WORLD TRADE ORGANIZATION

IMPLICATIONS FOR PAKISTAN

INTRODUCTION
The World Trade Organization came into being in 1995. One of the youngest of the international
organizations, the WTO is the successor to the General Agreement on Tariffs and Trade (GATT)
established in the wake of the Second World War.

The World Trade Organization (WTO) is the only international body dealing with the rules of
trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of
the world’s trading nations. These documents provide the legal ground-rules for international
commerce. They are essentially contracts, binding governments to keep their trade policies
within agreed limits. Although negotiated and signed by governments, the goal is to help
producers of goods and services, exporters, and importers conduct their business.

In brief, the World Trade Organization (WTO) is the only international organization dealing with
the global rules of trade between nations. Its main function is to ensure that trade flows as
smoothly, predictably and freely as possible.

So while the WTO is still young, the multilateral trading system that was originally set up under
GATT is well over 50 years old.

The past 50 years have seen an exceptional growth in world trade. Merchandise exports grew on
average by 6% annually. Total trade in 1997 was 14-times the level of 1950. GATT and the WTO
have helped to create a strong and prosperous trading system contributing to unprecedented
growth.

The system was developed through a series of trade negotiations, or rounds, held under GATT.
The first rounds dealt mainly with tariff reductions but later negotiations included other areas
such as anti-dumping and non-tariff measures. The last round–the 1986-94 Uruguay Round–led
to the WTO’s creation.

The negotiations did not end there. Some continued after the end of the Uruguay Round. In
February 1997 agreement was reached on telecommunications services, with 69 governments
agreeing to wide-ranging liberalization measures that went beyond those agreed in the Uruguay
Round.

In the same year 40 governments successfully concluded negotiations for tariff-free trade in
information technology products, and 70 members concluded a financial services deal covering
more than 95% of trade in banking, insurance, securities and financial information.

In 2000, new talks started on agriculture and services. These have now been incorporated into a
broader work program, the Doha Development Agenda (DDA), launched at the fourth WTO
Ministerial Conference in Doha, Qatar, in November 2001.
The agenda adds negotiations and other work on non-agricultural tariffs, trade and environment,
WTO rules such as anti-dumping and subsidies, investment, competition policy, trade
facilitation, transparency in government procurement, intellectual property, and a range of issues
raised by developing countries as difficulties they face in implementing the present WTO
agreements.

HISTORY
The WTO’s creation on 1 January 1995 marked the biggest reform of international trade since
after the Second World War. It also brought to reality — in an updated form — the failed attempt
to create an International Trade Organization in 1948. Up to 1994, the trading system came under
GATT, salvaged from the aborted attempt to create the ITO. GATT helped establish a strong and
prosperous multilateral trading system that became more and more liberal through rounds of
trade negotiations. But by the 1980s the system needed a thorough overhaul. This led to the
Uruguay Round, and ultimately to the WTO.

From 1948 to 1994, the General Agreement on Tariffs and Trade (GATT) provided the rules for
much of world trade and presided over periods that saw some of the highest growth rates in
international commerce. It seemed well-established, but throughout those 47 years, it was a
provisional agreement and organization. The original intention was to create a third institution
handling international economic cooperation, to join the “Bretton Woods” institutions now
known as the World Bank and the International Monetary Fund. The complete plan, as envisaged
by over 50 countries, was to create an International Trade Organization (ITO) as a specialized
agency of the United Nations. The draft ITO Charter was ambitious. It extended beyond world
trade disciplines, to include rules on employment, commodity agreements, restrictive business
practices, international investment, and services. Even before the charter was finally approved,
23 of the 50 participants decided in 1946 to negotiate to reduce and bind customs tariffs. With
the Second World War only recently ended, they wanted to give an early boost to trade
liberalization, and to begin to correct the large legacy of protectionist measures which remained
in place from the early 1930s. This first round of negotiations resulted in 45,000 tariff
concessions affecting $10 billion of trade, about one fifth of the world’s total. The 23 also agreed
that they should accept some of the trade rules of the draft ITO Charter. This, they believed,
should be done swiftly and “provisionally” in order to protect the value of the tariff concessions
they had negotiated. The combined package of trade rules and tariff concessions became known
as the General Agreement on Tariffs and Trade. It entered into force in January 1948, while the
ITO Charter was still being negotiated. The 23 became founding GATT members (officially,
“contracting parties”).

Although the ITO Charter was finally agreed at a UN Conference on Trade and Employment in
Havana in March 1948, ratification in some national legislatures proved impossible. The most
serious opposition was in the US Congress, even though the US government had been one of the
driving forces. In 1950, the United States’ government
announced that it would not seek Congressional ratification of the Havana Charter, and the ITO
was effectively dead. Even though it was provisional, the GATT remained the only multilateral
instrument governing international trade from 1948 until the WTO was established in 1995.

For almost half a century, the GATT’s basic legal text remained much as it was in 1948.
There were additions in the form of “plurilateral” agreements (i.e. with voluntary membership),
and efforts to reduce tariffs further continued. Much of this was achieved through a series of
multilateral negotiations known as “trade rounds” — the biggest leaps forward in international
trade liberalization have come through these rounds which were held under GATT’s auspices. In
the early years, the GATT trade rounds concentrated on further reducing tariffs. Then, the
Kennedy Round in the mid-sixties brought about a GATT Anti-Dumping Agreement. The Tokyo
Round during the seventies was the first
major attempt to tackle trade barriers that do not take the form of tariffs, and to improve the
system. The eighth, the Uruguay Round of 1986- 94, was the latest and most extensive of all. It
led to the WTO and a new set of agreements.

