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WTO agreement may hit the engineering sector

  1. WTO agreement may hit the eng. sector
  2. First press conference of Gen. Pervez Musharraf
  3. OICCI links forex inflow with business confidence
  4. Re-structuring the economy
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It would be fair and imperative to review the concepts that led to the acceptance of horizontal and uniform TRIMS disciplines

By AMANULLAH BASHAR
Nov 08 - 14, 1999

Experts in engineering sector are critical that for the developing countries, like Pakistan, signatory to Trade Related Investment Measures (TRIM) under World Trade Organization (WTO) agreement is of the utmost consequence as it directly affects the sovereign right of a government to follow development policies according to its national imperatives.

Elaborating the issue, Shafiq Ahmed Siddiqi, a senior executive at Adamjee Engineering (pvt) Ltd. feels that as of 31st Dec. 1999, Pakistan's deletion programme comes to an end. With the advent of the new millennium the nascent engineering industry must stand upright on its wobbly feet or be ready to go to the slaughter house in the name of expansion and liberalization of trade (which aims to speed up the development of the developing countries). The path to development is through the slaughterhouse.

Shafiq says, "TRIMS is an anti-development agreement, with the dice loaded against the developing countries. It stipulates that the developed world will do away with TRIMS in two years, the developing countries in five years and the least developed in seven years. How the periods of two, five and seven year would arrived, is difficult to say. They appear to be arbitrary. The development levels of the member countries have not been taken into account.

He quoted a paper, read by Bijit Bora (of UNCTAD) at "The WTO/World Bank Conference on Developing Countries in the Millennium Round", held at Geneva on 20th & 21st September '1999, stated: "For example the five years, which has been adopted in TRIMS, does not seem to have been derived from any empirical work."

Shafiq also referred to David C. Korten's book 'When Corporations Rule The World' in which he states, 'General Motors' 1992 sales revenues ($133billion) roughly equalled the combined GNP of Tanzania, Ethiopia, Nepal, Bangladesh, Zaire, Uganda, Nigeria, Kenya, and Pakistan.

According to Korten, " When five firms control more than half of a global market, that market is considered to be highly monopolistic. The Economist recently reported five-firm concentration ratios for twelve global industries. The greatest concentration was found in consumer durable, where the top five firms control nearly 70 per cent of the entire world market in their industry. In the automotive, airline, aero-space, electronic components, electrical and electronics, and steel industries, the top five firms control more than 50 per cent of the global market, clearly placing them in the monopolistic category."

WTO MEETING

The Third Ministerial meeting of WTO begins on 30th November '99, at Seattle, USA and has been called the "Development Round" by Mr. Mike Moore, the new Director-General of WTO. The meeting is expected to review the progress made towards liberalization of trade and the problems being faced by the developing countries in adjusting to the global business environment dictated by the developed world. Mr. Moore says, "In five years, we should be open and transparent enough to say what we did right at Marrakech and what we did wrong as well as the unfinished business."

TRIM

The Agreement on Trade-Related Investment Measures (TRIM) states that member countries of the WTO will take steps to remove the trade restrictive and distorting effects of investment measures which have a bearing on expansion and progressive liberalization of world trade and investment across borders. Consequently, five TRIMS have been considered to be at odds with the basic philosophy of the WTO. TRIMS that are inconsistent with the obligation of national treatment include those which are mandatory or enforceable under domestic law and which require:

1. The purchase or use by an enterprise of products of domestic origin or from any domestic source, whether specified in terms of particular products, in terms of volume or value of products, or in terms of a proportion of volume or value of its local production.

2. That an enterprise's purchases or use of imported products be limited to an amount related to the volume or value of local products that it exports.

The other three relate to import of goods for local production up to the value or volume of local production exported, import of goods for local production to the extent of foreign exchange earned by the enterprise and export of products by an enterprise in terms of volume or value of its local production.

