December 22, 2003	Monday	Shawwal 27, 1424

Geneva talks to restart the WTO trade negotiations have failed to make any headway primarily because the developing nations with the growing economic muscle cannot be induced to open their markets when the industrialized states are turning into protectionist.

December 15 deadline for the compromise has been missed as semi-industrialized states are pressing for voluntary compliance on sectoral tariff-cut to prevent de-industrialization, and for phasing out the farm subsidy by rich nations. Now, the final deadline has been set for January 15, 2004.

Facing a deadlock and with peace clause of the WTO expiring on January 1, 2004, the American cotton subsidies have been challenged by Brazil at the WTO. Between 1999-2002, the US share in global exports has grown from 25 per cent to 40 per cent with subsidies amounting to $12.9 billion.

Under “sectoral approach” advocated by industrialized states, the WTO modalities require the developing countries to rapidly eliminate all protection in seven sectors, many of which are sensitive to import competition, or which the developing countries may want to develop further — now or in future.

The proposed sectors are textile and textile clothing, footwear, leather goods, motor vehicle parts and components, electronics and electrical goods, fish and fish products, stones gems and precious metals.

Several Asian and African countries including China, India and Kenya have opposed the sectoral approach, especially its mandatory nature. They say they could consider voluntary participation and prefer what is described as “a request offer approach”.

Eleven African countries led by Kenya are of the view that the phasing out of tariffs in these sectors will put tremendous pressure on their weak, vulnerable and limited industrial base — now enjoying some preferential treatment. It would also mean revenue loss for day-to-day running of the government. Trade statistics reveal that the developed countries have significant interests in almost all the identified sectors.

Modalities proposed to-date include: a formula approach, where tariffs are reduced according to a mathematical formula (for instance linear tariff cuts i.e., reducing the tariff by annual percentage across the entire class of products); a sectoral approach where tariff for certain sectors are either harmonized or eliminated, a request offer approach where bilateral negotiations take place on specific items with the results extending to all other WTO members on a most favoured-nation basis, and various combinations of these.

The sectoral tariff elimination is proposed to be achieved through three phases of equal length which is seen by the developing states contrary to Doha mandate which states that the negotiations would take into account fully the special needs and interests of the developing and the least-developed countries, including less than full reciprocity in reduction of commitments. The basic issue is competition between national and multinational firms within the emerging markets.

The EU officials say that they are ready to explore alternative, approaches to negotiating the Singapore issues of investment, competition, trade facilitation and transparency. The basic question is whether the changes proposed are cosmetic or focused on substance.

The recent mergers, acquisitions and alliances of the multinational giants and corporate restructuring worldwide indicate that the globalization has not been an unmixed blessing for corporate world. The world’s top companies have moved to consolidate themselves through oligopolies, if not by the creation of monopolies. Market competition has weakened, or the MNC’s position has been strengthened through relocation of manufacturing facilities in a big way in China or the service sector support from India. Worldwide operations help the MNCs to cut costs which is outside the scope of domestic private companies.

In the WTO talks, the rich nations are not willing to make substantial concessions on the issue of farm subsidy to help poor nations with surplus crops to prosper through exports. Recession is taking industrial states towards protectionism.

The current slowdown in world trade growth and the monopolization of lucrative Iraqi contracts by the US and its coalition partners indicate that the US-led globalization has run into snags, sparking trade rivalry between the United States and Europe. The US is indulging in restrictive trade practices, while paying lip-service to free trade.

The rich nations have yet to fully recognize that the balance of economic power is shifting in favour of developing states. An EU official has described the WTO after Cancun as an “archaic” body because of its democratic decision-making on “one-man-one-vote” basis, unlike other multilateral organizations like the UN, the IMF and the World Bank where big powers call the shot. The developing countries are seeking a more equitable world order while the industrialized countries are resisting it.

Minor concessions would not help. For example, developing countries will be allowed to keep only 5 per cent of their tariff lines unbound, provided they do not exceed five per cent of their total import value. This means that those countries that have bound only a part of their tariff lines have to extend the scope of their bindings to at least 95 per cent of their total tariff lines, involving at least 95 per cent of the total import value.

For countries like Pakistan, globalization carries both opportunities but also serious threats, says a research report on “industrial competitiveness: the challenge for Pakistan” prepared jointly by Sanjaya Lall, professor of Development Economics, Oxford University and John Weiss, Research Director, ADB Institute, Tokyo.

With the imminent end of textile and clothing quota,the report says, “the economy of Pakistan is on important crossroads”.

Countries with high growth rate have upgraded technological composition of exports. Pakistan has a very low share of medium and high tech products, both in production and exports and only a slow upgrading over time (what little upgrading there has occurred in production rather than exports). Exports are also concentrated at low sophistication level of the spectrum.

The report adds: Pakistan’s largest export product in 2001 was made-up textile articles. Its next two largest exports (cotton fabrics and textile yarn) are stagnant in world trade. Pakistan gained world market share in the former and lost in the latter. The future growth is vulnerable to slow growth of the market. Most apparel products are in the non-dynamic segment of trade and Pakistan is unfortunately heavily dependent on these products.

There is one major product, medical instruments where Pakistan is losing market share in a dynamic product (in fact this is the most dynamic product in the set of 20 top exports).

The picture for Pakistan is thus one of weak product-positioning within its areas of export specialization. It would lead to Pakistan raising its market share in declining markets. Since these markets are fiercely competitive and are being liberalized, this would require massive upgrading of production capabilities, quality and marketing to competitors.

Competitiveness today requires strong base of human and technological resources, able to support enterprises in handling, adapting and improving new technologies and selling the output to sophisticated and demanding global markets.

By most common indicators of skill creation, Pakistan performs poorly by regional standards (themselves low relative to East Asian levels). For example, Harbision-Myer Index, a classic index of skills based on school and university enrolments, Pakistan ranks below all other South Asian economies, even Nepal.

Furthermore, Pakistan’s score and its relative position have deteriorated since mid-1980s making it, the only country in Asia in which the index declined its relative position over 1985-1997 period. In 2001, Pakistan has spent less on human capital than its competitors. Per capita research and development spending in Pakistan is also the lowest for all countries when compared to the available data, and the enterprise-financed R&D is negligible.

The growth of developing world exports, some resource-based and low-tech products, is held back by trade barriers, tariff escalation (high tariffs being levied on imports of processed products than on raw materials) and subsidies in industrialized countries.

On the other hand, the report points out that Pakistan has unilaterally reduced import tariffs, that its applied rates are often below the bounds to which it is committed by the WTO membership. To quote a leading industrialist, Pakistan is the most WTO compliant country in the world.

Meanwhile a Senate task force has been set up to draw up a strategy to face the WTO challenges when textile quotas are abolished from January 1, 2005.