The International Trade Law Review: Pakistan
Overview of trade remedies
As a member of the World Trade Organization (WTO) and a signatory to the General Agreement on Tariffs and Trade 1994 (GATT), Pakistan must ensure that its trade remedy framework complies with the WTO agreements. Its trade remedy mechanism is derived from internationally agreed rules and procedures under the auspices of the WTO. The National Tariff Commission (NTC), an autonomous government agency, is entrusted to conduct trade remedy investigations. The governing laws in Pakistan that deal with trade remedy measures came into force in 2001. The first anti-dumping investigation by the NTC was initiated in 2002 against the dumped imports of tinplate from South Africa and, since then, it has initiated 1462 anti-dumping investigations and imposed 91 measures involving all the major industries, including iron and steel, chemicals, paper and paper board, textiles, petrochemicals, tiles and sanitary ware, packaging and automotive parts.
In past years, Pakistan's economic growth has been slow and its export performance has been weak. This was the result of diminishing export competitiveness, which remains a barrier to exports. In addition, Pakistan has a declining exports–gross domestic product (GDP) ratio, a limited export basket and a stagnant imports–GDP ratio. On the composition side, Pakistan's reliance on exports has been concentrated in the same few industries over the past 20 years. Textiles remains the dominant exporting industry, though its export value fell from 68 per cent3 in 2001 to 55 per cent4 in 2020.
The economic growth of Pakistan is highly dependent on its exports as by earning foreign exchange it will be able 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 continued for decades cannot be reduced without having an effective import substitution strategy. To encourage import substitution, the government announced its 'Make in Pakistan' import substitution policy in August 2020. The objectives of Make in Pakistan are to create jobs, generate value‐added exports and encourage import substitution.
As the industrial sector is still underdeveloped, the market is dominated by imports in various sectors. As a result, any new investment in an industrial product faces immense competition from imports that are mostly dumped. In such a case, the only remedy available to the new industry is filing an anti-dumping application. There are many success stories, with the new industry not only flourishing after the imposition of an anti-dumping duty but being able to expand its capacity further, resulting in fulfilment of domestic demand and creating exportable surplus. For example, the hydrogen peroxide industry was continuously incurring losses after its inception in 2008 because of dumped imports from multiple sources. The NTC conducted an investigation and levied anti-dumping duties, which levelled the playing field and allowed the industry to serve domestic demand and start exporting to other countries. With the expansion in domestic demand, local players also enhanced their capacity and new players entered the industry.
This was also the case with the flat steel industry. A major portion of this industry is made up of cold-rolled coils, galvanised coils and colour-coated coils. After the downfall of Pakistan Steel Mills, the private sector began setting up manufacturing units for flat steel products in Pakistan. The industry started its production in 2011 and was under severe pressure from dumped imports, which prompted it to file various anti-dumping applications against dumped imports of cold-rolled coils, galvanised coils and colour-coated coils. The NTC concluded anti-dumping investigations and imposed anti-dumping duties. After levying anti-dumping duties, the performance of the industry began to improve. Its capacity enhanced from 500,000MT to 1.7 million MT per annum. Now, in addition to catering for domestic demand, Pakistan's steel industry is competing in export markets with quality products.
Industries are increasingly becoming aware of their rights under trade defence laws. The NTC has conducted awareness sessions in various cities to let people know what trade remedies are available to them and how the process works. Gradually, more cases and investigations are being opened concerning trade remedies, mostly related to anti-dumping. To date, Pakistan has not initiated any safeguard investigations. Only one application was filed under the Safeguard Measures Ordinance 2002 in July 2015 by the producer of soap noodles, which was not initiated by the NTC because there was a lack of 'sufficient evidence of serious injury to the domestic industry' and no 'surge of imports'. Further, only two anti-subsidy and countervailing applications have been filed by industries and initiated by the NTC, as outlined below.
The first was filed in October 2011 along with an anti-dumping application against alleged subsidised and dumped imports of certain writing and printing paper into Pakistan, which originated in and was exported from Indonesia and Thailand. After the investigation was initiated, certain legal and jurisdictional issues were raised in the judicial courts of Pakistan resulting in injunction orders that held the NTC's investigation proceedings in abeyance. Indonesia subsequently challenged the investigation under Article 5.10 of the WTO's Anti-Dumping Agreement (ADA) and Article 11.11 of the Agreement on Subsidies and Countervailing Measures (ASCM), claiming that these articles provide that any anti-dumping or countervailing duty investigation has to be terminated after 18 months from the date the investigation is initiated. In this case, Pakistan initiated the investigations in November 2011 and they were still pending in November 2013. After attempts to resolve the dispute failed, on 12 May 2014 Indonesia requested that the Dispute Settlement Body (DSB) establish a panel to examine the matter. However, Pakistan notified the DSB of its concerns over this request, stating that 'no provisional or definitive anti-dumping or countervailing duties had been imposed by Pakistan on the products in question' and Indonesia's share of the import market had grown since the initiation of the investigations by Pakistan, which meant the investigations did not have any economic impact on Indonesia. On 23 May 2014, pursuant to Pakistan's request, the DSB deferred the establishment of the panel. Pakistan terminated its countervailing investigation in June 2014.
