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Dreaming for global living standards

By Sh. Yousaf Haroon Mujahid
May 20 - June 02, 2002

Dreaming for making Pakistan the leading nation of the world where every Pakistani is richer than every before to afford and own a basic standard of living with access to food, water, shelter, education, communication and entertainment — above all, without compromising on the moral standards constituted in the objectives of inception of this land of pure!

Dreams and dream sellers — from times immemorial the human race venture for their dreams to come true. From religious prophets to offer the ultimate human welfare & peace; warlords seeking the national greatness; revolutionists offering freedom of human spirit and imagination — today we find a new class of dream-sellers — not people but organizations like Bretton Woods Institutions propagating social development; United Nations enticing global security; and last but not least World Trade Organization contemplating freer international trade — seeking a commonality to improvise global standards of living towards the epic of human salvation!

As a matter of fact, the world today, both materialistically and intellectually, has become more affluent than it has been ever before. Just compare the two: a common man of 17th century with a man living in 21st century and one finds not mere difference but magnanimity of disparity of lifestyle. Evolution of scientific inventions and innovations, discovery and research has brought the ease and luxury to a common man of today which maybe the emperors of yester-years have never thought of. Here, forces of science and business played their roles. Where science unleashes possibility, business puts it into economic reality. One would agree, to invent is one thing and to make it useful in general is other, and this is exactly the relationship between science and business and trade, entangled even more as the institutions of globalization and liberalization transpired.

Scientific ideas and innovations through business flows are the major factors making people, organizations, countries and nations great by enabling them to utilize natural, human, and geographical resources. Step by step, with the improvement in the modes of business and trade, accompanied by scientific innovation, discovery and research the world has moved from industrialization into an era of knowledge-led growth. As the world consolidated into a global village concurrently it broke into local markets and regions fueling the thrust of competition among nations. Like money begets money, knowledge begets knowledge. In this era of global order, where nations endeavor to be most resourceful both monetarily and knowledge-wise heating up the environment of competition for dominance among nations. Since the history of economic pragmatism countries who have been dynamically active in doing international trade have become the super-powers and most civilized nations.

FORMULA FOR ECONOMIC SUPREMACY

For long export-led growth has been the single most important factor in the economic success of any nation regardless of the geography, location, class or creed. The formula is simple. A single country can only have limited consumption capacity and the installed production capacity is always going to be in congruence with the national consumption. Limiting the national income generation capacity until the country realizes potential export-markets abroad. Once this country start exporting it can increase its national income generation capacity to any level by producing goods and services for local as well as foreign markets. In the same token, many countries have realized the potential of export-led economic success. Name any, Japan, Germany, United States! During the past century, barriers to trade and financial flows have generally come down, resulting in a significant broadening of world markets giving birth to the first wave of international trade-led economic growth. Before the Information Communications & Technology (ICT) revolution and development of national infrastructures the export-led growth formula was merely a fantasy waiting to be true. Since the modern means of transportation and communication got rapidly developed in a very short span the world saw the emergence of industrial nations like USA, UK, France, Germany, Japan, Norway, Sweden, Denmark, Canada etc. The surge of emerging markets and Asian Tigers is seen due to information super-highway based on internet technologies gave birth to a new nomenclature of "globalization".

GLOBALIZATION: THE METAMORPHOSIS

Accounting for the diversification which is effecting the lives of people, business of organizations and economies of the countries — globalization, through movement of goods and services, people and information across national and international boundaries, has resulted in the opening up of economies and societies for new products and ideas — facilitating accelerated developments in the international financial markets, through short and long term capital flows and trans-border production networks driving the global integration of economies into one.

Globalization, by definition, is the integration and democratization of the world's culture, economy, and infrastructure through transnational investment, rapid proliferation of communication and information technologies, and the impacts of free-market on local, regional and national economies.

The phenomenon of globalization has created a dichotomy of perception dividing the world into plethora of apprehensions and appreciations due to the intense velocity which the information about people, products, nature, environment, politics and economy disperses across borders, across countries and nations creating virtually one world into a global village.

Let it be the global warming, widespread poverty in the developing and least developed world, issues of labour unions or child labor, problems of migration and illegal refugees fleeing towards more developed countries, acts of terrorism or political revolutions, wildlife preservation parks or of ancient monuments, the geopolitical issues like Palestine or Kashmir, transition of nations like East Tremor or Bosnia — the world comes more united than ever before in addressing each of the points in agenda to the best of their understanding creating a direct whirlpool effect experienced by this one world altogether. Either conflicts of interests or mutual interests of nations, alike have become inclusive whether it is trade or politics influencing each nation and sectors of economy and society, in one way or the other, regardless of the fact that the country is a developed, developing or least developed.

Given the apprehensions and concerns, globalization has become a fact of modern life of people and nations whether one may like or dislike. Globalization stands a natural metamorphosis of time, neither new nor old, but an antediluvian process nurtured through development of cross-border capital flows, trade, information technology, and socio-cultural exchanges that have been practiced to reap mutual benefits between countries at international, local and household levels in guise of barter of capital systems to fulfil each others' needs and aspirations.

