The impact and concerns
By SYED M. ASLAM
Sep 17 - 23, 2001
The World Trade Organization (WTO) is the successor
to the General Agreement on Tariffs and Trade (GATT) established in
1948. Founded in 1995, though WTO is one of the youngest of the
international organizations, the multilateral trading system that was
originally set up under GATT is already 50 years old.
The last half century has witnessed an exceptional
growth in world trade; goods exports grew on average by 6% per annum.
Global trade in 1997 increased 14-fold over 1950. GATT, and its
predecessor the WTO, take credit to help create 'a strong and
prosperous trading system contributing to unprecedented growth.'
The creation of WTO came in phases 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 latest
round — the 1986-94 Uruguay Round — led to the WTO's creation.
The negotiations 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. Banks, insurance firms, telecommunications companies,
tour operators, hotel chains and transport companies looking to do
business abroad can now enjoy the same principles of freer and fairer
trade that originally only applied to trade in goods.
Over three-quarters of WTO members are developing
or least-developed countries. WTO claims to provide special provisions
for the least-developed members are included in all the WTO
WTO's call its overriding objective is to help
trade flow smoothly, freely, fairly and predictably by administering
trade agreements by acting as a forum for trade negotiations. Its
objectives also include settling trade disputes, reviewing national
trade policies, assisting developing countries in trade policy issues
through technical assistance and training programmes and cooperating
with other international organizations.
The WTO has more than 140 members, accounting for
over 90% of world trade. Over 30 others are negotiating membership,
the most prominent of it is China which is poised to be a WTO member
soon having okayed by the member countries. As is, the decisions are
made by the entire membership. This is typically by consensus. A
majority vote is also possible but it has never been used in the WTO,
and was extremely rare under the WTO's predecessor, GATT. The WTO's
agreements have been ratified in all members' parliaments showing the
influence that the organization enjoys globally.
But WTO critics worldwide, remember the violent
anti-globalisation protests in Genoa, Seattle, etc., say that WTO is
actually a front to protect the interests of the industrialized
countries and their multinational companies to have a ready access to
markets in the developing world. The news that American and European
corporate lobby groups will outnumber organizations from the
third-world countries at the organisation's summit at Qatar in
November this year is seen as a bias favouring the West.
The critics also feel that WTO's agenda —
implementation of its agreements and the dispute settlement mechanism
— advance the interests of the developed countries with little
regard to the interests of the developing countries in general and
least developed ones in particular. The later are marginalized in the
world trade system as despite assurances of fair and equitable trade
their exports remain subjected to tariff escalations on one pretext or
the other in the developed world.
Secondly, and as important, the WTO has tried to
come up with perfect trade rules in an imperfect world where each
member faces distinct economic situation and circumstances.
WTO, which replaced GATT in 1995, enjoys much
greater power and influence because of its institutional foundation
and its dispute settlement system. Countries that do not abide by its
trade rules are taken to court and can eventually face retaliation.
The GATT preamble of "conducting trade and
economic endeavour to raise standards of living, ensuring full
employment and a large and steadily growing volume of real
income" was reinforced in the Marrakesh Agreement, which
established the WTO. GATT enforced phased-in tariff reductions
Much changed with the conclusion of the Uruguay
Round in 1994. Previously, the trade negotiations focused on
non-agricultural goods because the U.S. wanted to protect its
agriculture sector. As the corporate interests of the developed
countries expanded over the years, they demanded incorporations of
more issues: Today WTO's agenda comprise agriculture, services
(financial, telecommunications, information technology, etc.),
intellectual property rights, electronic commerce, etc.
The 14-fold increase in the world trade is already
mentioned above. So what does it signify and how it justifies the
creation of the WTO to as it says ' to promote fair and equitable
trade.' While the increase is used by the supporters of the WTO as its
success to increase the level of world trade, which increased by 25
per cent between 1994-95, the benefits of increased trade have not
been shared equally by the members. It is evident from the low
participation of the least developed countries which though comprising
one-fifth of the world population only contribute less than 0.1 per
cent to the global trade flows.