The Tokyo Round lasted from 1973 to 1979, with 102 countries participating. It continued
GATT’s efforts to progressively reduce tariffs. The results included an average one-third cut in
customs duties in the world’s nine major industrial markets, bringing the average tariff on
industrial products down to 4.7%. The tariff reductions phased in over a period of eight years,
involved an element of “harmonization” — the higher the tariff, the larger the cut, proportionally.
In other issues, the Tokyo Round had mixed results. It failed to come to grips with the
fundamental problems affecting farm trade and also stopped short of providing a new agreement
on “safeguards” (emergency import measures). Nevertheless, a series of agreements on non-tariff
barriers did emerge from the negotiations, in some cases interpreting existing GATT rules, in
others breaking entirely new ground. In most cases, only a relatively small number of (mainly
industrialized) GATT members subscribed to these agreements and arrangements. Because they
were not accepted by the full GATT membership, they were often informally called “codes”.

They were not multilateral, but they were a beginning. Several codes were eventually amended
in the Uruguay Round and turned into multilateral commitments accepted by all WTO members.
Only four remained “plurilateral” — those on government procurement, bovine meat, civil
aircraft and dairy products. In 1997 WTO members agreed to terminate the bovine meat and
dairy agreements from the end of the year.

MAIN PURPOSES OF WTO

The system’s overriding purpose is to help trade flow as freely as possible — so long as there are
no undesirable side-effects. That partly means removing obstacles. It also means ensuring that
individuals, companies and governments know what the trade rules are around the world, and
giving them the confidence that there will be no sudden changes of policy. In other words, the
rules have to be “transparent” and predictable.
Because the agreements are drafted and signed by the community of trading nations, often after
considerable debate and controversy, one of the WTO’s most important functions is to serve as a
forum for trade negotiations.

A third important side to the WTO’s work is dispute settlement. Trade relations often involve
conflicting interests. Contracts and agreements, including those painstakingly negotiated in the
WTO system, often need interpreting. The most harmonious way to settle these differences is
through some neutral procedure based on an agreed legal foundation. That is the purpose behind
the dispute settlement process written into the WTO agreements.

BENEFITS OF WTO TRADING SYSTEM

 The system helps to keep the peace

This sounds like an exaggerated claim, and it would be wrong to make too much of it.
Nevertheless, the system does contribute to international peace, and if we understand why,
we have a clearer picture of what the system actually does.

 The system allows disputes to be handled constructively

As trade expands in volume, in the numbers of products traded, and in the numbers of countries
and companies trading, there is a greater chance that disputes will arise. The WTO system helps
resolve these disputes peacefully and constructively.

 A system based on rules rather than power makes life easier for all

The WTO cannot claim to make all countries equal. But it does reduce some inequalities, giving
smaller countries more voice, and at the same time freeing the major powers from the complexity
of having to negotiate trade agreements with each of their numerous trading partners.

 Freer trade cuts the cost of living

We are all consumers. The prices we pay for our food and clothing, our necessities and luxuries,
and everything else in between, are affected by trade policies.

 It gives consumers more choice, and a broader range of qualities to choose from

Think of all the things we can now have because we can import them: fruits and vegetables out
of season, foods, clothing and other products that used to be considered exotic, cut flowers from
any part of the world, all sorts of household goods, books, music, movies, and so on.

 Trade raises incomes

Lowering trade barriers allows trade to increase, which adds to incomes— national incomes and
personal incomes. But some adjustment is necessary.

 Trade stimulates economic growth, and that can be good news for employment

Trade clearly has the potential to create jobs. In practice there is often factual evidence that lower
trade barriers have been good for employment. But the picture is complicated by a number of
factors. Nevertheless, the alternative —protectionism—is not the way to tackle employment
problems.

 The basic principles make the system economically more efficient, and they cut costs

Many of the benefits of the trading system are more difficult to summarize in numbers, but they
are still important. They are the result of essential principles at the heart of the system, and they
make life simpler for the enterprises directly involved in trade and for the producers of goods and
services.

 The system shields governments from narrow interests

The GATT-WTO system which evolved in the second half of the 20th Century helps
governments take a more balanced view of trade policy. Governments are better placed to defend
themselves against lobbying from narrow interest groups by focusing on trade-offs that are made
in the interests of everyone in the economy.

 The system encourages good government

Under WTO rules, once a commitment has been made to liberalize a sector of trade, it is difficult
to reverse. The rules also discourage a range of unwise policies. For businesses, that means
greater certainty and clarity about trading conditions. For governments it can often mean good
discipline.

MISCONCEPTIONS ABOUT WTO TRADING SYSTEM

 The WTO dictates policy

The WTO does not tell governments how to conduct their trade policies. Rather, it’s a “member-
driven” organization.

 The WTO is for free trade at any cost

It’s really a question of what countries are willing to bargain with each other, of give and take,
request and offer.
  Commercial interests take priority over development …

The WTO agreements are full of provisions taking the interests of development into account.

 … and over the environment

Many provisions take environmental concerns specifically into account.

 … and over health and safety

The agreements were negotiated by WTO member governments, and therefore the agreements
reflect their concerns.

 The WTO destroys jobs, worsens poverty

The accusation is inaccurate and simplistic. Trade can be a powerful force for creating jobs and
reducing poverty. Often it does just that. Sometimes adjustments are necessary
to deal with job losses, and here the picture is complicated. In any case, the alternative of
protectionism is not the solution. Take a closer look at the details.

 Small countries are powerless in the WTO

Small countries would be weaker without the WTO. The WTO increases their bargaining power.