Change being the only constant the phenomenon of globalization like change can not be comprehended until we start analyzing it in terms of predefined objectives. Therefore, to know the reasons detre of globalization is important but more important is to know that how can globalization serve the humanity and national interests is the major question. Furthermore, it is equally critical to know that how globalization has served the purpose of bring human welfare, in letter and spirit. Or globalization is just another fad like which has increased the disparity between the rich and poor, developed and developing, have and have-nots. Today, the expanding process of globalization potentially poses threat to most developing and third world countries in particular instigating fierce critique and debates at the national and international levels. Multiple factors are responsible which are intricately entwined with the order of globalization, with its tentacles in the historical past and the interests and role for a few transnational political and economic actors. In continuity with the same apprehensions towards globalization, it becomes pivotal to find out how Pakistan can develop a competitive and comparative advantage using the pragmatic economic strategy as the supreme nations of the world dominate because of their economics and business prowess than military muscle.

Here the golden words of late Dr. Mahbub ul Haq provides the true vision:

"Globalization is no longer an option, it is a fact. Developing countries have either to learn to manage it far more skilfully, or simply drown in the global cross currents."

CAUSES OF GLOBALIZATION

The origin of globalization can be traced back till the 16th century when the West started to explore and discover for the new worlds and continents, bringing the English to India in form of East India Company, there first multinational was born for us and the rest is recorded history. The process of global economic integration was perpetrated at the behest of World War II and the first Great Depression, when the leaders of Britain and the US fumbled with the idea of reconstructing the war-torn world monetary system with a focus on favouring free of capital internationally, turn endure a liberal, capitalist world at the end of war to counter the shadows of Socialism and Marxism. For those who have suffered the hardships committed themselves to ensure that in future such catastrophic events can be dealt with and should never happen again. To promote the new monetary world order, a conference was convened in July 1944, at Bretton Woods, New Hampshire, to create the world's most powerful institutions: the International Bank for Reconstruction and Development (the World Bank), and the Internationally Monetary Fund (IMF). With the development of international financial markets in 1970s and the debt crisis of developing countries, several developing countries opted for stabilization and structural adjustment programs, to qualify for the loans from IMF and WB. The first IMF/WB Structural Adjustment Loan (SAL) was given to Turkey, in the backdrop of appropriate market oriented policies, accompanied with conditionalities, in 1980. Since then, loans granted, are accompanied with Structural Adjustment reforms which include: reducing the state's role in the economy, lowering barriers to imports, removing restrictions on foreign investment, eliminating subsidies for local industries, reducing spending for social welfare, cutting wages, devaluing the currency, and emphasizing production for export rather than for local consumption. These programs in a nutshell were aimed at liberalization of developing-countries markets. These reforms and conditionalities imposed laid basic foundation to open economies to steer the mechanism of economic integration giving birth to the most controversial of all among international organizations, the World Trade Organization.

THE CONSEQUENCE OF GLOBALIZATION

Globalization encapsulates both description and perception. It means different things to different people. The description could either be the widening and deepening of international flows in a global common market or a perception could be to liberalize national and global markets a belief that free flows of information, trade, finance and skill will produce sustainable growth for human welfare. Mainly, the general views about globalization can be categorized into four main perspectives that are economic, technological, development, and societal respectively.

The Economic Perspective: of globalization is the growth of world trade as a proportion of output (the ratio of world imports to gross world product, GWP, has grown from some 7% in 1938 to about 10% in 1970 to over 18% in 1996). It is reflected in the explosion of foreign direct investment (FDI): FDI in developing countries has increased from $2.2 billion in 1970 to $154 billion in 1997. It has resulted also in national capital markets becoming increasingly integrated, to the point where some $1.3 trillion per day crosses the foreign exchange markets of the world, of which less than 2% is directly attributable to trade transactions.

The Technological Perspective: involves Information Communication Technology (ICT) what explains this globalization? It certainly lies in the development of technology. The costs of transport, of travel, and above all the costs of communicating information have fallen dramatically in the postwar period, almost entirely because of the progress of technology. A 3-minute telephone call from the USA to Britain cost $12 in 1946, whereas today it can cost as little as 48 cents, despite the fact that consumer prices have multiplied by over eight times in the intervening period. The first computers were lumbering away with piles of punched cards in the early postwar years, and telegrams provided the only rapid means of written communication. There was no fax or internet or e-mail or world-wide web, no PCs or satellites or cell-phones. Today we witness phenomena that no futurist dreamed of half a century ago, such as Indians with medical degrees residing in Bangalore who earn a living by acting as secretaries to American doctors by transcribing their tapes overnight. It is clearly the availability of cheap, rapid and reliable communications that permits such phenomena, just as this is the key to the integration of the international capital market. With globalization instigating cost effective strategies and technologies channelized big MNCs (Multinational Corporations) to switch operations to cheaper developing countries. Companies like GE Capital Services have been outsourcing in India for simple jobs such as collection of money from delinquent credit card users. British Airways along with other airlines like Swissair have large centers for programming and handling everything from computer messages to air ticket bookings today.