The second countervailing application was filed in April 2016 against subsidised imports of fine cotton yarn from India. After a thorough investigation, the NTC determined subsidy margins and imposed provisional countervailing duties for four months. However, as the domestic industry filed both anti-dumping and countervailing applications simultaneously, the NTC decided to impose definitive anti-dumping duties in the final determination and countervailing duties were not imposed.
Pakistan is a signatory to the Uruguay Round agreements, thereby making it a founding member of the WTO. For the WTO trade defence agreements to have legal force in Pakistan it was necessary for laws to be enacted in Pakistan that mirrored the provisions of these agreements. Hence, to give effect in Pakistan to the provisions of Article VI of the GATT and to the Agreement on Implementation of the GATT, and to consolidate the laws relating to anti-dumping duties to offset dumping, to provide a framework for investigation and determination of dumping and injury in respect of goods imported into Pakistan and for matters ancillary thereto or connected therewith, the Anti-Dumping Duties Act 2015 (XIV of 2015), which reformed and repealed the Anti-Dumping Duties Ordinance 2000 (LXV of 2000) is in place.
Similarly, to give effect to the provisions of Article VI and XVI of the GATT and to the ASCM, and to further strengthen the law relating to imposition of countervailing duties to offset such subsidies, to provide a framework for investigation and determination of such subsidies and injury in respect of goods imported into Pakistan and for matters ancillary thereto or connected therewith, the Countervailing Duties Act 2015 (XIII of 2015), which reformed and repealed the Countervailing Duties Ordinance 2001 (I of 2001), is in place.
Finally, to give effect to the provisions of Article XIX of the GATT and to the Agreement on Safeguards to provide for the imposition of safeguard measures in accordance therewith, to provide a framework for investigation and determination of serious injury caused by products imported into Pakistan and for matters ancillary thereto or connected therewith, the Safeguard Measures Act 2015 (II of 2015), which repealed and replaced the Safeguard Ordinance 2002 (XXXI of 2002), is in place.
To enforce these laws, the government established tge NTC through the National Tariff Commission Act 1990. This Act was revised through the National Tariff Commission Act 2015 (XII of 2015) on 10 September 2015.
In addition to the above-mentioned Acts and Ordinances, the following rules were promulgated to establish the process of investigations: the Anti-Dumping Duties Rules 2001, the Countervailing Duties Rules 2001 and the Safeguard Measures Rules 2001.
Pakistan has a free trade agreement (FTA) with Sri Lanka (2005), preferential trade arrangements (PTAs) with Iran (2004), Mauritius (2007) and Indonesia (2012), and FTAs in goods and investments with China (2005) and Malaysia (2007). It is part of the Economic Cooperation Organization Trade Agreement and the South Asian Free Trade Agreement. It is in various stages of talks, or preparations for talks, with Thailand, Turkey, Uzbekistan and Iran for bilateral FTAs, and with Afghanistan for a PTA.
The government of Pakistan strongly believes in free trade regimes and has always supported efforts aimed at promoting free trade and open market policies. However, statistics in recent years have revealed that Pakistan has been unable to boost its international trade performance despite seeking to implement various trade liberalisation polices. The bilateral trade with its FTA partners has also been running into a continuous deficit, indicating that it has not been able to take advantage of the free trade agreements. However, the recent renegotiation of Pakistan's FTA with China is a step in the right direction by incorporating China's preferences when considering relevant exportable products in Pakistan. The renegotiated agreement reflects, to some extent, Pakistan's economic priorities. It adopts strong commitments in areas where the agreement obligations are in line with its growth strategy.
Pakistan has approved its first-ever National Tariff Policy 2019–2024 (NTP). The NTP recognises the importance of using import tariffs for industrial development and export growth. It is based on the principles of:
- employing tariffs as an instrument of trade policy rather than revenue generation;
- maintaining vertical consistency through cascading tariff structures (increasing tariff with stages of processing of a product);
- providing time-bound 'strategic protection' to the domestic industry during the infancy phase; and
- promoting competitive import substitution through time-bound protection, which will be phased out to make the industry eventually competitive for export-oriented production.
