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This document briefly outlines history, objectives and workings of the World Trade Organization (WTO). In some cases, it points at some critical issues and suggests possible improvements to the existing WTO agreements, but its purpose simply is to brief you what is the WTO and how does it works? Finally, you will find a section to brief you on Pakistan’s engagement in the WTO.
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People have traded with each other for centuries in order to
overcome local scarcity of goods. For example, the Pakistan does
not have a climate suitable for growing coconut and palms, and
therefore Pakistan needs to import coconut and palm oil from abroad.
Other reasons for trade include:
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Free trade means a market free of tariffs and import quotas on goods. This definition is based on the notion that market is the best device to ensure producers’ a good return and consumers’ access to good products at the best price. The final goal of eliminating tariff barriers and national protection mechanisms is to allow the market to operate with no constraints.
The supporters of 'free trade' believe that governments should not intervene in trade. Free trade is based on an economic theory known as 'comparative advantage', which means that countries should specialize in producing those goods they produce most efficiently. Free trade ideology has enjoyed varying degrees of popularity over the past two hundred years but is now widely regarded as a fundamental part of national and international economic policy. It is also part of a much wider movement towards deregulatory free market policies, being pushed by a range of institutions, for instance World Bank, IMF and ADB. The deregulation of trade is being accompanied by increasing globalization in general – for example of finance, entertainment, food production, travel, communication and technology. Thus globalization is having a complex range of impacts on the society and the nature. Such complexity makes it difficult to assess the precise impacts of 'free trade' and 'free market' policies alone but some fundamental points can still be made:
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The world trading system is made up of a variety of international institutions. They are all involved to varying degrees in shaping the development of international trade. Perhaps the most striking aspect about the organizations listed below is that, despite their different remits and perspectives, most either openly support or rarely criticize trade liberalization, investment deregulation and the world trade system. This means that there is little or no questioning of free trade at the international policy level.
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World Trade Organization (WTO), an
institution comprising 149 member governments, is the only
international body dealing with the rules of trade between nations.
It is the only United Nations body whose agreements are binding for
member states and it has a dispute settlement system as well. It
contains WTO agreements, negotiated and signed by bulk of the
world’s trading nations. These documents provide the legal
ground-rules for international trade. They are essentially
contracts, binding governments to keep their trade policies within
agreed limits. Although, negotiated and signed by the governments,
the purpose is to help producers of goods and services, exporters,
and importers conduct their business. The culmination of the past fifty years of trade deregulation has seen the formation of an international regulatory system more powerful than any other. The WTO is charged with administering the World Trade Agreement (WTA) including adjudicating over trade disputes. Although the WTO has many developing country members and a consensus-based decision-making system it is still said to be undemocratic, nontransparent and serves the interests of its richer members. By the same token, despite references to sustainable development in the preamble of the WTA, the WTO has failed to deal with socio-cultural concerns, as will be elaborated in this primer. |
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The WTO began life on 01 January 1995, but its trading system is over a half century older. As a matter of fact, following the disastrous Great Depression of the 1930s and the havoc caused by the World War II, developed countries led by the USA joined forces to create a new international economy. As a result, International Monitoring Fund (IMF) and World Bank (WB) were created by the Breton Woods Agreement during July 1944 at New Hampshire, USA. These were created to coordinate economic reconstruction in the post war Europe, however, their mandate expanded to finding capital in developed nations to invest in the infrastructure of developing countries. Followed by this the General Agreement on Tariffs and Trade (GATT) was created during 1947 as the US and Britain sought to establish a stable, multilateral economic system to prevent the trade wars and economic rivalry that had contributed to the Great Depression and the rise of fascism (dictatorship). GATT was aimed as a framework for reducing trade barriers by periodic bargaining.
GATT developed through a series of rounds of international trade talks, culminating in the Uruguay Round (1986-94) which agreed the creation of the WTO. Thus, the WTO came into being as a successor of the GATT.