Hence, the information and communication technology (ICT), and internet in particular, has been instrumental in integrating, providing potential for bridging time and space, income and knowledge gaps to catalyze the chemical process of globalization. The surge of entrepreneurship and "dot com" wave stormed over flooding software and hardware at the every nook and corner of the world. This created a chain reaction of transfer of skilled and semi-skilled IT experts export into US and Europe from the developing countries specially from India and to some extent from Pakistan as well. In the larger context internet created a whole new universe of virtual reality combining content and connection and delivering education, entertainment, business, and public information anytime anywhere.

With management information systems integrating employees, products, markets, customers together into a networked nexus of intelligent systems sharing flow of ideas, information and databases over telecommunications increased the tempo of business dynamics for multinational corporations giving them ever greater outreach to the world markets spread in different countries. To harness the potentials of globalization which means global markets and global competition forced these firms to employ global strategies including worldwide sourcing of materials and locating activities.

The Development Perspective: is the most controversial and important of all. It touches the heart of dichotomy which today globalization phenomenon faces. It tries to find the clues of the increasing divide between the rich and the poor, the existing cleavage between the ICT haves and have-nots, under the umbrella of one world concept of integrated markets and capital flows. Above all it challenges the greatest protagonists of globalization, the global institutions of World Bank, IMF, and even WTO one hand. One the other it has created a massive wave of antagonists threatening the industrial nations through anti-globalization relays, protests, and strikes.

The question is not to reap the benefits of globalization, but a greater one, that is how the share these benefits between the developed, developing and least developed countries in an equitable manner. Can we anticipate from globalization to deliver the expect returns indiscriminately where freer economies mean more competition between the unequal? The key today is to master the art of economic diplomacy and really enabling oneself ready to unleash the potentials offered by the phenomenon of globalization rather than waiting of the opportunities to knock the door which will never happen until conscious effort is done to harness the potentials offered. Indeed, globalization is the inevitable but the success or failure would depend on strengthening one's economic savvy and the rules of game are defined by the World Trade Organization.

The Societal Perspective: focuses on some key factors which have become pivotal to ensure the longevity of success of developed nations and that are their sensitivity to the community, cultural norms, and environmental care. This includes the condition of human rights, women empowerment, gender sensitization, civic education, status of women in the society, political status becoming more democratic, freedom of speech, rule of law, equal access to resources and level of education.

There is an inextricable link between the number of people and their consumption patterns, poverty and the environment. Demographic transition, that is, the shift from high to low birth and death rates, continues to slow population growth. Nevertheless, at the beginning of the twenty-first century, the world's population stands at more than 6.0 billion people: by 2020, global population is expected to climb to 7.5 billion and to reach 8.9 billion by 2050. Although world population growth rates are slowing (the current annual growth rate is 1.2 per cent compared with 1.7 per cent two decades ago), population numbers continue to increase as a result of demographic momentum. Currently in excess of world population of 6 billion people, 75 million people are being added to the world's total each year, most of whom are additions to the world's poorest countries in sub-Saharan Africa and South Asia. The vast majority of the global population, currently more than fourth-fifths, live in developing countries and this proportion is rising.

Globalization is also a key to future environmental changes. Decisions made by the private sector, in its search for comparative advantages, are increasingly affecting where and how people live and work. Globalization is having a major impact on population migration, population distribution, particularly through accelerating urbanization trends, and growth of mega-cities. These population changes are in turn impacting on security, governance, poverty, health and environmental factors.

In addition to this, the core of the developing world problems is lack of education which puts restrains for nations and societies alike to reap the benefits offered by globalization genuinely. There is found an indispensable link to be educated and wealthier, and being ignorant and poor. This directly effects the negotiation positions of the respect counties when it comes to WTO where one has to enter into multilateral dialogues of reciprocity in opening up economies and markets.

THE NEED FOR INTERNATIONAL TRADE

Taking an idea into business, ability to market goods and services is the hard reality of economic growth. The foundation of western modernity, scientific and economic supremacy is the capitalistic spirit, the engine of commercial-value-creation. From national capacity building like improving education, providing employment opportunities, rendering healthcare services, research & development; establishing national infrastructure like defense, roads, dams, bridges, schools, universities, hospitals — is the function of national economic prowess. So the national income capacity is the ability of its people to do business which translate into national savings, investments and income eventually whether it is by producing products and services which are manmade or natural. With globalization being the name of the game, the game has become intense with growing awareness of nations to become economically sound. Local business and trade provides strength to the local system and when it comes to international trade where the stakes are very high, each country will like to reap maximum benefits by pushing the other to open up its markets albeit holding maximum closure for own market. Today, the markets are flooded with Japanese electronics and cars, US computers and defense equipment, German telecommunication equipment and services, French fashion products and designer wear, South African diamonds, British consumer products, Finish & Swedish cellular phones and accessories, Australian wool and meat, Swiss watches. Compared to industrialized countries the poor developing countries are just serving as the consumer markets for the big brothers under the shadows of colonization. South American to African and Asian countries may have won political independence but the economic freedom is yet to be seen. All these economies shamelessly rely on foreign aid and assistance. Even the structural adjustment programs of Bretton Woods Institutions have not been effective in providing these developing nations the true get-set-go-model but pushed them into greater problems of poverty and economic chaos unintentionally at the face at least to say.

