Pakistan’s Trade Policy

Dr Salamat Ali

Trade Economist/
Secretary FBR (Customs Wing)

1
Contents
• Introduction
• Salient Feature of Pakistan’s Trade Policy
• Strategic Trade Policy Framework (STPF, 2015-18) and Vision 2025
• Pakistan’s Trade Profile
• Pakistan’s Tariff and Non-Tariff Measures
• Market Access (FTAs, PTAs, GSP, etc.)
• Current Trade Policy Issues in Pakistan and the world
• Revival of Exports (if we had time)

2
Who Makes Trade Policy?
Ministry of Commerce under the Import and Exports (Control) Act, 1950 in
consultation with:
✓Public Sector Organisations
➢Federal Ministries and Attached Departments
➢Intellectual Property Organisation
➢Competition Commission
➢National Tariff Commission
➢Export Promotion Bureau
➢Off course, FBR to some extent
✓Private Sector Stakeholders
➢Chambers of Commerce and Industries
➢Sectoral bodies (APTMA, PLGMEA, etc) 3
Salient Features of Pakistan’s Trade Policy
• MFN Status except for India and Israel
➢Negative list of 1200 items for trade with India and ban on trade with Israel
➢Deviation from MFN: FTA, PTAs, regulatory exemptions and concessions to
various sectors

• SRO culture: (Recent RD SRO 1285 (I)/2018 dated 16-10-2018)

➢Undermines predictability of trade regime
➢Supports culture of rent-seeking
➢Compromises transparency of trade regime

• 100% FDI permitted in all industries except consumable alcohol and security
related industries 4
Salient Features of Pakistan’s Trade Policy (Contd..)
• High import tariffs protection :

➢98% bound tariff lines, average bound rate 61.5%

➢No duty free tariff line

• Anti-dumping (31/58) and safeguards (0)

• Negative, banned, conditional lists

• Procedural requirements

• Special treatment for neighbours: Afghanistan and India

5
 Revenue Focus of Trade Policy
65

60

55
(% age share)

50

45

40

35

30
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

Domestic Taxes Import taxes 6

 Decomposition of Import Revenue
1,800
Million RS

1,600

1,400

1,200

1,000

800

600

400

200

0
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

ST(Imp) FED Customs

7
General and Sector Specific Programs
• Agriculture Sector

➢Price support

➢Domestic support

• Industrial Sector

➢Zero rating in five sectors

➢Export promotion schemes

8
 Export Facilitation Schemes
Government has introduced different export incentive schemes covering main
export areas like textile, leather goods, sports goods, surgical goods, carpets,
footwear, engineering goods, metal products etc. These schemes are:–

A. Duty Drawback Scheme:

In terms of section 21 (c) of the Customs Act, 1969, the Federal Board of
Revenue repays in whole or in part the customs duties paid on the importation of
inputs which have been used in the production, manufacture and processing of
goods exported out of Pakistan.

B. Duty & Tax Remission for Export (DTRE) Scheme:

The DTRE Scheme entails simple concept of no payment of duties/taxes at
import stage and consequently no duty drawbacks/refunds at export stage. The
scheme was launched in 2001.
9
Export Facilitation Schemes (Contd..)
C. Manufacturing Bonds:
A manufacturer-cum-exporter may establish a manufacturing bond and import raw
material used for the manufacture of finished goods without payment of
duty/taxes, so as to save the manufacturers from hassle in claims of export related
refunds/drawbacks.

D. Temporary Importation Scheme:

The scheme entails suspension/exemption from duties/taxes against securities on
import of accessories used for manufacture and export of goods.

E. Small & Medium Enterprises and Export Oriented Units (EOU) rules This
scheme envisages complete exemption from customs duties on all the goods
including machinery, imported into an EOU under specified conditions laid down
in SRO 327(I)/2008.
10
Tools of Trade Policy

Direct Tools Indirect Tools

• Tariffs on Imports and/or Exports • Exchange Rate Policy
• Para-Tariffs • Credit Policy (Interest rate regime)
• Quotas • Other Economic Policies
• Non-Tariffs Measures (NTMs)
• Duty Drawback for Exports
• Embargo (negative list)
• Subsidies, exemptions and concessions
11
Trade Policy has Strong Linkages with:

Fiscal policy Monetary FDI policy Education Infrastructure

policy policy policy

12
Strategic Trade Policy Framework (STPF)
• The latest trade policy announced in 2016 under the Strategic Trade
Policy Framework (STPF) for the year 2015-18.
• STPF 2015-18 aims to achieve following targets by June 30, 2018:
✓Enhancement of annual exports to US$ 35 Billion
✓Improve Export Competitiveness
✓Transition from ‘factor-driven’ economy to ‘efficiency-driven’ and
‘innovation-driven’ economy
✓Increase share in regional trade
13
STPF (2015-18): Key Enablers
• Competitiveness (quality infrastructure, labour productivity, access to
utilities, and level of technological development)
• Compliance to standards (convergence of local & international
standards, protection of intellectual property, and effective and
efficient disputes resolution mechanism)
• Policy environment (monetary policy, tariff & tax regime, and
synergic industrial & investment policies)
• Market access (multilateral, regional, and bilateral)

14
STPF (2015-18): Key Pillars
• Product sophistication and diversification (research and development, value
addition, and branding)
• Market access (enhancing share in existing markets, exploring new markets, trade
diplomacy and regionalism)
• Institutional development and strengthening (restructuring, capacity building, and
new institutions)
• Trade facilitation (reducing cost of doing business, standardization, and regulatory
measures)

15
Pakistan’s Vision 2025
• Middle income country by 2025
• Top 10 economy by 2047
• Trade policy related elements
✓Regional connectivity
✓CPEC
✓Labour and product market efficiency
✓Cluster based development
✓Value chain improvement
✓Private sector especially SMEs role
16
Pakistan’s Trade Profile

17
 Key Statistics
• Total World Trade
• Pakistan’s Exports and Imports Figures
• Pakistan’s Share in World Trade
• Exports Markets & Import Origins
• Main Exported and Imported Items

18
 World Export Profile (2017)

• Exports of Goods:
Export to GDP Ratio (%)
• World : $ 16 Trillions Transition economies 25.36

• Pakistan : $23 Billion (0.14%) Developing economies 24.42

World Average 21.64

Export of Services:
Developed economies 19.56
• World: $4.7 Trillion
• Pakistan: $5.7 Billion (0.12%) Pakistan 7.16

0 5 10 15 20 25 30

Source: Author’s working using data from WITS %

19
 Pakistan’s Trade Profile
Exports Imports
55
US$ (Billion)

50

45

40

35

30

25

20

15

10
2005 6 7 8 9 10 11 12 13 14 15 16 2017

Source: Author’s working using data from WITS

20
 Pakistan vs. Regional Economies (2017)
Goods Services
Value % of GDP Value % of GDP

Afghanistan 710 3.26 432 1.99

Bangladesh 35,300 14.37 3,859 1.57
Bhutan 555 21.48 160 6.19
India 304,165 11.90 183,980 7.20
Iran 109,011 23.72 10,106 2.20
Maldives 318 7.06 3,150 69.84
Nepal 840 3.36 1,595 6.39
Pakistan 22,970 7.16 5,719 1.86
Sri Lanka 11,155 12.85 7,434 8.56
Source: WITS; Note: Exports are measured in US$ Million 21
Sectoral Distribution of Exports (2017)
90-99_Miscellaneous

86-89_Transport

84-85_Machinery Elect

72-83_Metals

68-71_StoneGlas

64-67_Footwear

50-63_TextCloth

44-49_Wood

41-43_HidesSkin

39-40_PlastiRub

28-38_Chemicals

27-27_Fuels

25-26_Minerals

16-24_FoodProd

06-15_Vegetable

01-05_Animal

0% 10% 20% 30% 40% 50% 60%

22
Products Firms Export Share
Trade Margins in Major Export Destinations
Firms Products Exports

Markets Number Percent Number Percent Value Percent

Afghanistan 888 5.1% 850 20% 188 7.3%

China 1,476 8.6% 791 18% 263 10.2%

UAE 3,196 18.5% 1,954 45% 266 10.3%
UK 3,301 19.1% 1,413 33% 142 5.5%
US 4,013 23.3% 1,429 33% 385 15.0%
Exports (PKR Bn) 23
 Distribution of Pakistan’s Exporters
Firms Exports
Category # % Value %

Size Very large firms 521 3 744 29

Distribution Large firms 6,178 36 1,368 53
Small firms 10,559 61 461 18
Trade Non-importing exporters 11,793 68 478 19
Orientation Importer-cum-exporters 5,466 32 2,094 81
of which
-Same market 2,085 38 947 45
-Same product 1,200 21 321 15
-Same product and market 418 8 42 2
All 17,258 - 2,572 -

