The establishment of the World Trade Organization (WTO) truly marks the new era of strengthened institutional mechanism in international trade and economic relations.

The Uruguay Round (UR) of Multilateral Trade Negotiations (8th’ in series of such Rounds) was successfully concluded in April, 1994 at Morocco. The Round had started in Sept. 1986. It took 7-1/2 years to conclude its comprehensive trade agenda. The final Act of UR, inter alia, covers the following Agreements;

1. General Agreement on Tariff and Trade and its 12 Associate Agreements (GATT 1994). These apply to trade in goods.

2. General agreement on Trade in services (GATS). The trade in services was brought under international discipline for the first time.

3. Agreement on trade-related aspects of Intellectual Property Rights (TRIPS). The Agreement lays down uniform standards for protection of these rights.

For the surveillance and implementation of above rules, the Morocco Agreement also decided to establish the World Trade Organization (WTO) which become operative from 1st January, 1995. The Associate Agreements of GATT 1994 cover almost all aspects of trade in goods. These are — Agreement on Textiles and Clothing (ATC); Agriculture (AOA); Subsidies and countervailing measures (SCM); Anti-Dumping Practices (ADP); Technical Barriers to Trade (TBT); Safeguards; trade-related investment measures (TRIMS); application of sanitary and phyto-sanitary measures (SPS); Pre-shipment inspection (PSI); Import licensing procedures and rules of origin.

The legal system of the WTO trade regime is complex. However, it is based on four simple rules:

a) protection to local industry by tariffs only.

While the GATT 1994 stands for liberal trade, it allows member countries to protect their domestic industry from foreign competition subject to the condition that protection should come through tariffs only. Complete bans or quantitative restrictions are prohibited. An important exception permits countries that are in balance of payment (BOP) difficulties to restrict imports in order to safeguard their external financial position. A major derogation from this rule is the continuation, till 31/12/2004, of quantitative restrictions imposed by the developed countries on the trade of textiles and clothing.

b) Tariffs reduction and binding against further increase.

The member countries were required to reduce their then existing tariffs and bind the reduced tariffs against further increases. The rates of tariffs agreed in the negotiations are listed in the Schedules of Concessions. Each country has a separate schedule and is under obligation not to impose tariffs or other charges which are in excess of those set-forth in its schedule. The schedule, inter-alia, lists on a product-by-product basis the pre-negotiation tariff rate and the rate of tariff at which the country has agreed in the negotiations to bind the tariff rate.

c) Trade on most-favoured nation (MFN) principle.

In simple terms, the MFN principle requires that trade must not be discriminatory. If a member country grants to another country any tariff or other benefit, it must automatically be extended to other member countries. By agreeing to give MFN treatment, member countries undertake not to discriminate among countries and not to treat a country less favourably than another in all matters connected with foreign trade. The regional preferential arrangements constitute a major exception to the MEN rule. A high proportion of world trade continues to take place on a preferential basis.

d) National Treatment Principle.

The national treatment principle requires that an imported product which has crossed the border after payment of customs duties and other charges should not receive treatment that is less favourable than that extended to the like product produced domestically. In other words, the principle requires member countries to treat imported products on the same footing as similar domestically produced product. National treatment complements the MFN principle.

Lately, the implications of full compliance of the WTO regime are being discussed frequently at different fora. The government as well as private sector seem to have suddenly awaken to the up-coming challenges. The textile sector, in particular, is being exhorted to prepare itself for the free trade environment consequent upon dismantling the textile quota regime from Jan 1, 2005. It is over 9-years now when Pakistan assumed various obligations at Marakish.

What concrete measures we have taken during this intervening period to face the free trade and investment environment? The response of government and industry has been lukewarm at best. Complacency and ad-hocism has been our typical character. We, as a nation, have repeatedly exhibited our inability to face the economic and commercial challenges of the present age.

As mentioned earlier, the UR was concluded in April, 1994 and the WTO became operative from 1 S‘ January, 1995. The proactive nations assessed the shape and scope of forth-coming framework of international trade from the agenda of the UR and planned ahead. For instance, Argentina, Brazil, India and Mexico in anticipation of TRIMS, had taken decisions to abolish local content requirements even before the conclusion of the UR. The active countries initiated appropriate measures soon after Morocco Agreement in - April, 1994. The reactive governments like ours are responding at the expiry of deadlines of grace periods provided in the agreements.