The conventional wisdom that economic development — large-scale economic development — was the answer to all problems was challenged once the globalization phenomenon failed to deliver the economic benefits to the developing world which so much promulgated by the International Development Institutions and the developed world. It was realized that economic growth would not only end poverty but lead to better health, universal education, and slower population growth: and the way to economic growth was large-scale investment and industrialization. Finally, it was found out the sustainable economic-growth may have many approaches to achieve which may or may not be successful in application. But the one export-led economic growth model has worked wonders for every country who so ever adopted it.

Today international trade and export promise with higher rate of returns in dollar terms, larger markets, more customers for all making it the most important area of economic focus. But till now the benefits of international trade are effectively reaped more by the developed world than the developing world. Even the largest commodity and exchange markets have been centralized in the West putting the South into a disadvantage.

A number of issues are bundled into international trade. Specially a developing country finds it arduous to take advantages of cross-border trade, given the fact that the country finds open markets, market access for their products and services, provides equitable treatment to products and services, promotes friendly investment policies, trim-down tariff and non-tariff barriers — virtually eliminating restrictions from the point of view of an exporter country. From the point of view of an importer country one likes to see that the foreign goods and services do not harm local business and industry using unfair practices like Dumping or transfer pricing mechanisms. This also included the universe of quality issues, labour standards, environmental aspects, government regulation, legal framework. Over and above, the phenomenon of globalization instigated by development of ICT and transport infrastructure without discrimination of the status of development is integrating the world into one common market providing immense potential and opportunities to unleash at one end and on the other under the GATT/WTO regime makes it more thorny under the complicated set of trade liberalization rules for the developing countries. This interesting progression brings to us the need to understand the process of evolution of global legal international trade framework into the formation of World Trade Organization and its implications in general and Pakistan in particular to-date and in future.

WORLD TRADE ORGANIZATION: THE FUTURE OF TRADE

BRIEF HISTORICAL PERSPECTIVE

The World has not always seen unprecedented economic success like this. In 1930s World suffered through the Great Depression, and World War II prompting the creation of many international organizations, among them one to oversee a rule-based system of trade among states. The Great Depression had profound effects on the people and nations who lived through it. This economic mayhem started with the 1929 Stock Market Crash wiping out savings and creating unemployment of the highest level. To grapple with the blows of WWII and Great Depression 23 nations organized the General Agreement on Tariffs and Trade (GATT) in Geneva which came into effect in January 1948 providing opportunity to indulge in tariff negotiations. This first round resulted in 45,000 tariff concessions affecting USD 10 billion (about 1/5th of the world trade). In the next 47 years, the basic legal text of the GATT remained the same much 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 at the 8th round commonly known as the "Uruguay Round" the multilateral trade negotiations which were launched in September 1986 at Punta del Este, Uruguay and concluded at Ministerial Meeting held in April 1994, in Marrakesh, Morocco.

TRADE ROUNDS & GLOBAL AGENDAS
"PRE WTO"

Sr. No.

Round

Year

Agenda

1

Geneva

1947

* Adoption of GATT

2

Annecy, France

1949

* Tariff Reduction

3

Torquay, England

1951

* Tariff Reduction

4

Geneva

1956

* Tariff Reduction

5

Geneva "Dillon"

1960-62

* Tariff Reduction

6

Geneva "Kennedy"

1962-67

* Tariff Reduction,

* GATT negotiation rules

7

Tokyo

1973-79

* Overall reduction of tariffs to an average level of 35% and 5-8% among developed nations,

* Non-tariff barrier codes

* Government procurement

* Customs Valuation

* Subsidies and countervailing measures

* Anti-Dumping

* Standards

* Import Licensing

8

Uruguay

1968-94

* Broadening of GATT

* To limit agricultural subsidies

* To include service trade

* To include intellectual property

* Establishment of WTO

World Trade Organization promises the mechanism to steer global economic integration with a much broader scope in terms of commercial activity and trade policies. With the broader legal and constitutional element WTO is structurally different from the Bretton Woods institutions, but extends the mandate to incorporate and standardize the strategies for global economic integration.

OBJECTIVES OF WTO

The basic objective of GATT 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:

a. Raising standards of living,
b. Ensuring full employment and a large and steadily growing volume of real income and effect demand, and,
c. Developing the full sense of the resources of the world and expanding the production and exchange of goods

The above 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.

FUNCTIONS OF WTO

1. The WTO facilitates the implementation, administration and operation, and further the objectives, of this Agreement and the Multilateral Trade Agreements, and also provides framework for the implementation, administration and operation of the Plurilateral Trade Agreements.