Source: Ali (2015; JDE): Anatomy of Pakistan’s Firms; Exports are measured in PKR Billion
24
 Export Distribution across Firms

Exporting Firms Exports (PKR Bn)

% # Value %
(1) (2) (3) (4)
1 173 1,180 46
5 863 1,951 76
10 1,726 2,272 88
25 4,315 2,496 97
50 8,629 2,513 98

25
Source: Author’s working using Customs dataset
 Structure of Pakistan’s Exports

Agriculture($ Billion) Industrial ($ Billion)

Exports Exports
9 Imports 50 Imports
8 45

7
40

6
35
5
30
4
25
3

20
2

1 15

- 10
2010 11 12 13 14 15 16 2017 2010 11 12 13 14 15 16 2017

Note: Pakistan is net food importer; largest export commodity rice and largest import Source: Author’s working using data from WITS
commodity is palm oil 26
 Key Industrial Sectors

• Textiles (initial stages of value chain)

• Food processing
• Textile, clothing and agriculture combined account for 75% of
exports
• Auto Sector
➢Heavy tariff protection (100%)
➢Deletion program
➢Barriers to entry
27
 Issues Faced by Textiles Sector
• Competition with China and India Textile Exports from Pakistan
(US$ Billion)
• New competitors Vietnam, 16

Bangladesh 14 13.5

• Slow down in the EU market 12

10.5

• Changes in structure of textile

10

8
demand
6

• High cost of inputs (CD, ST and 4

IT) on raw materials 2

• Switching to sugarcane and maize 0

2013-14 2016-17
from cotton
Source: Author’s working using data from WITS 28
Pakistan’s Agricultural Trade (US$ Billion)
9.00

8.00

7.00

6.00

5.00

4.00

3.00

2.00

1.00

-
2003 4 5 6 7 8 9 10 11 12 13 14 15 16 2017

Exports Imports

29
Challenges Faced by Agricultural Sector
• Non-tariff measures (NTMs) Agricultural Exports from Pakistan
(US $ Billion)
➢SPS+TBT+ Others 6
5.44

➢Sustainability standards 5

• High cost of air shipments 4 3.87

• Mismanagement of production 3

• Supply side constraints to meet

2

large demand for halal meat and 1

soybean 0
2011 2016

30
Source: Author’s working using data from WITS
 Comparison with Bangladesh
• Export of Bangladesh are greater than that of Pakistan.
• Least Developed Country (LDC) vs Middle Income Country (MIC)
• Different tariff regime for exports (EBA vs tariffs)
• Bangladesh started with stitching machines and moved to value added
sector
• Whereas, Pakistan started from spinning of cotton and restricted itself
to preparation of yarn and grey fabric

31
Typical Export Shipment from Pakistan

Behind the Beyond the

border At the border
border

Production and International Regulatory

inland
Customs processing transportation, port compliance at port
transportation, of exit to port of of entry in
at port of exit
factory to port of entry destination market
exit

32
Trade Policy Interventions along the
Supply Chain

33
 Inland Transport Network
Trade Processing
Infrastructure

• Inland Transport

• Truckers- (96%)

• Railway- (4%)

Source: Ali (2017); Differential effect of internal and external 34

remoteness on trade flows in Pakistan
International Transportation

35
International Transportation (2013)
Firms Exports

# % Value %
Mode 1 2 3 4
Air 12,335 71 345 13
Sea 9,701 56 2,204 86
Land 429 2 41 2
All 17,258 2,572
Export values are in PKR billion.

36
Trade Policy
at the
Border

37
Trade Policy at the Border
• A: Pakistan Customs
➢Tariffs on imported inputs
➢Non-tariff measures
✓ IPRs, SPS, TBT, etc.
➢Implementation of WTO’s TFA
✓ National Single Window
• B: Other Agencies
➢Port Authorities
➢Shipping lines
➢Terminal operators
➢Freight forwarders
➢Customs brokers
➢Anti-Narcotics Force
➢Logistic companies
38
Pakistan’s Tariff Profile

39
Understanding Tariffs
• Measurement Approaches
• Simple average
• Trade-weighted average
• Tariff Type
• Applied MFN Tariff
• Bound Tariff
• Tariff Overhang
• Preference Margin
• Frequency Distribution

40
 Tariffs on Imports

A: Customs Duty 45
B: All Import Taxes
30
40

Ad Valorem (%)
25
35

20 30
Ad Valorem (%)

