;  G/AG/N/PAK/8, 20 August 2001;and Ministry of Finance (2001), Tables 1.5, 4.3, and 4.4;  Table III.6.Pakistan WT/TPR/S/95
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Table IV.2
Budgetary outlays and loan disbursement in agriculture, livestock, and fisheries, 1994-2001
(US$ million)
(a) Federal and provincial government subsidies
1994/95 1995/96 1996/97 1997/98 1998/99a1999/2000b2000/01
A. Current subsidies .. 335.4 331.5 207.3 390.3 255.9 ..
Federal .. 237.8 194.6 147.6 205.7 52.0 ..
Provincial .. 97.7 136.9 59.8 184.6 204.1 ..
Out of which:
Wheat and sugar .. 320.5 295.6 165.6 187.3 213.2 ..
Federal .. 226.0 162.9 109.1 32.7 39.0 ..
Provincial .. 94.4 132.7 56.6 154.6 174.2 ..
Edible oil .. 10.3 .. .. .. .. ..
Pakistan Steel Millc. . 1 . 5. .. .. .. . . .
Agricultural loan .. 29.8 .. .. .. .. ..
B. Develop subsidies
Fertilizerc.. 1.4 .. .. 0.1 .. ..
.. Not available.
a Revised estimates.
b Budget estimates.c Subsidies are exclusively Federal.
(b) Loans disbursed by the ADBP
1994/95 1995/96 1996/97 1997/98 1998/99 1999/2000a2000/01
Agriculture Development
Bank of Pakistan (ADBP)b466.7 305.7 295.5 512.3 638.7 385.8 330.8
Cooperativesb115.2 176.5 126.2 109.3 116.3 142.2 56.0
Commercial banks 130.2 149.9 113.1 130.9 154.7 132.7 123.6
Total 712.1 632.1 534.8 752.5 909.7 660.7 510.4
a Provisional.
b Excluding Azad Kashmir/Gilgit, NA, and AMSL.
(c) Loans disbursed by ADBP by item
1994/95 1995/96 1996/97 1997/98 1998/99 1999/2000 2000/01
Seed/seedling 34.6 31.1 24.5 61.5 90.0 65.4 ..
Fertilizer 97.9 94.1 75.5 161.4 239.5 157.1 ..
Draught animals 0.0 0.0 0.0 0.0 0.0 0.0 ..
Dairy farming 31.9 12.9 33.6 35.9 15.5 13.5 ..
Poultry farming 2.6 1.0 1.7 0.9 2.0 1.6 ..
Fisheries 1.3 0.2 0.5 0.7 1.2 0.3 ..
Tubewells 22.5 5.2 9.9 19.9 30.7 16.0 ..
Tractors 162.8 96.8 81.8 99.2 96.1 110.8 ..
Other 113.2 64.3 69.1 132.7 163.8 102.2 ..
Total 466.7 305.7 296.5 512.3 638.7 466.9 ..
.. Not available.
Source: Ministry of Food, Agriculture, and Livestock (1999), Tables 93, 96, and 179;  Ministry of Finance (2000c),
Table 2.8;  Government of Pakistan;  and State Bank of Pakistan .WT/TPR/S/95 Trade Policy Review
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Electricity
24. In 1997/98 Pakistan continued to provide electricity to farmers at tariffs about 43% and 15%
lower than to offices (i.e. commercial activities) and manufacturers, respectively (section (3)(ii)(b)
and Chapter III(4)(ii)).24  Between 1995/96 and 1998/99, spending on this de minimis  subsidy more
than doubled (Table IV.1).  Farmers constitute the preferred category of consumers for the marketing
of excess power;  several efforts to revise preferential tariffs, which are a means of boostingagricultural output, have been unsuccessful so far.
Water
25. Pakistan has one of the largest irrigation systems in the world;  82% of crop production
depends on irrigated land.
25  As indicated earlier, the authorities recognized that water and irrigation
charges do not fully reflect operational and maintenance costs;  in addition, "Green Box" expenses,which are notified to the WTO (Table IV.1), do not include irrigation water subsidies  per se  (i.e.
these subsidies are not apparent in the budget).  According to certain Members, revenue forgone as a
result of this practice is a subsidy that should be in cluded in AMS calculations.  In the context of the
WTO Committee on Agriculture, in 1998 Pakistan indicated that, in the light of its structural
adjustment programme with the World Bank/IMF, it had started taking steps to bring water chargesinto line with operational and maintenance costs.
26  No information was provided to the WTO
Secretariat on progress in this respect.
26. Efforts have been made to improve water availability.  Under the 1997 National Drainage
Programme, institutional and policy reforms for improved water resource management have been
launched (i.e. involvement of farmers' organizations in the management of onfield irrigation systems).
Particular emphasis has also been placed on the installation of tubewells (special package of
PRs 750 million, ADBP allocation of PRs 2.4 billion).27
Mechanization
27. Pakistan's policy of accelerating the pace of agricultural mechanization has been
implemented, inter alia,  through increased disbursement of ADBP credits for fertilizer and tractor
financing.  In 1999/00, federal subsidies (PRs 100,000 per tractor) were made available for the
purchase of 6,000 locally made tractors by resource-poor producers or those holding 12.5 hectares ofland;  these measures have not been notified to the WTO.
28
General services
28. Efforts have been made to ensure supply of quality seed to farmers and to minimize crop
harvesting losses, through, inter alia,  the dissemination of products of agricultural research including
increased distribution of improved seed (e.g. wheat, chickpeas, mung) on a commercial basis throughnumerous private-sector seed firms.
29  Other public-sector intervention has included:  pest scouting
                                                     
24 WTO documents G/SCM/N/3/PAK, 21 October 1996 and G/AG/N/PAK/6, 12 August 1999.
25 Major problems of waterlogging and salinity affect the production potential on approximately 30%
of irrigated land.  Inefficient management of water systems and consequent low delivery efficiency andinequitable distribution, and insufficient cost recove ry have also plagued the sector (Asian Development
Bank, 2000a).
26 WTO document G/AG/R/15, 3 August 1998.
27 Ministry of Finance (2000c).
28 Ministry of Finance (2000c).
29 Ministry of Finance (2000c).Pakistan WT/TPR/S/95
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advisory services and aerial spray;  vigilance surv eys for control of locust;  research and development
to control insects, pests and diseases;  the promotion of environmentally friendly and safe Pheromones
to control harmful insects;  and the prevention of sales of adulterated pesticides.
Supply management and price support
29. Domestic price support in Pakistan has been maintained through government purchases and
public stockholding for food security purposes;  publicly funded purchases (mainly of wheat) have
been operated by provincial food departments;  publ ic sector entities such as the Trading Corporation
of Pakistan (TCP), a secondary buyer;  and the Pakistan Agricultural Storage and Services
Corporation Ltd. (PASSCO).30  Procurement/administered/support prices have been set prior to
sowing for important crops to, inter alia,  boost production (section (2)(iii)(a)) and benefit mainly
small farmers (Table IV.3);  criteria such as cost of production, the domestic and world demand andsupply situation, and international prices (import and export parity prices), are taken into
consideration.  Public purchases and stockpiling have been important for wheat in particular
(Chart IV.2);  in the period under review, about 21% (40% in 1995/96) of the annual wheat output has
been purchased by the authorities, and the stockpile has grown threefold compared with 1995/96,
despite the annual average release of about 6 million tonnes.
Table IV.3
Market price support for items notified to the WTO, 1995/96–2000/01(US$ per tonne unless otherwise indicated)
ProductExternal
reference
pricea1995/96 1996/97 1997/98 1998/99 1999/00 2000/01
Wheat 175
World market price 179 208 161 129 115 114
Procurement price
(eligible production, million tonnes)129
(3.7)154
(3.4)139
(3.9).. .. ..
Procurement price (PRs/100 kg.) 432.5 600 600 600 750 750
Seed cottonb360
World market price .. .. .. .. .. ..
Procurement price 306.00 333.00 346.00 .. .. ..
Procurement price (PRs/100 kg.) 850 to
1,057.51,100 to
1,3501,125 to
1,550.. .. ..
Rice basmati 707
World market price .. .. .. .. .. ..
Procurement price
(eligible production, million tonnes)309
(50,600)296 260.00 .. .. ..
Procurement price (PRs/100 kg.) 1,037.50 1,141.58 1,141.58 .. .. ..
Rice coarse 203
World market price .. .. .. .. .. ..
Procurement price
(eligible production, million tonnes)136
(154,500)135 146 .. .. ..
Sugarcanec15
World market price .. .. .. .. .. ..
Procurement price 16 15 20 .. .. ..
Procurement price (PRs/100 kg.) 53.75 to
54.3860.00 to
61.2587.50 to
90.0087.50 to
90.0087.50 to
90.0087.50 to
90.00
Onion 85
World market price .. .. .. .. .. ..
Procurement price
(eligible production, million tonnes)63
(3,400)64 65 .. .. ..
Table IV.3 (cont'd)
                                                     
30 Ministry of Finance (2000c).WT/TPR/S/95 Trade Policy Review
Page 88
ProductExternal
reference
pricea1995/96 1996/97 1997/98 1998/99 1999/00 2000/01
Procurement price (PRs/100 kg.) 212.5 250 280 350 350 ..
Potato 101
World market price .. .. .. .. .. ..
Procurement price 65 74 84 .. .. ..
Procurement price (PRs/100 kg.) 210 287.5 362.5 362.5 362.5 262.5
Gram 373
World market price .. .. .. .. .. ..
Procurement price 246 256 246 .. .. ..
Procurement price (PRs/100 kg.) 875 1,000 1,062.5 1,062.5 .. ..
Soybean 643
World market price 259 305 295 243 202 213
Procurement price 205 not fixed 200.00 .. .. ..
Procurement price (PRs/100 kg.) 687.5 862.5 862.5 1,025 1,025 1,025
Sunflower 256
World market price .. .. .. .. .. ..
Procurement price
(eligible production, million tonnes)235 289
(1,000)260
(1,000).. .. ..
Procurement price (PRs/100 kg.) 787.5 1,125 1,125 1,250 1,250 1,250
Safflower 580
World market price .. .. .. .. .. ..
Procurement price 201 not fixed 174 .. .. ..
Procurement price (PRs/100 kg.) 675 750 750 875 875 875
.. Not available.
a Generally from AGST (average 1986/88).
b Range of prices depending on type of seed cotton.
c Price depends on region.
Note: World market prices are given in calendar years, not in fiscal years (e.g. 1995/96=1995).
Source: WTO documents G/AG/N/PAK/3, 28 May 1997, G/AG/N/PAK/5, 19 February 1998, G/AG/N/PAK/6,
12 August 1999, G/AG/NG/S/1, 13 April 2000, and G/AG/NG/S/12, 15 June 2000;  State Bank ofPakistan (2000a), Appendix table 3.4; and United Nations, Monthly Commodity Price Bulletin (various issues) .
30. Since 1995/96 most administered prices have  been increased gradually, by up to 73.4%
(wheat, 1999/00), in rupees terms;  annual inflation rates ranged from 3.4% (1999/00) to 11.8%
(1996/97).31  Prices for certain items (e.g. cotton lint) have been kept stable as a result of the
devaluation of the domestic currency.  The magnitu de of the resulting increases is not reflected
adequately in prices notified to the WTO in U.S. dollar terms (Table IV.3);  according to these data,
price increases reached up to 29% (potato, 1997/98), while prices for certain items (e.g. rice) havedecreased.  Timely increases in the procurement price (particularly of wheat and cotton) are
considered to be the most effective means of boosting production of these products;  nevertheless, the
authorities recognize that improved infrastructure  and the development of rural markets would obviate
the need for price support, except for agricu ltural commodities subject to food security
considerations.
32
                                                     