The objective of fair and equitable trade
benefiting every single of the over 140 members makes a good copy.
However, the fact that WTO is dominated by the leading industrialized
nations and is influenced heavily by the big corporate groups, as
evident from its guest for Qatar summit two months from now, pose many
questions about the implementation of WTO's primary objectives.
While developing countries make up three-fourths of
WTO membership, and while WTO claims to be a democratic organization
where members have equal voting rights, thus far the developing as
well the least developed countries have not made any attempt to
influence the organisation's agenda. At worst they keep towing the
line advanced by the organization for fear of reprisals and at best
only discussing the related issues more as intellectual discourse than
as a mean to change the set-up.
Perhaps it is this inherent inequity which made the
South African statesman Nelson Mandela to make the following comment
on the Uruguay Round: "The developing countries were not able to
ensure that the rules accommodated their realities... it was mainly
the preoccupations and problems of the advanced industrial economies
that shaped the agreement. Rules applied uniformly are not necessarily
fair because of the different circumstances of members."
This weakness on the part of the developing and
least developed countries is easy to understand due to their heavy
dependence on imports from the developed world be it the finished
products, technical and financial expertise, or raw and basic
materials necessary to run what little industrial activities they
The problem also lies in WTO's process of trade
negotiations which are based on the principle of reciprocity. The
basis allows a country to give a concession to another member in
return for a similar concession not necessary in the same sector or
product. This bartering put the developed countries in a much more
beneficial and bargaining position against a developing country which
can only offer so much. Needless to say, the developed countries due
to their immense industrial, technical and financial resources and
output can gain much more as they are in a position to offer more to
gain more unlike their developing counterparts.
While the developing countries have chosen not to
make the inherent disadvantages of the WTO's policies, segments in the
developed world have increasingly become vocal against the
globalisation. The violent protests in Genoa, Italy, Seattle and other
parts of the developed world is an indication of this move.
So what does it mean? If these protests are any
indications it means that the small and medium businesses and the
common man in the developed world feel that the huge transnational
corporations in their own or other developed countries threaten their
very existence. The protests of the French farmers against a US fast
food chain meant to draw the government's attention to the plight of
local farmers unable to convince the chain to use the local beef and
The protests are also driven by concerns that free
trade would allow multinational companies to enhance an already
fearsome dominance of the global markets to dictate prices in a world
in which some one-fifth of the population has to survive on less than
one dollar a day. The anti-globalisation protests in the West are also
aimed at pushing human rights issues in the forefront and the concerns
of small and medium businesses' unable to compete with the
multinational corporations. They see globalistaion as a tool to keep
people in financial bondage in an era which looks down upon physical
What it means for Pakistan
Pakistan, is the signatory of the Uruguay Round and
also the WTO. As a member it has to abide by the WTO's objective of
abolishing the import duties which have been reduced from maximum over
80 per cent nine years ago to 30 per cent at present. So what does it
mean to many industries that have taken long years to take root in
To start with, Pakistan still basically remains an
agriculture-based country where cotton and textiles make up 60 per
cent of export earnings and rice also plays an important part. United
States is one of the top trading partner of Pakistan and offers a good
test case of the relevance of the promises of fair and equitable trade
the WTO assures.
Critics accused the US to promote free trade only
in sectors which benefit it. As far as other sectors, like textiles,
are concerned it chooses to resort to protectionism. Opening up more
sectors for free trade will give the developed countries more access
to the resources of the developing countries.
The US enjoys an immense influence in the WTO which
is more often than not is used to further expand its markets. This
well-planned and corporate-driven expansion is too self-centred not to
give any thought for benefits to other members. Tariff restrictions
and wholesale use of anti-dumping laws is still exercised to deny
access to its market by the developing countries. Pakistan has faced
many anti-dumping and quota related problems with the US for exporting
its cotton and textile products. Many other developing countries have
faced the same problems.