25
15
20

10
15

5 10

5
0
2001 2 3 4 5 6 7 8 9 10 11 12 13 2014
0
Trade Weighted Average Simple Average (Statutory Rate) 2001 2 3 4 5 6 7 8 9 10 11 12 13 2014

Trade Weighted Average Simple Average (Statutory Rate)

Source: Ali (2017); Differential effect of internal and external remoteness on trade flows in Pakistan 41
Decomposition of Import Revenues
100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

ST(Imp) FED Customs

42
Export Tariffs

• Exports are generally exempt from taxes except:

➢Export Development Surcharge (EDS, 0.25%)
➢Regulatory Duty on some food items (5%)
• Exporters are paid duty drawbacks on most items

43
Pakistan’s Non Tariff Measures

44
 Pakistan’s Non-Tariff Measures
• Electronic Import Form (EIF)

• SPS and TBT Regulations

• Pre-shipment Inspections

• Quarantine Requirements

• Rules of Origin

• IPRs (Patents, copy rights, etc.)

• Port of discharge regulations

• This list is not exhaustive. 45

Pakistan’s NTM Notifications to the WTO
1. Agriculture (Document code G/AG/N/PAK/*)
2. Antidumping (Document code G/ADP/N/* and PAK)
3. Balance of payments (Document code WT/BOP/N/*)
4. Customs valuation (Document code G/VAL/N/* and PAK)
5. Government procurement (Document code GPA/* and keyword varies)
6. Import licensing (Document code G/LIC/N/* and PAK)
7. Information technology products (Document code varies)
8. Intellectual Property Rights (see TRIPS below)
9. Regional trade Agreements (Document code WT/REG* and N)
10.Rules of origin (Document code G/RO/N/*)
11.Safeguards (Document code G/SG/N/* and PAK)
12.Sanitary and phytosanitary measures (Document code G/SPS/N/PAK/*)
13.Services (Document code S/C/N/*)
14.State trading enterprises (Document code G/STR/N/* and PAK)
15.Subsidies and countervailing measures (Document code G/SCM/N/* and PAK)
16.Technical barriers to trade notifications can be found under the TBT gateway
17.Textiles notifications can be found by Article under the textiles gateway
18.Trade and development (Document code WT/COMTD/N/*)
19.Trade-related investment measures (Document code G/TRIMS/N/* and PAK) 46
 Non-Tariff Measures
At the Border: Non-Tariff Measures
• Karachi Ports are most expensive in the world
• 40% hike in PIBT handling charges since June 2018 (PKR 600 to 850/ton)
• This increased cost of inputs for:
➢Power plants
➢Cement factories
➢Textile units
• The additional charges have been imposed on account of MIS reports, cargo
sprinkling, fire-fighting, and loading and trucking.

http://return.pk/2018/10/04/sharp-rise-in-handling-charges-pushes-up-price-of-imported-coal/ 47
Trade Policy
Beyond the
Borders

48
Trade Policy Beyond the Border
Trade Agreements Other Regimes
• SAFTA
• In force • GSP + (2014-20)

➢China ➢Around 70% exports to the EU are

duty free
➢Iran
➢Sri Lanka ➢Subject to ratification and
implementation of 27 international
➢Malaysia conventions
➢Others
➢Relating to human rights, child rights,
• Ongoing Negotiations labour rights, environmental
➢Indonesia protection, prevention from torture,
good governance, freedom of
➢Thailand expression
➢Turkey 49
 Pakistan’s Trade Agreements
S.No. Agreement Status
1 Economic Cooperation Organization Trade Agreement Signed and In Effect
2 Malaysia-Pakistan Closer Economic Partnership Agreement Signed and In Effect
3 Pakistan-Indonesia Free Trade Agreement Signed and In Effect
4 Pakistan-Iran Preferential Trade Agreement Signed and In Effect
5 Pakistan-Mauritius Preferential Trade Agreement Signed and In Effect
6 Pakistan-MERCOSUR Preferential Trade Agreement Signed and In Effect
7 Pakistan-Sri Lanka Free Trade Agreement Signed and In Effect
8 Pakistan-US Trade and Investment Framework Agreement Signed and In Effect
9 People's Republic of China-Pakistan Free Trade Agreement Signed and In Effect
10 Preferential Tariff Arrangement-Group of Eight Developing Countries Signed and In Effect
11 South Asian Free Trade Area Signed and In Effect
12 Trade Preferential System of the Organization of the Islamic Conference Signed and In Effect
13 Pakistan-Bangladesh Free Trade Agreement Negotiations launched
14 Pakistan-Gulf Cooperation Council Free Trade Agreement Negotiations launched
15 Pakistan-Morocco Preferential Trade Agreement Negotiations launched
16 Pakistan-Singapore Free Trade Agreement Negotiations launched
17 Pakistan-Thailand Free Trade Agreement Negotiations launched
50
18 Pakistan-Turkey Preferential Trade Agreement Negotiations launched
Performance of Pakistan’s Trade Agreements
China Sri Lanka
12,000 400
350
10,000
300