In accordance with these principles, any protection given to the domestic industry will be limited to a certain specified time and will be gradually withdrawn to promote free trade. Even in the latest budget (2021–22) a large number of tariff lines for raw materials have been exempted from import duties and there are certain other tariff lines where import duties have been reduced. This demonstrates Pakistan's commitment to free trade.
Recent changes to the regime
The NTC has faced certain limitations and problems in past years in relation to protecting the domestic industry after the WTO was established and using trade remedy measures. As a result, the government revised the NTC Act 1990 and the Anti-Dumping Duties Ordinance 2000, the Countervailing Duties Ordinance 2001 and the Safeguard Measures Ordinance 2002. New legislation was promulgated on 26 February 2015.
The revised National Tariff Commission Act 2015 is a more expansive piece of legislation compared with the repealed NTC Act 1990, with a few additional provisions and detailed explanation of old provisions. The absence of provisions relating to the quorum of the NTC in the previous legislation to take valid decisions was a major obstacle in the way of providing protection to the domestic industry from foreign exporters' unfair trade practices. This issue is addressed in the new legislation along with providing qualification and experience criteria for members of the NTC. The constitution of the NTC was revised and the number of members was raised from three to five to ensure that, with expanding trade ties, there are enough members to serve industries in a timely manner. A provision on the qualification and eligibility of members was added to make sure that members are capable of understanding the sensitive issues relating to tariff protection and trade defence laws, among other things.
Further, in the revised legislation, it was ensured that no act, proceeding or decision of the NTC can be held invalid by reason only of the existence of a vacancy or defect in the Constitution of the NTC. Under the previous legislation, many investigations were deemed invalid because of a defect in the quorum. This provision enables the decisions of the NTC to remain valid. The amended text extends the terms of the members to five years, because it takes significant time for members to become fully aware of the substantive and procedural mischiefs of the trade defence laws, including the need to fully apprehend the economic and cost accountancy issues. It also ensures that, in the absence of a notification by the government, automatic procedures will ensure that NTC members continue to perform their functions for another period of one year.
Major changes made to anti-dumping and countervailing laws are as follows.
- A new Subsection was added to the revised laws, which states that termination of an investigation or conclusion of an investigation without imposition of measures shall not be a bar to filing a de novo application for a new investigation immediately after the termination or conclusion of the investigation. The NTC shall treat the application in accordance with provisions of these laws.
- A lesser duty rule was introduced in the revised anti-dumping law, which was not present in the earlier laws. The lesser duty rule is not mandatory; the NTC has the discretion of whether to apply the rule in an investigation.
- A provision was added to strengthen export-oriented industries, which stated that anti-dumping duties, whether provisional or definitive, imposed under these laws shall not be levied on imports that are to be used as inputs in products destined solely for export.
- Clarification of what may constitute circumvention has been added to the provision relating to anti-circumvention measures to ensure conformity with the latest developments in anti-circumvention practices. The remedial measures applicable in the event that the NTC determines circumvention have also been clearly stated. Further, a Subsection was added concerning suo moto actions of the NTC, describing the timeline of anti-circumvention investigations.
- A Section has been added on monitoring, evaluation, qualification and disqualification criteria as well as clear and effective working procedures for the functioning of the Anti-Dumping Appellate Tribunal covering the matter of the quorum and discipline.
Certain additional amendments to anti-dumping and countervailing laws are currently being discussed. The domestic industry has made various proposals to remove the provisions relating to the lesser duty rule and the exemption of anti-dumping and countervailing duties for export-oriented industries and to reinstate earlier versions of the laws.
Significant legal and practical developments
A major development in trade remedy measures in recent years was the change of circumstances review investigations initiated and concluded by the NTC. Until the end of 2019 (after a period of 18 years since trade remedy laws were promulgated), the domestic industry had never invoked the provision of a change of circumstances review (Article 11.2, ADA). The NTC had also never conducted a change of circumstances review investigation. When duties were levied, they remained applicable for the entire period for which they were levied initially and at the same rate determined in the final determination of the investigation.
During December 2019, the first-ever application for a change of circumstances review of anti-dumping duties was filed with the NTC. This application was filed by the domestic hydrogen peroxide industry against imports from Bangladesh. The industry alleged that the circumstances that were prevalent during the period of the investigation had changed significantly, leading to a situation where the existing anti-dumping duties were no longer effective and the quantum of the anti-dumping duty rates in force had to be increased. On 26 August 2020, the NTC concluded its review and definitive anti-dumping duties were imposed on dumped imports of hydrogen peroxide imported from Bangladesh. The original range of 10.67 per cent to 12.14 per cent was revised to 15.38 per cent to 16.10 per cent, effective from 26 August 2020.
