ISLAMABAD, May 15: The World Bank (WB) has asked Pakistan to pre-announce a schedule for future tariff reduction as done by India recently and follow a unilateral trade liberalisation programme. The bank has also warned the country of adverse trade diversion if it stuck to Free Trade Agreements (FTA) with countries of South Asia, which is one of the least integrated and highly protected regions.

The bank is of the view that such preferential trading arrangements, bilateral or multilateral, may lead to shifting of the source of imports away from least cost-efficient third countries to higher cost member countries. FTAs could also result in the loss of custom revenues.

In its 200-page report on Pakistan Growth and Export Competitiveness, released here on Monday, the WB has also asked India and Pakistan to move to Most Favourable Nation (MFN)-based trade immediately. “And, this would require Pakistan extending MFN status to India and extend such agreements to service trade and investment”.

The bank has recommended reduction in Pakistan’s normal maximum tariff in phases; first to 20 per cent by the next financial year or by 2008. India has already lowered its normal maximum tariff rate to 15 per cent and plans to bring it down to 10 per cent.

The bank seeks elimination, within two-three years, the existing tariff exemption and concessions with a firm announcement from Pakistan in advance in this regard.

In order to promote an efficient and competitive auto industry in Pakistan that could be integrated with the world market, the bank has proposed removal of the present deletion programme, including the assembler deletion programmes and the sub-component deletion programmes, within six months or a year.

The bank has recommended reduction of present custom duties to a lower uniform single rate that would be the same for all models e.g. to a uniform rate of 50 per cent, within one or two years.

The WB has asked Pakistan to issue general permission for the import of second-hand cars, but subject to more rigorous valuation rules. The country could impose excise taxes on expensive and luxury cars in order to compensate for revenue losses that would be caused by custom duty reduction on these cars.

The bank has suggested unification of tariffs on completely knocked down (KND) kits, original equipment components and replacement parts at a single rate.

It has observed that the current tariff rate of 90 per cent on import of motorcycles was very high. It was depriving many consumers from the cheaper mode of transportation and severely limiting import competition, needed for promoting an efficient and competitive motor bike sub-sector.

“The fact that Chinese motor makes are being imported over such high tariff suggests that there is no need to apply higher rates for these reportedly cheaper and lower quality models”, the bank has observed.

It has also highlighted the ‘effective protection rates’ being enjoyed by the domestic motor bike producers and has consequently suggested unified tariffs on the import of motor bike parts.

The present tariff rate should be gradually reduced to the current normal maximum tariff rate of 25 per cent. To this end, the tariff on build up units could be reduced to 50 per cent initially (in two years) and subsequently it could be reduced by 5 percentage points each year to bring it down to around 25 per cent by 2012.