 The WTO is the tool of powerful lobbies

The WTO system offers governments a means to reduce the influence of narrow vested interests.

 Weaker countries are forced to join the WTO

Most countries do feel that it’s better to be in the WTO system than to be outside it. That’s why
the list of countries negotiating membership includes both large and small trading nations.

 The WTO is undemocratic

Decisions in the WTO are generally by consensus. In principle, that’s even more democratic than
majority rule because no decision is taken until everyone agrees.
WTO FOR DEVELOPING COUNTRIES
About two thirds of the WTO’s around 140 members are developing countries. They are
expected to play an increasingly important role in the WTO because of their numbers and
because they are becoming more important in the global economy. The WTO deals with the
special needs of developing countries in three ways:

• The WTO agreements contain special provisions on developing countries

• The Committee on Trade and Development oversees work in this area in the WTO

• The WTO Secretariat provides technical assistance (mainly training of various kinds) for
developing countries.

The WTO agreements include numerous provisions dealing with developing and least developed
countries. The General Agreement on Tariffs and Trade (GATT, which deals with trade in goods)
has a special section (Part 4) on Trade and Development which includes provisions on the
concept of non-reciprocity in trade negotiations between developed and developing countries —
when developed countries grant trade concessions to developing countries they should not expect
the developing countries to make matching offers in return. GATT also enables countries to grant
special concessions to developing countries without having to do the same for the entire
membership, known as “special and differential treatment”. The General Agreement on Trade in
Services (GATS) similarly allows developing countries some preferential treatment under the
heading “Economic Integration” (Part 5 of GATS).

Other measures concerning developing countries in the WTO agreements include:

• Extra time for developing countries to fulfill their commitments (in most of the WTO
agreements)

• Provisions designed to increase developing countries’ trading opportunities through greater

market access (e.g. in textiles, services, technical barriers to trade)

• Provisions requiring WTO members to safeguard the interests of developing countries when
adopting some domestic or international measures (e.g. in anti-dumping, safeguards, technical
barriers to trade)

• Provisions for various means of supporting developing countries (e.g. in helping them deal with
commitments on animal and plant health standards, technical standards, and assisting them in
strengthening their domestic telecommunications sectors).

The WTO Secretariat has special legal advisers for assisting developing countries in any WTO
dispute and for giving them legal counsel. The service is offered by the WTO’s Technical
Cooperation Division, and a number of developing countries have already made use of it.
The least-developed countries receive extra attention in the WTO. When the Uruguay Round
ended in Marrakesh in 1994, ministers suggested that the lower tariffs and lower non-tariff
barriers committed on products of interest to this group of countries could be introduced ahead of
schedule. They recognized concern that some of the commitments could have a negative impact
on some least-developed countries — for example reducing agricultural export subsidies could
raise the prices of some foods that these countries import. The ministers therefore issued a
“decision” (which also applies to any developing country that is a net importer of food) stating
that the situation should be monitored in the Agriculture Committee. The decision also states that
these are eligible for aid to help them adjust, from other WTO members and from international
financial institutions such as the World Bank and International Monetary Fund. Two years later at
 their first ministerial conference in Singapore in 1996, WTO members agreed on a Plan of
Action for Least-Developed Countries. This envisages special efforts to assist the world’s poorest
countries, including help to improve their ability to participate in the multilateral system.
Developed countries promised to examine how they could improve access to their markets for
imports from the least-developed countries, including the possibility of removing tariffs
completely.

In addition, a least-developed country involved in a dispute can ask the WTO director general or
the chairman of the Dispute Settlement Body to help settle the dispute through conciliation,
mediation or other means (known as providing “good offices”). This route to settling a dispute is
available in all cases, but normally both sides have to agree. But if a least developed country
makes the request after the first stage (i.e. the stage of consultations between the two sides) has
failed to produce a solution then the director general or Dispute Settlement Body chairman have
to offer their services to try to help settle the dispute before a request for a panel is made.

One result of the action plan has been a ministerial meeting of least-developed countries held in
Geneva in October 1997. The WTO organized the meeting jointly with the UN Conference on
Trade and Development (UNCTAD) and the International Trade Centre (ITC). Also participating
were a number of international economic and financial institutions such as the World Bank,
International Monetary Fund and UN Development Program. The meeting developed a common,
integrated approach for assisting these countries make more effective use of the trading system.
It also provided an opportunity for more developed countries to improve least-developed
countries’ access to their markets.

PAKISTAN AND WTO

Pakistan was one of the twenty-three founders of the GATT. It actively participated in GATT
forums since its inception in 1947. It has been involved in the Uruguay Round that resulted in the
creation of the WTO and conclusion of the final Act of WTO in 1994. Pakistan had closely
collaborated with other developing countries, in particular on matters relating to export of
textiles and clothing’s.