Following this, the domestic industry producing Sorbitol Solution filed for a change of circumstances review along with a sunset review of anti-dumping duties levied on dumped imports of Sorbitol 70% Solution (Sorbitol) into Pakistan originating in or exporting from India, or both. The industry alleged that the Indian exporters had absorbed the anti-dumping duties and, therefore, imports of Sorbitol from India had continued after the imposition of anti-dumping duties at dumped prices. The review investigation is in process and will be concluded before August 2021.
The initiation of these reviews and their positive outcomes have laid the foundation for interim reviews for the domestic industry before the expiry of anti-dumping duties, and for increased anti-dumping duties in expiry reviews.
Another important issue is the filing of writ petitions before judicial courts (high courts) against the decisions and determinations of the NTC. The high courts used to grant stay or injunction orders that restricted the NTC from proceeding further in investigations, or made anti-dumping duties not applicable or prevented them from being collected for a certain period of time. Due to these stay orders, industries often did not experience the benefits of anti-dumping duties being levied. In Tameer Steel Zone v. Government of Pakistan & Others,5 the NTC raised a preliminary objection about maintainability of the writ petitions on the ground that petitioners have an alternate remedy available under Section 70 of the Anti-Dumping Duties Act 2015 – the Anti-Dumping Appellate Tribunal – and therefore these Writ Petitions are not maintainable. In this case, the high court observed that:
There is no dispute regarding the fact that an alternate remedy is now available to petitioners. We have been informed that the appellate tribunal stood fully constituted according to the composition provided in section 64 of the Act. The appellate tribunal is by now fully functional, having lawful authority to consider pleas of the petitioners and grant the appropriate relief, if the petitioners were found entitled thereto. The petitioners can therefore have recourse to the remedy provided by section 70 of the Act. A remedy of further appeal before the High Court has also been provided under sub- section (13) of section 70 of the Act. Thus a robust and full-fledged mechanism for dispute resolution has been provided under the Act.
The high court relied upon many cases in this judgment, including Collector of Customs Lahore and others v. University Gateway Trading Corporation and another,6 in which the Supreme Court observed the following:
it hardly needs any elaboration that where a particular statute provides a self-contained mechanism for the determination of questions arising under the statute where law provides a remedy by appeal or revision to another Tribunal fully competent to give any relief, any indulgence to the contrary by the High Court is bound to produce a sense of distrust in-statutory Tribunals. Petitioner without exhausting his remedy provided by the statute filed Constitutional petition. Constitutional petition, in circumstances, was not maintainable.
Accordingly, the court in Tameer Steel Zone v. Government of Pakistan & Others ordered that all the writ petitions should be converted into appeals and shall be deemed to have been filed before the Tribunal on the dates they are filed before the high court. All the records were directed to be transmitted to the Tribunal and the petitioners were directed to appear before the Tribunal on 28 December 2020.
The court further directed that consignments, already cleared on receipt of post-dated cheques or bank guarantees without payment of anti-dumping duties in pursuance of interim orders of the court, will be subject to a final determination of the Tribunal in the respective converted appeals. Until then, neither the post-dated cheques nor bank guarantees can be cashed.
Hence, it was established by this judgment that if an alternate remedy is available under the law, a direct writ petition before a high court is not maintainable.
Concerning trade remedies, Pakistan has been party to eight WTO disputes, five as complainant against the United States (two cases), the European Union, South Africa and Egypt, and three as respondent against Indonesia, the United Arab Emirates (UAE) and the European Communities (EC). Four of these cases are summarised below.
i DS107: Pakistan — Export Measures Affecting Hides and Skins
On 7 November 1997, the EC requested consultations with Pakistan in respect of a Notification enacted by the Ministry of Commerce of Pakistan prohibiting the export of, among other things, hides and skins, and wet blue leather made from cow hides and cow calf hides. The EC contended that this measure limited the access of EC industries to competitive sourcing of raw and semi-finished materials. The matter was resolved through a mutually agreed settlement between the EU and Pakistan.
ii DS470: Pakistan — Anti-Dumping and Countervailing Duty Investigations on Certain Paper Products from Indonesia
On 27 November 2013, Indonesia requested consultations with Pakistan relating to the continuation of, and failure to terminate in a timely manner, certain anti-dumping and countervailing duty investigations on certain paper products from Indonesia. In 2014, Indonesia requested the creation of a panel but it was deferred. The NTC subsequently terminated the investigations.
