WORLD TRADE ORGANIZATION, AND ITS IMPLICATIONS ON PAKISTAN.

INTRODUCTION:

The World Trade Organization (WTO) is an organization that intends to supervise and liberalize

international trade. The organization officially commenced on January 1, 1995 under the Marrakech

Agreement, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in late

40s. Along with International Monetary Fund (IMF) and International Bank for Reconstruction and

Development (commonly known as World Bank) for freer and predictable trade between countries. It

tries to provide market access to countries for their products and services and promotes friendly

investment policies by eliminating trade distortions between countries, trimming down tariff and non-

tariff barriers, removing quotas and abolishing subsidies in a phased manner. It also has rules that

protect local businesses and industry from foreign goods and services using unfair practices like

dumping or transfer pricing mechanisms. The WTO has rules to address quality issues, labor standards,

environmental aspects, government regulation, and legal frameworks. It is important to understand the

evolution of WTO and how its rules affect developing countries such as Pakistan.

The need for an institution to promote rule based trade was felt when in 1930s world suffered through

the Great Depression and World War II. The Great Depression had profound effect on the people and

nations who lived through it. This economic mayhem started with the 1929 Stock Market Crash wiping

out savings of people and creating unemployment of the highest level in Western World. That great

Depression resulted into WWII and destroyed many European countries. After the WWII,

reconstruction of the Europe was top most priority of the US and that promoted, along with other steps,

to create some international institutions to facilitate and promote trade and development. In January

1948, 23 nations organized the General Agreement on Tariffs and Trade (GATT) in Geneva providing

opportunity to start the tariff negotiations. This first round resulted in 45,000 tariff concessions

affecting $10 billion (about 1/5th of the world trade). In the next 47 years, the basic legal text of the

GATT remained the same as it was in 1948, with some additions in the form of “plurilateral” —

voluntary membership — agreements and continual efforts to reduce tariffs in a series of “trade

rounds” till the inception of World Trade Organization on 1st January, 1995 in the 8th round at

Uruguay. The agendas of the eight rounds of the GATT from 1947 to 1994 can be glanced through the

following table.

The WTO is an institution with the broader legal and constitutional elements that incorporate and

standardize the strategies for global economic integration. Its basic objective is to create a liberal and

open trading system under which business enterprises from respective member countries can trade with

one another in a fair and undisclosed competitive system with an agenda to raising standards of living,

ensuring full employment and a large and steadily growing volume of real income and effect demand

and developing the full sense of the resources of the world and expanding the production and exchange

of goods. These objectives are to be achieved by following the optimal use of the world's resources in

accordance with the objective of sustainable development, seeking both to protect and preserve the

environment and to enhance the means for doing so in a manner which is consistent with their

respective needs and concerns at different levels of economic development. In other words, the WTO

facilitates the implementation, administration and operation, and further the objectives of the

Multilateral Trade Agreements, and also provides framework for the implementation, administration

and operation of the Plurilateral Trade Agreements. It provides the forum for negotiations among its

members concerning their multilateral trade relations in matters dealt with under the agreements and a

framework for the implementation of the results of such negotiations, as may be decided by the

Ministerial Conference. The WTO administers the Understandings on Rules and Procedures governing

the Settlement of Disputes. It administers the Trade Policy Review Mechanism (TPRM). With a view

to achieving greater coherence in global economic policy-making, the WTO cooperates, as appropriate,

with the International Monetary Fund (IMF) and with the International Bank for Reconstruction and

Development (World Bank) and its affiliate agencies. The four basic rules of WTO are

1. Protection to Domestic Industry through Tariffs.

GATT requires the member countries to protect their domestic industry/production through tariffs only.

It prohibits the use of quantitative restrictions, except in a limited number of situations.

2. Binding of Tariffs

The member countries are urged to eliminate protection to domestic industry/ production by reducing

tariffs and removing other barriers to trade in multilateral trade negotiations. The reduced tariffs are

bound against further increases by listing them in each country's national schedule and the schedules

are an integrated part of the GATT legal system.

3. Most Favored-Nation (MFN) Treatment

The rule lays down the principles of non-discrimination amongst member countries. Tariff and other

regulations should be applied to imported or exported goods without discrimination among countries.

Exceptions to the rules are to regional arrangements subjected to preferential or duty free trade

agreements, Generalized System of Preferences (GSP) where developed countries apply preferential or

duty free rates to imports from developing countries.

4. National Treatment Rule

The rule prohibits member countries from discriminating between imported products and domestically

produced goods in the matter of internal taxes and in the application of internal regulations.