CURRENT SITUATION OF PAKISTAN’S TRADE

Exports &
Imports
(Million US $)
Period Exports (f.o.b.) Imports (c.i.f.)
Value Cumulative Growth Rate Value Cumulative Growth Rate Trade Gap
1998-99 7,779.3 - -9.8 9,431.7 - -6.8 -1,652.4
1999-00 8,568.6 - 10.1 10,309.4 - 9.3 -1,740.8
2000-01 9,201.6 - 7.4 10,728.9 - 4.1 -1,527.3
2001-02 9,134.6 - -0.7 10,339.5 - -3.6 -1,204.9
2002-03 11,160.2 - 22.2 12,220.3 - 18.2 -1,060.1
2003-04 12,313.3 - 10.3 15,591.9 - 27.6 -3,278.6

Jul.-04P 1,182.7 1,182.7 -5.3 1,372.1 1,372.1 -26.3 -189.4

Contact Person: Mr.Akbar Source: Federal Bureau of Statistics
Ali,Joint Director
Contact Number:
244503615

LAST YEARS DETAILS (PAKISTAN’S TRADE)

Structure of Exports ($ Million)

JULY APRIL
%
Particulars 2003-04* 2002-03 Change
A. Primary Commodities 818.3 830.9 -1.5
Rice 508.2 454.7 11.8
Raw Cotton 40.9 46.3 -11.7
Fish & Fish Preparation 126.4 109.2 15.7
Fruits 82.2 68.8 19.5
Tobacco 10.5 4.5 133.3
Wheat 6.0 110.5 -94.6
B. Textile Manufactures 6535.4 5717.3 14.3
Cotton Yarn 964.8 776.1 24.3
Cotton Cloth 1370.8 1066.5 28.5
Knitwear 1132.0 881.7 28.4
Bedwear 1136.4 1033.6 9.9
Towels 312.5 283.9 10.1
Readymade Garments 824.1 891.2 -7.5
Synthetic Textiles 396.1 439.3 -9.8
C. Other Manufactures 1730.4 1681.3 2.9
Carpets, Rugs & Mats 184.0 174.5 5.4
Petroleum Crude 27.7 34.8 -20.4
Petroleum Products 181.9 156.7 16.1
Sports Goods 257.7 262.4 -1.8
Leather Tanned 192.9 188.5 2.3
Leather Manufactures 340.2 313.9 8.4
- Leather Garments 268.1 176.4 52.0
Chemicals &
Pharmaceutical Products 204.6 210.1 -2.6
Engineering Goods 73.5 55.1 33.4
D. Others 916.9 616.8 48.6
Total 10001.0 8846.3 13.1
* Provisional Source: Federal Bureau of Statistics.
Structure of Imports ($ Million)
JULY-APRIL %
Particulars 2003-2004* 2002-2003 Change
A. Food Group 859.3 822.6 4.5
Wheat Unmilled 22.2 28.7 -22.6
Tea 168.1 150.5 11.7
Soyabean Oil 42.4 41.9 1.2
Palm Oil 506.8 445.6 13.7
Pulses 56.4 100.6 -43.9
B. Machinery Group 2820.7 2302.4 22.5
Power Generating Machinery 217.9 224.5 -2.9
Textile Machinery 455.0 425.1 7.0
Const. & Mining Machinery 78.0 78.3 -0.4
Electrical Mach. & Apparatus 197.2 176.2 11.9
Road Motor Vehicles 524.4 402.3 30.4
C. Petroleum Group 2480.1 2688.1 -7.7
Petroleum Products 1073.6 1478.0 -27.4
Petroleum Crude 1406.5 1210.1 16.2
D. Textile Group 207.4 184.7 12.3
Synthetic Fibre 81.3 76.8 5.9
E. Agri/Other Chemicals Group 2196.4 1774.9 23.7
Fertilizer 201.5 212.1 -5.0
Insecticides 84.5 49.2 71.7
Plastic Material 434.8 345.3 25.9
Medicinal Products 218.8 176.9 23.7
F. Metal Group 535.1 401.3 33.3
Iron & Steel 399.0 322.0 23.9
G. Miscellaneous & Others 2913.4 1923.8 51.4
Total 12012.4 10097.8 19.0
Excluding Petroleum Group 9532.3 7409.7 28.6
Excluding Petroleum & Food Groups 8673.0 6587.1 31.7
* Provisional Source: Federal Bureau of Statistics

IS PAKISTAN READY TO RIDE OUT WTO

CHALLENGES?
The World Trade Organization (WTO) as a subject of study is, incontrovertibly, a massive issue.
The WTO rules — agreements — run up to 30,000 pages, which is why within the limited space
of these two pages, it was possible just to show the tip of the iceberg. The overriding purpose of
these pages is to shake the concerned people out of their reverie and to spark a dialogue on how,
when and why of the WTO regime. In fewer than 15 months — from January 2005 — the WTO
regime could change entirely the way trade — whether in goods or in services — is carried out.

And yet there is little awareness and hardly any appreciable effort has been made on the part of
the government to enlighten the people most likely to be affected. But does the government itself
have the expertise and manpower to address the WTO issues?

The commerce minister is leading a large delegation to Cancun to attend the 5th ministerial
conference scheduled to be held in the middle of the next week. Most people here and in other
developing nations view the WTO as “a rich man’s dub”. Around 146 countries are to participate
in the intensive talks and since three-fourths of the WTO members constitute developing and
least developed countries, the arguments on whether the rules are fair or foul are going to be
intense.
Is Pakistan prepared to ride out the challenges posed by the WTO regime? On which side of the
divide will the country stand on various issues at the crucial talks at Cancun? During the last two
months, the commerce minister has left no stone unturned to let everyone know that he has his
grip on the fundamental matters to be brought up at the upcoming trade negotiations. He has
maintained that he sees the WTO more as an opportunity than a challenge for the country’s
economy. In his view Pakistan is well positioned, as compared to most other nations of the
region, with tariff regime already liberalized. The minister believes the country stands to gain a
great deal with focused efforts in post 2005 scenario. Enthusiasm, however, begins and ends in
the dose circle of free market zealots. People at large, though not so well versed in complexities
of the WTO regime, are all but, skeptical.

