 Hair was appointed to the Elite Panel in 2003 but removed in 2006 |
The Australian official, who has been replaced on the International Cricket Council's Elite Panel, began action against both the PCB and the ICC.
A PCB official confirmed Hair was not now taking action and said: "We are not surprised he has dropped his outrageous allegation of racism against us."
Hair is still thought to be pursuing the ICC for wrongful dismissal.
Hair was barred from officiating Test matches after the forfeited Oval Test between England and Pakistan in August 2006.
Pakistan stopped playing after Hair had awarded five runs to England, believing the fielding side had been guilty of ball-tampering.
A subsequent ICC investigation ruled the ball had not been illegally altered and Hair was taken off the Test rota.
However Billy Doctrove, a black West Indian and Hair's fellow umpire at The Oval, has continued his elite role.
Hair initially believed the PCB had "unlawfully induced" the ICC to engage in discriminatory acts when it lobbied for his ban.
Having been dropped from the panel covering the top international matches, Hair's most recent assignment was the World Cricket League final between Kenya and Scotland in Nairobi in January.
He is still under contract with the ICC until March 2008, but will not be officiating at the forthcoming World Cup in the Caribbean.
The 54-year-old, who now resides in England, rejected the chance to join the England and Wales Cricket Board's umpiring reserve list, which could have seen him officiate in first-class matches.
Earlier this month, his solicitors issued a statement on his behalf, which said: "It is our view, and that of our client, that he has been treated in an unacceptable and appalling manner.
"The reality in this case is that our client would not have been treated in this way if he had not been a white umpire."
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