31 State Bank of Pakistan (2000a), Appendix Table 3.4.
32 State Bank of Pakistan (2000a).Pakistan WT/TPR/S/95
Page 89
01,0002,0003,0004,0005,0006,000
1994/95 1995/96 1996/97 1997/98 1998/99 1999/2000 2000/0102468101214
01,0002,0003,0004,0005,0006,000
1994/95 1995/96 1996/97 1997/98 1998/99 1999/2000 2000/010123456
Total rice production
(2000/01 July to March only) Stock (on 1st July)ProcurementLeft-hand scale: Right-hand scale:
Procurement/support price = P/S price
F.A.Q. = Fair Average Quality
04,0008,00012,00016,00020,00024,000
1994/95 1995/96 1996/97 1997/98 1998/99 1999/2000 2000/01345678
Provisional.  July to March only.
Ministry of Finance (2001),  Pakistan Economic Survey 2000-2001, Tables 2.12, 2.13 and 2.4 [Online].  Available at:  
http://www.finance.gov.pk/ [21 September 2001].Chart IV.2
Domestic support for rice and wheat, 1994-2001
(a) Basmati 
Thousand tonnes
(b)  Irri-6 
Thousand tonnes
(c)  Wheat
Thousand tonnesUS$ per 40 kg
a
Source:P/S price for Basmati rice
US$ per 40 kg
P/S price for Irri-6 paddy
P/S price for Irri-6 rice (F.A.Q.)P/S price for Basmati paddy
US$ per 40 kg
Stock (on 1st May)ProcurementLeft-hand scale:
Production (2000/01 July to March only)
ReleasesRight-hand scale:
Procurement/support price WT/TPR/S/95 Trade Policy Review
Page 90
Infrastructural measures
31. To facilitate trade of agricultural products (particularly exports), plans are under way for:  a
massive project for the construction of a 5,000 km. "farm-to-market" road network;  the construction
of airport facilities (in Sialkot and surrounding areas);  the establishment of direct international air
cargo and temperature-controlled warehousing facilities for perishable products;  and the preparation
of feasibility studies for projects on technical and quarantine facilities for export products (e.g. fish,rice, potatoes, mangoes).
33
(iii) Selected crops
(a) Wheat
32. Wheat is a key element in the staple diet of a majority of the population, and its production
has remained highly regulated compared with ot her agricultural items.  Wheat accounts for nearly
38% of the cultivated crop area and 12.5% of value-added in agriculture.34  Wheat imports account for
about 4% of total imports (about 7% in 1997).35  Between 1995/96 and 1999/00, labour productivity
increased by 11.3% and production by 13.9%.36  Increased output of wheat is considered a major
element for cutting the import bill;  in the year 2000, it contributed to foreign exchange savings of
US$250 million.37  As a result of the substantial increase in domestic production, there were no wheat
imports in 2000/01 and efforts were made to export the surplus crop.  To boost wheat crop a series of
measures have been taken including:  the enhancement of price support by 73.4% (from
PRs 432.5 (1995/96) to PRs 750 per 100 kg. (1999/00));  timely disbursement of agricultural loans;  a
56% reduction in electricity tariffs (as of December 1999), and temporary deferment (from January to
May 2000) of payment of electricity bills for private agricultural tubewells.38  The 1999/00 increase in
price support for wheat enabled farmers to earn additional income of PRs 60 billion
(US$1.2 billion).39  The Water and Power Development Authority was to bear the PRs 4 billion
(US$77.4 million) electricity subsid y from its own resources.  Price support and public purchases led
to record stocks (section (2)(ii)(b)).
33. Efforts are being undertaken to gradually liberalize the wheat sector.  As of July 2001,
licensing requirements affecting wheat imports have seemingly been replaced by tariffs, while those
on exports have been eliminated in May 2001.  Within the next two years, the authorities are expectedto phase out provincial subsidies to consumers and millers, transfer a large part of trading and storage
activities to the private sector, and reduce strategic stocks to one or two months of domestic
consumption.
34. Since its previous Review, Pakistan has maintained zero tariff protection for wheat, while
certain wheat products have been subject to 10% (15% in 1996) or 25% ad valorem  rates.
Nevertheless, wheat may now be imported by public and private sector entities, and exports
(including its milling products) have remained prohibited until recently.  Pakistan's annual average
                                                     
33 Central Board of Revenue (1999b).
34 Ministry of Finance (2000c).
35 UNSD, Comtrade database.
36 Ministry of Finance (2000c), Appendix Tables 2.4 and 2.5.
37 Ministry of Finance (2000a).
38 State Bank of Pakistan (2000a).
39 Furthermore, the November 1999 price increase induced farmers to make a concerted effort to use
existing land more efficiently, and to cultivate wheat on additional tracts of land;  as a result, area under wheatcultivation increased by 2.8% in the financial year 2000 (State Bank of Pakistan, 2000a).  Ministry ofFinance (2000a).Pakistan WT/TPR/S/95
Page 91
share in world import volume of wheat and wheat flour has risen slightly, from 2.3%
(1991/92-1994/95) to 2.8% (period 1995/96).40  Between 1994/95 and 1998/99 the volume of imports
of unmilled wheat rose by about 24%.41
(b) Cotton
35. Pakistan's economy depends largely on cotton (about 80% in Punjab) and its cotton textiles
production for foreign exchange and employment.42  Between 1995/96 and 1999/00, yield increased
by 6.6% and production by 6.1%.43  In response to price problems created by bumper crops, a new
cotton policy (effective as of 2001) was announced in April 200044;  it focuses on the intervention of
the state-owned Trading Corporation of Pakistan (TCP) in the seed cotton (phutti)/lint cotton market.
The policy's main features are:  the TCP remains an active secondary buyer so as to ensure better
returns to growers;  the TCP may purchase on a needs basis;  the TCP is to intervene whenever pricesdrop below PRs 725 (US$14) per 40 kg. for premium quality;  cotton exports (by the private sector, as
well as by the TCP) are allowed from the beginning of the cotton season and all export contracts must
be registered with the Export Promotion Bureau (Table III.5);  and the profit from TCP operations is
to be spent on the welfare of growers.  In addition, as of June 2000, the Ministry of Food, Agriculture,
and Livestock introduced a cotton grading and standardization system at the ginning stage.  Theinstitutional framework for research, aimed at increasing productivity and the quality of cotton as well
as for improving cotton ginning, has been strengthened by the establishment of a privately managed
Pakistan Central Cotton Committee (PCCC).
45
36. Cotton trade has been liberalized since the previous Review of Pakistan.  Tariff protection for
cotton seeds was changed from an ad valorem  rate of 15% to a compound duty of 10% plus
PRs 1,200 (US$23) per tonne, and subsequently a 5% ad valorem  duty in 2001/02;  the tariff for
cotton linters has been reduced (from 45% (1995/96) to 20% (2001/02)), while that on oil cake isunchanged (at 25%).  Although export restrictions were seemingly eliminated as of 2001, cotton
remains subject to special export procedures, state-trading and preshipment registration
(Chapter III(2)(vii) and III(3)(i)).  Export volumes of raw cotton have varied greatly from
311,000 tonnes (1995/96) to 2,000 tonnes (1998/99).
46
(iv) Livestock
37. Along with overall growth in the period under re view (Section (2)(i)), livestock's share in the
agricultural sector rose from 36.4% (1998/99) to 37.7% (2000/01).  Between 1990/91 and 1996/97 a
US$55 million comprehensive livestock development project was implemented, with Asian
Development Bank assistance, to enhance milk and meat production.47  Furthermore, the authorities
extended artificial breeding services, rationalized animal health services, improved slaughterhouses,
and introduced high yield fodder varieties.
                                                     
40 Table 6 of WTO document G/AG/NG/S/11, 9 June 2000.
41 Ministry of Finance (2000c), Appendix Table 8.9.
42 State Bank of Pakistan (2000a).
43 Ministry of Finance (2000c), Appendix Tables 2.4 and 2.5.
44 State Bank of Pakistan (2000a);  and Ministry of Finance (2000a).
45 Central Board of Revenue (1999b).
46 Ministry of Finance (2000c), Appendix Table 8.7.
47 U.S. Commercial Service (1999a).WT/TPR/S/95 Trade Policy Review
Page 92
38. Since 1996, the range of applied tariff protection on live animals, meat, and dairy has dropped
from 15%-65% to 5%-30% (2001/02).  Livestock trade has remained relatively low (imports of
US$1.8 million and exports of US$2.27 million in 1999).48
(v) Forestry
39. The growing population and rising standards of living have boosted demand for timber, which
is partially met through imports.49  The ban on forest logging to protect already heavily depleted
reserves was temporarily suspended for the year 2001;  one third of the forest area is productive i.e.
timber (mainly for house construction and furniture ), and firewood.  The remaining two thirds is
maintained for environmental stability.  To encourage imports of timber and wood, customs duties on
these unprocessed items have been lowered to 10% since 1999.
(vi) Fisheries
40. Fisheries has been a fast growing activity;  in 2000/01, it represented 3.5% of the sectoral
value added.  This growth has been the outcome of rising per capita consumption;  efforts at federal
and provincial level such as:  improved infrastructural facilities;  improvement of extension services;
introduction of aquaculture techniques;  diversification of fishing efforts;  improvement in
post-harvest techniques;  development of value-added products;  and up-grading of socio-economicconditions in the fishermen's community.
50  Promotion of fisheries through sustainable exploitation of
exclusive marine economic zones of the Sindh and Baluchistan coast-lines and providing institutional
support for value-added exports and the provision of credit in this area were under consideration in
late 2000.  The European Commission's decision to grant the Marine Fisheries Department the status
of a verifying and certifying agency for the export of seafood to EU Member States is expected to
provide an important boost to the sector.51
41. Since 1996, applied tariff protection has been reduced considerably, from 65% to rates
ranging from 5% to 20% (2001/02).  In 1999/00 fisheries represented 1.7% of total exports;  14.4% of
domestic production was exported to Japan, the United States, and the EU.52
(3) MINING AND ENERGY
(i) Mining
42. Energy-related mineral resources, such as coal, natural gas, and crude oil account for four
fifths of the 0.6% sectoral contribution to GDP (Table  I.2).  So far, the actual potential of Pakistan's
economically exploitable reserves has not been evaluated or developed due to lack of high-risk capital
investment, unavailability of latest technology, inadequate geological data, absence of infrastructure
in remote mineral-bearing areas, and the geopolitical environment.53  The development, ownership,
and operation of mines and power plants will be in the private sector.54
                                                     