The induction of new sectors such as
telecommunications, information technology, insurance and financial
services are seen as an attempt by the developed countries to gain
access to new markets. This attempt on the part of the developed
countries should be seen in the backdrop of their domestic markets
which have saturated to a point where they can no more permit a
further absorb a related good or service.
While WTO claims to work only a mediator developed
countries have found an ingenious way of interpreting the WTO
agreements to protect their industries. For instance, the US has
opened its market in textiles and clothing selectively opened its
markets which do not benefit the developing countries. Not
surprisingly, the U.S. has resorted to use the transitional safeguard
measures to protect domestic industries from sudden increases in
imports by introducing its own Rules of Origin to identify where a
textile or clothing product comes from, changing the conditions of
competition and adding to the restrictions against the low-cost
textile exports from developing countries.
A similar tactic is used by the US to
self-interpret Agreement on Agriculture which calls for reduction of
domestic support as well as opening up of the market. While developing
countries are increasingly pressurized to abolish subsidies on
commodities, the US has seen it fit to translate the Agreement as it
likes to institutionalize subsidies to its agro-exporters. On the
other hand, it feels no qualms to prohibit governments in the
developing countries to introduce new forms of support for their own
The US influence on the WTO agricultural policies
will have a devastating effect on the developing countries,
particularly those reeling from shortage of food crops. This is mainly
as the US-led WTO policies promote food availability through trade
thus discouraging countries to attain self-sufficiency. The situation
is further worsened that many countries in the developing world have
scarce foreign exchange to lift the food from the international market
even if it is available at a comparatively low price.
The Trade Related Intellectual Property Rights
Agreement (TRIPS) is another example of inequality in a forum which
claims to promote fair and equitable trade among nations. While TRIPS
protects the rights of corporations it allows the shared knowledge of
indigenous communities to be patented by others, particularly in
medicine. Thus transnational companies are poised to earn billions in
rent transfers to the rich countries which enjoy an almost total
monopoly on the medical trade and at the same time will control the
patents of the developing countries.
For a developing country like Pakistan, which has
been able to establish a range of industries to cut its dependence on
imports to save foreign exchange which most of the time remains at a
precariously low level, the free trade means an uneven competition.
The industries producing a range of finished products in Pakistan are
still heavily dependent on imported basic and raw materials. The
increasing cost of utilities, it is needless to mention frequent
increase in power, gas and petroleum prices during last 18 months in
particular and last few years in general — have pushed the
production costs to an incompetitive level. This has resulted in less
demand locally due primarily to a declining purchasing power,
increasing unemployment level and a pervading sense of uncertainty. It
has also taken its toll on exports by rendering products incompetitive
against such traditional rivals as India, China, Bangladesh, etc.
The local industries also fear that free trade
would undermine at their very base as it would give way to an uneven
competition. They say that allowing imports at zero duty, as and when
it is done, would mean a fatal blow to the local industries already
reeling from high production costs. Secondly, and as important, they
say that with a national psyche which prefers anything foreign the
local industries would have a hard time to compete with imported
counterparts imported at zero duty and offered at a competitive price.
In short, there are fears that free trade would turn the country
entirely into an import dominated market.
The WTO's proclaimed objective of promoting free
and fair trade among its members — which include both developed and
least developed, rich and poor, industrialized and otherwise — by
its very nature is biased against the developing countries. Most of
these countries owe immense debts to international loaning agencies so
much so that after debt payments they have little precious left to
spend on such basic development projects such as education, health and
environment. Pakistan, which has to allocate over 50 per cent of its
budget on debt payments each year, is no exception
By 1995, the world's poorest countries owed $ 215
billion to foreign banks and governments. That's twice as much as
these countries could ever earn from exports. Each day, the rich West
gets $ 35 million in debt repayments from the poorest nations in
Africa which don't have enough money to spend on education and health
care of their people.
Trying to promote fair and equitable trade among
nations without studying the distinct economic problems, balance of
trade, standard of living, per capita income, etc., of a particular
nation can hardly achieve the desired goals. This also explains the
incessant merciless taxing of the people under this pretext or that to
further reduce an already low purchasing power.