IMPLICATIONS ON PAKISTAN

Pakistan joined WTO in 1995 when the organization came into being. As a developing country Pakistan

has enjoyed the extra time given for preparations to abide by the Agreements of WTO upto 2005. The

implications to adopt the free liberalization under WTO has many pros and cons but until now there has

been no comprehensive study to capitulate the total impact in economic terms focusing overall and

individual sectors of the economy in particular. To enter into the intricacies of WTO Agreements and

applying them on sectors of the economy is a huge and difficult task and out of scope of this essay. In

simple terms, WTO negates anything which blocks the way of free movement of goods and services

from one market to another on a basic assumption of improving the human lifestyle. It demands open

market access for foreign goods and services in the local market without any discrimination by creation

of tariff or non-tariff barriers. Pakistan is required to provide a Most Favored Nation (MFN) status to

all trading partners which means non-discriminatory treatment among the members implying on any

imports or exports origination from respective countries. If Pakistan provides an MFN status to India

for example, then Pakistan has to provide an equitable treatment to all imports originating from India

which will restrict Pakistan to impose any kind of qualitative or quantities restriction on Indian

products. Now this implies to the question why like India Pakistan is not reciprocating to given the

same MFN status. The major reason is that the total GDP of Pakistan is approximately $80 billion and

if India can subsidize all its imports of an equal amount this will create havoc for the Pakistani industry.

In case of GATT, it requires all countries to reduce their respective rates to a given limit, and here WTO

provides special preferential treatment to the developing and least developed countries by giving them

more time and more flexibility to adjust to the global trade liberalization system. But in reality, with

specific reference to Pakistan under IMF conditionality and structural adjustment program, Pakistan

has to reduce its tariff from 65% to 30% gradually, and WTO also requires the same. Under WTO it is

partly the mutual consent of the negotiating parties to determine tariff bind and tariff bound rates but

under IMF it is more enforcement of the loan requirements.

In case of a dispute the case is to be presented to the Dispute Settlement Body of WTO. This requires

preparation of the case in context with the legalities of WTO rules. A developing country like Pakistan

which does not have ample resources or know-how of the subject of WTO rules and references usually

are trapped to pay hefty foreign exchange to international lawyers which are almost unaffordable. An

ideal example is of Basmitti Rice, which was initially patented by a U.S. firm has been challenged by

India, where Dispute Settlement Body favored India. Now, India having the sole patents refrains all

Pakistani rice exports to be referred as "Basmitti" until the patents rights are paid for.

Take any industry or sector of economy i.e., textile, fertilizer, pharmaceutical, oil & gas, ship building,

sugar, banks, insurance, leasing, and agriculture — WTO directly effects the local industry both at the

import and export ends from the beginning to end focusing more on quality standards, hygienic

conditions, and the very existence of a product or service through intellectual property clauses.

IMPLICATIONS ON AGRICULTURE:

Agriculture is a growth engine of Pakistan’seconomy. Its share in GDP in the year 2005-06 was 22

percent. Around 70percent of our population lives in rural areas and agriculture is their mainsource of

livelihood. Trade liberalization under the auspices of WTO andIFIs is having disastrous effect on our

agriculture sector and particularly tothe small farming communities. At the one hand, Pakistan has not

beenable to make use of additional market access as developed countries haveprotected their sensitive

sectors such as textiles and clothing through hightariffs. Also through high agriculture subsidies, they

distort trade. On theother hand, the reduction in domestic support and export subsidies atthe local level

is increasing the agonies of small farmers and is threat toour food security. The farming communality in

Pakistan is worse off dueto liberalization. At the one hand, the input prices have been raising at afaster

rate as compared to commodities prices. The farmers are gettingless profit. On the other hand, demand

for local agricultural products hasreduced because of cheep agricultural imports that are on increase

due totariff reductions. The government, on the dictates of IFIs, is undertakingliberalization and

maximizing cheap imports to provide essential food topoor people on cheap prices. The government in

fact resorted to do sobecause they believe that due to high tariffs, as we can do in terms of our bindings,

prices of many food items such as sugar, tea, wheat, milk etc would have shoot up. The other

stakeholders contradict with this policyas it may lead our country to merely a consumer society.

Contrary to this,they suggest that we need to protect and develop our local agriculturalproduction so

that our local producer take more interest and invest insuch an innovative way that it can not only

compete in the local as well asinternational market but they also come in the market with a variety of

quality produce.

We should not follow the export oriented policies irrationally. Wemust borrow the policy space in the

WTO negotiations in order to developour sectors the way it had been developed by the Northern

industrializedcountries. The consumers should be safeguarded through subsidies andbe made conscious

about usefulness of locally produced agro-products. Agriculture sector in the country is also facing

setback because of lowinvestments both by the private and public sectors. Investment in

increasingproductivity is the prerequisite to economic development. It is now widelyargued that

government policies are biased towards agriculture as therehas been a declining share of public

investment in agriculture. The situationis significantly augmenting poverty and food insecurity.Pakistan

is a member to G-20 (group of more than 20 developing nationswho struggle jointly to safeguard

agriculture) and G-33 (group of developingcountries who demand exemption of key food security

crops from the WTO- called Special Products and provision of Special Safeguard Mechanism toprotect

these crops). All these countries are united to defend their agriculturaleconomy and demand market

access in industrialized countries in order toboost their agricultural productions, encourage farming

communities andtake benefit form trade liberalization in agriculture that they were promisedby the rich

countries in the Uruguay round negotiations. US and EU so far are denying these rights to poor

member countries and consequently, theWTO negotiation process is stalled at the moment mainly due

to differences on agriculture.

