The World Trade Organization is more like a world government to oversee international trade and provide a platform for the settlement of trade-related disputes.

The current statistics show its membership at around 146. It is a democratic institution, based on one member one vote, and its rules are the outcome of negotiation among constituent countries.

The WTO has some 29 individual texts covering agriculture, textiles and clothing, services, government procurements, rules of region and property rights. Besides this there are 25 multilateral declarations and decisions that spell out further obligations and compliments for the WTO members. But here we will deal with some of the provisions of the agreements, and arising challenges, which affect the manufacturing sector of Pakistan.

Agreement on textiles and clothing: Textiles and clothing remained away from the framework of the GATT for around three decades. The agreement on textiles and clothing (ATC) which now replaces multi-fibre, arrangement (MFA) was a bilateral arrangement between the low waged textile exporting countries and mainly the OECD countries. The developed importing countries used their status and persuaded the exporting countries for mutual rather forced restraints, limiting poor nations to export raw materials. It was initiated as short-term measure but later on extended and converted into a long-term plan.

The basic purpose behind this grey area measure, i.e.MFA, was to give a breathing space to the local industries of developed countries so as to make them able to compete in future. This arrangement can be termed biased because it was outside the purview of GATT; the amounts (exports volume as well as categories) were dictated and with the criteria to award the quota on past performance. Setting such unfair conditions, the new entrants like Pakistan, whose industry is in the upstream infant stage, was not able to adjust in the short run. This dirty deal has rendered many problems for Pakistan but the prominent is the concentration in low value-added commodities. These were the tactful strategies used by the developed countries to exploit the weaker position of the developing nations.

The ATC lacks goodwill on many grounds on the part of T&C importing countries. It is evident that the developed countries have kept this important sector out of the GATT circle using quantitative restrictions, limiting potential countries output. They have portrayed the same tactful behaviour in the integration process of MFA. The first three phases were granted 51 per cent share while the big chunk of 49 per cent will be included in the last hour of the scheduled year. The selection of items, to be included in every phase, is on the discretion of the developed countries. In the implementation process they have selected mostly those items, which are not commercially meaningful for Pakistan. Albeit the EU and the US have removed some items from the quota list in the second and third stage (none in the first stage) but still the quota dominates the sensitive items. Both, the EU and the US have misused the discretion criteria and have excluded clothing items in which the developing economies have the capabilities. So the intended benefits are not reaching to the less developed countries.

Furthermore vested interests of the influential importing countries are throwing the shadows of doubt on the realization of the final phase. There is a possibility that with the excuses of import surge and reciprocities they will seek rescheduling of the remaining MFA constraints. If we suppose that the agreed targets of release will be achieved, still the distorted system of lifting the big share of restrictions in the last episode will not be absorbable for developing economies. If it could have been removed in a stable manner with mutual identification of categories for deletion then the concerned economies could have benefited and adjusted easily.

Regionalism in the western world in the shape of the EU and Nafta are creating disparities. Pakistan has not utilized its entire allocated quota (see figure1), due to various reasons, but the extent of the discrepancy is not that much discouraging. Though overall quota is underutilized while keeping individual items in view, value-added commodities have captured sufficient market share. Similarly, considering textile exports inclusive of non-quota items it portrays an upward trend. The shortfall in quota utilization may be due to some technical barriers in quota management incidence of tariff peaks and non-tariff barriers. Shift from low value-added to high value-added products is another possible reason.

It is hoped that in fair and free play Pakistan will perform well (provided that no other non-tariff constraints were used) in the EU, the US, Canada and other potential markets due to established goodwill of its exports and increasing international demand of clothes and textile. In the last decade there is more than 100 per cent increase in the demand of clothes in major importing countries. On the other hand, among the exporting countries, Korea, Taipei, Portugal and Germany have shown negative trends. Now it depends upon the initiatives and farsightedness of our entrepreneurs to utilize the available opportunities.

After the relaxation of the quantitative restrictions and reduction in tariffs under the agreement of textile and clothing (ATC), developed countries will insist on the implementation of the reciprocity clause, for which they are invoking since the inception of the WTO. We should not be worried so much about the impact of the said clause, because Pakistani markets are already flooded with the smuggled textile and clothing varieties. In fact liberalization will only change the track by legalizing the illegal traffic of the foreign goods and will eventually improve revenue.

Now that the textile and clothing agreement of the Uruguay round is in place, what is of greater importance is the strengthening of our competitiveness in this sector. In a quota free world, we will face fierce competition from countries such as China, India, Bangladesh, Sri Lanka, Indonesia and Vietnam. It is of urgent importance that the government and industry should join hands and push through a concrete programme for upgradation of technology, quality consciousness and aggressive marketing. We have to insist substantially in the modernization of our garment manufacturing, and also of our textile industry to get high quality fabrics. This is also feared that due to free and excessive supply of textile goods, there might be a reduction in the prices, in the short run. Taking expected supply and demand conditions into perspective, diversification and product differentiation should be used to win the price war. Our competitive strength lies in cotton-based products, and so the enhanced production and availability of raw cotton of the requisite quality at competitive prices would need to be ensured.