2. The WTO 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.

3. The WTO administers the Understandings on Rules and Procedures governing the Settlement of Disputes.

4. The WTO administers the Trade Policy Review Mechanism (TPRM).

5. 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.

FOUR (4) BASIC RULES

1. PROTECTION TO DOMESTIC INDUSTRY THROUGH TARIFFS.

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

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

2. BINDING OF TARIFFS

The member countries are urged to:

a. Eliminate protection to domestic industry/ production by reducing tariffs and removing other barriers to trade in multilateral trade negotiations.

b. The reduced tariffs are bound against further increases by listing them in each country's national schedule.

c. The schedules are an integrated part of the GATT legal system.

3. MOST FAVOURED-NATION (MFN) TREATMENT

a. The rule lays down the principles of non-discrimination amongst member countries.

b. Tariff and other regulations should be applied to imported or exported goods without discrimination among countries.

c. Exceptions to the rules i.e., 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 like goods in the matter of internal taxes and in the application of internal regulations.

THE UNIVERSE OF WTO NEGOTIATIONS

Sr. No.

Description

I

Multilateral Agreements on Trade in Goods
 

I.1.

GATT consists of the following:
Understandings reached in the Uruguay Round in six (6) areas:
.

I.1.1. Other duties and charges
.

I.1.2. State trading enterprises
.

I.1.3. Balance of Payments provisions
.

I.1.4. Custom Unions and Free-Trade Areas
.

I.1.5. Waivers of obligations
.

I.1.6. Tariff modifications

I.2.

Other agreements in the area of goods
.

I.2.1. Agriculture
.

I.2.2. Anti-Dumping
.

I.2.3. Customs Valuations
.

I.2.4. Import Licensing
.

I.2.5. Investment
.

I.2.6. Information Technology
.

I.2.7. Pre-Shipment Inspection
.

I.2.8. Rules of Origin
.

I.2.9. Sanitary and Phytosanitary Measures
.

I.2.10. Subsidies
.

I.2.11. Safeguards
.

I.2.12. Textiles & Clothing
.

I.2.13. Technical Barriers to Trade
.

I.2.14. Trade-Related Investment Measures

II

General Agreement on Trade in Services
The following define the scope of GATS today:
 

II.1 Accountancy services

II.2 Advertising services

II.3 Architectural and Engineering services

II.4 Audiovisual services

II.5 Business services

II.6 Computer and related services

II.7 Construction and related services

II.8 Distribution services

II.9 Education services

II.10 Energy services
.

1.1.10.1. Oil & Gas Services

II.11 Environmental Services

II.12 Express delivery services

II.13 Financial Services

II.14 Health and social services

II.15 Legal services

II.16 Logistics and related services

II.17 Postal and courier services

II.18 Professional services

II.19 Sporting services

II.20 Telecommunications

II.21 Tourism services

II.22 Transport services

.

1.1.22.1. Air transport services

.

1.1.22.2. Land transport services

.

1.1.22.3. Maritime transport services
.

1.1.22.4. Services auxiliary to all modes of transport

III

Agreement on Trade-Related Aspects of Intellectual Property Rights Broadly covers:
 

III.1. Copy Rights and related rights

III.2. Trademarks including service mark
III.3. Geographical Indications including appellations of origin

III.4. Industrial Designs

III.5. Patents including the protection of new varieties of plants

III.6. Layout Designs of integrated circuits

III.7. Undisclosed Information including trade secrets and test data

III.8. Anti-competitive Licenses (New)

IV

Understanding on the Settlement of Disputes

V

Trade Policy Review Mechanism

VI

Plurilateral Agreements
 

VI.1 Civil Aircraft

VI.2 Government Procurement

WTO (WONDERFUL TRADE ORGANIZATION): AN AMERICAN PERSPECTIVE

Good-paying American jobs, higher living standards, and the continued growth of the U.S. economy depend on the ability to sell the goods and services U.S. produce to consumers everywhere, The World Trade Organization (WTO) helps U.S. achieve this goal. As a leading force in establishing the WTO as an international institution U.S. negotiate trade agreements to reduce barriers to trade with 144 other members today, allowing American businesses, framers and working people to find new opportunities, create new jobs, and raise family living standards. The WTO is also a forum for countries to enforce trade agreements and continue negotiations toward expanding world trade opportunities.

U.S. entered agreements in the WTO to endure that American workers being the most productive in the world can compete on a level playing field. Since U.S. sees herself among the world's most open markets, the Agreements in the WTO help open foreign nations assure greater access to respective markets, and are constrained from giving their workers and firms undue advantages through subsidies and protectionist domestic policies. At the same time, WTO rules recognize and respect governments' right to maintain high standards for the environment, labour, health, and safety.

The WTO Agreements are thus seen by U.S. to help American families by opening up foreign markets to American products, lowering the prices of business inputs and of everyday goods purchased in grocery and department stores, and establishing fair trade rules that safeguard American companies and workers.