IMPLICATIONS ON COMMERCE AND INDUSTRY:

Pakistan’s trade and industrialsectors are also undergoing radical changes in compliance with WTO

rulesand regulations. The textiles sector has been the first to feel the heat of WTO’s implementation.

Pakistani exports, especially textiles, are beingincreasingly subjected to initiation of anti-dumping and

countervailinginvestigations which create uncertainty and depress the business sector.Investigation

periods are sometimes quite lengthy and the legal costs of defending these cases are tremendous.

Similarly, the loosening governmentcontrol on cotton export under WTO commitments is also being

seen as athreat to the local textile sector.Pakistani pharmaceutical companies are also expected to suffer

asWTO has envisaged special safeguards for Western, particularly the USpharmaceutical companies

under TRIPS. As most of the research is beingcarried out in the developed world, the formulae of drugs

will be patentedand may raise public health-related issues in the developing world. For instance, the

treatment of tuberculosis costs $ 235 per month in the US,while the generic version in Pakistan costs

Rs. 50 per month. Once Pakistanfully implements TRIPS it has to abandon local production of patented

drugsthat is likely to have a serious impact on its national health care.Leather garment industry of

Pakistan is confronting various challenges to survive in the international market. Leather garments face

stiff competitionfrom Chinese & Indian products. At the one hand, cost of production is veryhigh in

Pakistan due to high cost of various inputs especially utilities andtaxes. On the other hand, leather

garments are made mostly from low grade& medium grade leather because good quality leather is

mostly exported.On top of them the use of hi-tech for quality products and availability of skilled

manpower to cater to the needs of the world market are also severechallenges to the industry. Unless

good quality leather is made availableto value-added sectors, these sectors will continue to suffer and

losetheir market shares in global markets for Leather Garments and Leather Products. As far as the

implications of WTO are concerned, the TBT andSPS are significantly impacting on Pakistan’s ability

to increase exports inthis sector. Particularly the environmental issues related with the leather industry

in Pakistan is posing significant negative effects on our exports.

CONCLUSION:

The negotiation ground of WTO, we must be ready and fully prepared with complete set of briefings on

impacts of WTO Agreements and its agenda on all sectors of Pakistani economy and industry. Pakistan

should have a vision i.e. what it would like to achieve from other nations before reciprocating market

access to respective countries. Like all other relations, trade relations are friend and foe oriented and

are glued with the broader national goals of the country. Trade relations have become so influential that

they have become either source of normalization of other diplomatic relationships, or creating more

belligerent associations with other countries. If Pakistan has to choose between the options

international trade relationship can work wonders for Pakistan, making it possible for Pakistan to

normalizing relationships with countries where the advantage is.

In additions, as it has been emphasized from the beginning that exports are function of domestic

production strength. Pakistan should also develop an indigenous model of economic development

based on local stakeholders rather than following blindly the policies and guidelines of WTO, WB and

IMF. Ban gladesh is a key example in this respect which has achieved formidable success in developing

socio-economic strategies focusing the Small and Medium Enterprises (SMEs) of the country. Gramine

Bank and Gramine Telecom of Dr. Younas are an epic story of mobilizing the poorest fraction of the

country especially women by providing credit loans to them to invest in local self-employment and

business opportunities, and accessing market information using communication facilities.

To what extend the tariff should be bound, to what extend the subsidies to be provided, to what extend

Pakistan can win preferential treatment, win anti-dumping and safeguard cases, secure intellectual

property rights, to choose to give MFN status, to apply national treatment to foreign products, to

acclaim developing country provisions, to ensure a level playing field for domestic industry — is not

an easy task for Pakistani Mission to Geneva in WTO at least for now!

As regards agriculture, Pakistan being an agrarian economy is still a net importer of food items. The

Agreement on Agriculture (AoA) is perhaps one of the most controversial aspects of WTO. The issues

in AoA include subsidies, domestic support and market access. The developing countries and the

developed world are at loggerheads over agriculture. The developing countries require an AoA that is

fair just to meet both ends, while the developed countries require that they maintain their status quo to

protect their handful of farmers through subsidies and domestic support. As far as Pakistan is

concerned, Pakistan has comparative advantage in many primary commodities. But in order to fully

utilize our comparative advantage, we need to focus on and solve the problems in supply side

(domestic requirements).

Pertaining to TRIPS agreements, different varieties of plants and animal species and traditional

pharmaceutical and herbal knowledge need to be registered to take full advantage of them. All valuable

export brands like Basmati rice, varieties of mangoes, oranges, etc need to be protected under different

provisions of TRIPS agreement. Furthermore we need to exploit our comparative advantage in the

production of halal meat, dairy products, fruits, vegetables etc. Same is the case with the services which

are the largest and most dynamic component of both developed and developing economies.

CONTENTS

● INTRODUCTION

● IMPLICATIONS OF WTO ON PAKISTAN

● IMPLICATIONS ON AGRICULTURE

● IMPLICATIONS ON COMMERCE AND INDUSTRY

● CONCLUSION