Skepticism, however, can hardly do much to halt the onward march of market forces. Trade and
investment treaties to be concluded at Cancun will further lock in a global regime of liberaliza-
tion, privatization and deregulation. It will supplement and strengthen mighty transnational
corporations to the peril of local manufacturers. At the same time it will further erode the ability
of national governments to provide public services for their citizens, control or protect their
natural resources, and set health, safety and environmental standards that displease big business
interests.

The government feels that protective environment has made the industry support addictive
depriving it of the drive to improve both quantitatively and qualitatively. Opening up of the
market, it feels, will push the local industry towards efficiency both in terms of quality and prices
through innovations and better management practices. Even if one accepts the government’s
argument that trade challenge will shake up and prompt local industry to become efficient and
more responsive to market, to the benefit of all, there is still the looming question: Who is going
to correct the distortions in the economy that suffers already from lopsidedness of growth?
Disparity and inequality if allowed to persist have a limiting effect ultimately even on quantum
of growth, besides brewing social unrest. Resulting political outburst do not serve even trade and
commerce well let alone industrial and agricultural development.

So the government here like in other developing countries must resist clauses in negotiations that
lead to clipping of their power to carry out the required corrections in the economy. It cannot
absolve itself of social responsibility of ensuring that economic gains are spread as evenly and
vastly as possible amongst all classes of society. Pakistan despite growing at an estimated rate of
5.1 per cent has failed to register improvement in the social sector indicators. The social sector
situation has actually been deteriorating as the country slipped six places from 138 to 144 in
UNDP Human Development Index.

There are suggestions to better capitulate Pakistan’s position over issues under discussion at the
Cancun meeting. But what compulsion does the government have to do the same? In the absence
of public awareness over the issue there is every possibility that the government gives in to
pressures in the ministerial meeting. Whatever safeguards have so far been secured by
developing countries are primarily because of anti-globalization campaigners who have turned
out to be most vocal defenders of the rights of the Third World masses.
If it were not for these people who are acting as world conscience the issue of import of generic
medicines would not have become a rallying point for the developing countries. If it were not for
those anti-war massive rallies in developed countries, the US would not have been as isolated as
it is in the current situation.

In Doha two tears back when developing countries sought to preserve their right to import
generic medicine the US opposed it tooth and nail as it feared consequences for its phar-
maceutical industry. On August 28 in a pre-ministerial meeting of WTO it changed its stand and
surrendered in favor of poor countries demand who were allowed import of generic medicines if
they so need.

Some people are hoping that conflict between the US and the European Union could lead to
suspension of the trade negotiations indefinitely. There is very little chance that this would be
allowed to happen. What if most previously negotiated deadlines are not adhered to? Stakes are
too high for the world economic order to let the WTO flop at this point in time.

Trade tangles and disagreements are reasons not good enough to end the forum that was created
with a purpose. More so when most nations are committed to global regime of liberalization,
privatization and deregulation voluntarily or under international financial institutions’ pressure.
Besides, big business and the US cannot possibly afford more set backs after Enron and Iraq.
They are showing signs of extra flexibility already to gain at the WTO what they lost in courts
and the UN — moral authority. Agreement over medicines is a case in point.

In politics of economic interest logic alone is not enough. Critics of multilateral trading system
assert that institutions like the World Bank and the IMP and the WTO were created to help
strengthen a global corporate power structure that is unaccountable, irresponsible and self-
serving.

They might have a point, but in absence of public awareness the government is under no compul-
sion to put in its best efforts to safeguard the interests of people in farms and factories and
offices.

Political parties through parliament can bring in focus issues from peoples’ perspective. For that,
however, first they will have to do their homework to understand the complex and technical
clauses of all agreements at different stages of discussion or implementations.

IMPLICATIONS FOR BUSINESSES

The aim of the WTO is to make international trade freer. In order-to understand the free trade;
two misconceptions need to be removed. First, free trade does not mean absence of all
regulations or restrictions on trade. Countries can regulate or restrict foreign trade to safeguard
the interests of businesses and consumers, to protect human, animal and plant life, and to
preserve physical environment.
Secondly, free trade does not necessarily mean removal of all tariffs on imports. Though the
WTO encourages tariff reduction, specify the level of tariff de-escalation. It is for the countries
to decide, negotiations, how much tariffs on product categories are to be scaled down.

Free trade in the context of the WTO means liberalization of a country’s trade regime, fair
competition or competitiveness, and predictability and transparency of trade policies and
regulations. We take trade liberalization first. Trade liberalization means progressively lowering
tariff and non-tariff trade barriers - quantitative restrictions on trade or simply quotas, foreign
exchange control and import bans - and opening markets to foreign goods and services. These
barriers are to be removed progressively through negotiations among member countries.

As against protectionism, the WTO believes in competition. To make member countries’ trade
regimes competitive, it uses various instruments. The most important of these is non
discrimination - the principle which lies at the heart of the multilateral trade regime. The
principle has two aspects: national treatment and the most favoured nation (MFN) treatment.

The national treatment principle prohibits a member country from discriminating between
domestically produced goods and those imported from another member with regard to
application of internal regulations and imposition of internal taxes. The purpose is to provide a
level playing field for both locally made products and those made abroad once they are in the
customs territory of the importing country.

The principle of the MFN treatment deals the way a member country deals with imports from
two or more other members. Contrary to the popular view, the MFN does not mean giving
special treatment to imports from another country. Rather the actual meaning of the MFN is
opposite to this. What MFN means is not discriminating among good or services imported from
other member countries.