From the 1970s, as tariffs came down, attention turned to other issues affecting the flow of trade, such as dumping (selling goods at less than production cost to gain market share) and what are called 'non-tariff barriers', for example blocking imports on health grounds. The Uruguay Round took this gradual expansion of the GATT's remit a giant step further, by including for the first time agriculture, services (e.g. finance, telecoms) and intellectual property rights (patenting regimes). |
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The WTO has four main functions:
The last two, and in particular the "court" of the dispute mechanism, are what makes the WTO significantly different from the GATT. Any WTO member can take another member to the WTO court. There is also an appellate body if countries wish to appeal against the court's decisions. If a member wins a case, it is authorized to impose trade sanctions up to the amount it is adjudged to have lost. This is of little value to small countries:
Ecuador was once given leave to impose sanctions on the EU in a dispute over bananas!
The dispute settlement mechanism means that the WTO, unlike the International Labor Organization (ILO) or the UN, has the power to enforce decisions and penalize member countries. For instance, if a country violates an ILO convention, all the ILO can do is issue a statement. If a country breaks a WTO agreement, it faces trade sanctions.
On the other hand, unlike the IMF and the World Bank, the WTO does not lend money, and so has less immediate financial influence over developing countries. In practice, the WTO, World Bank and IMF act jointly to push developing countries along the road to liberalization. Often the "structural adjustment programs" of WB/IMF pushes a country into trade liberalization measures which are then "locked in" through WTO agreements. |
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The WTO agreements are lengthy and complex because they are legal texts covering a wide rage of activities. But a number of simple, fundamental principles run throughout all these documents. These principles are foundation of the multilateral trading system.
The WTO has two fundamental principles, called "National Treatment" and "Most Favored Nation treatment"(MFN). · National treatment: A foreign company or product in a member state has to be treated the same as (or better than) a comparable domestic company or product. · MFN treatment: Trade concessions (e.g. lower tariffs) given by one member to another must be extended to all members.
In other words, the "national treatment" means governments cannot treat national producers more favorably than international ones, and "most-favored nation" prevents any nation from being "most favored"! Exceptions to these key principles are made in certain circumstances, for example government bodies buying goods and services are exempt from both National Treatment and MFN obligations, allowing them to give preference to local suppliers. Poor countries are given more flexibility than rich ones, a provision known as "Special and Differential treatment". |
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Director General Normally serves for six years. In 1999, members were unable to agree on the appointment, and compromised with a split term. When Mike Moore, from New Zealand, completed a three-year term from 1999-2002; Dr. Supachai Panitchapakdi from Thailand took over the charge from 2002 for a further three years. Currently, Mr. Pascal Lamy, from European Union, is the Director General of the WTO as of October 2005.
Secretariat With its small secretariat, the WTO is driven by its member governments to a much greater extent than the World Bank or IMF, which have a stronger institutional role based on significant internal research and policy-making.
It is the WTO's chief policy-making body, composed of government ministers from member states meeting every two years. Hong Kong was their last outing that held during December 2005. Their next is planned during December 2006.
General Council The most senior permanent body, based in Geneva, it meets several times a year. Delegates from all member states with representatives in Geneva can attend.
Committees Beneath the General Council are a number of specialist councils and committees of members, e.g. on trade in goods or Trade Related Intellectual Property Rights (TRIPs).
Besides these formal structures, WTO member state delegates in Geneva are involved in a permanent round of meetings to discuss bilateral issues and agree joint positions.
Joining and leaving As of June 2006, the WTO had 149 members, with another number of countries interested in joining. Saudi Arabia, Armenia and China are the most recently approved members. Any state or customs territory having full autonomy in the conduct of its trade policies may become a member to the WTO, but all WTO members must agree on the terms. This is done by establishing a working party of members and through negotiations. The remaining large non-members are Russia, Iran and the Ukraine.
