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Country Commercial Guides for FY 2000: Pakistan Report prepared by U.S. Embassy Islamabad, released July 1999 Note*

CHAPTER VI. TRADE REGULATIONS AND STANDARDS

A. Trade Barriers

Pakistan has traditionally maintained a complex system of indirect taxes in the trade sector. High basic tariffs, additional surcharges, a variety of excise taxes and sales tax with different applicability on domestic and foreign goods combined to distort prices in domestic markets. The tariffs, which were established for both protectionist motives and revenue raising, had become generally counter-productive. Many tariff rates were too high and stimulated smuggling and corruption. Revenue collections are also undermined by many exemptions and concessions. The GOP has since liberalized its trade regime, reduced tariff levels, and streamlined procedures for imports and exports.

Pakistan uses the Harmonized System to classify and describe goods. Customs duties are levied on ad valorem basis. Maximum tariff rates were reduced from 92 percent to 70 percent in June 1994, and from 70 percent to 65 percent in June 1995. The GOP, encouraged by the World Bank and the IMF, had decided to lower the maximum tariff rate in a phased manner, but had delayed implementation of this decision. However, PM Nawaz Sharif announced drastic cuts in the tariff structure as part of his March 28, 1997 economic revival package. The maximum tariff rate was reduced to 45 percent from 65 percent.

Other than customs duty, the government charges sales tax (12.5 percent) on the duty paid value of a variety of goods produced in or imported into the country. Customs duty and other charges are payable in Pakistani currency.

Export subsidies - Pakistan seeks to encourage exports through rebates of import duties, sales taxes, and income taxes, as well as through concessional export financing.

B. Customs Valuation

Valuation - The GOP has canceled its controversial pre-shipment inspection (PSI) valuation system in March 1997 and have reverted to Import Trade Price (ITP) based valuation system. The Import Trade Price manual is updated periodically to facilitate the valuation process.

Customs Clearance and Warehousing - Ample public and bonded warehouse facilities, most of which are owned by the port trust organizations, exist for the storage of goods. Pakistan has no free-port facilities, but regulations permit similar privileges while goods are warehoused. Goods must be landed within the period specified on the bill of lading or within 15 days after entry of the vessel into port. Once the goods have entered and duties have been assessed, the importer must clear them for consumption (by paying the duties) or warehouse them.

C. Import Licenses

All importing firms in the private sector must register as importers with the Government of Pakistan's Export Promotion Bureau and must have valid registration at the time of importing. The GOP permits imports from all countries except Israel or goods originating in Israel. However, in the case of loans, credits or US PL-480, imports shall be made subject to availability from the specified source only. Importers must also:

- Obtain special authorization of the Ministry of Commerce for importing items from the "negative/restricted" list;
- Ensure that correct Harmonized Schedule code number of every imported item is mentioned in the import documents;
- Ensure that the supplier of cigarettes and cigars prints warning "Smoking is injurious to health" in both Urdu and English on every packet.

Imports from India are a special case. Only items on a list issued by the Ministry of Commerce may be imported; that list includes 581 individual items, classified by Harmonized System numbers. Pakistan's official imports from India in 1995-96 totaled $94 million, from $64 million the year before.

D. Export Controls

Export of goods from Pakistan is allowed generally. However, export of some items is banned/restricted or is subject to certain conditions for reasons of short supply and to ensure their availability in the home market. (E.g., export of live animals and meat shall be in accordance with the procedure notified by the Export Promotion Bureau from time to time.) Other items banned/restricted for export purpose include: arms, edible oils, hides and skins, timber, milk and milk products, and antiques. The customs authorities will, however, inspect outbound baggage to ensure that no banned/restricted item is taken out of the country as accompanied personal baggage.

E. Import/Export Documentation Requirements

The following documents are required for imports and exports: bills of lading; invoices; packing lists; certificates of origin; copies of letters of credit; and insurance certificates.

F. Temporary Goods Entry Requirements

GOP import regulations permit temporary import of legally importable items by foreign companies (e.g. as commercial samples) provided that a bank guarantee or indemnity bond equivalent to the value of the item is provided to the Customs authorities to ensure that the items will be re-exported. Applicable import fees must be paid, but will be refunded on re-export. Similarly, domestic industrial firms may import items for test, trial, and re-export, subject only to the payment of a refundable import fee.

G. Labeling, Marking Requirements

Pakistan has no uniform or universal system of imposing labeling and marking requirements on products. However, individual industries or sectors are subject to the regulations of specific bodies. For example, the Ministry of Health sets requirements for the pharmaceutical industry.