The mergers and acquisitions in the developed world has added more muscle to the TNC's market strength. In this situation how the nascent industry of a developing country can compete with the global dinosaurs. Global business is fast moving towards greater concentration of market power. The playing field may be level (for arguments sake), but is the contest amongst equals? A country study on India states that "The arrival of Coca Cola and Pepsi in 1993 had a devastating impact on locally produced beverages. Local colas such as Thums Up and Campa Cola have been driven out of the market by these giants. In fact, Coke has taken over the factories of Campa Cola. Companies such as Parle and Tata have disappeared as soft drinks and soap manufacturers. As a result, Indian entrepreneurs have resisted the influx of other multinationals such Kentucky Fried Chicken".

TRIMS is an agreement that needs to be reviewed. The agreement on subsidies and countervailing measures (SCM) categorizes countries as developed, low-income countries (those with per capita GNP's of less than $1000 and the least developed countries). It allows countries with per capita incomes of less than $1000 to subsidize exports. Thus, it is development-bound and not time bound. As the development levels of member-nations are different, the rules of competition must be so drawn up.

Shafiq expressed his concerns that the deletion programme of Pakistan's automotive industry may come to a stand still if Pakistan did not seriously seek a review of TRIMS at the Seattle conference.

The automotive parts deletion programme, which is reward-driven, has made a significant contribution to the development of the engineering industry. It has saved valuable foreign exchange of US$909 million through import substitution, created jobs, contributed to export of value-added components (US$ 19.25 million worth of exports of components and vehicles) paid a fair share of taxes (Rs. 12.265 billion) and to the extent of deletion levels achieved, contributed to price stability against the vagaries of foreign currencies fluctuations to the small but significant advantage of the consumers.

Pakistan' s engineering industry is small but it is at the take-off stage. It is not yet developed to bear the pangs of re-structuring and to take on the might of the multi-nationals. The Pakistan automobile industry is in the hands of Japanese manufacturers. Yet, how many Japanese companies are engaged in parts manufacturing in Pakistan? Has foreign investment in down-stream industry followed the primary industry? Have the necessary linkages developed? The objective here is not to criticize the OEM' s but to high-light the fact. Shafiq said that deletion programme is necessary to channelize investment in certain areas where foreign investment would be shy to enter; not because of economic reasons but due to over-all strategic global policy requirements.

At this late stage it should make a simple request for review of TRIMS on the grounds that the policy is not compatible with the development aspirations of the low-income countries. This has been the plea made by Brazil. The Brazilian proposal is given below:

Background

The WTO Agreement on Trade-Related Investment Measures (TRIMS) established equal disciplines, rights and obligations for all members. Except for a few transitional provisions, there are no actual clauses for special and differential treatment, which would allow developing countries to address specific needs regarding economic, financial or social policies.

The disciplines of the TRIMS Agreement disregard obvious structural inequalities among members, which could not have been overcome within the five-year transition period. Solution to those problems would require, for the most part, long-lasting policies and adequate financing for their execution. *

However, the implementation of development policies is usually constrained by lack of official funds, either from domestic or foreign sources. Investments from the private sector could cover those shortcomings, but they have proved to be, for the most part, highly volatile and closely linked to the fortuitous circumstances of the international financial markets.

Apart from the fundamental need of developing countries to attract investments in order to maintain adequate economic growth and to improve social conditions, other important fiscal and monetary factors come into play. The high volatility of international capital flows, for example, aggravates balance of payment difficulties inherent to the early stages of productive investments, when expenditures with imports largely outstrip export revenues. Liberalizing undertakings, such as those expected to ensue from a multilateral round of negotiations, usually set off an investment cycle that requires special care in sensitive areas such as employment relocation, currency stability, and fiscal equilibrium.

All these elements make clear that developing countries must have some flexibility when making use of trade-related investment measures. Developing countries should be allowed some latitude in devising policies that may attenuate the negative effects of investment cycles, create a hospitable environment for foreign and domestic investors, and promote social and economic development, also addressing the situation of impoverished regions. Thus, it would be fair and imperative to review the concepts that led to the acceptance of horizontal and uniform TRIMS disciplines without due consideration to the needs and singularities of developing countries.