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1. Agreement on
Agriculture In the area of Market Access, non-tariff measures are converted into tariffs to provide substantially the same level of protection. This phenomenon is called “teriffication process”. Under the AoA, it was agreed that developed countries will reduce tariffs on agriculture products by an average 36% and 24% by developing countries. Reductions were to be undertaken over six period time in case of developed countries and over ten years for developing countries. Least-developed countries (LDCs) were not required to reduce their tariffs. Negotiations among WTO member countries are going on at the moment to reduce the tariffs further. Domestic Support commitments aimed at reducing expenditures like input subsidies on fertilizers, seed, pesticides and electricity to domestic producers (farmers). Under the AoA, it was to be reduced by 20% and 13.3% by developed (North) and developing (South) countries respectively.
Export Subsidies are payments given to the exporters so they can sell their produce in the market at a lower price and compete. Under the AoA, export subsidies are to be reduced by the 36% for developed countries and by 24% for developing countries. There must also be reductions of 21% and 14% respectively on the volume of exports subsidized. Developed countries committed to fulfill these reductions over the period of six years (by 31 December 2000). While developing countries were given ten years period (by 31 December 2005). LDCs were given special and differential treatment and they were exempted from the time period. AoA commitments were made for a period of 10 years from 1995 onward and have now completed. It was agreed to review and reform the Agreement after 2004 (after 10 years of implementation of the AoA). Negotiations are going on at the moment and a new agreement has not yet agreed. 2. Trade-Related Intellectual Property Rights
The
Trade-Related Intellectual Property Rights (TRIPs) Agreement was
negotiated in the Uruguay Round of the GATT, and is now implemented and
monitored by the WTO. Creators of innovative Ideas and knowledge have
been given the right (otherwise called Intellectual Property Rights) to
prevent others from using their inventions, designs and other creations.
The TRIPs Agreement covers a wide range of issues dealing with
Intellectual Property Rights (IPRs). IPRs covers three main areas:
Patents: These are given on ‘new’ inventions, and give a monopoly right to make, use or sell an invention for a period of 17 to 20 years. To be patented, an invention should be innovative (i. e. an invention, not a discovery) and novel (not obvious). It should also be capable of commercial application. Copyrights, trademarks and patents are granted by national patent offices and apply to all goods within that country. There is also an UN body – the World Intellectual Property Organization (WIPO) – which publishes worldwide patents to prevent anyone else from patenting these inventions in other countries. TRIPs was introduced under pressure from commercial firms holding, or seeking to hold, patents. These firms claimed that unless safeguards were put in place they would have no incentive to invent new products and technologies. The agreement provides that Northern standards of intellectual property protection will have to be applied in the South. Many countries will have to provide protection for certain types of products for the first time (e.g. pharmaceuticals, plant varieties, types of food). Intellectual property protection will be linked to the WTO’s dispute settlement system.
3. Sanitary and
Phytosanitary Measures
The term ‘sanitary regulation’ is used to cover types of regulations whose basic objective is to ensure food safety, or to prevent animal borne diseases from entering a country. Where the objective of regulations is to ensure that imported plant varieties do not bring into a country plant-born diseases, they are referred to as ‘phytosanitary regulations’. Sanitary and Phytosanitary regulations, particularly those which aim at prevention animal or plant- borne diseases from entering a country, can, however, be related to “the level of prevalence of specific diseases or pests” and can be more rigorously applied to imports from countries where such diseases or pests are prevalent. The Agreement on SPS further permits countries to take measures to restrict imports on a provisional basis, as a precautionary step, where there is imminent risk of the spread of diseases but the “scientific action is insufficient”. Many countries (including Pakistan) do not have capacity to meet these high mandatory standards and their products, eventually, are not able to compete with those of North.
