The expiry of Agreement on Textile and Clothing (ATC) by the end of this year is likely to put efficiency and competitiveness of the country's spinning and textile sector on the test of zero-quota regime.
The future dimensions of the local farm sector especially with regard to raw cotton have also been the subject of concern.
Although, the challenges of trade liberalization under WTO regime as regard to the agriculture sector is not as imminent as is being generally assumed in Pakistan but the trickle down affect of the post-ATC era on this sector cannot be underestimated for its being the single-largest supplier of raw material to the country's textile sector.
The local spinning and textile sector meets its 80 to 85 per cent demand for raw cotton through the large domestic supplier base, which is responsible for the comparative advantage that it enjoys over its competitors in the international market until now. However, the textile sector in the country preferred to thrive on the strategy of 'low quality low price' to earn painless profits due to the availability of cheap raw material instead of opting for value addition to exploit the comparative advantage to its fullest.
There are reports that the spinning and textile sector has invested huge resources in the last few years in BMR to efficiently meet the challenges of quota-free regime, but analysts say that a lot is yet to be desired on the value addition front because the country's closest competitors China and India have also the same comparative advantage of large domestic supplier base of raw material and low cost labour. Now the two have switched over to the spinning of higher count yarn and value-added weaving to make full use of the quota-free regime.
Specially, China has accepted some rather humiliating conditions to become member of the WTO only to capitalize its comparative advantage in textile and garments sector in the post-ATC era.
Whereas, it seems the Pakistani spinning and textile sector has again decided to remain contended to the yarn export, that too, of lower counts with an improved efficiency of cost control. This strategy of the sector has rendered the farm sector to produce cotton of medium and medium long staple length instead of going for long and extra long staple lengths which needed to spin higher count yarns.
Local industry's demand for average quality cotton and short-sightedness of the people at the helm of agricultural affairs rendered the country's raw cotton unable to fetch fair price in the international market. That is why in case of surplus cotton production the country always faces the problem of its marketing abroad. There is no system of grading on the basis of quality and characteristics in place for any farm produce.
The Cotton Standardization Ordinance was promulgated in October 2002 but the provinces have yet to amend their respective Cotton Control Acts in compliance with the ordinance.
Analysts say that the farm sector will have to make efficient and cost effective in order to not even supply cheap raw material to the local agro-based industry but to make the farm produces competitive in the era of agricultural trade liberalization under Agreement on Agriculture.
The Agreement on Agriculture (AoA) reached in the Uruguay round of GATT held in 1994 was subjected to renegotiate after five years under its article 20. The developed countries in European Union and the United States had to adjust their agricultural trade and tariffs according to the AoA by the end of 2000 while the developing countries were bound by the agreement to do the same by the end of 2004.
The developing countries and the least developed countries soon realized that the AoA did not provide a level-playing field to all the signatories vis-à-vis market access, export competition and domestic support. According to independent economists the architects of the AoA had designed the agreement to benefit the 'rich nations' in its implementation in the name of trade liberalization.
Therefore, the AoA has been the subject of a heated debate since the start of renegotiation phase in 1999. It is said that the main cause of the failure of WTO's fifth ministerial meeting held last year in Cancun was the disagreement among the member countries over the implications of AoA.
In July this year, the general council of the WTO in its meeting held in Geneva though had succeeded to prepare a Draft Framework Package but the repercussions of the developing countries and the LDCs have yet to be over. So, the WTO Committee on Agriculture is currently in the process to come up with agreeable formula viz-a-viz global agricultural trade before the sixth WTO ministerial meeting to be held in Hong Kong in December 2005.
But, this does not mean that the agricultural policymakers of the country may rest in peace for another year or so to wait for the trade liberalization to rule the global agriculture as well. Price and quality will be the key factors to remain competitive in the open market. However, the country is lagging behind on both fronts even as compared to the other agro-based economies of the region.
All the agricultural inputs including electricity, fuel, pesticides and fertilizers in the country are heavily priced and taxed than any other country of the region while the marketing system is flawed enough that the growers often find themselves in a no-win situation irrespective of whether they produce surplus or vice versa. This situation raises their cost of production and subsequently the price of their produce.
Neighbouring India provides subsidies to its farmers to the tune of about Rs400 billions per annum to minimize their cost of production, the US subsides its cotton growers by $3.2 billion per annum through its Farm Bill, the OECD countries give almost $1 billion subsidy per day to their farm sector while half of the farm subsidies on the globe are provided by the EU to its farmers under the union's Common Agricultural Policy. But, Pakistan has discontinued all kind of subsidies to its farm sector under the so called Structural Adjustment Programme dictated by the IMF and the World Bank.
Being a developing country, Pakistan can provide Aggregate Measurement Support (AMS) to its farmers under AoA to the tune of 10 per cent of its agricultural GDP. But, the analysts say that the country's AMS was negative by $161m last year.
The preparations in the Ministry of Food, Agriculture and Livestock (Minfal) vis-à-vis agricultural trade liberalization is evident from the fact the ministry had no representation on the Pakistani delegation at the forum of WTO till the Doha Summit of multilateral trading negotiations held in 2001 as it was being assumed that WTO was related only to the commerce ministry. It was dawned later on the government that the agricultural people should also be made part of the negotiation rounds on AoA and therefore in the Cancun Summit last year a Minfal secretary was on the board for the first time to represent Pakistan.
Experts underline the need of comprehensive database about the number of cotton growers in the country, the area under their respective ownership, the varieties they sow and the input they use in rearing the crop so that a cohesive policy can be made that how they can be supported within the ambit of AoA to reduce their cost of production to make available cheap raw material to the local industry.