The recent move of the commerce ministry for contamination- free cotton is a step in the right direction. It will satisfy the long-standing desire of our industrialists and will help in standardization of products. While the efficient segment of our textile and clothing industry will be looking forward to the abolition of the quota regime, the not-so-efficient may require some time to change and adjust to the new situation. We ought to know, that only 14 months remain in the transition period, so we must ensure that our industry lives up to the expectation of our competitive strength in the world trade of textiles and clothing.

The elimination of quota arrangement and its integration into the world body was one of the principal aims of Pakistan. Indeed it will give an impetus to our textile industry; because we already have comparative advantage, due to resource endowments. Cotton, the primary input for textile and clothing, is our local product. The second basic input is labour which is available to Pakistani industrialists at low cost. But upward shift in the production function and requisite international quality is dependent upon the use of modern technology. Table 1.List of TRIMS No. TRIMS Status 1 Local content requirements followed in Pakistan (autos, engineering, electronics) 2 Trade balancing requirement Import should be a certain portion of exports Pakistan adopts certain measures to have a target. 3 Exchange restrictions, domestic sale, licensing, remittance, local equity, etc All such restrictions have been removed. 4 Export performance requirements Export processing zones etc 5 Technology transfer requirements

Under the deletion programme and R&D specific level be conducted locally.

Trade related investment measures: Some investment measures that distort trade flow are prohibited under the WTO framework. It provides that no contracting party shall apply any TRIM inconsistent with Articles III (national treatment) and XI (prohibition of quantitative restrictions) of the GATT. The agreement requires mandatory notification of all non-conforming TRIMs and their elimination within a span of two, five and seven years for developed, developing and least developing countries respectively.

Due to its specific status as a developing country, Pakistan has preferential treatment in some areas. The engineering industry has been exempted (article iii and xi) till 2003 and the government of Pakistan is planning to extend the period for another three years. In addition to international efforts ministry of commerce is strictly observing the implementation of the contracted schedule of localization. An on site inspection of the autos industry was conducted by the Engineering Development Board in the year 2000-01, in which the underperformance was indicated in detail and recommended that the shortfall will attract the statutory rate of duty imposed on a completely built up vehicle.

Agreement on industrial tariffs: Member countries are required to reduce their tariffs as per binding submitted by them. Developed countries have bound about 97 per cent of their tariffs, while it varies in developing countries due to their separate status considered under the WTO forum. Taking standard deviation of the available data on tariffs dispersions rate is low in case of developed countries, while high for developing countries. But this low figure on the part of developed countries however should not hide the fact that these countries have numerous tariff peaks, mainly in textile and leather sectors. Besides this they are using tariffs escalations, which hurts the interest of the developing nations.

Pakistan has bound about 33 per cent of its tariffs line and availed exceptions in many areas. In the current budget Pakistan has lowered its maximum tariff rate up to 25 per cent. Looking into the pace of reduction in retrospective Pakistan has slashed its tariff rate drastically from above 200 per cent to the present reasonable level. But the exceptions availed for the protection of local industry is still in place, which will be removed in due course of time. The immunities provided to Pakistan have not been utilized optimally due to its strategic unavoidable vulnerability to smuggling and tension with the neighbouring India.

Table2. Initiation of anti-dumping investigations by level of development of reporting and affected economies. Initiating economies Developed countries Developing countries Transition economies Total Number of investigations Developed countries 126 244 129 499 Developing countries 252 258 201 711 Transition economies 4 0 4 8 All members 382 502 334 1218 Distribution Developed countries 25 49 26 100 Developing countries 35 36 28 100 Transition economies 50 0 50 100 All members 31 41 27 100

Non-tariff barriers (anti-dumping, subsidies and counter veiling measure): Binding principal and applying them equally to all member nations (Most Favoured Nations) is the key function of the WTO. But despite this MFN clause it allows some exceptions in certain circumstances. If a country is selling a product lower than its average cost (price charged at home market) can be asked for an extra duty. Similarly, products enjoying prohibited and actionable subsidies can be counteracted for normalization purposes. Emergency protection (safeguards) measures are also allowed if there is a threat to local industry from undue surge of imports. The WTO discipline needs evidences of injuries through proper investigations to be presented in the dispute settlement body.

Moreover the absolute number is biased in favour of the developed countries. Main excuses are dumping, subsidies, child labour, quality and health standard certification. Furthermore, they have an edge in resources and expertise to deal with these complex issues. On the other hand developing countries are on the receiving end having no skills and finance to tackle such dilemmas.

The Cancun scenario has worked like stamp on the worries of the developing countries. The world’s leading economy, USA, is not ready to open its borders for foreign goods. America is more interested in bilateral trade negotiations where it can influence the weak nations to bow to their demands.