4. Technical Barriers
on Trade The Agreement on Technical Barriers on Trade (TBT) provides that such mandatory product standards should not be so applied by countries as to cause unnecessary obstacles to international trade. Furthermore, they should be based on scientific information and evidence. From the viewpoint of the Agreement, mandatory product standards do not create unnecessary barriers to trade if they are based on internationally agreed standards. Where for geographical, climatic and other reasons, it is not possible for member countries to base their mandatory regulations on international regulations, they are obliged to publish these regulations in draft form to give producers in other countries an opportunity to comment on them. The Agreement also obliges member countries to take such comments into consideration when the standards are finalized, thus ensuring that characteristics of products produced, and exported by, other countries are taken into account. Voluntary standards with which compliance is not mandatory, may also pose problems in international trade if they differ widely from country to country. The Code of Good Practice for the Preparation, Adoption and Application of Standards, an integral part on the Agreement on TBT, therefore urges countries to use their best endeavors to require national standardizing bodies to use the same principles and rules in preparing and applying voluntary standards as are laid down for mandatory standards. The Agreement on TBT requires mandatory product standards to be applied on a non-discriminatory basis to imported products. 5. Safeguard Measures The Agreement on Safeguards authorizes importing countries to restrict imports for temporary periods if, after investigations carried out by competent authorities, it is established that imports are taking place in such increased quantities (either absolute or in relation to domestic production) as to cause serious injury to the domestic industry that produces “like” or “directly competitive” products. It further provides that such measures, which could take the form of an increase in tariffs over bound rates or the imposition of quantitative restrictions, should normally be applied on an most favored nation (MFN) basis to imports from all sources.
The investigation for the imposition of such measures can be initiated either by the government itself or on the basis of a petition from the affected industry. In practice, however, the investigations are generally initiated on the basis of petitions from the affected industry.
The Agreement lays down the criteria which investigating authorities must consider in determining whether increased imports are causing serious injury to the domestic industry. It also sets out basic procedural requirements for the conduct of investigations. One aim of the procedural requirements is to provide foreign suppliers and governments whose interests may be adversely affected by the proposed safeguard actions with an adequate opportunity to give evidence and to defend their interest. The primary purpose of providing such temporary increased protection is to give the affected industry time to prepare itself for the increased competition that it will have to face after the restrictions are removed. The Agreement seeks to ensure that such restrictions are applied only for temporary periods by setting a maximum period of eight years for the application of a measure on a particular product. Developing countries can however impose them for a maximum period of 10 years.
6. Subsidies and Countervailing Measures/Anti-dumping The GATT rules deal with two types of “unfair” trade practices which distort conditions of competition. First, the competition may be unfair if the exported goods benefit from subsidies. Second, the conditions of competition may be distorted if the exported goods are dumped in foreign markets.
In simple words, it is usual to designate all low cost imports as dumped imports. The Agreement on Anti-Dumping Practices (ADP), however, lays down strict criteria for determining when “a product is to be considered as being dumped”. In general, a product is considered dumped if the export price is less than the price charged for the like product in the exporting (producing) country. A comparable price charged for the like product when exported to a third country, or a constructed value, is calculated on the basis of the production cost of the imported product plus general, selling and administrative costs, and profits.
Likewise, the Subsidies and Countervailing Measures (SCM) Agreement requires the authorities to terminate investigations in certain situations described in the agreement.
Both the ADP and SCM agreements authorize countries to levy compensatory duties on import of products that are benefiting from unfair trade practices. However, an importing country can levy countervailing duties on subsidized imports and anti- dumping duties on dumped imports only if it is established, on the basis of investigations carried out by it, that such imports are causing injury to the domestic industry. Investigations for the imposition of such duties should ordinarily be initiated on the basis of a petition made by or on behalf of an industry, alleging that imports are causing it injury. The two Agreements lay down similar criteria for determining injury. The procedures for carrying out investigations for the levy of anti-dumping and countervailing duties are likewise similar. U.S.- Canada wheat trade dispute is an example of case of Anti-dumping & Subsidies and Countervailing Measures at the WTO. U.S has long expressed concerns that Canadian wheat trading practices-both imports and exports are inconsistent with WTO obligations. After investigations, the dispute settlement panel of the WTO ruled (April 4, 2004) that the Canadian wheat board’s practices do not violate the WTO’ rule ; however, the panel found that certain Canadian grain marketing practices were not in compliance with WTO rules. As a result, Canada passed legislation that rectified its grain import and marketing system practices to bring them compliance with the WTO panel’s recommendations.
