ISLAMABAD, Jan 16: The cost of doing business has inflated in Pakistan in the last five years on the back of structural weaknesses, including infrastructural bottlenecks, excessive regulatory controls and labour market rigidities, as well as problems concerning governance, according to World Trade Organisation.

On the other hand, customs procedures have been greatly improved, overall tariff protection considerably reduced, tariff bindings increased and intellectual property rights strengthened.

In some other areas, however, trade liberalisation has slowed. For example, support for production and export has increased.

The Geneva-based WTO secretariat released a report on Wednesday on trade policies and practices of Pakistan at the sidelines of Pakistan’s third trade policy review meeting.

The last review of Pakistan trading regime was done in the year 2002.

The report suggested continued trade liberalisation and other productivity boosting structural reforms along with reduction in political uncertainty, which would help improve Pakistan’s international competitiveness, especially for sensitive sector, such as textile and clothing and thus the prospects for sustained economic growth.

Pakistan’s economic growth has been impressive since its previous trade policy review in 2002 mainly as a result of its relatively open trade and investment regimes, sound macroeconomic policies and structural reforms that have also contributed to lower unemployment and reduced poverty.

Due to this growth, poverty has fallen in line with the government’s 2003 poverty reduction strategy, although income inequality has widened slightly and rural poverty remained high during the period under review.

The report also notes that Pakistan still lags behind in export diversification still depending heavily on textiles and clothing, which account for two-thirds of the total exports. This sector now faces stronger competition in major markets.

The main change in merchandise trade patterns has been the rising share of mining and agriculture exports. The US and EU remained Pakistan’s main export market.

Also, state involvement in certain activities, like engineering and key services, persists.

Pakistan’s external trade deficit reached 6.8 per cent of GDP in 2006-07. This deficit, aggravated by rising negative balances on services trade, has been partially financed by workers’ remittances (amounting of 3.8 per cent of the GDP in 2006-07).

The report says the coverage of bound tariffs has risen considerably and 97.2 per cent of tariff rates are now fully bound and 0.8 per cent of tariff partially bound as against 36.6 per cent fully or partially bound in the year 2001-02, a significant improvement.The average most favoured nation (MFN) rate was reduced from 20.4 per cent in 2001-02 to 14.5 per cent in 2006-07.

By and large, Pakistan’s economic fundamentals would now seem to be good, says the report.

Sustained growth rests upon macroeconomic stability and micro-economic reforms to improve efficiency, promote diversification, and sustain export-led growth.

While much progress has been made to establish the necessary pre-conditions for such growth, more must be accomplished to further reduce downside risks to Pakistan’s growth.

Pakistan stands to gain from international economic performance, provided it improves domestic efficiency, and thus its international competitiveness.

Improved efficiency depends on domestic policy reforms, as well as on Pakistan’s capacity to benefit from market openings and other opportunities abroad.

The report says successfully concluding the Doha Round could help stem Pakistan’s drift to increasing export assistance and preferential trade liberalisation, thereby potentially strengthening the multilateral system and facilitating its unilateral reforms.

The Doha Round negotiations could also help improve the predictability and stability of Pakistan’s trade and investment regime (e.g. by reducing the gap between its bound and applied tariff rates and expanding its GATS commitments).