US govt details reasons for slapping tariffs on Pakistan

ISLAMABAD: The US government has given a detailed report for reasons to slap unprecedented reciprocal tariffs on over 180 countries, including Pakistan, citing different tariff and nontariff barriers paving the way for imposition of tariff on Pakistan’s made-ups.

A detailed report titled “2025 National Trade Estimates Report on Foreign Trade Barriers of the President of the United States on the Trade Agreements Program” states in a chapter on Pakistan that the United States and Pakistan signed a Trade and Investment Framework Agreement (TIFA) in June 2003. This agreement is the primary mechanism for discussions of trade and investment issues between the United States and Pakistan.

Pakistan’s average Most- Favored-Nation (MFN) applied tariff rate was 10.3 percent in 2023 (latest data available). The average MFN applied rate was 13.0 percent for agricultural products and 9.9 percent for non-agricultural products in 2023 (latest data available).

Pakistan has bound 98.6 percent of its tariff lines in the World Trade Organization (WTO), with an average WTO bound tariff rate of 60.8 percent.

For agricultural products, the average WTO bound rate is 96.2 percent. The average WTO bound rate for non-agricultural products is at 55.2 percent.

Despite reduction of applied tariff rates since 2013, the US companies have cited concerns that Pakistan has been imposing high tariff rates and, in some cases, additional duties, on products such as automobiles and finished goods.

In addition, Pakistan grants sector- and product-specific import duty exemptions, concessions, and protections through the promulgation of statutory regulatory orders (SROs).

SROs may be issued without providing for stakeholder consultations or allowing importers time for implementation and compliance.

Under previous International Monetary Fund (IMF) programs, Pakistan pledged to limit the use of SROs to genuine emergencies. However, SROs continue to be issued, and Pakistan has not provided a timeline for their removal.

Non-tariff barriers: Pakistan permits the importation of certain goods only by the public sector or industrial consumers (e.g., active ingredients for the formulation or manufacturing of pesticides). Some imports require approvals from federal-level ministries such as the Ministry of Climate Change, Ministry of Interior, and the Ministry of National Health Services, Regulations and Coordination.

Imports of certain products, including food colors, waste, parings, and scrap plastics, must receive official certification by the exporting country or by a specialized pre-shipment inspection company.

Import bans: On July 11, 2024, Pakistan issued SROs 1021 and 1022, which banned the import and export of wheat. Pakistan officials have stated that the bans were put in place to stabilize local prices given record domestic production and high stocks. Consequently, Pakistan has not imported wheat during the current marketing year.

The government may review the import ban in the latter part of the marketing year, but imports are unlikely to be more than 300,000 tons.

The US food and consumer product exporters have expressed concerns over the lack of uniformity in customs valuation in Pakistan that negatively affects US stakeholders.

Similarly, in the machinery and materials sectors, there are reports that customs officials have erroneously assessed the customs value of goods based on a set of minimum values rather than the declared transaction value.

US companies have reported being adversely affected by Customs Rules 389 and 391. Customs Rule 389 requires the placement of a physical invoice and packing list in the shipping container, while Customs Rule 391 places the responsibility of including such documents, and liability for failure to comply, on the owner of the goods and the carrier.

Such rules pose compliance challenges for companies that use intermediaries, re-invoicing, or the storage of goods at various points during transit. They also create additional burdens for shippers who are required by other countries’ customs requirements to provide this information only through electronic filings and may, therefore, not have paper documentation available.

Many companies’ invoicing, accounting, and shipping systems do not permit the generation of invoices and packing lists prior to the departure of the goods from the company’s production or storage facilities.

Customs officials impose penalties on companies lacking invoicing systems incapable of producing paper documentation for each container.

While Pakistan has shown openness to addressing the issue, and US authorities have worked with Pakistan’s Federal Board of Revenue (FBR) to that end, the rules remain formally in place and customs officials can implement them at any time.

Pakistan notified its customs valuation legislation to the WTO in May 2001, but has not yet responded to the WTO Checklist of Issues that describes how the Customs Valuation Agreement is being implemented.