48 UNSD, Comtrade database.
49 U.S. Commercial Service (1999a).
50 Ministry of Finance (2000c).
51 Under this decision, Pakistan's legislation on health inspection and monitoring of fishery products is
to be considered equivalent to that laid down in the EU (State Bank of Pakistan, 2000a).
52 Ministry of Finance (2000c);  and UNSD, Comtrade database.
53 Ministry of Finance (2000c).
54 U.S. Commercial Service (1999a).Pakistan WT/TPR/S/95
Page 93
43. Average applied tariff protection has been reduced from 27.7% to 12.2% (Table AIV.1).
State involvement has persisted in salt mining, cement production, and oil/gas (Oil and Gas
Development Corporation) exploration, extraction, and processing (Table III.4).  In add ition, public
sector entities or authorities, (such as the Pakistan Mineral Development Corporation, Punjab Mineral
Development Corporation, Lakhra Coal Development Company, Saindak Metal Corporation, Sarhad
Development Authority, Baluchistan Development Authority, and the Sindh Coal Authority) havebeen involved in joint ventures for specific projects for the development of coal/lead/zinc deposits and
rock-salt purification.
55  Despite slow implementation of the 1995 National Mineral Development
Policy, aimed at attracting foreign investment, a number of foreign companies (e.g. from Australia,
Ireland, the Netherlands) are engaged in mineral exploration (lead, zinc, gold) and have contributed
up to 18.4% (1998/99) of total foreign direct investment inflows.56  In September 2001, the authorities
announced that the units of the Pakistan Mineral Development Corporation were being privatized.
(ii) Energy
44. Pakistan needs a high (7%-8%) and sustained annual growth in energy supply and related
infrastructure capacity to support GDP growth targ ets;  its per capita commercial energy consumption
is about half of the average level of developing countries.57
(a) Hydrocarbons
45. Oil and gas reserves meet more than 80% ( 1998/99) of total commercial energy needs in
Pakistan.  Pakistan's oil import bill almost doubled  in 1999/00, over the previous year, to about 27%
of total imports58;  prior to the oil price increase, it accounted for about 15% of total imports in
1998/99.59  Domestic oil production meets approximately one sixth of the country's current
consumption (mostly for transportation), while that of gas covers 100% of the consumption (mostly
for the power sector).60  The impact of oil price increases on Pakistan's external account has been
significantly mitigated by the operation of an oil facility from Saudi Arabia that has allowed deferred
payment for imports of 80,000 barrels of crude oil per day.61
46. Although oil and gas exploration and development appears to have been carried out through
competitive bidding since 1994, the sector has been strictly controlled by the State through pricing,
allocations, fixed returns or other administrative measures, which has led to minimal investment andpoor operational efficiency.
62  Several major state (or partly state-owned) companies and their parents
or subsidiaries have dominated the oil and gas sector (Table III.4).  These include the Oil and Gas
Development Corporation Ltd (38% of oil production and 23% of gas);  the Pakistan State Oil
Company, in marketing, storage, and distribution of petroleum and petrochemical products (over 72%
of the market);  the Sui Northern Gas Pipelines Ltd and the Sui Southern Gas Company Ltd63, in
                                                     
55 U.S. Commercial Service (1999a).
56 Ministry of Finance (2000c).
57 Ministry of Petroleum and Natural Resources online information.  Available
at:  http://www.mpnr.gov.pk/intro.html [26 July 2000].
58 ABN-AMRO Bank (2000).
59 Ministry of Finance (2000c), Appendix Tables 8.4 and 8.10.
60 As of 1 April 2000, recoverable reserves of crude oil stood at 225 million barrels and those of natural
gas (excluding recent gas discoveries) were estimate d at 19.5 trillion cubic feet.  Privatisation Commission
(Finance Division) online information.  Available at:  http://www.privatisation.gov.pk/OilGas/OilGas.asp
[23 July 2000];  and Ministry of Petroleum and Natural Resources online information.  Available
at:  http://www.mpnr.gov.pk/intro.html [26 July 2000].
61 ABN-AMRO Bank (2000).
62 World Bank (2000).
63 The SSGC owns and operates the only domestic gas meter manufacturing plant in Pakistan.WT/TPR/S/95 Trade Policy Review
Page 94
transmission, purification, and distribution of natural gas;  Pakistan Oil Fields Ltd;  Pakistan
Petroleum Ltd, the largest exploration and production company;  and the Attock Refinery Ltd.64
47. As indicated earlier (Chapter III(2)(ii)(i) and III(2)(vii)) imports of goods related to petroleum
projects have benefited from duty and tax concessions.  As of May 1997, the Government announced
a new Petroleum Policy, which is focused on mobilizing greater resources, and promoting
private-sector investment.65  Efforts are being made to achieve greater cost effectiveness, reduce
import dependence and promote self-reliance.  Measures have also been taken to improve sectoral
infrastructure, develop efficient and transparent management, deregulate the downstream petroleum
marketing sector, and rationalize prices and improve the distribution of liquefied petroleum gas.
Under this policy, an off-shore package has been put in place, involving mainly production sharing,
reduced taxes (40% cut) and a temporary royalty holiday (first four years) for oil and gas;government revenues are maintained without direct participation but through a progressive profit from
oil and gas split.  Policy changes have been made to attract investment in ultra-deep (greater than
1,000 metre water depth) off-shore exploration by adding a zone with competitively better oil-split
profit in the production sharing.  Existing off-shore licences may now also benefit from new off-shore
terms.  An off-shore production model sharing agreement has been made available to investors.  As aresult, two wells have been drilled and another was to be drilled by October 2001.  At the time of
completion of this Report, the terms of on-shore exploration were being reviewed to bring them into
line with incentives available in other countries.
48. A price adjustment mechanism for petroleum products has been in place since
December 1999, to pass through changes in import prices
66;  prices of the petroleum products are
reviewed quarterly, based on the international prices of the preceding three months.  Since July 2000,
the price of furnace oil and its inland transportation have been deregulated;  the uniform pricingmechanism for furnace oil was abolished.  Oil marketing companies (OMCs) are free to import
furnace oil and to announce/adjust prices on a weekly basis.
49. In 2000, the authorities, inter alia,  envisaged:  encouraging the conversion of power plants
(from furnace oil to gas) and the use of compressed natural gas (CNG);  and the rationalization of
profit margins of OMCs.
67  Plans for the gradual disengagement of the State from the importation of
petroleum products were initiated by allowing the private sector to freely import and distribute
furnace oil as of July 2000.68  Applied tariff protection for crude petroleum and gas has dropped from
30% to 10% (Table AIV.1).  As of September 2000, imports of LPG have been exempt from the 10%
customs duty, to ensure availability of supplies at competitive prices;  this is expected to encourage
the replacement of kerosene, wood, and natural gas with LPG in certain areas.69
                                                     
64 Ministry of Finance (2000c);  and Privatisation Commission (Finance Division) online information.
Available at:  http://www.privatisation.gov.pk/OilGas/OilGas.asp [23 July 2000].
65 Ministry of Petroleum and Natural Resources online information.  Available
at:  http://www.mpnr.gov.pk/intro.html [26 July 2000];  Board of Investment online information.  Available
at:  http://www.pakboi.gov.pk/ [20 July 2000];  and Privatisation Commission (Finance Division) onlineinformation.  Available at:  http://www.privatisation.gov.pk/OilGas/OilGas.asp [23 July 2000].
66 IMF (2000).
67 State Bank of Pakistan (2000a).
68 Ministry of Finance (2000a).
69 The exemption may lead to increased LPG imports, thus raising revenue from the general sales tax
and corporate tax paid by importers;  not only is forgone customs revenue to be compensated, but additionalfiscal revenue is to be generated ( The New International, Pakistan, statements by the Ministry of Petroleum
spokesman 4 December 2000 [Online].  Available at:  www.jang-group.com/com/thenews/ dec2000-daily/04-12-2000/main/main5.htm [4 December 2000].Pakistan WT/TPR/S/95
Page 95
50. In September 2000, following the commencement of production by the Pak-Arab Refinery
Ltd. (PARCO), which increased LPG supplies by about 80%, the price of LPG was deregulated.
Pakistan might even be in a position to export LPG, as the expanded supplies will more than meet
local demand.70  LPG imports have been liberalized with a view to promoting investment in storage
and infrastructure on the basis of commercial opportunities and risk;  this is to facilitate areas that are
not yet connected to the pipeline network.71
51. In February 2000, an independent regulatory agency (Gas Regulato ry Authority (GRA),
Petroleum Regulatory Board) was established to regulate independently the activities of the oil and
gas sector as well as to undertake the privatization process.72  Policy reforms in the gas sector have
benefited from World Bank finance consisting of a US$500,000 Institutional Development Fund
(approved in 2000).
(b) Electricity
52. Only about half of the country's population has access to electricity.73  Pakistan has faced
chronic energy shortages in electricity generation, which resulted in regular rotating power outages
(load shedding) and forced many industries to develop their own alternative power sources;  since
1995/96 annual targets for village electrification have seemingly not been met.74  Between 1994/95
and 1999/00, Pakistan's installed capacity (thermal  70%, hydroelectric 29%, nuclear 1%) increased by
38.5% as a result of growth in thermal plant capacity.75  Residential consumers account for the largest
part of total electricity consumption (46.1%, 1 999/00), followed by industry (26.9%), agriculture
(11.1%), bulk supply and public lighting (7.0%), and commercial consumption (4.9%).
53. Power generation has been dominated by the two vertically integrated state-owned entities,
the Pakistan Water and Power Development Authority (WAPDA) and the Karachi Electric Supply
Corporation (KESC), which account for 72.1% (1999/00) of the installed capacity.  There are tenindependent power producers, and several private sector power projects are in the process of
development.
76  In the light of the 1998 reforms (see below), the privatization/deregulation process of
the power sector was to proceed with solicitation of offers (international competitive bidding) to build
private generating plants (using domestic coal and hydroelectric resources)77, to sell power under
contract to privatized distribution companies or the national grid company.  The Pakistan ElectricPower Company (PEPCO) seems to have been es tablished in 1998 to manage the restructuring
process prior to privatization.
78  At present, the privatization effort is focused on KESC's and
WAPDA's distribution system, which comprises eight electric supply companies, of which two, are in
process of privatization:  Faisalabad Electric Supply Company (by end 2002), and Lakhra Power Plant
(by end 2003).79
54. Domestic legislation was updated with the enactment of the Regulation of Generation,
Transmission and Distribution of Electric Power Act 1997;  upon agreement with the IMF, the Asian
                                                     
