RESTRICTED
WORLD TRADE WT/BOP/R/39
8December 1997
ORGANIZATION(97-5368)
Committee onBalance-of-Payments Restrictions
REPORT ONTHE 1997 CONSULTATIONS WITH PAKISTAN
1. TheCommittee onBalance-of-Payments Restrictions resumed itsconsultations with the
Government ofPakistan on10November 1997. Theconsultation washeldunder theChairmanship
ofMr.P.R.Jenkins (United Kingdom), inaccordance withtheCommittee 'sterms ofreference, pursuant
toArticle XVIII:B, paragraph 12(b)ofGATT 1994andtheUnderstanding ontheBalance-of-Payments
ProvisionsofGATT1994.TheInternationalMonetaryFundwasinvitedtoparticipateintheconsultation
inaccordance withArticle XV:2 ofGATT 1994.
2. TheCommittee hadbefore itthefollowing documents:
WT/BOP/15 Basic Document supplied byPakistan, 28October 1996
WT/BOP/15/Add.1 Basic Document supplied byPakistan, Addendum
WT/BOP/W/17 Background Paper bytheSecretariat, 30October 1996
WT/BOP/N/14 Notification received from Pakistan, 25October 1996
WT/BOP/N/14/Add.1 Addendum tonotification received from Pakistan
WT/BOP/N/31 Notification byPakistan, 31October 1997
WT/BOP/N/31/Add.1 Addendum totheNotification, 31October 1997
IMF: Pakistan: Recent Economic Developments, 6October 1997
Opening Statement bytheRepresentative ofPakistan
3. Theopening statement bytherepresentative ofPakistan isattached asAnnex I.
Statement bytheRepresentative oftheInternational Monetary Fund
4. Therepresentative simply noted thatthestaff'sviews hadnotchanged since themeeting in
April, thattheGovernment could becommended foritsreforms andadded thatasofOctober athree-year
ESAF hadbeenagreed.
Discussion intheCommittee
5. TheChairman recalled thatduring theprevious meeting, on21-22 April 1997, theCommittee
hadrequestedaclarificationofitemsrestrictedonbalance-of-paymentsgrounds,aswellasanexplanation
ofwhyquantitative restrictions were preferred toprice-based measures, andapaper addressing the
procedural requirements contained inparagraph 1oftheUnderstanding. TheCommittee hadalso
recognized thatPakistan wasfacing aserious balance-of-payments problem andhadcommended the
economic reforms undertaken byPakistan inrecent times.
6. Members recalled theirrecognition ofPakistan 'sbalance-of-payments difficulties (exchange
reserves attheendofthe1996/1997 fiscal yearwereequivalent tofiveweeks ofimports) andreformWT/BOP/R/39
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efforts. Theyexpressed appreciation forthelatestnotification (WT/BOP/N/31) which clearly identified
therestrictions which were being maintained onbalance-of-payments grounds. They noted with
satisfaction thatthenumber ofitems onthisnotification wassubstantially smaller thanontheearlier
notification. They welcomed confirmation fromPakistan thatthenecessary notification ofrestrictions
maintained under other provisions oftheGATT hadbeenmade totheMarket Access Committee.
7. Some members recalled thatprice-based measures weregenerally tobepreferred toquantitative
restrictions. Some members saidthatrestrictions under consideration could notbejustified under the
WTO balance-of-payments provisions because, essentially, theyprotected oneproduct sector, textiles
andclothing, notPakistan 'sbalance-of-payments position. However, theyappreciated Pakistan 's
economic problems andtheefforts made todealwiththemandwerewilling toshow flexibility. These
membersalsonotedtheabsenceofatimetableforeventualeliminationoftheserestrictions,andindicated
theirreluctance toagree totheconclusion oftheconsultations intheabsence ofsuchatimetable.
8. Other members expressed theviewthatthepresentation ofaphase-out schedule wasnotrequired
under theUnderstanding, andargued thatitwould bepremature: Pakistan should begiven timeto
restore equilibrium toitsexternal account. They alsostressed thattheCommittee should consider
thedevelopment needs ofacountry suchasPakistan, andsuggested thatthese pointed toflexibility
inrelation totheannouncement andduration ofthephase-out schedule. They argued thatPakistan
should bedeemed incompliance withitsobligations.