The principle requires members that any favorable treatment given to one member of WTO, such
as lower tariffs or greater market access, has to be extended to import of similar products from
all other member countries. The MFN principle however has some exceptions. For instance,
signatories to a regional trade agreement can give concessions to each other’s exports over and
above their obligations under the MFN principle.

The WTO also encourages competitiveness by discouraging measures which may distort trade,
such as dumping and export subsidies. Dumping takes place when export price of a product is
less than its domestic price or cost of production and marketing, to offset the threat caused by
dumping to its domestic industry, the importing country can levy anti-dumping duty on products
dumped into its market. A subsidy is defined as a financial contribution made by a government
body, which confers a benefit on one or more enterprise or industry. Subsidies artificially lower
the product price and make it’s price competitive in an export market.
The third meaning free trade is predictability and transparency in trade. What is remarkable
about the WTO is that it is a rule-based system. While member countries can regulate trade in the
interest of their firms or consumers, regulations should not be arbitrary. Rather they need to be
based on well-defined standards and applied in an equitable manner.
Countries therefore are required to notify their regulations as well as the way the same are to be
applied. Changes in regulations are also not supposed to be arbitrary. Two principal ways to
promote predictability in trade are tariffication and tariff binding: Tariffication refers to
converting non-tariff barriers into tariffs. The reason is that non-tariff barriers like quotas are less
transparent in their application than tariffs.

Once non-tariff barriers have been converted into tariffs, the same need to be bound. Tariff
binding means that once countries have reduced their tariffs on particular product categories, the
same cannot be increased except in special circumstances. Tariff binding ensures exporters that
custom duties on their products will normally not change to their disadvantage,
This helps them to set the right price for their exports. The WTO also has a dispute settlement
mechanism, which any member can use if it feels the multilateral system’s rules are being
violated.

Having mentioned the fundamentals of the free trade regime put into place by the WTO, it is
time to look at the challenges and opportunities offered by it:
The lowering of trade barriers and opening of markets have globalized trade on an unprecedented
level and broadened the international scope of businesses. They are no longer dependent on
domestic consumers or markets for their sales and profits. If the domestic market is saturated or
is deficient in buying power, firms can enter foreign markets.

Hence, any deficiency in domestic sales can be met with increase in foreign sales. Globalization
has also increased products’ life. A product at maturity or decline stage of its life-cycle, when
sales and revenues move downward, in one market can be introduced into another market where
prospects for profits and sales are high.

Since the opening of markets is accompanied with strides in information technology and
improvement in the means of transport, access to foreign markets has become easier and less
expensive.

Firms need to be alive to both the global scope and challenges of their business. If opportunities
have increased, competition has also intensified. Even a purely domestic firm which does not sell
abroad is not immune from foreign competition.

Since the scope of protectionism has narrowed, absence of strong domestic competitors does not
mean there is no challenge to a firm’s market share in the home market; consumers will go for
better and cheaper products whether these are supplied by a domestic enterprise or a foreign one.

One implication of this increase in competition is that competitiveness has itself been re-defined.
A firm’s products are competitive if they have a decisive advantage over the products offered by
rivals. There are two principal means to achieve competitiveness: price and quality. By being
price competitive, that is by offering its products at a price lower than that charged by
competitors, a firm can successfully sell its products.

The alternative is to produce better quality products, which justifies a higher price, than offered
by competitors. However, in a highly competitive world, an enterprise needs to be both price and
quality competitive. Unlike in the past, in the present scenario merely offering cheaper but low
quality products or high quality expensive products is no guarantee that a firm will increase or
even maintain its market share. What the consumer wants is a quality product at an affordable
price. Competitiveness thus means both high quality and low price.

Price competitiveness depends in large measures on the cost of production. The higher the cost
of production, the higher the price. In order to curtail the cost of production and thus to increase
price competitiveness, it is imperative to bring down the cost of inputs by optimal allocation and
utilization of resources. It means businesses have to become efficient, otherwise they will be
perished. They cannot take shelter under the umbrella of government protection.

While trying to become price competitive in foreign markets, firms need to safeguard themselves
against dumping. In case export price is less than domestic price, the importing country in order
to avert injury to its local industry may impose anti-dumping duty on exports, which will affect
their competitiveness.

Another implication of enhanced competition is transition from a supplier to a buyer market.

When there are a limited number of suppliers, it is producers or suppliers who set the price.
However, the situation is reversed when there are a large number of suppliers — a buyer market
— where buyers determine the price. In a buyer market, price competition intensifies and profits
are squeezed unless a firm’s products have unique benefits.

A possible outcome is that firms enjoying the economies of scale, which cuts per unit cost of
production, prosper while small and medium enterprises (SMEs) unable to achieve a comparable
cost cut find it extremely difficult to survive. One reason why Chinese products are so price
competitive is the economies of scale.

A way out for SMEs is cluster development. A cluster is a sectoral and geographical con-
centration of small and medium enterprises (SMEs) producing related goods. Individually due to
their limited resources and high cost of production, these enterprises find it difficult to exploit
market opportunities.

Cluster development, however, enables these SMEs to complement each other’s resources and
expertise and achieve collective efficiency through economies of scale and specialization. This
gives the enterprises competitive advantage and helps them capture markets beyond their
individual capacity. Cluster development has been introduced with success in several developing
countries including Malaysia, Indonesia, India and Mexico.