The trade liberalization process in the country was initiated in 1980s. The opening of domestic market should have been preceded with appropriate institutional set-up to protect local industry against dumping and other unfair trade practices.

Instead of strengthening the then existing National Tariff Commission, (NTC) it was abolished in late 1970s and was revived in late 1980s only under the World Bank pressure. The laws on Anti-dumping, Countervailing Duties and Safeguard Measures were approved and put in place as late as 2001 and 2002.

Another important Agreement is the Trade-Related Aspects (TRA) of Intellectual Property Rights. The Agreement provides a transitional period of 5-years (i.e. upto I ‘t January, 2000) for developing countries to bring their IPR legislation in conformity with its provisions. In addition to copyrights, patents and trademarks, the agreement also recognizes appellations of origin or geographical indications as the property right.

In the meantime, a US company tried to take advantage and filed a case for patenting their rice under the name of “Texamati”. Pakistan, the originator of Basmati rice, displayed a wavering attitude towards the entire episode. India, on the other hand, vigorously fought the case in the U.S. and, as a result, this serious assault on Basmati rice was neutralized. Another attempt at infringement has been made by a S. Arabian company for registration of ‘Kernal’ as their trademark. Pakistan is fighting this case as it has serious implications for our Kernal basmati.

Earlier, the UK authorities tried to introduce DNA analysis as the basis of classification of basmati and non-basmati rice. The issue was successfully handled through coordinated efforts of Govt. and the Rice Exporters Association of Pakistan (as chairman of quality and pricing system of rice from 1996 to 2001, I was closely associated with all these rice issues).

The TRIMS, when fully enforced, would impact on deletion policy and local content requirements in automobile industry. What measures have been taken by the government and the industry to face the emerging environment is not clear. The government. is stated to have requested the WTO for additional adjustment time.

Pakistan falls in the category of low income countries and stands so listed with the WTO secretariat. Prohibitions would apply automatically when the thresh-hold of per capital GNP of $1000 is reached. Even at that level, the WTO regime provides adequate flexibility to the governments. The subsidies have been classified as prohibited, permissible but actionable and non-actionable. These are designated as red, amber and green subsidies respectively.

Pakistan, in reality, has been following a parallel system of International Monetary Fund (IMF). It is not only harsh in conditionalities but also dictative in nature. Elimination of subsidies and deeper cuts in tariff rates constitute basic conditionalities of IMF. Perhaps it suits governments to mix up the IMF and the WTO. systems though one is “imposed” and the other is “freely negotiated”.

The over-riding objective of the WTO regime is to create free trade environment by removing tariff and non-tariff barriers to international trade. Only competitive producers and manufacturers are likely to survive in the open markets system. Development of competitive edge based on up-graded infrastructure, technology and human capital is the sine qua non. Countries that compete on basic advantages only, are not making any significant economic headway.

The competitive advantages based on knowledge are not easily imitated. Our existing industrial sector is not fully geared to export. The country’s export sector is almost a single product sector. About 65 per cent of our exports consist of cotton and cotton based textiles. Variation in cotton production, which occurs too often because of climatic conditions, not only injects an element of uncertainty but also impacts drastically on the over-all export performance. The other industrial sectors relevant to our existing export products are no different from the textile sector. Exceptions apart, all our traditional export products (leather, sports goods, surgical instruments, fish, fruits, vegetables etc) fetch low prices abroad. What is needed is the up-gradation in the existing industrial base and a shift in the future investment pattern with or without the involvement of the government to produce diversified range of sophisticated products of international standards.

Pakistan’s physical and export infrastructure needs up-gradation. There are inadequacies in quality control, quarantine and safety standards. A number of time, the advanced countries have, in the past, placed ban on import of fish, meat and animal casings from Pakistan. Even surgical instruments were twice put on automatic hold by the USA on quality considerations. The timely establishment of a modern laboratory in Sialkot for pre-shipment quality check of surgical goods was a significant step for quality assurance (I was given the charge to set-up the project).