Economists see the presence of a strong middle
class as a prerequisite for the strengthening of any national economy.
However, the reality is that middle class exists only in name in
Pakistan which is neither able to influence the market trends nor have
any purchasing power. With a per capita income of $ 483, or just $
1.32 per day, Pakistanis in general are doing only marginally better
than the 1.3 billion people of the world, all of them in the
developing and least developing countries, which live in absolute
poverty to survive on less than dollar a day. In particular, one-third
of Pakistan's population is living an absolute poverty like their
counterparts in other developing and least developed countries.
The above statistics mean to highlight the distinct
problems of the Pakistani economy which has to prepare itself for the
free trade and the measures that go along with it — like the one
about cutting the subsidies on food products. It is also meant to
understand a market which is driven by price and the local industries
whose domestic base is eroding due to continuous decline in purchasing
power. This poses many problems for the local industries.
Number one, with the absence of a strong domestic
base would the local companies be able to compete with all range of
goods imported under the reduced duty at present and zero duty when
the WTO agreement is fully implemented? Secondly, would the locally
produced goods be able to compete in the international market in terms
of both price and quality particularly when the production costs are
always on the increase? While these questions require no simple
answers, one thing is certain: Pakistan like all developing countries
should interpret the fine prints of the WTO agreements to fully
understand how it can benefit from the relevant clauses.
WTO claims to promote free and fair trade between
its members by negotiating rules and abiding by them. These principles
appear in the new General Agreement on Trade in Services (GATS). WTO
members have also made individual commitments under GATS stating which
of their services sectors they are willing to open to foreign
competition, and how open those markets are.
The WTO Secretariat, based in Geneva, has around
500 staff and is headed by a director-general. It does not have branch
offices outside Geneva. Since decisions are taken by the members
themselves, the Secretariat does not have the decision-making role
that other international bureaucracies are given.
The Secretariat's main duties are to supply
technical support for the various councils and committees and the
ministerial conferences, to provide technical assistance for
developing countries, to analyze world trade, and to explain WTO
affairs to the public and media.
The Secretariat also provides some forms of legal
assistance in the dispute settlement process and advises governments
wishing to become members of the WTO. The annual budget is roughly 117
million Swiss francs.
WTO make special provisions for developing
countries including longer time periods for implementing agreements
and commitments, measures to increase trading opportunities for these
countries, provisions requiring all WTO members to safeguard the trade
interests of developing countries, and support to help developing
countries build the infrastructure for WTO work, handle disputes, and
implement technical standards.
A committee on trade and development, assisted by a
sub-committee on least-developed countries, looks at developing
countries' special needs. Its responsibility includes implementation
of the agreements, technical cooperation, and the increased
participation of developing countries in the global trading system.
The WTO organizes around 100 technical cooperation
missions to developing countries annually. It holds on average three
trade policy courses each year in Geneva for government officials.
Regional seminars are held regularly in all regions of the world with
a special emphasis on African countries. Training courses are also
organized in Geneva for officials from countries in transition from
central planning to market economies.
In 1997-98, the WTO set up reference centres in
almost 40 trade ministries in capitals of least-developed countries,
providing computers and internet access to enable ministry officials
to keep abreast of events in the WTO in Geneva through online access
to the WTO's immense database of official documents and other
The WTO's procedure for resolving trade quarrels
under the Dispute Settlement Understanding is aimed at enforcing the
rules to ensure smooth flow of trade among its member nations.
Countries bring disputes to the WTO if they think their rights under
the agreements are being infringed which WTO claims are judged by
specially-appointed independent experts based on interpretations of
the agreements and individual countries' commitments.
If this fails, the countries can follow
stage-by-stage procedure that includes the possibility of a ruling by
a panel of experts, and the chance to appeal the ruling on legal
grounds. Some 167 cases were brought to the WTO by March 1999 compared
to some 300 disputes dealt with during the entire life of GATT