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 agreements.
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 worldwide.
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 have.
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 commodities.
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 slavery.
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 Pakistan?
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 disadvantaged farmers.
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 material.
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 (1947-94).