International Trade in Goods and Economic Situation

By: Hassan Zubair

Pakistan’s economy showed some signs of recovery in the second half of 2019 before the outbreak of the 2019 novel coronavirus disease (COVID-19) pandemic. The current government has made efforts to provide an enabling environment for trade and businesses, reduce current account deficits, and achieve a positive balance of payment.
As a result: Pakistan rose 28 places on the World Bank’s Ease of Doing Business index compared with 2018.
Pakistan is now among the world’s top ten countries with the most improved business climate. Volatility in exchange rate has decreased, as overvaluation of the rupee was reduced.

The China-Pakistan Free Trade Agreement (FTA) entered into force on 1 December 2019. This grants Pakistan similar access to the Chinese market as that granted to the Association of Southeast Asian Nations (ASEAN) member states.
There was evidence of increased foreign direct investment, particularly from Chinese textiles companies.
However, the COVID-19 outbreak has resulted in widespread lockdowns, transport restrictions, and social distancing, which have halted supply chains and had devastating consequences on business activities.
The economic growth of Pakistan is highly dependent on its exports. This is because access to foreign exchange enables Pakistan to finance its imports, stabilise its currency devaluation, service its debts, and resolve the issue of balance of payment deficit. However, the trade imbalance that has been continuing for decades cannot be reduced without an effective import substitution strategy. To encourage import substitution, the government is pursuing its “Make in Pakistan” policy. The objectives of this policy are to create jobs, generate value‐added exports, and encourage import substitution.
Over the last two years, imports have decreased due to regulatory measures, currency devaluation, and higher interest rates to suppress domestic demand. The COVID-19 pandemic also reduced domestic demand, resulting in fewer imports in the second half of 2020.
With the relaxing of lockdown measures, economic indicators are showing positive results bringing Pakistan’s economy on the path of recovery. The earlier trend of falling imports has been reversed. This is because the government reduced import tariffs on industrial raw materials in line with the National Tariff Policy (2019-2024) to enhance competitiveness of the local industry. The overall recovery is attributed to two main factors:
The national strategy that contained the pandemic.
The timely and well-calibrated support measures adopted by the government and the State Bank of Pakistan (SBP).
The government had initially projected that GDP growth would remain at around 2.1% in 2021. However, strong recovery from the manufacturing sector has revised upward the central bank’s projection to 3% for 2021. The economy recovered more rapidly than projected by international institutions. The International Monetary Fund (IMF) had projected a growth of 1% in its “World Economic Outlook Database, October 2020”, but revised it to 1.5 in January 2021.
Pakistan’s exports have increased by 4.4% to USD16.3 billion during the first eight months of financial year (FY) 2021, compared to USD15.6 billion for the same period in the previous year. Textile exports increased by 6.7% in the first eight months of FY2021. Private consumption is estimated to have picked up between July and December 2020, in part due to:
⦁ A record increase in remittances inflows.
⦁ Social assistance support from the Ehsaas programme.
⦁ The government’s construction package.
⦁ A return to pre-COVID-19 mobility levels from September 2020.
Investment is also estimated to be recovering, as machinery imports and cement sales both recorded double-digit growth rates during this period.
Pakistan has finalized its five-year Strategic Trade Policy Framework (STPF 2020-25) draft with measures to diversify exports from traditional sectors to high-quality and globally competitive engineering products. The ministry envisages annual exports of USD37 billion by 2025.
An FTA with Iran is under discussion.
Pakistan and Uzbekistan have agreed to enhance trade relations through a bilateral transit trade agreement, a PTA, as well as co-operation on banking and visa issues, aviation, and customs. Pakistan and South Korea have agreed to hold further negotiations on a proposed FTA to increase bilateral trade and promote free trade between the two countries. Pakistan and Afghanistan have agreed to discuss a PTA as part of their talks on a new Transit Trade Agreement. Turkey and Pakistan are aiming to raise annual bilateral trade to USD5 billion through a proposed FTA.

Negotiations are under way for bilateral FTAs with Iran, South Korea, Thailand, Turkey, and Uzbekistan, and with Afghanistan for a PTA
EU has granted Pakistan generous tariff preferences since 1 January 2014. Under GSP+ status, Pakistan benefits from preferential tariffs (mostly zero duties on two thirds of all product categories). To maintain GSP+ status, Pakistan must ratify and effectively implement 27 core international conventions on:
⦁ Human and labour rights.
⦁ Environmental protection.
⦁ Good governance.
⦁ See: Europa: Pakistan.
In February 2020, the EU conducted its third biennial review on Pakistan’s implementation of the core conventions, and renewed its GSP+ status until 2022.