7. Agreement on Textiles and Clothing Since 1995, the Agreement on Textiles and Clothing (ATC) has taken over from the Multi-fiber Arrangement (MFA) of GATT. The basic aim of ATC was to secure the removal of restrictions currently applied by some developed countries to imports of textiles and clothing from developing countries. To this end the Agreement set out procedures for integrating the trade in textiles and clothing fully into the GATT system by requiring countries to remove the restrictions in four stages over a period of 10 years ending on January 01, 2005. The bulk of the restrictions were, however, withdrawn in the last phase when the transition period ended as of December 2004 and the Agreement expired. The developing countries were given certain quotas in this regard so that they can only export limited quantity of their textiles and clothing products. As of 2005, the sector is fully integrated into normal GATT rules. In particular, the quotas have ended, and importing countries are no longer able to discriminate between exporters. The Agreement on Textiles and Clothing was the only WTO agreement that have had self-destruction built in and was expired over a period of 10 years ending on January 01, 2005. Pakistan, for instance, used to export textile and clothing products to US and EU under the quota system. As of year 2005, beside other WTO member countries, Pakistan is now competing freely in the international market and is exporting similar products to various parts of the world without having any fixed quota. To cope with challenges of the quota-free WTO regime, textile and clothing industrial sector in Pakistan has recently invested a lot to bring in new technology and machines; cut down cost of the production; and improve quality of products besides meeting standards set by the WTO. 8. Trade- related Investment Measures Government often imposes conditions on foreign investors to encourage investment in accordance with certain national priorities. Conditions that can affect trade are known as trade- related investment measures (TRIMs).
The
agreement on TRIMs, which was negotiated in the Uruguay Round, requires
countries to phase out TRIMs that have been identified as being
inconsistent with GATT rules. The phasing out period for developed
countries was two years from 1 January 1995. Developing countries got a
transition period of five years, and least developed countries seven
years. TRIMs prohibits on the grounds that they extend more favorable treatment to domestic products in comparison to imports and thus break the national treatment principle include those that require: 1. Purchase or use by an enterprise of products of domestic origin or from any domestic source (local content requirements), or 2. That an enterprise’s purchase or use of imported products should be limited to an amount related to the volume or value of the local products is exports (trade-balancing requirements).
TRIMs considered inconsistent with the provisions of Article XI of GATT against the use of quantitative restrictions on imports and exports include those that: 1. Restrict imports to an amount related to the quantity or value of the products exported (i.e. trade-balancing requirements constituting restrictions on imports) 2. Restrict access to foreign exchange to an amount of foreign exchange attributable to the enterprise (i.e. exchange restrictions resulting in restrictions on imports) 3. Specify exports in terms of volume or value of local production (i.e. domestic sales requirements involving restrictions on exports).
9. General Agreement on Trade and Services Trade in services is growing and currently accounts for over 20% of all international trade. The General Agreement on Trade and Services (GATS), which was negotiated in Uruguay Round, applies the basic rules for trade in goods to trade in services. However, the rules have been suitably modified to take into account the differences between goods and services and the four modes in which international trade in services takes place. GATS’ structure consists of a framework text which sets out the general concepts, principles and rules that apply to measures affecting the trade in services. It complement the text. Specific commitments has the annexes to the Agreement which establish principles and rules for specific sectors and liberalizing the trade within the service sectors and sub-sectors listed in the national schedules of member countries.
The term ‘services’ covers a wide range of economic activities. The WTO Secretariat has divided these differing activities into the 12 sectors i. e. Business (including professional and computer) services, Communication services, construction and engineering services, distribution services, educational services, environmental services, financial (insurance and banking) services, health services, tourism and travel services, recreational (cultural and supporting) services, transport services, other services not included elsewhere. These 12 sectors have been further divided into 155 sub-sectors. |
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Trade liberalization under the auspices of WTO is promoted as panacea for all economic ills and short cut to quick prosperity. Member countries of the WTO are required to liberalize their trade policies under the new system. However, the process of trade liberalization has been partial and unequal. What had been a gradually evolving trade liberalization process over the centuries for “new developed countries” has now become a strategy condition for “still developing countries”. Developing countries have been lowering trade barriers more rapidly than northern countries without getting promised results. Their economies are shrinking with increase in poverty. Being weak economic players in global economy, developing countries, seemingly, has little policy choice but to fall in the line.