The WTO has also increased the importance of marketing research for gaining and retaining
market share. Since the choice at the disposal of the consumer has increased, he wants the
highest value for his money. Consumer satisfaction or value being largely subjective, a business
can give that value to its customers only if it knows what customers are looking for and offer
products that give them the highest level of satisfaction. Because of different socioeconomic
conditions obtaining in different markets, consumer behavior in one market is different from that
in another.
A product which is suitable in the domestic market may not be suitable in a foreign market.
Therefore, it needs to be adapted to particular conditions obtaining in a market. The same goes
for pricing and promotional strategies. Thus before entering a foreign market businesses need to
undertake a detailed study of that market, otherwise they will fail to satisfy customers.

Though in the wake of the WTO traditional trade barriers are being lowered or eliminated, non-
traditional barriers are assuming increasing importance. These include environmental standards
and those for the protection of animal, human and plant lives. Sometimes referred to as technical
barriers to trade, such standards have to be conformed to by exporters failing which they may
face curbs on their products.

Besides international trade, WTO also provides for liberalizing foreign investment regime. The
Agreement on Trade Related Investment Measures (TRIMS) disapproves of many measures
which a country may adopt to regulate the direction of foreign direct investment. For instance,
local content requirement, under which a country may make it mandatory for a foreign enterprise
to use a certain amount of locally made inputs in the production of final goods, is disallowed.

Other being equal, the more liberal a country’s investment regime, the greater is its attractiveness
as a market for FDI. This means domestic enterprises will have to face foreign competitions riot
only in the form of exports from outside but also in the form of direct manufacturing inside their
country.

WTO : MARKETING ISSUES

THE slogan of ‘globalization’ was meant to enhance the overall welfare— both of consumers
and producers— in the global market. The World Trade Organization (WTO) was supposed to be
an authentic tool for the purpose.

Its basic theme is to promote free trade and it is based upon the principle of comparative
advantage i.e. to utilize the available global resources in the best possible manner.

The performance of any campaign can be judged by comparing its achievements against the set
objectives. So far performance of the WTO portrays a gloomy picture. In order to bridge the gap
between the North and the South, the existing complex approach should be modified through
meaningful adjustments.

The WTO principles not only bear implications on the production pattern of farm products but
also for the distribution mechanism of these commodities. Particularly, the developing countries
need to be more careful in their approach, if they intend to pursue a reasonable market share in
the global scenario.

In the agriculture sector, marketing plays dual role, i.e. it not only provides materials and
services to the consumers in the factor market but also serves the product market. Provision of
quality inputs with disposal of farm products at the right time is considered to be the supreme
task of agricultural marketing. Marketing performs the function of exchange which is meant for
the transfer of entitlement rights.

In the global scenario, under the WTO regime, eligibility criteria for selling the products is the
ownership of the product, which comes under the scope of the TRIPS (Trade Related Intellectual
Property Rights). Only the producers of registered varieties, breeds and products will be able to
grow and export those commodities. So the producer of farm products need to get their breeds or
varieties registered with WIPO. The procedure and mechanism has already been clarified in this
regard. The need of the time, particularly in developing countries, is to undertake a well
documented comprehensive campaign and efforts to safeguard their interests.

By now we all are very dear about the recipe for the WTO regime, i.e. to produce high quality
products at the lowest possible cost. Here quality of products is a matter which needs to be
understood in a more comprehensive way. Based upon the principle of food safety, quality is
concerned with hygienic production, careful handling, effective transportation, storage, pro-
cessing, and packaging and is also sensitive to the toxic residual effects of pesticides and
medicines. So an approach based on infrastructural support including maintenance of chemical
labs, orientation and training of staff, effective integrated pest management, check on the quality
of input materials etc. is the available option to combat the existing situation.

The developed countries are using these quality standards as a hidden tool to restrict exports
from the developing countries. Belgian and Dutch food safety authorities had taken green Indian
seedless grapes off supermarket shelves over fears of high chemical residue levels leading to
stomach cramps in children. Similarly, China banned its cattle imports and bovine products from
Canada to avoid spread of mad cow disease. So it becomes the responsibility of Pakistan’s
commercial counselors to produce the details of scientific tests introduced by developed
countries, so that our exporters can meet the global standards of food safety.

In the coming days of trade liberalization, marketing of agricultural products will become a more
sensitive issue. Developing countries like Pakistan, the existing infrastructure of which is not
conducive for the efficient marketing, need to concentrate more on the provision of requisite
marketing facilities on priority basis. The developing countries are little unfortunate in the sense
that they have to observe two-way obligations i.e. WTO and other IFI’s, which are contradictory.

The WTO is supposed to take the world towards free trade environment in which countries with
comparative advantage in the production of agricultural commodities should gain. This is
possible for developing countries if they support their agriculture sector, which is contradictory
with the working of the IMP and the World Bank. Supporting agriculture is not prohibited under
the WTO and developing countries can manage the green box provisions and payments for
supporting their agriculture.

The green box measures are non-actionable i.e. are permitted. These measures are considered to
have no or minimal trade distorting or production related effects. Such payments are, therefore,
exempted from domestic support reduction commitments. According to provisions under green
box measures we can support marketing and promotion services including marketing
information, advice and promotion relating to particular products but excluding expenditure for
unspecified purposes that could be used by sellers to reduce their selling price or confer a direct
economic benefit to purchasers. Inspection services, including general inspection services and
the inspection of particular products of health, safety, grading and standardization purposes and
other infrastructural support can be sought under these provisions.

Payments are the domestic support payments representing only a small percentage of transfer to
producers. This is 5 per cent for developed and 10 per cent of production value for developing
countries. These payments are allowed to be paid in addition to the green, amber and blue boxes.
These payments are exempted from reduction commitments even if the effects of such support
are potentially production or trade distorting.