70 Ministry of Finance (2000a).
71 Privatisation Commission (Finance Division) online information.
72 Ministry of Finance (2000a).
73 Privatisation Commission (Finance Division) online information.
74 U.S. Commercial Service (1999a);  Ministry of Finance (2000c), Table 16.16.
75 Ministry of Finance (2000c), Appendix Table 14.3.
76 Privatisation Commission (Finance Division) online information;  and Ministry of Finance (2000c).
77 Previous policies have predominantly resulted in private investment in oil or gas fired power plants,
mainly based on imported fuels.
78 IMF (1998).
79 Privatisation Commission (Finance Division) online information.WT/TPR/S/95 Trade Policy Review
Page 96
Development Bank, and the World Bank, major changes have been announced to create a competitive
power market.80  This is to be achieved through restructuring and privatizing the existing thermal
power generation, the power transmission and distribution functions, and assets of existing
public-sector utilities (WAPDA/KESC), as well as the creation of a fully autonomous regulatory and
policy-making authority, the National Electric Power Regulatory Authority (NEPRA).81  NEPRA has
been entrusted with granting licences for power generation, transmission, and distribution, andregulating tariffs for these activities.
55. In order to boost overall economic growth and increase electricity sales to the productive
sectors (agriculture and industry), many concessions have been provided through preferential
electricity tariffs, thus cross-subsidizing households and agricultural tubewells (Chapter III(4)(ii));
this type of support has been notified regularly to the WTO.
82  By 1999/00, a complex schedule of
electricity tariffs was in force (i.e. the sum of fi xed/minimal charges, energy charges, fuel adjustment
surcharge (FAS), and additional surcharges) setting various tariffs (i.e. for general supply, industrial
supply, bulk-supply, temporary supply, agricultural tubewells83) with several subcategories by user,
level, and time (e.g. peak) of consumption and/or location;  its complexity impedes an appraisal of
tariff differentials.  In response to pressure exerted on independent power producers through letters ofintent to terminate their contracts, which would have  resulted in massive financial losses for the firms
concerned, five of them agreed to reduce their power tariffs in 1997/98 for ten years.
84
(4) MANUFACTURING
56. According to the latest available data, in 1995/96 manufacturing in Pakistan involved mainly
textiles, food, industrial chemicals, non-metallic mineral products, and iron and steel products
(Table IV.4).  As a result of the inertia of domestic producers, the sector's contribution to GDP
declined slightly from 17.1% (1994/95) to 15.1% (1999/00) and growth slowed considerably from7.9% (1997/98 a peak year) to 1.6% (1999/00).
85  This trend has, inter alia,  adversely affected the
sector's labour absorption capacity compared with othe r, faster growing sectors;  it is now the fourth
rather than second largest employer.  Its share (including mining) in total employment has remained
relatively stable at around 10.2% (2000/01) (Table I.2).  The latter development, together with
manufacturing's declining share of GDP, suggests that while labour productivity in manufacturingremains higher than the national average, the sector's relative advantage has been eroding.
57. State involvement in large-scale manufacturing has persisted (Table III.4).  In 1999/00, there
were 38 state-owned entities and two joint ventures run by six holding corporations under the control
of the Production Division of the Ministry of Industries;  according to the Privatization (Short and
Medium) Plan, disinvestments are to affect 30 of these entities (mainly, automobiles, textiles, cement,
                                                     
80 Reportedly, these reforms are being undertaken to address problems such as:  inefficient operations,
high system losses, and theft;  overstaffing, governance problems, and deteriorating infrastructure due toinadequate maintenance;  inability to collect electricity bills of key consumers;  distorted tariff structure withheavy subsidization of agricultural and low-slab domest ic (i.e. household) consumption and free supply to the
Federally Administered Tribal Areas (FATA), Azad Jammu  and Kashmir, associated with overpricing of power
for industrial and commercial consumption;  and the induction of substantial amounts of high-cost private powercapacity relative to WAPDA's existing hydroelectric and other generation facilities (Asian Development Bank,2000a).
81 Board of Investment (1998).
82 Ministry of Finance (2000c).
83 Between December 1999 and May 2000, a 25% rebate in KWh charges was available to private
agricultural tubewell consumers (Ministry of Finance, 2000c, Appendix Table 14.4).
84 U.S. Commercial Service (1999a).
85 Ministry of Finance (2000c), Appendix Tables 1.2 and 1.3;  Planning Commission (1999), p. 2;
Planning Commission (2000), pp. vi and 3.Pakistan WT/TPR/S/95
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fertilizer, vegetable oil, and engineering) by the end of 2002.86  Employment in state-owned
manufacturing firms has declined by 18% (from 37,617 in 1998/99 to 30,749 in June 2000) as a result
of major lay-offs.87
Table IV.4
Manufacturing in Pakistan, 1995/96
(US$ million and per cent)
Description Value
addedIndirect tax
contributionValue of fixed
assetsStructure of
gross outputShare of value
added to gross
output
Total (US$ million and per cent) 6,332 1,205 6,972 20,529 30.8
(Percentage of total)
Food 15.2 14.4 13.9 17.8 26.3
Beverages 1.6 4.2 0.8 1.0 47.5
Tobacco 6.2 25.9 0.4 2.3 81.5
Textiles 22.3 9.7 40.8 29.0 23.8
Wearing apparels 1.4 0.0 0.8 1.5 28.7
Leather and products 1.3 0.1 0.6 1.4 28.2
Ginning, pressing, and bailing 1.2 .. .. 5.1 7.1
Wood products and furniture 0.3 0.2 0.3 0.3 33.0
Paper and products 1.6 3.2 2.1 1.5 32.9
Printing and publishing 2.0 0.2 0.6 1.0 61.7
Drugs and pharmaceutical products 4.8 1.0 1.8 3.7 39.6
Industrial chemicals 8.5 2.7 7.8 5.8 45.1
Other chemical products 3.0 5.4 0.9 2.6 34.8
Petroleum refining, petroleum and coal products 3.1 4.1 1.9 4.9 19.4
Rubber products 0.9 1.3 0.3 0.7 36.4
Plastic products 0.4 0.4 0.8 0.6 22.1
Non-metallic mineral products 7.7 19.5 8.6 4.3 55.3
Iron and steel basic industries 4.2 0.6 9.1 3.9 32.5
Fabricated metal products 0.7 0.7 0.4 0.7 32.2
Non-electrical goods 1.6 4.6 2.0 1.8 27.3
Electrical machinery 7.7 0.9 2.5 4.5 52.7
Transport equipment 3.5 0.0 2.9 4.3 25.0
Measuring, photographic, optical goods 0.2 0.0 0.2 0.3 23.5
Sports and athletic goods 0.4 0.2 0.2 0.5 20.7
Others 0.5 0.0 0.2 0.4 41.1
.. Not available.
Source: Ministry of Finance (2001), Appendix Tables 3.3 and 3.5 [Online];  and Government of Pakistan.
58. Manufacturing (excluding food items) has contributed to a decreasing share of Pakistan's
exports (from about 86.9% in 1995 to 84.7% in 2000), and imports (from about 56% to 46%).88  In
1999/00, exports were composed mainly of cotton manufactures (yarn, cloth, and garments), leather
                                                     
86 Since the initiation of a privatization programme in 1991, the number of state-owned enterprises in
the manufacturing sector has declined from 101 to 41 (2000) (Privatisation Commission, 2000).
87 Ministry of Finance (2000c), Table 3.5B.
88 UNSD, Comtrade database.WT/TPR/S/95 Trade Policy Review
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goods, synthetic textiles, carpets, and sport goods;  imports were dominated by fertilizers, petroleum
products, machinery, transport equipment, chemicals, and iron and steel.89
59. Since 1996/97, Pakistan's average applied MFN tariff (ISIC classification) on imports of
manufactures has declined from 42.1% to 20.9%;  this is a consequence of its unilateral trade
liberalization programme, rather than the impl ementation of its limited Uruguay Round binding
commitments in the sector.  Binding levels for certain manufactures have not been fully observed(Chapter III(2)(ii)(b) and III(2)(ii)(e)).  Tariff changes have brought little change in the sectoral
pattern of tariff escalation;  and automobiles, trucks, and motorcycles have continued to attract the
highest ad valorem  rates ranging from 100% to 250%.  Several types of duty concessions on imports
of raw materials and machinery not produced domestically have continued to provide additional
protection to local industry (Chapter III(2)(ii)(j)).
90
60. Imports of items such as agricultural tractors, motor cars, trucks, and buses in CKD condition
may be imported only by recognized assemblers in accordance with a delegation programme
approved by the authorities (Table III.2).  Between July 2000 and January 2001, all items of textile
fabrics, carpets, made-up textiles, clothing, and chassis for trucks have been removed from the
Negative List (Chapter III(2)(vi)).  Import of cigarettes and filter tipping paper have also been allowedwithout quantitative restriction.  Pharmaceutical raw materials are imported only by the
pharmaceutical industries holding valid drugs-manufacturing licences.  Since 1997, locally
manufactured television sets and air conditioners have been exempt from the excise tax, seemingly to
discourage smuggling.
91
61. Several tax and non-tax measures, such as a duty drawback scheme, concessions on duty and
sales tax on imports relating to production of export items, export-processing zones, income tax
rebates, concessional export finance92, low electricity tariffs, and grants for ISO 9000/14000
certification, have, inter alia,  supported exports of manufactures (Chapter III).  Assemblers and
manufacturers of engineering goods, electrical items, and automobiles have been provided with
incentives in the form of duty concessions on imports of prescribed components and parts under the
Indigenization/Deletion Programme;  concessionary finance for local manufacturers of machinery has
been offered.  As of August 2000, a micro-credit bank facilitates credit to small and medium-sizedenterprises (SMEs), which account for 80% of sectoral employment and one fourth of export
earnings.
93  Under a December 1999 Economic Revival Programme, a Corporate and Industrial
Restructuring Corporation (CIRC) was to be established to revive ailing industrial firms, initially by
the take-over of the non-performing loans to these firms by the nationalized commercial banks
(section (5)(iii)(a)) and the development finance institutions.94
(i) Textiles and apparel
62. The textiles and clothing branch has remained Pakistan's single most important industry
(accounting for 23.7% of sectoral value added, 40% of manufacturing employment, and 73% of total
exports).  Based on locally grown cotton, and concentrated in the preliminary stages of processing, it
                                                     