9. Some members pointed outthattheUnderstanding didnotmodify rights andobligations under
Article XVIII:B andthatPakistan 'srestrictions should bephased outinaccordance withtheprovisions
ofthatArticle.
Replies bytheRepresentative ofPakistan
10. TherepresentativethankedtheCommitteeforitsappreciationoftheproblemsfacedbyPakistan.
Hestated that,hadtherebeennobalance-of-payments problem, anegative listwould notexist, pointing
outthatsome years agotherehadbeenseveral hundred items onthislist.HisGovernment, henoted,
wasconvinced thatprice-based measures weremoreappropriate thanquantitative restrictions, butgiven
theprice inelasticity oftheremaining restricted "non-essential" imports, earlyelimination could lead
toanundesirable surge inimports. With respect tothesystem ofrestrictions, items onthenegative
listweregenerally notpermitted butallowed under certain circumstances. Oncethebalance-of-payments
situation improved, aphase outplancould beannounced, butatpresent thesituation stillremained
quite fragile. Heurged theCommittee toconclude theconsultations.
Conclusions
11. Committee members welcomed thefactthatPakistan hadclearly identified theitems restricted
forbalance-of-payments reasons andthefactthatthenumber ofsuchitems hadbeenconsiderably
reduced. Members recognized thecontinued balance-of-payments difficulties faced byPakistan and
commended theGovernment foritswidearray ofreform efforts.
12. Some members believed thatPakistan should bedeemed incompliance withitsobligations.
Other members expressed concern regarding theconformity ofthemeasures andanunreadiness to
conclude theconsultations intheabsence ofatimeschedule fortheirremoval, which could bemodified
asappropriate.
13. TheCommitteeagreedthattheconsultationswouldbedeemedtobeconcludedprovidedPakistan
publicly announced, within twelve months, aschedule, taking account ofmacroeconomic developments
andtheinterests oftrading partners, fortheremoval ofthemeasures within areasonable period of
time.WT/BOP/R/39
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ANNEX I
Statement bytheRepresentative ofPakistan
Itgives megreat pleasure tobehereforthismeeting oftheBOPCommittee andtobeable
tomake opening remarks onbehalf oftheGovernment ofPakistan.
InthelastmeetingoftheCommitteeon21-22April1997,itwasdecidedtoresumeconsultations
inOctober1977.Fortheresumedconsultations,Pakistanwasaskedtoproduce:(i)aclearernotification
ofitems restricted onbalance-of-payments grounds aswellasanexplanation astowhyquantitative
restrictionswerepreferredtoprice-basedmeasures;and(ii)ashortpaperwhichaddressestheprocedural
requirements contained inparagraph 1oftheUnderstanding onBalance ofPayments.
Pakistan haspresented, Mr.Chairman, these twopapers which havebeencirculated bythe
Secretariat asdocuments bearing numbers WT/BOP/N/31 andWT/BOP/N/31/Add.1.
Asabackground, letmeexplain someofthekeydevelopments ontheeconomic andtrade-policy
frontsince wemetlastinApril 1997. Thebudget for1997-98 rationalizes thetariff andtaxstructure
further, anumber ofmeasures havebeentaken toensure diversification ofexports andtherupee has
beendevalued by7.25percenttoimprove thebalance-of-payments situation. These measures are
expected toyield positive results overthemedium tolongterm.
Theindicators ofeconomic performance for1996-97 havefallen short ofourexpectations.
Weended theyear1996-97 withaGDPgrowth of3.1percentwhich marked asignificant deceleration
from anaverage perannum GDP growth of5percentrecorded overthepastfiveyears. Prices as
measuredbythemovementsinCPIaveraged11.8percentduring1996-97comparedwith10.8percent
inthepreceding year. Despite theintensified efforts launched bytheGovernment toimprove revenue
collections andcontrol non-productive expenditures, theoverall fiscal deficit remained at6.2percent
oftheGDP.