H. Prohibited Imports

Pakistan controls certain imports through the negative list. Goods not on the negative list may be freely imported. The negative list is made up of (a) items banned for religious, security or luxury consumption reasons; (b) capital and consumer goods banned to protect domestic industry; and (c) intermediate goods used in producing protected goods. A restricted/conditional list includes items that may be imported only, for example, by certain parties (the government or other specified users) or by certain special arrangements (such as imports against credit). Major items on the negative list are listed above in "Trade Barriers".

I. Standards/ISO 9000 Usage

The Pakistan Standards Institution (PSI) is the national standards body. The various activities of PSI include preparation and implementation of standards, introduction of standards inspections systems, collaboration with international organizations such as the International Standards Organization (ISO), and dissemination of information on standardization and quality control. PSI has so far established about 4,000 national standards for agriculture and food, chemicals, civil and mechanical engineering, electronics, weights and measures, and textile products.

The GOP's Export Promotion Bureau has led a successful campaign to provide free advisory service covering planning, documentation, interpretation into local environment, implementation and certification processes for ISO 9000. In the last three years, 30 Pakistani companies have obtained ISO 9000 certification and about 200 more are at different stages of implementing ISO standards.

J. Free Trade Zones/Warehouses

With a view to promoting foreign investment and a greater export surplus for the country, the GOP established a free trade zone at Karachi in 1980. The Karachi Export Processing Zone (KEPZ) Authority has so far sanctioned over 170 industrial units with foreign equity. However, about 90 units are in production and the rest are at different stages of development. The KEPZ has fully-developed infrastructure facilities and offers the following incentives to investors:

- Salary of foreign personnel is exempted from income tax for five years from the date of arrival in Pakistan;
- Import of machinery, spares, and raw materials is free from all federal and provincial taxes;
- The right to export from the KEPZ to Pakistan;
- No tax on capital gains;
- Unrestricted repatriation of capital, profits, and dividends allowed;
- Exemption from certain Pakistani labor laws.

K. Special Import Provisions

Only an insignificant portion of total imports are subject to quantitative restrictions (QRs) under the negative list. The "negative" list consists of items whose import is prohibited on religious, health, or national security grounds. Items on the "negative" list include: translations of the Holy Koran without Arabic text; goods bearing words or inscriptions of a religious connotation; obscene pictures, writings, or inscriptions; horror comics; obscene, subversive and anti-Islamic literature; products and by-products of pigs, hogs, boars, or swine; fireworks; tanks and armored vehicles; artillery weapons; revolvers and pistols of prohibited bores; parlor games; gambling equipment; sculptures, worked ivory, and antiques exceeding one hundred years in age.

The GOP also maintains certain export prohibitions and export licensing requirements. The GOP has imposed certain procedures for the export of "essential" commodities. These include live animals, beef and mutton, animal fat, milk and milk products, timber, ferrous and non-ferrous metal, antiquities, and "human skeletons". Commodities exportable only through public sector agencies include petroleum products, coke, caustic soda, and rock salt. In addition, all foreign exchange earned through exports is presently surrendered to the State Bank of Pakistan.

L. Membership in Free Trade Arrangements

Pakistan is a member of the World Trade Organization (WTO). Pakistan is not a member of any free trade arrangement, but is party to two arrangements which are seeking progress toward regional trade liberalization. The Economic Cooperation Organization (ECO), whose founding members are Pakistan, Turkey, and Iran, grants a 10 percent tariff preference on statutory rates for some goods. (ECO membership was expanded to 10 in 1993, when Afghanistan, Azerbaijan, and the five formerly Soviet Muslim republics of central Asia were admitted.)

The South Asian Association for Regional Cooperation (SAARC) is comprised of India, Pakistan, Bangladesh, Sri Lanka, Nepal, Bhutan, and the Maldive Islands. SAARC has proposed a South Asian Preferential Trading Agreement (SAPTA), which became operational after ratification by member countries in November 1994. Because the SAPTA provides for product-by-product negotiation, and because several members have similar production structures, therefore, SAPTA is not likely to have a large immediate impact on regional trade flows. Pakistan's leading regional trading partners are, Bangladesh (its former eastern wing), India and Sri Lanka.

Pakistan is also a member (along with Indian and Nepal) of the Asian Clearing Union, which was founded in 1976 and aims at facilitating multilateral payments through the use of currencies of participating countries in regional transactions in order to expand intra-regional trade and save convertible foreign exchange.