89 Ministry of Finance (2000c), Appendix Tables 8.7 and 8.10.
90 The Central Board of Revenue (CBR) issues and regularly updates a Customs General Order
containing the list of locally manufactured machinery, intermediate goods and raw materials that are excludedfrom the granting of duty concessions (Customs General Order 07/98, 24 March 1998).
91 State Bank of Pakistan (1999).
92 State Bank of Pakistan (2000a).
93 Ministry of Finance (2000c).
94 An Ordinance to Establish CIRC was promulgated on 22 September 2000 (State Bank of
Pakistan, 2000a, Appendix II).Pakistan WT/TPR/S/95
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is dominated by cotton textiles (cotton yarn and cloth, made-up textiles) but it also produces apparel,
polyester yarn, carpets, and jute products.95  Following five years of stagnation, the industry grew by
12.3% in 1999/00 as a result of a bumper cotton crop, the subsequent fall in domestic prices of cotton,
an increase in working capital finance for textile manufacturers, and revival of capacity utilization in
the existing mills.96  Between 1994/95 and 1999/00, production of cotton yarn and cotton cloth
increased faster than the number of textile mills, some of which are state-owned (Table IV.5).97
Table IV.5
Cotton textile industry developments, 1994-2000
1994/95 1995/96 1996/97 1997/98 1998/99 1999/00
Number of mills 334 349 357 353 348 351
Installed capacity
No. of spindles ('000) 8,307 8,493 8,137 8,274 8,298 8,383
No. of looms ('000) 14 13 10 10 10 10
Working at the end of the period
No. of spindles ('000) 5,991 6,356 6,465 6,556 6,594 6,750
No. of looms ('000) 5 5 5 4 5 4
Spindle hours worked (million) 49,734 52,239 53,625 55,005 55,802 57,205
Loom hours worked (million) 41.8 37.1 36.4 37.7 35.2 34.3
Consumption of cotton (million kg.) 1,558.9 1,661.9 1,670.1 1,751.0 1,839.6 1,961.6
Total yarn produced (million kg.) 1,369.7 1,495.0 1,520.8 1,532.3 1,540.3 1,669.9
Surplus yarn (million kg.) 1,340.6 1,434.7 1,473.9 1,478.9 1,482.4 1,604.4
Total production of cloth (million m2) 321.8 327.0 333.5 340.3 384.6 437.2
Source: Ministry of Finance (2001), Federal Bureau of Statistics, Annex Table 3.6.
63. Textiles and clothing (mainly cotton cloth, cotton yarn, knitwear, woven garments, towels,
synthetic textiles, bed linen, carpets, etc.) have continued to dominate Pakistan's exports, although,
their share has dropped slightly, from about 76% (1994) to 73% (2000).98  In 1998, Pakistan was the
world's eighth largest exporter of textiles.99  Certain exports of textiles and clothing products have
been subject to quotas in the EU, the United States, and Canada, as well as to safeguard measures in
the United States and Argentina, under the WTO Agreement on Textiles and Clothing (ATC)
(Chapter III(3)(iii)(c)).  Efforts have been made  to involve the private sector in quota allocation;
under the Textile Quota Management Policy Order 2000, as of 6 January 2000, changes have beenmade in the quota transfer mechanism to ensure greater quota access to genuine exporters rather than
re-exporters, especially newcomers.
100  Pakistan's textile exports have been subject to investigation,
anti-dumping, or countervailing measures in certain major markets.101
                                                     
95 U.S. Commercial Service (1999a);  U.S. Commercial Service (1998a).
96 Ministry of Finance (2000c);  State Bank of Pakistan (2000a).
97 U.S. Commercial Service (1999a).
98 UNSD Comtrade database.
99 WTO (1999), Table IV.72.
100 State Bank of Pakistan (2000a).
101 An investigation to determine dumping of bed linen was initiated by South Africa on
17 December 1999 (WTO document G/ADP/N/59/ZAF, 5 April 2000).  Anti-dumping duties have been applied
by Japan (cotton yarn), the United States (cotton shop towel), and the EU (cotton bed linen, cotton fabrics, andunbleached cotton fabrics (WTO documents G/ADP/N/65/EEC, 17 August 2000, G/ADP/N/59/JPN,29 March 2000, and G/ADP/N/64, 20 July 2000).  Pakistani cotton shop towel has been subject tocountervailing duties in the United States (WTO document G/SCM/N/52/USA, 26 October 1999).WT/TPR/S/95 Trade Policy Review
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64. Imports of textiles and clothing have remained insignificant (1.1% of total imports, 1999)102
partly as a result of relatively high tariff protection (compared with other sectors) and extensive
import prohibition (Table III.3).  Between 1996 /97 and 1999/00, average applied MFN rates on
textiles and clothing, respectively, declined from 51.3% to 25.8%, and from 62.8% to 29.3%
(Table AIV.1);  tariff escalation in textiles is now less pronounced than previously.  As of 1995,
Pakistan bound 251 out of the 254 textile-related tariff lines over a five-year period (i.e. 2000), and100% of textile tariff lines over a ten-year period (Chapter III(2)(ii)(b));  ceiling rates are 20%, 30%,
40%, and 50%.
103  Nevertheless, applied rates seem to exceed these ceilings.  In February 2001,
Pakistan integrated the entire textiles and clothing sector into GATT 1994, thus the sector is governed
by these rules.104
65. In addition to the beneficial effects of the new Cotton Policy (section (2)(iii)(b))105, domestic
support has been provided to the garment sector for the modernization of production facilities, and for
market research and sales promotion.106  Plans are under consideration to promote product
diversification in the weaving industry through credit.107  The Textile Vision 2005 plan envisages,
inter alia,  reviving closed spinning units and upgrading technology in the weaving sector.
(ii) Motor vehicles
66. Pakistan's highly protected, diversified, and inward-oriented motor-vehicle industry (cars,
jeeps, tractors, trucks, buses, scooters, motorcycles, light commercial vehicles) has made a minor
contribution to value added in manufacturing (Table IV.4).  State involvement in the industry has
persisted (Table III.4);  according to the authorities, at present there is only one state-owned
automobile plant (Sindh Engineering), which is included in the privatization process.108  Since
1996/97, production/assembly of cars and tractors has risen, while output of trucks has fallen
gradually.109
67. Developments in tractor production were mainly influenced by a subsidized tractor scheme
(1999/00), and increased credit availability throug h the allocation of PRs 7 billion by the Agriculture
Development Bank of Pakistan (section (2)(ii)(b)).110  Seemingly, in order to provide low cost
machinery to farmers and to boost agricultural output, a programme has been in operation to reduce
the cost of tractors by over 20%, in collaboration with the local tractor assemblers.  With a view topromoting manufacturing of cars and jeeps, value-added tax was not levied on locally manufactured
cars (as of 24 January 1998) and jeeps (as of April 2000)
111;  this practice should have ceased as of
June 2000 (Chapter III(4)(i)(a)), however there has been no clarification from the authorities on this
matter.  The authorities indicated that at present these items are subject to 15% GST.
68. Pakistan has maintained its traditionally high tariff protection for completely built-up (CBU)
vehicles, applying ad valorem  rates ranging from 100% to 250% as well as the temporary specific
duties;  according to the authorities, high protection is due to time-bound investment agreements with
                                                     
102 UNSD, Comtrade database.
103 Schedule XV – Part I – Pakistan;  and WTO document G/C/M/26, 19 November 1997.
104 WTO document G/TMB/N/384, 9 February 2001.
105 In order to ensure steady supply of cotton, this policy is to provide minimum price support for
cotton, and to allow the textile mills and cotton exporters to purchase cotton under market-based conditions.
106 U.S. Commercial Service (1999a).
107 Ministry of Finance (2000c).
108 U.S. Commercial Service (1999a).
109 Ministry of Finance (2000c).
110 State Bank of Pakistan (1999) and (2000b).
111 SRO 43(I)/98, 24 January 1998, and State Bank of Pakistan (2000a), Appendix V.Pakistan WT/TPR/S/95
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foreign investors.  Although the sector has not been affected by the unilateral trade liberalization
programme, between 1996/97 and 1999/00 average applied tariff protection dropped from 82.9% to
78.5% (Table AIV.1).  Duty concessions have been provided to manufacturers of automobiles on
imports of raw materials, components and subcomponents under the Deletion Programme.  Imports of
chassis for motor vehicles are banned, and motorcars and other motor vehicles in CKD condition are
importable only by recognized assemblers under the Deletion Programme and are subject to a 35%customs duty.  As a result, the automobile industry has been considered as the most protected industry
in Pakistan;  the effective rate of protection (ERP) ranges from 701% to over 5,000%.
112
(5) SERVICES
(i) Features
69. Services make up the largest part of the Pakistani economy.  The share of services (including
construction, electricity/gas distribution) in GDP rose from 57.2% in 1995/96 to 58.7% in 2000/01
(Table I.2).  Between 1995 and 2000, the sector's share in total employment remained stable at around
42.7%.  Wholesale and retail trade, and transport, storage, and communications have been by far the
leading service activities in Pakistan;  other important service activities were public services,
ownership of dwellings, distribution of electricity, gas and water, and construction.
70. Since its previous Review, Pakistan has maintained its position amongst the region's small
services providers/traders (1999), and exports (receipts) of commercial services have declined
somewhat faster than imports (payments) mainly due to the reduction in shipping activities.  Between
1995/96 and 2000/01, exports of non-factor services  dropped by about 46% to US$1.0 billion;  in
2000/01, exports of commercial services represented 13.6% of total exports of goods and non-factor
services (Table I.3).  During the same period, imports, largely consisting of shipment services, fell by
more than 45% to US$1.8 billion.  "Other services" re fer to inflows/outflows relating to the operation
of missions/representations (foreign in Pakistan, Pakistani abroad), royalties, bank commissions and
charges, technical/legal fees, and sundry insurance payments.113
(ii) Overall commitments under the General Agreement on Trade in Services
71. Since its previous Review, Pakistan has undertaken commitments under the General
Agreement on Trade in Services (GATS);  in the context of the extended WTO negotiations onfinancial and telecommunication services, these commitments have been further improved and
ratified.
114  Pakistan's Schedule of Specific Commitments covers 47 activities within the financial
(banking and insurance), business, communications, construction/engineering, health, and
tourism/travel services (Table AIV.2).  There are certain general (i.e. horizontal) market-access and
national-treatment limitations relating 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.
For a number of activities (e.g. certain business, construction, health, and tourism services), no
bindings have been made due to lack of technical feasibility.  Foreign commercial presence in certain
sectors (e.g. insurance, banking) is subject to equity limitations and/or other specific conditions.Pakistan undertook to withdraw the exclusive ri ghts of the Pakistan Telecommunication Company
                                                     