The WTO membership also helps to advance democratic values abroad, such as freer markets, more open societies, transparency and the rule of law in commercial transactions, and peaceful settlement of disputes.

TRADE BENEFITS TO U.S.

The trade gains that the U.S. has won through the WTO Agreements and other trade policies have been a major contributing factor to our thriving economy. Studies estimate that the effect of full implementation of the WTO Agreements will be able to boost U.S. (Gross Domestic Product) GDP by $125-250 billion per year. U.S. have great stake in further expanding opportunities for U.S. companies and workers in manufacturing, agriculture, and services industries through WTO.

Through WTO rules lower trade barriers abroad and help us export more of our goods and services to other countries which on average, every billion dollars of goods and services resulting in thousands of American jobs. As a matter of fact, between 1994 and 1998, 1.3 million new jobs supported by exports of goods and services have been created in the United States. Over the same period, total U.S. employment increased by 11.7 million jobs, and the unemployment rate declined from 6.1% to 4.5% where jobs supported by goods exports pay 13-16% above the average wage. Today, industrial production in the U.S. is over 34% higher than it was in 1992. This compares to a 3.5% increase in Germany and a 0.5% decline in Japan. Since 1992 manufacturing productivity was up nearly 4% per year, and manufacturing jobs increased by over half a million. Benefiting from new opportunities created by WTO rules, over one-third of U.S. agriculture production was exported with a value of $52 billion. The services sector — including retailing, transport, construction, insurance, finance, accounting, advertising, computer services, tourism, engineering, and environmental services — accounts for over 60% of the U.S. economy, and 80% of American jobs — is helped by WTO rules, the U.S. leads the world trade in services with over $264 billion in exports annually. It is the fastest growing sector of American economy providing the greatest number of new jobs.

RISING LIVING STANDARDS

Through the creation of higher-paying jobs supported by trade raises living standards for tens of thousands of American households was pretty obvious. Albeit, trade barriers, make goods and services more costly. In 1990, prior to WTO, private sector studies estimated that trade protection cost U.S. consumer approximately $70 billion per year. It is only because of open markets which has led to more affordable prices and a greater variety of the things for American consumers everyday, in the grocery shopping cart and for household goods, such as clothes, autos, toys and more consumer electronics. The standard of living improves for all Americans, but particularly for low-income families, since lower prices mean that a paycheck goes further in the market place. The WTO Agreements resulting lower prices for business and consumer products till the Agreements are fully implemented in 2005 will have an annual effect equivalent to an increase of $1500-$3000 in purchasing power for an average American family of four.

AMERICAN ECONOMIC MIRACLE

The implementation of Uruguay Round helped in more open markets for U.S. creating a flourishing economic impact making U.S. the fastest growing economy in the G-7 (Group of Seven Industrialized Nations) with an annual GDP growth rate of 4% from 1994 to 1997, increasing relative per capita GDP relative to the handful of other high-income countries, exceeding the average for that group by more than 40% in 1998, creating 14 million new jobs in last 5 years bringing unemployment to the lowest since 1970 helping real hourly labour compensation grow 2.5% annually since the beginning of 1996.

The WTO and Uruguay Round have directly contributed to make U.S. economic statistics staggering as lower foreign barrier contributed to the 36% growth in U.S. exports over that last 5 years. Open markets at home and abroad helped American workers stretch their pay checks further with high quality, competitively priced imports and helped stern any incipient inflationary pressures as U.S. domestic demand surged.

Above all Agreements reached since the Uruguay Round position the U.S. for economic success in the 21st century with the inception of three (3) new agreements. The Agreement on Basic Telecommunications opens up 95% of the world's telecommunications market covering the full range of innovative services and technologies pioneered in the U.S; the Agreement on Financial Services, covering 102 countries opens markets encompassing $40 trillion in global domestic banking, $20 trillion in global securities trading, and $3 trillion in world wide insurance premiums; in addition, more recent work on electronic commerce, has included an agreement to a moratorium on the imposition of customs duties on electronic transmissions saving billions of dollars for American Multinational Companies (MNCs).

WTO (WRONG TRADE ORGANIZATION): THE DEVELOPING WORLD PERSPECTIVE

Keeping in the spirit of globalization promulgated by the Bretton Wood Institutions and WTO to incorporate and standardize strategies for global economic integration seem to have a fait accompli for the developing world. The triangular arrangement between IMF, World Bank and WTO has been able to create a system of global surveillance of developing countries' economic and social policies but has shamelessly failed to deliver the promises for the rosy promises made for economic revival of the economic being of the developing countries. According to the principles laid by WTO, the process of globalization are based on the assumption of fair and economic transactions where all participants are considered to be equal and to have equal understanding and influence, regardless of the level of development and technological advancement of individual countries. Such an assumption is fundamentally problematic and has led to international controversy and debated, questioning the very issue of fair trade.