In October 2022, Pakistan customs authorities detained two shipments of US genetically engineered (GE) soybeans. The MNFSR reiterated the requirement to apply for an import license for GE products, a process at the time stymied by a lack of implementing regulations for approval of GE soybeans for food, feed, and processing (FFP).

In December 2022, Pakistan formed a committee to evaluate the issue. On November 24, 2023, Pakistan’s cabinet passed amendments to the Biosafety Rules aimed at restarting the importation of GE commodities for FFP purposes. As per the approved Biosafety Rules, the Director General of Environment at the Ministry of Climate Change received 16 applications for the import of soybeans that were approved by the Technical Evaluation Committee.

In October 2024, the National Biosafety Committee (NBC) approved the requests of Pakistani importers to import GE soybeans under the new Biosafety Rules.

The US companies expect Pakistani imports of US soybean to resume in the first quarter of 2025. The US government continues to engage with the Government of Pakistan on this issue.

Following publication of the NBC meeting minutes, the approved applicants will need to request an import license from Pakistan’s Environmental Protection Agency before they can begin shipping soybeans.

Since 2014, Pakistan has relied more on technical qualifications in its procurements over lowest cost, but the US companies continue to complain of losing tenders based on price.

Some US companies report instances in which the procuring agency used a bid from a US supplier as a basis for, and to incentivize, further negotiations with other suppliers, rather than accepting the lowest-priced and technically superior bid as outlined, and required, by applicable bidding regulations.

Most notably, this has occurred with the Chinese firms. The US companies also report concerns that Pakistan’s practice rewards anticompetitive behavior, and may facilitate the use of lower bids in an effort to negotiate below-market prices from the US and other foreign companies.

Pakistan routinely blocks access to Internet services for hosting content deemed to be blasphemous or immoral, or on grounds that such services can be used to “undermine national security.”

Under the Prevention of Electronic Crimes Act (PECA), Pakistan routinely blocks entire social media platforms or demands that sites geo-block posts considered “unlawful online content.”

An e-Safety Bill and the pending establishment of a Digital Rights Protection Authority and National Center for Cyber Investigations would increase financial and criminal penalties associated with online speech.

Pakistan has repeatedly suspended access to mobile data and certain online services in major cities in response to planned protests, large-scale demonstrations, and other perceived unrest.

These suspensions undermine a free and open Internet and impede trade in the digital economy by restricting access to information and services and disrupting commercial operations.

The United States continues to monitor the impact of these events on the US trade and investment, including services exports.

Pakistan has one of the lowest tax compliance and tax-to-Gross Domestic Product ratios in the world, 9 percent in FY2024. Pakistan relies heavily on multinational corporations for the revenue generated by tax 288| Foreign Trade Barriers collection.

The foreign investors in Pakistan regularly report that both federal and provincial tax regulations are difficult to navigate, frequently citing the lack of transparency in the assessment of taxes.

Improving and broadening tax collection is a key focus of the IMF’s Extended Fund Facility (EFF) for Pakistan, approved in September 2024.

Under the program, the target is for Pakistan to increase its tax revenues to $40 billion in FY2025, an increase of $6.4 billion from the collections made during FY2024. Under the EFF, the government has also committed to expanding taxation into the under-taxed retail and agriculture sectors and to improving tax administration. However, Pakistan authorities have long delayed key politically sensitive tax reforms recommended under previous IMF programs.

The US companies have experienced increased pressure from the FBR to prepay anticipated tax liabilities and have expressed concern that many of their local competitors still do not pay taxes at all or engage in tax evasion. For example, Pakistan amended its tax laws in June 2024 to limit corporate tax deductions on marketing expenses for firms that pay royalties, a provision that multinational companies complain is designed to discriminate against international companies.

The US government has repeatedly engaged with the Pakistan Government on issues involving unfair and disproportionate taxation of the US companies and continues to reinforce the importance of Pakistan broadening its tax base, the report stated.

It concluded other factors including violation of IPR rules as another stumbling block in the way for fair treatment.