112 Ministry of Finance (2001).
113 State Bank of Pakistan (2000a), Appendix VIII.1.
114 Pakistan ratified the Fourth Protocol to the GATS (Basic Telecommunications) on
4 September 1997, and the Fifth Protocol (Financial Services) on 23 December 1998 (WTO documentsWLI/200-3, 30 November 1997 and WLI/200-4, 18 February 1999).  WTO documents GATS/SC/67,15 April 1994, GATS/SC/67/Suppl.2/Rev.1, 16 February 1998, and GATS/SC/67/Suppl.3, 26 February 1998.WT/TPR/S/95 Trade Policy Review
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Limited (PTCL) by the end of the year 2003.  Under Article II of the GATS, Pakistan has maintained
MFN exemptions for financial services with a view to preserving reciprocity requirements, Islamic
financing transactions, and joint ventures among  ECO countries (Chapter II), as well as for
telecommunication services in favour of countries/operators signatories of bilateral agreements on
accounting rates with the PTCL.115
72. Pakistan did not participate in the WTO negotiations on maritime transport services;  the
authorities indicated that, given the state of development of domestic maritime transport services and
of the negotiations, it was premature for Pakistan to play an active role in this area.  It did however,
provide replies to the questionnaire on the accountancy sector in the context of the Working Party on
Professional Services.116  At the Special Sessions of the Council for Trade in Services devoted to the
new round of negotiations, Pakistan underlined, inter alia,  the general lack of concrete market-access
benefits to developing countries, and voiced concern on the implementation status of Article IV
(Increasing Participation of Developing Countries) of the GATS.  Stressing the comparative
advantage of many developing countries in labour intensive services, it has, inter alia, submitted a
paper discussing ways and means of upgrading commitments under mode 4 (movement of natural
persons) and reducing the scope for discretionary interpretation and implementation.117
(iii) Financial services
73. Banks (and other financial intermediaries) are considered the backbone of Pakistan's
economy.  An efficient financial sector is needed both to ensure an adequate level of savings and to
channel savings into those investments that contribute most to economic welfare.  It is therefore
essential for Pakistan's successful economic restructuring and long-term development;  this is
particularly true given the country's scarcity of capital relative to labour.
(a) Banking and finance
74. Competition between banks ensures the highest possible returns on deposits, thus encouraging
saving.  Competition also ensures the lowest possible lending rates to creditworthy borrowers,
consistent with interest payments to depositors a nd overhead costs, thereby fostering investment and
its efficient allocation among different uses.
75. Since 1990, reforms have been aimed at deregulating the financial market, privatizing
state-owned banks, conducting monetary policy with market-based instruments, and strengthening the
supervisory and regulatory functions of the State Bank of Pakistan (SBP).  By rationalizing staffing
and branch networks in nationalized banks through staff redundancy and branch closures, in 1999/00,
the number of branches of nationalized, privatized, and specialized banks had dropped; nevertheless,
the sector has remained dominated by branches of the 25 domestic banks (mainly nationalizedcommercial banks), whose share of total banking assets has increased from 79% (1994/95) to about
85% (1999/00) (Table IV.6).  At present, 43 banks (4 nationalized banks, 4 specialized banks,
16 private domestic banks, and 19 foreign banks) operate in Pakistan.  Three nationalized commercial
banks (Habib Bank, National Bank, United Bank) control half of the deposits and advances of the
banking sector;  these banks have been slated for privatization, but little progress has been madepartly because of their inadequate capital base.
118  As of June 2001, the non-banking financial
                                                     
115 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.
116 WTO document S/WPPS/W/7/Add.29, 30 April 1997.
117 WTO documents S/C/M/34, 16 April 1999, WT/GC/W/354, 11 October 1999, S/CSS/M/2,
9 May 2000, S/CSS/M/3, 26 June 2000, and WT/GC/W/160, 1 April 1999.
118 U.S. Commercial Service (1999b).Pakistan WT/TPR/S/95
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institutions (NBFI) comprised 16 investment banks, 33 leasing companies, 46 Modaraba
companies119, 41 closed- and open-ended mutual funds, 10 development financial institutions (DFIs),
4 discount and guarantee houses, 2 venture capital companies, and 4 housing finance companies.120
The state-owned National Development Finance Co rporation (NFDC), and the Pakistan Industrial
Credit and Investment Corporation (PICIC) are th e leading development finance institutions (DFIs).121
76. Amended or new legislation, mainly related to institutional and loans recovery matters, was
passed in 1996 and 1997.122  Further amendments of the recovery-related laws were under
consideration at the time of completion of this Report with a view to making procedures more
effective.123
Table IV.6
Structure of the financial system, 1994-2000
1994/95 1995/96 1996/97 1997/98 1998/99 1999/00
Total assets (PRs billion)
Domestic banks 1,309.8 973.0 1,616.6 1,294.3 1,456.8 1,400.9
Foreign banks 337.8 163.9 512.5 293.2 277.5 252.4
Total 1,647.6 1,136.9 2,921.1 1,587.6 1,734.3 1,653.3
Bank branches (number)
Nationalized commercial banks 5,184 5,253 5,251 4,772 4,690 4,580
Privatized banks 2,209 2,278 2,312 2,201 2,196 2,199
Specialized banks 525 536 538 534 532 529
Private domestic banks 408 456 496 542 555 569
Foreign banks 74 83 76 81 85 78
Total 8,400 8,606 8,673 8,130 8,058 7,955
Source: Ministry of Finance (2000c), Table 6.6;  State Bank of Pakistan (2000a), Table V.11;  and Government of
Pakistan.
77. In principle, no restrictions affect the establishment and operations of foreign banks in
Pakistan;  nevertheless, permission to operate is granted only on a reciprocal basis (Section (ii)).124
Foreign banks have been allowed a maximum number of 25 branches.  Foreign brokers may join oneof the country's three stock exchanges only as part of a joint venture with a Pakistani firm.  Branches
of foreign banks in Pakistan and foreign-controlled  investment banks have been authorized to invest
in registered listed corporate debt instruments in the primary and secondary markets.
125
78. Government intervention in the operation of the financial system has been reduced by
expanding the autonomy of the State (central) Bank of Pakistan (SBP) in May 1997.126  The SBP now
has full and exclusive authority to regulate the banking sector, to conduct an independent monetary
policy, and to set limits on government borrowing ( from the SBP).  It has also been involved in the
                                                     
119 Modaraba  is the Islamic version of a Mutual Fund.  It is similar to a closed-end mutual fund with
certificates listed on the stock market, and it is managed by a modaraba  management company, which must
subscribe to, and maintain at least 10% of the modaraba . (U.S. Commercial Service, 1999a).
120 Ministry of Finance (2001), Appendix Table 5.8;  U.S. Commercial Service (1999b);  and Securities
and Exchange Commission of Pakistan (2000).
121 Privatisation Commission (2000b),  and U.S. Commercial Service (1999a).
122 State Bank of Pakistan (1999).
123 State Bank of Pakistan (1999).
124 U.S. Commercial Service (1999b).
125 State Bank of Pakistan (1999).
126 State Bank of Pakistan (2000c).WT/TPR/S/95 Trade Policy Review
Page 104
process of appointment and removal of the Chief Executives and Boards of the nationalized
commercial banks and development finance institutions.  While the SBP continues to supervise
commercial banks and NBFIs, as of January 1999, the modarabas , mutual funds, and leasing
companies have been supervised by the Securities and Exchange Commission (SECP), an
autonomous body.  As of 1997, banking activities have been monitored through a system of "off-site"
(i.e. regular checking of various returns derived from balance sheet, profit and loss accounts regularlyreceived from different banks) and "on-site" inspection and supervision (i.e. on the premises of banks
whenever required).
79. The financial health of the banking system seems to have improved as a result of measures to
enhance the banks' commercial orientation, inter alia ;  since mid November 1999, an intensified  loan
recovery drive has already yielded some PRs 25.1 billion (November 2000) in collections, equivalentto about 9% of the outstanding stock of non-performing loans of the banking system.
127
80. To safeguard the interests of the ultimate users of the financial services and to ensure the
viability of institutions providing these services , the SBP issued a comprehensive set of Prudential
Regulations (for commercial banks) and Rules of Business (for NBFIs).  As of 1997, the banks have
been obliged to disclose their financial position through a new format of balance sheet andprofit-and-loss account with a view to conforming with international standards.  Since January 1997,
the banks have been required to maintain capital and unencumbered general reserves equivalent to 8%
of their risk-weighted assets.
128  In December 2000, the minimum paid-up capital requirement was
doubled to PRs 1 billion;  existing banks must increase the minimum paid-up capital, net of losses, in
two stages (PRs 750 million by 1 January 2002, PRs 1 billion by 1 January 2003).  As of
30 June 2000, the average capital-adequacy ratio of nationalized commercial banks stood at 9.67%,
privatized banks at 7.58%, specialized banks at 0.09%, private banks 12.93% and foreign banks at16.94%;  the overall average capital-adequacy ratio maintained by the banking sector stood at
10.15%.  As of 1996, leasing companies have been required to have a minimum capital of
PRs 200 million (US$3.9 million).
129
81. Several measures have been taken to deregulate interest rates.  Restrictions on maximum
(except for concessionary finance schemes) and minimum lending rates were removed in 1995 andJuly 1997, respectively.
130  The gap between non-subsidized and subsidized lending rates for priority
sectors has been reduced gradually.  As of June 1998, financial institutions may determine freely their
deposit rates in line with the principles of Shariah .131  To, inter alia,  remove distortions created by
high rates of return offered under state-guaranteed national saving schemes, and to encourage
investment (rather than savings), as of the year 2000 the rate of return under these schemes has beenlowered twice and beneficiaries were restricted to individuals only.
132  The large spread between the
average rate of interest charged on loans and the rate paid on deposits is indicative of a lack of
                                                     