The issue is not whether to have global trade rules but rather what kind of rules. Rules that suit the big brothers like U.S. as it proudly influence the World Bank and WTO policies or the EU which again throws undue weight whenever and wherever it suits in the form of IMF, Paris Club or London Club. The impact of policies of Bretton Woods Institutions (IMF, WB, GATT/WTO) to serve as global institutions for maintaining financial stability and for promoting development and trade falls disproportionately on the poor. While the early policies of these institutions were designed in the spirit of building the capacity of the state, over time there has been a trend towards reducing the role of state and moving towards liberalization and privatization. As the tariff barrier has fallen in developing countries, the world has been further divided along income lines, separating the global rich from the global poor.

Even the engine of globalization, the information, communication and technology has created a digital divide aggravating further the state of developing countries making inequities between local community in terms of income and employment opportunities. Above all the transfer of technology specially the state-of-art, is not allowed from the developed to the developing forcing developing countries only to be suppliers of raw materials and agricultural products.

After the financial pandemonium in Latin America and East Asia, both the process of globalization and the outcome of liberalization are being challenged so seriously that we saw civil riots on the streets of Seattle to the extreme level. The critics of globalization say that we need to deconstruct globalization. This exercise is important to highlight the fact that not all the components, or flows of globalization are moving at the same pace and in the same direction. While capital has free movement and information and communication are getting freer, labour movement, especially unskilled, is restricted, and the trade is not fully liberalized, especially of goods of particular interest to developing countries.

An ideal example could be agriculture sector, which in most developed countries is sheltered behind high tariff walls, farm subsidies, loan guarantees and non-tariff barriers. The champions of trade liberalization, the United States is the most guilty in this context after U.S. are the EU states. So, the developing countries which heavily rely on agricultural exports are at a great disadvantage in terms of competing against the heavily-subsidized agricultural products of the developed nations. Inequity is embedded in the international trade agreements that forms an import part of globalization whether it be trade, industrial policy, revenue collection, balance of trade, money supply — an imbalance is there in setting out the rules and entitlements for global trade practices.

PAKISTAN & WORLD TRADE ORGANIZATION (WTO)

Economic Growth is a wild horse; it needs to be tamed to serve the real interests of the society. If the horse misbehaves in some societies, leading to deprivation of many human lives, then the fault is not of the horse but the rider. Economic growth is essential in poor societies — but even more is its structure and distribution.

Dr. Mahbub ul Haq (Late)

ECONOMIC OVERVIEW

As countries become richer, on average the incidence of income poverty falls and other indicators of well-being, such as average levels of education and health, tend to improve as well. In the real sense to achieve economic development in a daunting task. The patterns of growth, the changes in the distribution of income and opportunities, and improving standards of living reflect a complex set of interactions among the policies, institutions, history and geography. Understanding the forces underlying country's disparate growth experiences, and mechanisms through which this growth has to improve the living standards of people require a multidimensional approach bringing all sectors and stakeholders of economy into one framework, as outlined by the processes of trade liberalization under WTO.

Pakistan is a mixed economy consisting of a public sector domination of major sectors of the economy, which is changing very quickly under the freer market agenda of WTO making the role of government to minimum level under the globalization policies guided by World Bank and IMF. Although with the growing awareness among the intelligentsia of the country about the core issues of development not being address appropirately yet we have seen the growth role of institutions of globalization mentoring the economic direction of the country. In the preview of economic sanctions imposed on Pakistan in 1998, political instability, state-of-war with India, and most importantly the 11th September Crisis has not been able to hamper the country which these events has the potential. Economic growth remained mixed, in a year when many other Asian countries were recording negative growth. Inflation did not accelerate significantly, as was anticipated by most external forecasters. The current account deficit declined further, so that Pakistan's short-run balance of payments position remained viable once lending by the IMF and World Bank was resumed and debt had been rescheduled by the London and Paris Clubs. Complacency would nonetheless be out of place. Exports have been declining, normal capital inflows have almost dried up, and the country's weak credibility and policy uncertainties have discouraged foreign direct investment in particular and productive investment in general. Pakistan is the only country in South Asia that has recorded a lower rate of growth in the 1990s than in the preceding decades. Suspension of the convertibility of the foreign currency deposits, and the London and Paris Club rescheduling, were essential in the short run, but they will tend nevertheless to compromise Pakistan's ability to borrow internationally for years to come. The social indicators — literacy, mortality, fertility, and poverty — remain poor, even for a country with Pakistan's per capita income, and the squeeze on the budgets of the provincial governments suggests that this is unlikely to improve much in the short run. The country clearly faces a difficult challenge in reviving its economy and in achieving a level of social standards in which it can begin to take pride.

On the brighter side, government has undertook a series of initiatives to revive the economy such as tax reforms, trade and tariff reform, deregulation and privatization, financial sector reform, fiscal transparency measures, poverty alleviation program. If one observes that the genuine focus has been more and more on export led economic growth and for that matter the government has chalked out an intensive program to increase the capacity of key economic sectors specially Agriculture and Textiles. Information technology has become the most important sector as the modes of modern business become more and more sophisticated providing greater access and farther outreach to local exporters of foreign markets.