Pakistan’s Gross Domestic Product (GDP) is Rs4018 billion. The share of agricultural sector in
total GDP is 24 per cent rate (Rs96434 billion); ten per cent the of it, i.e. about Rs96.43 billion.
Allowed to be given as domestic support to the agriculture sector and so we are allowed to give a
reasonable amount for supporting and agriculture, of which we can allocate resources towards
market improvements.

Increased trade liberalization it- means more market access, which will be achieved by reducing
tariff for developed, and the developing countries by 36 and re, 24 per cent respectively. The
hypothesis behind this thinking n- is that lesser trade restrictions will ensure free trade with
increased trade opportunities for developing countries. The results so far are not encouraging
because developed countries have started using disguised trade barriers against developing
countries and the hallmark of increased market access is leading towards a total collapse.

A recent study by the Food and Agricultural Organization of the United Nations (FAO), however,
concludes that there have been hardly any changes in the volume of exports. Tariff peaks or in
other words high import duties in the developed world continue to block exports from the
developing countries. Another UNCTAD/WTO joint study on the post-Uruguay Round tariff
environment for developing countries exports showed that tariffs on products of interest to
developing countries remained high. In the EU, in the agriculture and fishery product group of
the 2,726 tariff line items, 1,273 have tariff peaks whereas in the USA, of the 1,779 agricultural
and fishery products, 334 or 36.6 per cent face tariff peaks.

In the domestic market set-up, there are certain issues, which need to be addressed. After
producing the agricultural commodities on scientific basis, we need to assemble and handle those
in a more careful manner. Suitable transportation facilities, which will ensure less physical
hazards, should be provided to increase the marketed surplus.

Appropriate wholesale market set-up with proper provisions for storing commodities, especially
for perishables, is necessary for enhancing consumer welfare through the provision of quality
products.

Standardization and grading are important marketing issues the importance of which cannot be
overlooked in modern marketing. A more scientific and disciplined approach, which will cover
the grading in more details, is the need of the time because existing grading system covers only
few dimensions.
Packaging is another important aspect which not only protects the product but also makes it
attractive and easy to handle in the existing scenario of marketing the consumers in the
international markets have become more conscious about the materials used for this purpose. The
USA has taken the action against Chinese exporters in the same context by making it compulsory
to treat wooden packaging material for Asian Horned Beetle.

Effective marketing mechanism is meant for the availability of products throughout the year and
this has been made possible through processing and storage. Although value addition is con-
sidered to be a useful tool to enhance the earning for any country yet major proportion of our
production system remains aloof from processing activities. A combination of public and private
investment in this regard can be sought to establish storage and processing chain on scientific
basis.

Now this is the time where we need to evaluate and interpret the possible implications of the
WTO on the economy of Pakistan so that we can take suitable preventive measures to safeguard
our interests.

In order to promote the Pakistani products in the international market, we will have to undertake
the diversification of agriculture products with the identification of new markets. In addition to
these we need to comply with the international standards to put Pakistani products in the rank of
highest repute.

CONCLUSION
People from various walks of life term the World Trade Organization (WTO) as ‘an organized
conspiracy’ hatched by rich countries against developing states to weaken their already
staggering economies.

People think that WTO is virtually created to serve the interests of hyper rich at the cost of
developing countries. Resultantly, the dream of prosperity will remain just that of the people of
third world.

Despite the fact that the awareness about the WTO’s aims and objectives is very poor in
Pakistan, majority of the people think that WTO-sponsored initiatives will hurt whatever little
industry is there and will ultimately lead to massive unemployment.

Some people call the WTO as US-tamed “economic anaconda” that will swallow the weaker
economies, thus opening a new era of joblessness and poverty. The so-called US-sponsored
organization has been designed to target all those states and especially Muslim countries with
which the United States feels potential economic threat.

Another view is that developed countries are asking developing countries to open their
economies by bringing down tariffs and subsidies, but on the contrary, they have been continu-
ously refusing withdrawal of huge subsidies, which run in billion of dollars annually, to their
farm sector.
The US and European states -have sophisticated developed industrial base, but what they require
is raw material. Whereas developing countries have raw material much in access of their local
requirement available for export purposes. They get our raw material cheap, make value addition
and export the same to us and earn double premium.

A senior official of the Export Promotion Bureau has rejected this view, saying it is based on
incorrect information and misconceptions about the WTO.
He is of the view that before the WTO the trading nations of the world struck an agreement —
General Agreement on Trade and Tariffs (GAU) — and prior to GATT there was International
Trade Organization (ITO), which did not cover the whole area of international trade. Therefore,
he continues, in 1994 at Morocco the signatories of GATT agreed that there was a need to estab-
lish a trade body with a bigger scope that not only regulates the international trade of goods, but
also handles services sector and have a mechanism to resolve trade disputes arising among its
members.

When asked if Pakistan has any reservation over any one of the agreements it signed as WTO
member, the EPB officia1 said that the membership was granted on the principle of single
undertaking, thus it was agreed that the member would abide by the whole package of
agreements and regulations. So either you accept it or reject it. There is no third way.

We hope that joining of the WTO was a good decision and it would be gainful. As Pakistan has
already brought down the tariffs to the best possible low levels, we are not required to cut it
further.

In post-quota regime which will go into force from January 1, 2005, we hope to see our textile
sector grow rapidly.

Some manufacturers who are beating the trumpets that local industry would be hit hard as a
result of opening of a flood gate of cheaper import. It may result in triggering massive closure of
units and rendering thousands of people jobless. But we should remain optimistic that adding
new opportunities would also be available as well it would force our local industries to reduce
costs so that they could be able to compete with foreign goods and also explore new markets.