Executive Summary

World Trade Organization stands for freer and predictable trade between countries. It aims to abolish trade distorting practices between countries such as quotas and subsidies in a phased manner. It does not however, aim at zero tariffs. WTO has GATT, GATS and TRIPs as the main agreements. Agreement on Agriculture and Agreement on Textile and Clothing come under GATT. Pakistan has been the founding member of GATT 1948 as well as WTO. This study attempts to analyze the impact of WTO on the important sectors in Pakistan i.e. Industry, Textile, Agriculture and Services.

 

As far as the industrial sector is concerned, at the moment Pakistan the main export of Pakistan is Textile and related products. These are discussed separately in this report. The non-textile export of Pakistan is negligible. This trend needs to be changed as no country should rely solely on the export of one or few products. On the Import side, Pakistan recently has rationalized its tariff structure to a large extent. The average tariff in Pakistan is around 17 percent with only four tariff slabs. There should not be any adverse affects on the domestic producer with the globalization as the local industry has already adjusted to the increased competition from global market. This however does not hold true for automobile industry, which still enjoys high protection and needs to become efficient if it wants to survive.

 

The complete integration of all textile products into the free trade environment after the phasing out of MFA under the Agreement on Textile and Clothing (ATC) on 1^st January 2005 will be one of the most significant changes in the world trade regime for textiles in recent years.

 

The structure of Pakistan's economy finds itself heavily dependent on the textile and clothing (T&C) sector. It is because of the nature of textile industry being labor intensive and requiring less capital and technical skills. However, the Pakistan's total T&C exports in world exports are negligible. The phasing out of MFA can be very significant for Pakistan. However there are a few factors that must be taken into account before drawing any conclusion. Pakistan has never realized its full quota in US and EU. Average quota realization by Pakistan has only been around 70 %. It is either because of low production or because of low quality standards of our product making the demand less for our products in the developed rich part of the world. A quota-free trade era calls for structural and operational adjustments in the textile sector, to enable our exporters to be globally competitive. China is the biggest threat to Pakistan T&C products at present and in post ATC regime as well.

 

There is no consensus on the impact of the post-ATC scenario. Countries like Pakistan that was sheltered by the quota system will be forced to undertake policy reforms and export strategies aimed at increasing on competitiveness and enhancing value added production via improving process efficiency and product quality improvement   that will have spill-over effects on other sectors.

 

As regards agriculture, Pakistan being an agrarian economy is still a net importer of food items. The Agreement on Agriculture is perhaps one of the most controversial aspects of WTO. The issues in AoA include subsidies, domestic support and market access. The developing countries and the developed world are at loggerheads over agriculture. The developing countries require an AoA that is fair just to meets both ends meet while the developing countries require that they maintain their status quo to protect their handful of farmers through subsidies and domestic support.

 

As far as Pakistan is concerned, Pakistan has comparative advantage in many primary commodities. But in order to fully utilize our comparative advantage, we need to focus on and solve the problems in supply side (domestic requirements). Pertaining to TRIPS, different varieties of plants and   animal species and traditional pharmaceutical and herbal knowledge need to be registered to take full advantage of them.   All valuable export brands like Basmati rice, varieties of mangoes, oranges, etc need to be protected under different provisions of TRIPS agreement. Furthermore we need to exploit our comparative advantage in the production of meat, dairy products, fruits, vegetables   etc.

 

Services are the largest and most dynamic component of both developed and developing country economies. Services currently account for over 60 percent of global production and employment. It is impossible for any country to prosper today under the burden of an inefficient and expensive services infrastructure.

 

In Pakistan, the Services sector contributes more than half of the GDP. Services account for 45% of the labour force employed in the country. Surprisingly, the international trade of Pakistan in services, including FDI, falls next to merchandise trade. Workers' remittances account for the largest component of services and the country has a large number of expatriates throughout the world. Being a developing country, Pakistan adopted a cautious approach while making commitments in trade in services. However, the actual policy of the government is far liberal as compared to the binding commitments scheduled in GATS. Pakistan has made some horizontal commitments that apply across the board, while in six sectors specific commitments have been made. These include Business services, Construction and related engineering services, Tourism and travel related services, Health and related social services, Telecommunication services, and financial services.

 

Pakistan's commitments in the GATS are mostly those that require commercial presence, because it is more likely to lead to transfer of technology, employment-generation, and transfer of new management techniques. Access through commercial presence also allows the country to exercise its macroeconomic management, jurisdiction and supervision more effectively as compared to the cross border supply mode. On the other hand, financial services would require free movement of capital inflows and outflows associated with the activity liberalized, whereas commercial presence only requires free inward movement of capital. Hence, Pakistan's commitments are no different from the commitments of other developing countries.

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