US$, Millions
US$, Millions

8,000
250

6,000 200
150
4,000
100
2,000
50

0 0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

EXP CHN IMP CHN EXP LKA IMP LKA

Malaysia Mauritius
3,000 70

2,500 60

50
US$, Millions

US$, Millions
2,000
40
1,500
30
1,000
20
500 10

0 0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

EXP MYS IMP MYS EXP MUS IMP MUS 51

Current Trends in Trade Policy

World Pakistan
➢Not much discussion of tariffs
➢Renegotiation of FTA with China
➢Integration into regional/global value
chain
➢Protection through tariffs: Regulatory
➢Streamlining of non-tariff measures
➢ Harmonisation duty on imports
➢ Mutual recognition
➢Environmental and labour standards ➢MFN status to India
➢3-D Printing
➢Revenue targets, regulatory duties
➢Mega regional trade blocks (TPP,
TTIP, RCEP)
➢Deep and comprehensive FTAs
(Trade, FDI, Services)
52
Initiatives of Current Government

• Tax Policy Board: Separation of policy and operational wings of the FBR

• Renewed emphasis of SEZs along CPEC

• Gas subsidy for five industrial sectors (Rs. 600 vs Rs. 780/mmBtu) for other
industries)

• Cash Refunds (Rs 58 Bns promised but 26 Bn disbursed)

• Council of business leader comprising all major production houses

53
 Export Potential (US$ Billion)
80

70
70

60

50

40

30
24

20

10

0
2017-18 2027-28

Revival of Exports
54
 Short & Medium Term Measures
Exchange Rate Movement (19th-26 October)
1. Reduce uncertainty level in the economy
2. Cut para tariffs on imports
➢Input channel
➢Variety channel
➢Competition channel
3. Carefully respond to emerging world trade order
➢Brexit; no deal scenario could affect $2Bn exports
➢Effect of trade war between US and China

55
 Short & Medium Term Measures (Contd..)
5. Simplify and Rationalise Trading Procedures

56
 Documents for Repair and Return Shipment
1.A request letter to Assistant Collector of Custom
2.Bill of Entry of First Import
3.Original shipping bill mentioning the part number
4.Export Invoice with part number
5.Import Invoice with part number
6.Warranty agreement
7.Correspondence between shipper and consignee
8.Repair charge invoice (If part is repaired)
9.Catalogue (If required)
10.Copy of NTN
11. Copy of GST
57
 Short & Medium Term Measures (Contd..)
6. Prioritise Ecommerce
A:Growth during the last 16 years
B:Ecommerce Market Size

A: World
• Retail sales in 2016=$ 2 trillion
• Potential= $22 trillion

B: Pakistan

• Current: $100 to $600 million

• Potential in 2020= $ 1 billion

C: Expected retail sales in 2018

• China $600 billion
• US $462 billion

58
Source: MOC Pakistan
 Long-Term Policy Interventions (5-10 years)
• Technical and vocational education; emphasis on tertiary education to move
towards information-led economy.

• Try to join mega trading blocks in Asia (RCEP, ASEAN, TPP)

• Information Technology Agreement (ITA) and Trade in Services Agreements of

the WTO (TiSA)
➢Rise in e-commerce
➢Trade in services
• Focus on regional trade, especially trade with India

• Equitable distribution across regions, gender and sector as per spirit of SDGs

59
 Way Forward
• Establish Trade Policy Unit with secretariat in PM office
• Members
➢Business council leaders FBR
➢Representatives of four zero-rated sectors
➢Relevant government sector organisations
Trade
representatives irrespective of posting MOC MOF
Policy
• Weekly meeting chaired by the Prime Minister
• Tasks:
➢ Evaluation of all export promotion schemes MOIP

➢Initiate activities on long-term agenda

60
61