127 The Corporate and Industrial Restructuring Cor poration (CIRC) has undertaken the cleaning up of
banks' balance sheets with a view to disposing of the non-performing assets of the nationalized commercial
banks' (NCBS') through industrial restructuring, mergers, and, if necessary, liquidation.
128 State Bank of Pakistan (2000c).
129 Securities and Exchange Commission of Pakistan (2000).
130 State Bank of Pakistan (2000d).  The concessionary finance schemes are:  the Export Finance
Scheme;  Scheme for Financing Locally Manufactured Machinery;  and Commodity Operation financing forGovernment Agencies.
131 Pakistan has been in the process of adopting the Islamic ( Shariah ) financial system, under which
interest-based banking is not allowed.  However, this has not been passed into law yet, and most banks providean anticipated profit rate in advance (U.S. Commercial Service, 1999b).
132 This interest rate was reduced by 2 percentage points in January 2000, and by an additional
1.5 percentage points in July 2000.  Ministry of Finance (2000a).Pakistan WT/TPR/S/95
Page 105
competition in the banking sector and its resulting inefficiency.  The spread rose from 5.5 percentage
points in June 1995 to 7.2 percentage points in June 1998, owing to increased intermediation costs,
before falling back to 5.5 percentage points in June 2000133;  since then the spread has risen again, to
7.3 percentage points in February 2001 (Chart IV.3);  this temporary narrowing of the interest rate
spread seems to be the result of efforts to curtail erosion of bank deposits in the light of ongoing
systemic shifts in the preference of depositors.134
0246810121416
June 1995 June 1996 June 1997 June 1998 June 1999 June 2000 Jan. 2001 Feb. 2001Chart IV.3
Interest rates on loans and deposits, June 1995-February 2001
Per cent
Source :  Ministry of Finance (2001), Table 6.5 [Online].  A vailable at http://www.finance. gov.pk/ [21 September 2001].Nominal average lending rate
Nominal avera ge deposit rate
(b) Insurance
82. At present there are 61 private insurance companies operating in Pakistan, of which four
(two domestic, two foreign) underwriting life in surance;  the remaining 57 (53 local, 4 foreign)
transact general insurance.  Three state-owned companies (State Life Insurance Corporation/life
insurance, National Insurance Company Limited (f ormerly National Insurance Corporation)/insurance
of all public-sector-owned properties (monopoly rights), and Pakistan Reinsurance Company Limited
(formerly, Pakistan Insurance Corporation) also operate in the domestic market;  two of these firms
form part of the list of entities to be privatized by June 2002 (Table III.4).  Whereas the life insurance
business is dominated by State Life Insurance Corporation, more than 80% is in the hands of privatesector companies (local as well as foreign).  New foreign entrants, both in life and non-life insurance,
must incorporate or register themselves as companies in Pakistan and meet various requirements,
including those relating to ownership (their share in the company cannot exceed 51%).  No foreign
insurance company can transact insurance business in Pakistan through a branch office.
83. In an effort to improve, deregulate, and strengthen the insurance market, a new Insurance
Ordinance, which was introduced in August 2000, has brought the State insurance firms within the
                                                     
133 The authorities indicated that the high intermediation costs were attributable, inter alia , to heavy
provision for defaulted loans, overstaffing, heavy perquisites, unauthorized use of bank facilities by severalelements of society, waste and general inefficiency, as well as substantial amounts of concessionary credit topriority sectors.
134 State Bank of Pakistan (2000a).WT/TPR/S/95 Trade Policy Review
Page 106
purview of uniform regulations.135  Capital requirements for life and non-life insurance companies
have been raised from PRs 100 million (US$1.9 million) to PRs 150 million (US$2.9 million), and
from PRs 40 million (US$773,674) to PRs 80 million (US$1.5 m illion), respectively.  Increased
disclosure requirements have been prescribed for purposes of reporting to the supervisory authority,
and minimum solvency margin requirements were introduced.  Life insurance companies have been
required to maintain separate funds for each types of business.136  The authorities indicated that, in
principle, premiums are determined by the IAP and the rates take into account the risk involved, past
experience, and adequate provision for expenses;  however, in practice, the companies determine their
own rate because of tough market competition.
84. Under new legislation, provisions on reinsurance arrangements and penalties for
contravention of the Insurance Law have been strengthened.137  The SEPC (section (a) above) has
become the regulatory, supervisory, and enforcement authority of the insurance sector;  an Insurance
Ombudsman is to be established to investigate mismanagement of insurance firms and to redress
grievances of the insurers, as well as an Insurance Tribunal with civil and criminal jurisdiction, and a
Small Disputes Resolution Committee for speedy settlement of minor claims.138
85. At the time of completion of this Report, a set of draft insurance rules was under preparation
by the SEPC to make the insurance and reinsurance market more competitive and free.
86. Under the Finance Act 1999-2000, as of July 1999 foreign insurance firms have ceased to be
subject to the withholding tax, which was not levied on local firms.  Foreign firms have been subject
to delays in remittance of surplus funds (a cause of concern, given exchange-rate fluctuations),
because of the procedure involved in the issuance of the clearance demand certificate by the income
tax authorities prior to the authorization for remittance of the surplus funds.  Pakistan's cross-border
commitments under the GATS are considered very limited.139
(iv) Communications
(a) Telecommunications
87. Sectoral liberalization and reforms have contributed to the rapid growth, modernization, and
development of telecommunications activities as well as increased private-sector participation.140
Progress has been reflected in increased teledensity (a 73.4%  rise (1999/00) in fixed telephone lines
since 1993/94)141, improvements in rural telecommunications, and upgraded data network (64K-bit
transmission lines and fibre optic link), as well as strengthened overall capacity in overseas gateway
exchanges and the level of digitalization.142  In 2000, telecommunications accounted for 1% of GDP,
and employed (directly and indirectly) 150,000 persons.
88. Since 1996, two state companies, the National Telecommunication Corporation Ltd. (NTCL)
and the Special Communication Organization (SCO) have run (exclusively) the fixed line domestic
                                                     
135 In the past, the insurance market was regulated by the 1938 Insurance Act, and the operations of
each state-owned firm were governed by a separate Act.  Securities and Exchange Commission ofPakistan (2000b).
136 Securities and Exchange Commission of Pakistan (2000a).
137 Securities and Exchange Commission of Pakistan (2000a).
138 Securities and Exchange Commission of Pakistan (2000a).
139 ABI (2000).
140 Privatisation Commission (2000c).
141 Ministry of Finance (2001), Appendix Table 13.6.
142 U.S. Commercial Service (1998b).Pakistan WT/TPR/S/95
Page 107
services, while the Pakistan Telecommunication Company Ltd (PTCL)143, has had monopoly rights on
international services (Table IV.7).  In accordance with the relevant legislation, the PTCL monopoly
will remain in place until 31 December 2002 (section (ii));  the authorities envisage the eventual
introduction of full competition, in line with WTO commitments, after expiry of PTCL's monopoly.144
While the SCO and NTC have remained outside the purview of privatization plans for securityreasons, 11.88% of PTCL shares were sold to public and foreign investors in two stages;  furtherprogress was expected with the transfer of another 15%-26% of PTCL equity to a strategic investor by
December 2001.
145  Following the issue of the 1994 Pakistan Telecommunication Ordinance and
promulgation of the Pakistan Telecommunication Re-organization Act 1996, the private sector has
been increasingly involved in the expansion and development of telecommunication services, such as
mobile telephony, paging, card-operated telephone, and Internet services.
Table IV.7
Telecommunications market structure, as of June 2001
Type of service Licences
grantedLicensees
providing
serviceState-owned service
providers/ownershipMajor private service
providersRemarks
Local and long
distance3 3 Pakistan Telecommunication
Company Ltd.(PTCL)/88.123%,
National Telecommunication
Corporation (NTC)/100%,Special Communication
Organization (SCO)
a/100%None (not allowed) NTC provides services only
to the armed forces, defenceprojects, federal and
provincial governments and
other governmentalagencies/institutes.
SCO provides services
within the Northern Areas,Azad Jammu and Kashmir
region.
PTCL provides services toall other customers, with an
exclusive right until
31 December 2002.
International 1 1 Pakistan Telecommunication
Company Ltd. (PTCL)None (not allowed) For international
telecommunications the
NTC and SCO use the
facilities of PTCL.
Cellular 4 4 Pak Telecom Mobile
Company (PTML), a
subsidiary of PTCL, 100%Paktel, Pakcom,
MobilinkPaktel is a joint venture
between Millicom
International Cellular (MIC)(98%) and Hasan Associates
(Pvt.). Ltd. (2%).
Pakcom (Instaphone) is ajoint venture between
Millicom International
Cellular S.A.(68%) andAfreen International (32%).
Mobilink is a joint venture
between Orascom TelecomEgypt (80%) and Safe
Telecom of Pakistan (20%).
Table IV.7 (cont'd)
                                                     
143 In 1996, the state-owned Pakistan Telecommunication Corporation was converted into the
"commercially operated" PTCL, which has a 25-year (renewa ble) licence for providing its services;  as indicated
in Table IV.7, the PTCL is also involved in production of telecommunication equipment.  Privatisation
Commission (2000c).
144 Pakistan Telecommunication Authority online information, Telecommunications sector policy.
Available at:  http://www.pta.gov.pk/ [27 July 2000].
145 Privatisation Commission (2000c).WT/TPR/S/95 Trade Policy Review
Page 108
Type of service Licences
grantedLicensees
providing
serviceState-owned service
providers/ownershipMajor private service
providersRemarks
Card operated
pay-phone65 49 All World Call is a joint venture
between First Capital
Securities Corporation and
Unitel (U.K.).
Radio paging 1 1 Digital Radio Paging
(Pvt.) LtdA stay order from the court
has been issued to prevent
entry of other operators.
Datacommunication
networking28 5 Pak Datacom, Comstar
ISA, Supernet PDS,
Fascom, Acsys,
AbacusPak Datacom is a subsidiary
of the Telecom Foundation;
Comstar ISA is a jointventure between Comsat RSI
Corp. (USA) and a couple of
local investors.
Internet 100 49 Paknet, a subsidiary of
PTCLSupernet, Cybernet,
IBM, Brainnet,
Comsats, Compunet.
Trunk radio 3 2 All
Satellite 3 3 All
Voice mail 2 2 All
Audio tex 3 1 All
Store and
forward fax
service50 A l l
Vehicle tracking 2 1 All
Voice paging 1 0 All
Burglar alarm 1 0 All
a SCO is in the process of obtaining a licence from PTA.
Note: Pakistan's three telecom equipment manufacturers are:  Softech Microsystems (voice mail, PABX and computer PABX, and call
recording systems), Alcatel (digital telephone lines);  and a joint venture between PTCL and Siemens (switching equipment andexchanges).
Source: Government of Pakistan.
89. Rules concerning foreign investment in telecommunications are fairly liberal (especially in
joint ventures involving the transfer of new tec hnology).  Since 1997, up to 100% foreign ownership
of equity has been allowed in all segments of the telecommunication branch, except basic telephony,as long as foreign equity investment is at least US$500,000.  This openness is subject to the condition
that the repatriation of profits will be restricted to a maximum of 60% of total equity or profits and
that at minimum of 40% of the equity is held by Pakistani investors within five years.
146
90. Since 1996, the Pakistan Telecommunication Authority (PTA), an autonomous body that
provides policy advice, has regulated the establishment, operation, and maintenance of
telecommunication services in Pakistan.  It monitors the licensing regime, tariffs, telecommunication
equipment standards, interconnection arrangements, arbitration, and disputes.  At the same time, aFrequency Allocation Board (FAB) was also established to manage the allocation of radio frequency
and monitor the use of the allotted frequencies.
147
91. Tariffs for most services have been determined by the PTA on the basis of forward-looking
long-run incremental costs, using a "total service long run incremental cost" methodology;  the PTA
                                                     