Theexternal sector during thefiscal year1996-97 alsoremained under heavy pressure due
toasharp riseinimports ofmachinery fortheenergy sector, adecline inexport earnings byalittle
overonepercent, sharp increase inthedeficit ontheservices sector andadecline of3.6percent
intheremittancesfromexpatriateworkers.Consequently,thecurrentaccountdeficitintheyear1996-97
stood at$4,187 million reflecting aratioof6.0percenttotheGDP. Thecountry 'sgross liquid foreign
exchange reserves attheendoffiscal year1996-97 wereat$1,297 million implying animport coverage
ofhardly fiveweeks.
Mr.Chairman, letmebriefly touch upon thepolicy aspects regarding trade liberalization.
Thisyear'sbudget, i.e.FY1997-98, contained significant measures forexternal liberalization ofthe
economy. TheNegative Listhasbeenfurther pruned byremoving ninesub-headings from theList
notified videdocument WT/BOP/N/14 dated 1November 1996. Therateofcustoms dutyhasalso
beenrationalized. Themaximum tariff ratehasbeenreduced from65percentto45percent. The
dutyonrawmaterials hasbeenreduced to10percent,onmostoftheintermediate inputs to20percent
onmachinery andequipment to10percent. Ihopeourtrading partners willviewthesedutyreductions
withconsiderable satisfaction.
Mr.Chairman, wearetaking appropriate measures tosetthebalance ofpayments rightbut
youwillappreciate thatexports relying heavily oncotton products which areaffected byweatherWT/BOP/R/39
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conditions, slowmovement towards diversification ofexports andsharp fluctuations intheprices of
major imports suchaswheat, petroleum products andvegetable oil,thesustainability ofbalance of
payments bydefinition becomes adifficult exercise.
IamsurethattheCommittee willtakeintoaccount theenormity oftheeconomic difficulties
Pakistan ispresently faced withand,atthesametime, appreciate thetradeliberalization policies which
theGovernment ofPakistan hasbeenpursuing. Iwould particularly urgeourtrading partners to
appreciate theacute balance-of-payments difficulties which we,atthepresent, arefaced with.
Idrawtheattention oftheCommittee tothefactthatbalance ofpayments havein-built pressures
arising outofdevelopmental needs ofcountries likePakistan, pressures thattheGATT negotiators
hadvisualized. Iwould recall atthispoint thatthere wasaclearrecognition onthepartoftheGATT
negotiators ofthestrong interface between theimport regime andeconomic development inthecase
ofdeveloping countries. Inourview, paragraphs 2,8,9and11ofArticle XVIII clearly bring out
thefactthatthedevelopment needs ofadeveloping country havetobetaken fullyintoaccount while
assessing theadequacy orotherwise offoreign exchange reserves.
Mr.Chairman, during ourdiscussions intheApril 1997 meeting oftheBOPCommittee, we
weretoldbysome ofourtrading partners thatmacroeconomic instruments andprice-based measures
canbeusedtostabilize thebalance ofpayments andthatprotective tariffs canreplace quantitative
restrictions toavert balance-of-payments-related problems. Webelieve thatprice-based measures,
i.e.exchange-rate mechanism andtariffs arethebestmeasures tocorrect thebalance-of-payments
situation asmaybeseenfrom thefactthatnomore that15products onthenegative listaredueto
balance-of-payments reasons andthatPakistan ispursuing anactive exchange-rate policy coupled with
tariff adjustments. Nevertheless, wealsobelieve thatsuchmeasures willhaveverylittleimpact on
theimport ofthose products which aretypically inelastic. Theremaining products arethose which
maycontinue tobeimported atanevenveryhighratewhile under ouragreement withtheIMFwe
cannot impose anyimport dutyexceeding 45percent.
Mr.Chairman, itisnotmyintention toelaborate these points aswehavealready circulated
adetailed noteonthissubject.
Mr.Chairman, before concluding, Iwould liketopoint outthatPakistan hascomplied with
thedecision theBOPCommittee tookinApril 1997. Therestricted listofimports provided byus
iscomprehensive, complete andtransparent andsoisthenotecovering other aspects.
AsMembers arefullyaware, Pakistan reposes strong faithinthemultilateral trading system
which theWTO represents. Webelieve thattheBOPCommittee isduty-bound toprovide asupporting
environment todeveloping countries likePakistan which areundertaking liberalization measures but
atthesame timearefaced withacute balance-of-payments difficulties.
Welookforward toaconstructive dialogue andsuccessful conclusion ofthese consultations.