It is now widely argued that the current world trade system is inequitable and undemocratic. Eventually, it is damaging socially, economically and environmentally the world in general and the developing world in particular. Through looking both at a range of trade issues and the impacts of the products that we buy everyday we can see how the trade system can act to reduce peoples' quality of life all around the world rather than making it better.
Although, on the face of it, the idea of free trade seems to make sense and should lead to a fairer system, in reality the deregulation of trade can have massive adverse impacts on people and the nature around us.
The current world trade system is characterized by the pursuit of free market policies, such as deregulated trade and investment, privatization and deregulated currency markets. Such policies have put corporate rights ahead of citizens' rights, improving conditions for business but not necessarily for people. The past fifty years of trade liberalization has also seen a massive increase in inequality across the world, continued environmental degradation, the feminization of poverty and unskilled labor and the erosion of peoples control over their lives and resources.
Transnational corporations (TNCs), mostly from the developed world, are one of the main driving forces behind the world trade system. They are responsible for a large proportion of international trade. The economic power of these companies gives them considerable influence over the world trade system, both directly and via government. Such influence helps ensure that the system works for their benefit. The extraordinary power and influence of TNCs and the lack of democratic control over any adverse social/environmental consequences resulting from their pursuit of the 'bottom line' (i.e. profits) is frequently a problem. An international body for regulating world trade is a good idea, if only to stop the rich countries bullying the poor, but the WTO as currently constituted is failing to do that. Listed below are few of the widely established concerns:
Dogmatic attachment to liberalization The WTO agreements were drawn up at the height of the enthusiasm for free market economics, and are a product of strict attachment to liberalization and deregulation. The world may have moved on since then, but the WTO has not. It sees trade liberalization as an end in itself, rather than a means to an end (such as eradicating poverty). There is plenty of evidence that while liberalization in some circumstances can help the poor, in others it can do serious harm, for example by letting in floods of cheap food imports that wipe out the livelihoods of small farmers. According to a Latin American negotiator in Geneva: "If you have a really open economy like ours, it's impossible to protect your farmers with WTO rules." This ideological bias may explain why the WTO pays almost no attention to the impact of its agreements. No review or empirical study of the Uruguay Round on developing countries has been conducted to date.
It is argued that the message from North to South in the Uruguay Round was 'you continue to liberalize, we'll continue to subsidize.' The Uruguay Round is a story of unkept promises." Northern governments and companies have proved adept at including loopholes in the agreements to benefit themselves. As a result, northern protectionism is robbing the developing world of a huge export income everyday, many times more than the total inflows of aid. But double standards also exist on a deeper level. With few exceptions, today's successful economies built up their national industries behind protective barriers. Today, WTO agreements are closing that option to developing countries. It is thus argued that because of trade liberalization, developing countries cannot pursue the policies developed countries used in the past.
Undermining democracy Deregulation introduced by governments under pressure from the World Bank and the IMF can be reversed if electorates so wish. But governments signing the WTO agreements effectively "lock in" the WTO's bias in favor of the unregulated market. While WTO officials present lock-in as a positive step, insulating governments from the influence of domestic vested interests, it is just as likely to insulate them from democracy and strengthen public fears that governments have surrendered to unaccountable market forces.
The WTO covers a lot more than trade and tariffs. Increasingly, it involves itself in domestic issues such as investment rules and patenting regimes. Now the Doha round has extended into many new areas: government procurement, investment, competition policy, labor standards and the environment. International rules on these matters are needed, but the WTO will bring to them its own agenda of liberalization and deregulation, and its imbalances of power. For that reason, many developing countries and NGOs has been opposing further extension of its influence.