IMPACT OF WTO

At first we must understand what is the major objective of WTO and that is to raise the standards of living. May be the motive is simple but in application we have seen that how WTO can become from a wonderful trade organization to a wrong trade organization. The basic fact of the matter is that with the given economic conditions and limitations Pakistan like any developing country rely on foreign aid on one end, and the whatever is earned through exports in terms of foreign exchange, the major chunk is paid back to the international lenders leaving little room and money for the drastic economic growth cycle to be ignited. In addition, with the appreciation of dollar, or devaluation of local currency the standard of living of an American may increase as the Pakistani goods become cheaper from him or her, but for Pakistan this devaluation hits directly the purchasing power of a common man burring into the vicious cycle of poverty. Therefore, the process of globalization and the projectors of globalization, the Bretton Wood Institution have created a global economic anomaly for the developing countries like Pakistan. Whatever is earned through trade is paid in terms of foreign exchange and profits is paid back in interest and loan reimbursements, where trade is supported by WTO and debt payback by the Bretton Institutions created a free movement of capital flows and investments to serve only the few with a very selected group of nations get elevated in their living standards and the rest remain either same or downgraded even further.

Pakistan has accented to GATT by default as an English colony in 1947 and accented to WTO in 1995 as the organization came into being. As a developing country Pakistan has enjoyed the extra time given for preparations of readiness to abide by the Agreements of WTO and mile countdown for 2005 has begun for complete liberalization. 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 task but the scope of this paper is to develop a general rationale and understanding of the issues which are most important to Pakistan by developing a strategy option to stay buoyant which facing the cross currents of globalization and liberalization of economy.

In simple, 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. WTO 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 also required to provide a Most Favoured 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 $ 60 billion and if India can subsidize all its imports of an equal amount this will create havoc for the local Pakistani industry. In case of GATT, it requires all countries to reduce there respect 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. So far so good. 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 requirments.

In the 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 about 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.

THE ART OF ECONOMIC DIPLOMACY

TO WIN A WAR ONE MUST BE READY FOR THE ENEMY.

CHINESE PROVERB.

The negotiation ground of WTO, between government to government, 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. And there should be broad future vision that what are tactical gains Pakistan 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 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 export 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. Bangladesh 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 specially women by providing credit loans to them to invest in local self-employment and business opportunities, and accessing market information using communication facilities.

The greatest disadvantage today Pakistan faces is the state of illiteracy. No matter how industrious are the people of Pakistan producing top class goods and services that can rule the international market, the basic flaw with the businessmen and farmers of Pakistan is the state of unawareness due to lack of formal education. The burnt of which Pakistan faces today is lack of information and awareness, as there are not formal studies and statistics available which can measure the intensity of injury caused by the coming WTO regime.

WTO is a legal personality, a system of negotiated rules among nations which become binding once agreed. Nations which have effectively utilized the forces of globalization and trade liberalization are those which has developed first of all local resource centers and local study centers to develop a systematic study on every product line, on every tariff line and then have studied the impact in detail. International trade in the function of domestic production capacity and ability to face international competition on one end and knowing how to take advantages of the legal framework if an injury is inflected on the local produces. Merely adopting information technology will not help Pakistan until the application of ICT is linked with research and analysis, fact finding and promotion of formal education on one end is required. On the other, at the higher level appropriate cooperation between government and private sector is required in building expert capacity not only at the enterprise level but stretching it to the university level. Until now, no scientific research or data is available neither on the globalization nor on trade liberalization and its effects on the working class, industry and other sectors at any private or government level in Pakistan. The globalization issue was not taken seriously by the labour movement in the initial period, they have to pay the price.

What will happen to Pakistani industry and agriculture will shortly be determined in the near future 2005 is a big question. Even bigger is that how Pakistan will interact with WTO to defend its rights while gaining maximum benefit for the economy using the art of economic diplomacy — either a wonderful or a wrong trade organization, all depends on one's ability and understanding of WTO.

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!

ADDENDUM:

Mastering WTO at International Islamic University Islamabad

Keeping in view the dearth of WTO related knowledge Mr. Aman Ullah Khan, the Dean of Faculty of Management Sciences IIUI has initiated the first ever postgraduate diploma (to be upgrade in masters programme) in World Trade Organization and Intellectual Property Rights to develop the national human resource capacity in this vital area only offered at internationally acclaimed institutions like Harvard, Yale, and London. In the first semester of the programme Mr. Abbas Raza is covering the legal text of GATT who is associate with TRAITS (Trade & Industrial Technical Services) which has recently launched a software CD compendium Anti-Dumping Laws under WTO/GATT. You can reach TRAITS online at www.traits.com.pk.

About the author

Sh. Yousaf Haroon Mujahid is currently Assistant Professor (Management) at National Post Graduate Institute of Telecommunications & Informatics Islamabad, PTCL, IT & Telecom Division, MOST. He can be reached at emailharoon@yahoo.com.