iii DS500: South Africa — Provisional Anti-Dumping Duties on Portland Cement from Pakistan
This case relates to the imposition of provisional anti-dumping measures by South Africa on the import of Portland cement products from Pakistan. On 10 November 2015, Pakistan requested consultations with South Africa but the dispute did not settle or move forward. South Africa imposed final anti-dumping duties and an expiry review was initiated in December 2020, which will be concluded within 18 months.
iv DS538: Pakistan — Anti-Dumping Measures on Biaxially Oriented Polypropylene Film from the United Arab Emirates
On 24 January 2018, the UAE requested consultations with Pakistan concerning Pakistan's anti-dumping measures on imports of biaxially oriented polypropylene film from the UAE. A panel was established and composed on 7 May 2019. On 18 January 2021, the panel report was circulated to members. On 22 February 2021, Pakistan filed an appeal before the Appellate Body on certain issues of law and legal interpretations in the panel report.
From mid-2018 to mid-2019, Pakistan's economy experienced a downturn and GDP grew by only 2.08 per cent in the fiscal year 2018–2019 as compared with GDP growth of 5.53 per cent in 2017–2018,7 which was the highest in that decade. The economy showed some signs of recovery in the second half of 2019, as the government made efforts to provide a conducive environment for trade and business by reducing account deficits and creating a positive balance of payments. As a result, Pakistan rose 28 places in the World Bank's Ease of Doing Business index in its 2020 report, and was ranked among the world's top 10 countries with the most improved business climate.8 The overvaluation of the rupee was reduced, making the exchange rate less volatile, and the China–Pakistan FTA became operational on 1 December 2019, which grants Pakistan similar access to the Chinese market as China has accorded to countries in the Association of Southeast Asian Nations. There was also evidence of increased foreign direct investment, particularly from Chinese textiles companies. However, the outbreak of covid-19 in 2020 brought widespread lockdowns and transport restrictions, and social distancing halted supply chains and created devastating consequences for business activities.
After the end of the first wave of the pandemic and with the relaxing of strict lockdowns, the economic indicators showed positive signs that Pakistan's economy is on the path to recovery. The earlier trend of falling imports was also reversed. This is because the government reduced the import tariffs on industrial raw materials to achieve its objectives in the National Tariff Policy (2019–2024) to enhance competitiveness among local industries. The overall recovery is attributed to two main factors: the national strategy implemented to handle the pandemic and the timely and well-calibrated support measures of the government and the State Bank of Pakistan.
The government had projected that the GDP growth would remain at around 2.1 per cent; however, strong recovery from the large-scale manufacturing sector with a growth rate of 9.29 per cent and from the small-scale manufacturing sector with growth of 8.31 per cent means GDP growth has been revised to 3.94 per cent for the fiscal year 2020–2021. The economy has recovered more rapidly than was projected by the International Monetary Fund (IMF) and the World Bank.9
In accordance with the Pakistan Economic Survey 2020–2021, the current account balance remained in surplus during the first 10 months of the fiscal year 2020–2021 for the first time in 17 years due to strong growth in remittances and an ongoing rise in exports.10 Efforts under the Pakistan Remittances Initiative and the gradual reopening of businesses in major host countries such as the Middle East, the United Kingdom and the United States also boosted remittances. In addition, timely resumption of economic activities helped the export sector perform better than other emerging economies, which led to an improvement in the external sector. Under the IMF's US$6 billion loan programme for Pakistan11 there are better prospects for the external sector, which ensures that external financing needs will be comfortably met.
The above indicates that Pakistan's economy will continue to improve in the post-covid-19 era. The country's vaccination programme has raised hopes that there will be a turnaround in the pandemic later this year, though the fourth wave with new variants of the virus has caused concern. Nevertheless, the government is vigilant and responding efficiently to the situation, including developing social protection systems to support vulnerable segments of the population. Business confidence has returned and economic activity is slowly getting back to normal. It is expected that macroeconomic stabilisation measures and structural reforms supported by international development partners will help the economy follow a sustainable growth trajectory.
1 Saifullah Khan is the managing partner at S.U.Khan Associates, Corporate & Legal Consultants.
5 In the matter of NTC Notices of Final Determination dated 19 January 2017, 8 February 2017 and 13 June 2018 in respect of cold-rolled coils, galvanised steel sheets and colour-coated steel sheets.
6 Reported as 2005 SCMR 37.