Recent inflation in Pakistan, for instance, is said to be market driven and the government is failing to intervene because of influence of the corporate sector. |
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A rule based but welfare oriented “ethical world trade system” is very much wanted far and wide. This implies there is a pressing need to change the rules governing international trade and investment to ensure that they properly reflect society's basic requirements and democratic procedures. Trade and foreign investment are not and cannot be goals in themselves. Rather they are parts of a greater system, which, in order to be effective, needs also to be equitable, secure, sustainable and transparent. In the long-term, we need to develop sustainable economies: in the short-term we need to adopt 'first aid' measures to reduce some of the international trade system's worst social and ecological impacts. As an alternative, fair trade approach is sustainable as compared to the free trade. Fair trade is a trading partnership based on dialogue, transparency and respect that seeks greater equity in the international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers – especially in poor countries of the South. Fair trade, as the term is now used, usually means government intervention to direct, control, or restrict trade. Under Fair trade, it’s the responsibility of government officials to decide what we should be allowed to buy and what prices we should be forced to pay. In other words, it is paternalism in the international commerce that means government officials possess the authority to help, advise, and protect masses and neglect individual choice. Fair Trade organizations (backed by consumers) exist already in the society who engage actively in supporting producers, awareness raising and in campaigning for changes in the rules and practice of international trade. |
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Pakistan is one of the founder members of GATT since 1947 as well as of WTO since 1995. As stated earlier under the “Historic Background of the GATT/WTO”, a number of international institutions were developed following the World War II including GATT in 1947. Pakistan, being one of the ex-colonial States and having British influence, signed the GATT with no consultations/preparation and without having much international trade. World was divided into two camps at that time (one led by the US & British and other led by USSR) and Pakistan decided to go along with US. It was therefore purely a political decision to sign GATT otherwise Pakistan was a new born country during 1947 and was almost lacking the international trade.
GATT, however, was largely limited to trade in non-agricultural manufactured goods. Implications of GATT were minimal on Pakistan during the GATT regime (1947-1994) due to two good reasons: 1) Pakistan’s major exports were agro-based (e.g. Rice, Cotton, Jute); and 2) Pakistan was allowed to protect its industrial sector (through tariffs and subsidies) to a desirable level. Later, GATT was merged into a much broader agreement “WTO” in 1995. New subjects i.e. agriculture, services and intellectual property rights were introduced for the first time in the multilateral trading system. Pakistan, like many other developing countries, signed WTO without proper consultations and research based preparation. Most of the agrarian developing countries signed WTO because of the promise made by the rich industrialized countries that they will take benefit of liberalized trade in agriculture.
Pakistan, as a result, has been changing its policies in order to carry out new economic activities and to comply with the rules and regulations contained in WTO treaties. From GATT to WTO and to the currently ongoing Doha Round negotiations, the way trade liberalization intensified, implications of trade liberalization and WTO agreements are becoming visible on various walks of life in the country. In most of the cases, these implications are unfortunately negative. Civil society in the country is now showing concerns and struggles to build know how about WTO and its future implications.
Trade Liberalization Policies: Until the end of the 1980s, Pakistan followed a policy of imports substitution that means high tariffs were placed to avoid imports and protect the local products. The high protection given to the domestic economy placed heavy burden on country’s economy that was unfortunately not stable enough to bear this load. In the meantime, Pakistan started taking massive loans from International Financial Institutions (IFIs), the International Monitory Fund (IMF) and World Bank, much before the 1980s in order to fill gaps in the economy. These loans, in fact, were linked to conditions that increasingly impinged on the domestic policies of the country. In Pakistan, unfortunately, very little work has been done to carry out cost-benefit analysis of the trade liberalization in order to initiate new economic activities and boost the economy. Due to lack of empirical research, the overall response of interest groups (i.e. traders, industrialists, consumers) to the trade and economic policies of the country remained dormant and issue specific. Consequently, Pakistan has been depending on advices/dictations of the IMF and World Bank. Since 1988, IMF and World Bank forced Pakistan to engage in wide-ranging economic reform program including reforms in trade sector, with strong emphasis on export orientation.