146 Board of Investment (2000c).
147 Privatisation Commission (2000c).Pakistan WT/TPR/S/95
Page 109
may fix a tariff in the form of a price cap for a specified period (generally one year).148  The tariffs of
basic telephone services, domestic leased lines circuits, and cellular mobile phones are determined by
using price-cap rules, whereas tariffs of other services have been deregulated and based on market
forces.  The 2000/01 tariff rationalization proposal of PTCL envisaged a tariff re-balancing by
increasing line rental and effective local call charges.149  Since 1996, tariffs for electronic information
service (EIS), e-mail, and data communication service have been freely set.  As of 1996, tariffs fornew types of services like audiotex, trunk radio, an d paging, have been unregulated or semi-regulated
with a view to encouraging their spread and to attract foreign direct investment.
150  Tariffs of all
licensees require prior approval by the PTA.  No cross-subsidization of other telecommunication
services by basic telephone service is allowed.
92. Since 1998, Internet service has been exempt from the levy of the central excise duty
(Chapter III(4)(i)(a)).151
(b) Broadcasting and audiovisual
93. The domestic broadcasting and audiovisual market has remained reserved for
two state-owned corporations, Pakistan Broadcas ting Corporation (PBC – 27 radio stations) and
Pakistan Television Corporation Limited (PTV – three channels), as well as the semi-privateShalimar Television Network (STN).  No privatization plans are under consideration for these
corporations.
152  During the period under review, satellite and cable television broadcasts have grown
rapidly;  as of June 2001, the cable television service (previously illegal) has been brought into the
legal framework and more than 800 licences have been issued by the PTA to prospective operators.  A
terrestrial cable television distribution network was to be established by the PTA to regulate the
operation of the system.153
94. National treatment does not apply to foreign investment in broadcasting services.154  B y
contrast, since 1997, audiovisual services have been open to foreign investment with 100% equity
provided that it exceeds US$500,000.  A maximum amount equivalent to 60% of the total equity or
profit may be repatriated;  and within two years, 40% of the equity must be held by domestic investors
(including through sale of shares in stock exchange).155
95. At the time of completion of this Report, the establishment of the Pakistan Electronic Media
Regulatory Authority (PEMRA) was in its final stages.  The setting up of the PEMRA is a step
towards opening broadcasting frontiers to private-sector and international broadcasters;  the Ten-year
Long Term Plan announced on 6 September 2001 provides for the deregulation and privatization of
the broadcasting sector.
(v) Transport
96. Efforts to develop an efficient transport ne twork by allocating development budget and
encouraging private participation have driven the sector's rapid growth and increased its share in total
                                                     
148 World Telecoms Online (2000).
149 Pakistan Telecommunication Authority online information (PCTL tariff 2000).  Available
at:  http://www.pta.gov.pk/ [27 July 2000].
150 Pakistan Telecommunication Authority (2000).
151 State Bank of Pakistan (1999)
152 Privatisation Commission (2000a).
153 Ministry of Finance (2000c).
154 U.S. Commercial Service (1999a).
155 Board of Investment (2000c).WT/TPR/S/95 Trade Policy Review
Page 110
employment (5.7% in 2000).156  Road transport has increasingly dominated the domestic cargo and
passenger market (over 90%), while railway transport has deteriorated.  Private-sector participation in
maritime and air transportation has fostered their development.
(a) Shipping
97. Rapid growth of and prospects for sea-borne trade led to the adoption of a 1996 National
Ports Master Plan157, aimed at balanced development of port facilities by the year 2015.158  Several
other port projects for handling items like fish, oil, chemicals, fertilizer, and grains have been under
way with the financial support of the World Bank and bilateral agencies as well as with private sector
participation.159  All ports are state-owned and mostly state-run;  the authorities of Karachi Port Trust
(container terminal, cargo handling equipment, pilotage, and tuggage) and Port Qasim (construction
of berths for grain, fertilizer, oil, chemicals, and clinker) have allowed or are considering allowingparticipation of the private sector in certain activities.
98. Maritime transport has been dominated by foreign shipping firms, as the national fleet is
small and inadequate.
160  As a result of its small size, the national fleet has a minor share in cargo
shipments (about 5% of dry cargo, 25% of liquid cargo).161  However, during the past five years,
cargo has been handled increasingly by the sole state-owned Pakistan National ShippingCorporation (PNSC).
162  Since February 2000, the PNSC, which merged with the National Tanker
Company, has enjoyed autonomy (first right of refusal) with regard to government- or public-sector
cargo, tanker purchase, and transportation of crude oil/petroleum products;  as a result of this
development and the beginning of operations of the oil refinery of PARCO (December 2000), the
overall transportation of liquid bulk by the PNSC  has seemingly shown a marked increase.  The
authorities are examining the possibility of re-o rganizing public-sector shipping services;  the
privatization of PNSC (whose fleet consists of 22 vessels and one tanker) has been under
consideration since 1996.163
99. Under the 1997 Merchant Shipping Policy, covering several areas (including the acquisition,
registration, operation, and maintenance of ships), a 30% shipbuilding subsidy has been made
available to Pakistani shipowners for the placing of orders for new vessels with national shipyards164;
vessels under this scheme must be registered in Pakistan and must not be sold to foreign investors
                                                     
156 Ministry of Finance (2000c), Appendix Table 12.10.
157 Under this Plan the following works are foreseen:  development of four terminals for containers,
with a total berth length of 2,400 metres;  three terminals for dry bulk grain, with total berth length of
845 metres;  three berths for dry bulk dirty, with a total length of 600 metres;  five berths for general cargo andrice, with a total length of 875 metres;  and, a two berth terminal for sugar, with a total length of 400 metres(U.S. Commercial Service, 1999c).
158 Container traffic in also expected to reali ze an annual growth rate of 5.1% annually from
510,000 TEUs in 1993 to 1,530,000 TEUs in 2015 (U.S. Commercial Service, 1999c).
159 Ministry of Finance (2000c).
160 Although 35 licences had been granted to private companies by 1999, only two domestic companies
operated under the national flag (U.S. Commercial Service, 1999c).
161 Board of Investment (1999), p. 41.
162 State Bank of Pakistan (2000a).
163 Documents supplied by the Pakistani authorities in the context of the Trade Policy Review;
Privatisation Commission (1996), p. 5.
164 Shipbuilding is largely undertaken by the state-owned Karachi Shipyard and Engineering Works,
which is also involved in ship repair, submarine and warship construction, and general engineering;  anotherstate-owned shipbuilder, the Pakistan Navy Dockyard, works exclusively for the Pakistani Navy(U.S. Commercial Service, 1999c).Pakistan WT/TPR/S/95
Page 111
before ten years of service under the Pakistani flag.165  Under the 2001 Merchant Marine Policy, ships
(including floating craft, tugs, dredgers, survey vessels) purchased or chartered by a Pakistani entity
and flying the Pakistani flag may be exempt from payment of all import duties and surcharges until
the year 2020;  however, if any of these vessels are demolished within a period of five years from the
date of purchase, the beneficiaries are liable for payment of the full duty applicable to ships purchased
for demolition purposes.  No restrictions apply to foreign carriers transporting cargoes from ports inPakistan;  however, Pakistan flag vessels may not transport cargoes from Indian ports or third-country
cargoes destined for India.
(b) Air transportation
100. Rapid growth in domestic and international air passenger and cargo traffic has led to a policy
of encouraging private-sector participation in airline services and construction/upgrading of civilaviation facilities in major towns (Karachi, Lahore, Quetta);  the national airport system comprises
42 state-owned airports.
166  Whereas landside airport services have been run by private contractors
since 1982, aeronautical (airside) services have been provided by state, semi-private, or private
operators.167
101. The state-owned national carrier Pakistan International Airlines (PIA) has served domestic
and international routes since 1993, and three private airlines (Shaheen Air Lines, Aero Asia, and
Bhoja Air Line) have been in operation since 1998;  a fourth private airline (Safe Air International)
has operated only on domestic routes since 1999.168  By mid 2000, 10% of PIA's shares had been
divested and a restructuring plan was being developed to, inter alia,  overcome its financial
difficulties;  the authorities indicated their intention to sell at least 51% of the State's stake in PIA to a
strategic investor.169  Currently, 35 international airlines operate in Pakistan.  Since 1992, Pakistan has
pursued an open skies policy (including cargo flights) based on reciprocity on a bilateral basis.170  The
Civil Aviation Authority (CAA), a statutory body, has concluded air services agreements with
94 countries (in 2000) with a view to encouraging fore ign airlines to continue to serve the country's
air routes.
(vi) Information technology and software development
102. In the light of the world-wide expansion of the information technology and software market,
since August 2000 Pakistan has pursued an information technology (IT) policy focused on:  human
resource development;  infrastructure development;  telecommunications;  databases;  software
industry development for exports and local markets;  and exponential increase in Internet use.171  This
policy has been implemented through several tax, financial, and regulatory incentives.  These
measures include:  the elimination of import duties on most IT and telecommunication products (as ofJuly 2000);  income tax holidays for computer training (up to 2005), and export of computer software
(for 15 years);  exemption from sales tax and registration requirements upon importation of hardware
                                                     
165 U.S. Commercial Service (1999c).
166 Privatisation Commission (2000d);  and Ministry of Finance (2000c).
167 Landside businesses at the airports include duty-free shops, catering and restaurants, car parking, car
rental, porter services, newspapers/books shops, advertising, banks, airline terminal rents, commercial rents,utility sales, real estate development, hotel, travel services, etc.  "Airside " services include airline services such
as ground handling and refuelling (Privatisation Commission, 2000d).
168 Ministry of Finance (2000c).
169 Documents supplied by the Pakistani authorities in the context of the Trade Policy Review;
Privatisation Commission (1996), p. 5;  and Planning Commission (2000), p. 37.
170 Privatisation Commission (2000d);  and Board of Investment (1999), pp. 41-42.
171 Ministry of Science and Technology (2000).WT/TPR/S/95 Trade Policy Review
Page 112
by software companies;  subsidized rental allowance for office facilities/space in Software
Technology Parks and free Internet connections for public-sector universities;  concessionary export
finance (Chapter III(3)(viii));  a facility for softwa re companies to retain 25% of their export earnings
in foreign exchange in order to meet expenditures on the purchase of hardware/software, foreign
travel, marketing, and hiring of consultants;   and an exemption from minimum tax of 0.5% on
remittances from software exports.172  Several procedural barriers (e.g. processing of licence
applications) have been lifted.  Foreign investment is unrestricted.173
103. Following the implementation of this policy, a software technology park was established in
Islamabad in August 1997, and three more parks are planned in Karachi, Peshawar, and Lahore.
Since 1995, there has been proliferation of software companies in Pakistan;  at present, more than
400 software companies are in operation.174  At the time of completion of this Report, registered
annual exports of software and related services stood at US$27 million, but the actual (i.e. unreported)
figure seems to be much higher;  no figures are av ailable on the number of jobs created or the amount
of foreign investment in this sector.
                                                     
172 Pakistan Software Export Board (2000a);  and Ministry of Finance (2000a).
173 U.S. Commercial Service (1999a).
174 Pakistan Software Export Board (2000b).Pakistan WT/TPR/S/95
Page 113
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