Import Duties, Tariffs and Rates
The Schedules to the Customs Act 1969 is the main legislation relating to import tariffs and customs charges. Statutory regulatory orders (SROs) passed from time to time also contain information about import tariffs. Customs legislation is amended annually and is released as part of the budget (Finance Act), which must be passed by Parliament before coming into force. Import tariffs/duties in Pakistan are classified into the following categories:
Tariffs are amended annually at the end of the financial year, when the annual budget is announced and approved through an Act of Parliament. The Budget Bill is generally presented to Parliament around May/June, as the Pakistani financial year runs from 1 July to 30 June. The federal government can apply tariff exemptions and concessions either through the law implementing the budget or through SROs. SROs can further specify whether certain products are exempted from sales tax or other domestic taxes.
Additional Customs Duty on Imports. This duty is imposed on imported goods specified in the First Schedule at a rate not exceeding 35% of the customs value of the goods, through SROs issued by the federal government (section 18(5), Customs Act). SROs are issued to reflect changes in duty structure. The current additional customs duty rates are 2%, 4% and 7%. Most items listed in the Fifth Schedule are exempt from additional customs duty.
Regulatory Duty on Imports or Exports. This duty can be levied on the import or export of any of the goods listed in the First Schedule at a rate not exceeding 100% of the customs value of these goods, by SRO issued by the FBR with approval of the supervising Ministry. This duty applies in addition to any customs duty (section 18(3), Customs Act).
Preferential tariffs apply to countries who have concluded PTAs or FTAs with Pakistan (see Question 2), including:
⦁ China.
⦁ Malaysia.
⦁ Mauritius.
⦁ Sri Lanka.
⦁ Indonesia.
⦁ Iran.
The Import Policy Order 2020 allows the import of all goods from worldwide sources unless included in a:
Restricted items list (imports are permitted subject to certain conditions. List of items that cannot be imported in used or second-hand condition (Appendix C, Import Policy Order).
For example, the Order prohibits the import of counterfeit goods.
Further, the federal government can prohibit or restrict imports from all or any source if deemed to be in the public interest (Imports and Exports (Control) Act 1950).

Licensing Requirements
There is no general licensing requirement for importers. The import of specific goods can require licensing under domestic law. For example: Imports of wildlife species, including those mentioned in Appendix II to the Convention on International Trade in Endangered Species of Wild Fauna and Flora, require a no objection certificate (NOC) from the National Council for Conservation of Wildlife (NCCW). Certain chemicals, such as acetic anhydride, can only be imported by industrial consumers after obtaining a NOC from the Ministry of Narcotics Control. The imports of explosives require a NOC from the Department of Explosives of the Ministry of Industries. The Import Policy Order 2020 provides details of the licensing requirements and procedures. Pakistan does not impose any localization barrier to trade.

Pakistan Standards
The Pakistan Standards and Quality Control Authority (PSQCA) was established under the Pakistan Standards and Quality Control Authority Act 1996 and operates under the Ministry of Science and Technology. It is responsible for the formulation of Pakistan standards for specific goods and harmonizes these with international requirements such as ISO, IEC, and OIML. Goods that are subject to Pakistan standard specifications include:
⦁ Foodstuffs.
⦁ Chemicals.
⦁ Agricultural goods.
⦁ Civil and mechanical engineering.
⦁ Textiles.
Imports are subject to the same national quality standards and regulations as domestic products.
The Import Policy Order 2020 contains a list of products that must meet Pakistan standards on human safety and public health at the import stage, and bear the appropriate certification mark.

Regulatory Authority
The National Tariff Commission (NTC) is the independent authority responsible for investigating and deciding on trade remedies and tariff matters. The NTC enforces trade remedy laws against dumped and subsidized imports causing injuring to Pakistan’s domestic industry. The NTC also conducts safeguard investigations relating to surge in imports. All these proceedings comply with WTO rules.
The NTC has the following powers:
⦁ Anti-dumping actions. The NTC can investigate and adopt measures to combat dumping under the Anti-Dumping Duties Act 2015.
⦁ Countervailing measures. The NTC can investigate and impose countervailing measures under the Countervailing Duties Act 2015.
⦁ Safeguard measures. The NTC can investigate and recommend safeguard measures on imports under the Safeguard Measures (amendment) Ordinance 2015. The MOC then decides whether safeguard measures should be imposed.
Investigations and Enforcement
Pakistan’s domestic legislation on trade remedies (see Question 11, Regulatory Framework) includes the lesser duty rule. The NTC has discretion to apply the lesser duty rule in its investigations. The authorities do not apply any public interest test for trade remedies.
Exports of imported goods in their original and unprocessed form are generally prohibited, subject to exceptions listed in the Export Policy Order 2020. Exports of the items specified in Schedules II to the Export Policy Order 2020 are restricted and subject to specific conditions, procedure, and formalities.
In addition, export controls and sanctions are managed through notifications and SROs of the MOC, and sometimes the State Bank and the FBR. Trade with Israel is prohibited, and goods of Israel origin are banned (Import Policy Order 2020 and Export Policy Order 2020).
Goods of Indian origin or imported from India are prohibited, except for therapeutic products regulated by the Drug Regulatory Authority of Pakistan. The export of goods to India is also prohibited, except for the same therapeutic products.
Non-compliance with the Imports and Exports (Control) Act 1950 is punishable with imprisonment of up to one year or a fine of up to PKR1 million, or both. Penalties are set out in section 5 of the Import and Export Control Act 1950. Non-compliance with export controls may also be punishable under sections 156, 156A and 157 of the Customs Act 1969.
Non-compliance with the sanctions regime under the UNSC Act and the Anti-Terrorism Act 1997 is punishable with a fine of up to PKR10 million. Specific compliance requirements vary depending on the type of business and entity. Any company, partnership, or individual can import and export goods into and from Pakistan if they fulfill the above requirements and are a member of any chamber of commerce and industry, or any relevant trade association of Pakistan.