IMF and World Bank, therefore, played a role to liberalize trade in Pakistan. Under the first Structural Adjustment Program begun in 1988, the government was committed to making extensive changes in the trade regime. As a result, Pakistan’s trade pattern has changed dramatically over time. From being primary goods exporter, Pakistan moved to primarily manufactured and semi-manufactured commodities. During first half of the 1990s, according to the Economic Survey of Pakistan, exports performance of the country was positive; growing at an average rate of 10.6 percent per annum.
Implications on Pakistan: Whereas the WTO opened up opportunities for Pakistan, it has also posed serious challenges to its economy, especially to the trade sector by exposing it to international competitive environment. As a result, like in other developing countries, Pakistan’s food security, agricultural production, industry, export, and income have also been severely affected besides increase in unemployment, poverty, inequity, and alienation.
The government point of view is that: Pakistan has so far not taken any obligations for tariffs or subsidies or any other WTO obligations for agriculture. Our bound tariffs for WTO purposes vary from 100-200% and applied are less than 25%. Therefore, it is not correct to say that our agriculture production could have suffered in any way because of WTO obligations. Similarly in industry, we have a huge gap because in our bound and applied tariffs so WTO obligations could not have affected our industry or employment levels. In fact, had we taken on any obligations as we did in case of telecoms and financial services, we would have done much better because of obligatory reforms which we would have to do anyway.
The other stakeholders, especially the civil society organizations, consumer groups and the chambers of commerce and industry, have however different opinion. They say that IMF and World Bank are the necessary arms of WTO system and they, along with some consulates of influential countries in Pakistan, played a role to liberalize trade in Pakistan using stringent loan conditionalities. We have had irrational trade liberalization since decades and instead of devising long term, research based and well consulted policy of industrialization and trade, the government resorted to take massive loans by following dictates of IMF and World Bank. Till today, these institutions carry out research for Pakistan and the government respects their results as compared to research done by a local institution. These stakeholders suggest that a trade liberalization policy could have been beneficial and sustainable if it had been followed by our own research, mass awareness, wider consultation, trade facilitation and through preparation of our sectors of production. While developed countries have managed to maintain existing level of protection to their agriculture and industry and in some cases managed to maintain ratification of using non-tariff barriers, Pakistan is encountering difficulties to reform its economy as per WTO requirements and compete in the international market due to various internal and externals reasons. Our internal policies are not in line with the required mandate in order to reap benefits of international trade in the WTO regime. For instance, our agricultural products are becoming uncompetitive in the market due to extremely high cost of production. Agricultural activity is eventually limiting overtime and the displaced farming communities are increasingly moving towards urban centers. It is though not directly due our tariffs or subsidies or any other WTO obligations for agriculture but is totally due to our inconsistent domestic policies.
External factors that limit our policy choice are the
conditionalities of IFIs (IMF, World Bank, ADB) as well as other
bilateral/regional free trade agreements that force our policy makers to
accept WTO plus conditions. We have recently moved out of the loan
programme of IMF and currently, we do not have to meet conditionalities
of IMF but now we have Asian Development Bank along with World Bank who
are poring huge funds of course with their conditionalities. Under the
FTAs, we are undertaking WTO plus conditions without proper research,
participation of stakeholders and long term planning.
Agriculture sector in the country is also facing setback because of low
investments both by the private and public sectors. Investment in
increasing productivity is the prerequisite to economic development. It
is now widely argued that government policies are biased towards
agriculture as there has been a declining share of public investment in
agriculture. The situation is significantly augmenting poverty and food
insecurity. Pakistan is a member to G-20 (group of more than 20 developing nations who struggle jointly to safeguard agriculture) and G-33 (group of developing countries who demand exemption of key food security crops from the WTO - called Special Products and provision of Special Safeguard Mechanism to protect these crops). All these countries are united to defend their agricultural economy and demand market access in industrialized countries in order to boost their agricultural productions, encourage farming communities and take benefit form trade liberalization in agriculture that they were promised by the rich countries in the Uruguay round negotiations. US and EU so far are denying these rights to poor member countries and consequently, the WTO negotiation process is stalled at the moment mainly due to differences on agriculture.
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