Well, production does not mean they produce all the parts. Much like the JF-17, there are certain avionics and systems that are not made in house. In case of the F-16 the APG-68 Radar, the Interface updates and other equipment that is manufactured exclusively in the US will have to arrive before it is integrated into the aircraft. As such, the program could have been carried out by the PAF at KAMRA but security concerns did not let it happen. It would have been the same had it been carried out inhouse.
What the TAI facilities are capable of they will perform, but just as a part is missing..the aircraft will sit on the sidelines before it comes through.