Western nations continue to torpedo efforts
to create an equitable global trading regime
Pakistan and other developing countries have been pressing for a non-discriminatory global trading system ever since the WTO ministerial conference in Cancun, Mexico five years ago, but to no avail. The main sticking points are the reluctance on the part of the wealthy nations to slash the massive subsidies they give to their farmers and greater access to rich countries’ markets for products from developing nations
By Kaleem Omar

The North-South dialogue between rich and poor nations, which was aimed at creating a more equitable new economic order, was sandbagged by US President Ronald Reagan more at a meeting in Cancun, Mexico in 1983. Nothing has been heard of the new economic order since then.

The failure of the North-South dialogue led to the gap between rich and poor nations growing even wider over the next two decades. Ironically, it was Cancun again where the developing countries failed to persuade the wealthy nations at the World Trading Organisation trade talks in September 2003to create a non-discriminatory global trading system.

Numerous WTO follow-up meetings since then in Hong Kong, Doha and other cities have proved to be equally unsuccessful in getting the wealthy nations to change their minds.

The main sticking points at all these meetings have been the reluctance on the part of the wealthy nations, especially the United States and the EU countries, to slash the massive subsidies they give to their farmers and greater access to rich countries’ markets for products from developing nations.

Those subsidies currently amount to a staggering $350 billion a year (or ten times the total amount of aid given annually by the rich countries to the developing nations), making it virtually impossible for farmers from developing nations to compete with farmers from the US and the EU countries.

In a French television interview in Paris on Friday, April 26, Food and Agriculture Organisation chief Jacques Douf pulled back from the developing world’s calls to lower agricultural subsidies and open up access to markets in the United States and Europe – instead pressing for similar subsidies for farmers in Africa, Asia and Latin America. “There are two solutions: end subsidies everywhere or give them to everyone. I prefer the latter,” he said.

That’s all very well, but where is the money for subsidies to the developing world going to come from?

In Pakistan’s case, the problem has been compounded by the fact that the US has rejected Islamabad’s plea for more liberal textile export quotas. The plea was turned down on August 12, 2003, when then-US Assistant Commerce Secretary William Lash, during a visit to Islamabad for talks with Pakistani officials, urged Pakistan to prepare for the long-term challenges of a quota-free world.

Lash’s remarks followed months of behind-the-scenes efforts by Pakistani officials to seek greater access for Pakistani textiles to the American market. “We believe very firmly that we’ve made our best offer,” said Lash. He urged Pakistan to consider the long-term future of its textile exports, which account for nearly 60 per cent of the country’s total annual exports.

A report published in the London Financial Times noted at the time that Pakistani commerce ministry officials, responding to Lash’s remarks, said the country needed more liberal access to the US market ahead of the January 2005 end to quotas to build up a market for the country’s exports. “But they conceded that they were up against not only domestic US textile interests but also a balance of trade (with the US), heavily in favour of Pakistan,” the Financial Times said.

During the year to June 2003, Pakistani officials said, the country’s exports to the US were worth $2.3 billion, compared with imports from the US of about $700 million. The figures have gone up in the years since then, but the balance of trade with the US is still in Pakistan’s favour.

This perhaps explains why the US is still dragging its feet over finalising the Free Trade Framework Agreement with Pakistan agreed in Washington back in June 2003 during President Pervez Musharraf’s visit to the United States for discussions with US President George W. Bush.

In theory, under the WTO regime, the textile quotas imposed under the old Multi-Fibres Agreement were done away with in January 2005. In practice, however, the WTO regime allowed rich countries like the United States and the EU countries to restrict certain categories of textile imports until 2013. For all practical purposes, then, many of the old MFA quotas are still in force and have prevented Pakistan from increasing its textile exports to the US and EU countries.

Indeed, the doing away of the MFA quotas have, in some cases, actually resulted in a decline in certain categories of Pakistani textile exports. This, in turn, has contributed to a further widening of Pakistan’s trade gap, which, fueled by soaring oil prices, is currently running at a worrying $1.6 billion a month, equivalent to about $19 billion a year..

The widening trade gap has put increasing pressure on Pakistan’s balance of payments and is eroding its foreign exchange reserves, which declined from $16.5 billion less than a year ago to $13.5 billion this month. It is self evident that an economy the size of Pakistan’s cannot sustain a trade gap of this magnitude indefinitely. After all, there is a limit to the amount of slack that can be taken up by foreign exchange remittances from overseas Pakistanis.

But the previous government did nothing to stem the rot. Moreover, the new PPP-PML(N)-ANP-JUIF(F) coalition government led by Prime Minister Yousuf Reza Gilani, which has only been in office for about a month, has yet to announce realistic measures to tackle the problem of the burgeoning trade gap.

It is issues such as these that the new government, and, in particular, its finance minister, Ishaq Dar, and its other economic managers, need to urgently focus on, instead of trying to score political points against its predecessors.

The point is that no matter how much one blames the previous government for allegedly making a “mess” of the economy (and there is no doubt that they deserve a great deal of the blame for things like the energy crisis and the food inflation crisis), the clock cannot be turned back. We are stuck with the situation and now need to concentrate on formulating policies aimed at tackling all the multifarious problems.

A member of the one of the new ruling parties put it succinctly when he said the other day that it was not power but a whole clutch of problems that had been transferred to the new government by its predecessors.

Be that as it may, the ball is now very much in the new government’s court. The dexterity and wisdom with which they handle the situation will determine how the economy performs in the difficult years that lie ahead.

The Pakistani business community, for its part, remains nervous over the eventual fate of the Free Trade Framework Agreement with the US and what it will mean for the country’s textile exports.

Back in 2003, a few days before the WTO meeting in Cancun in September that year, a press report quoted a leading Pakistani industrialist as saying, “I cannot say anything about the government preparations for the forthcoming WTO meeting, but for sure I can say that the commerce ministry has not taken any stakeholder into confidence so far.

The business community is having sleepless nights as they are worried about their respective interests, which are directly related to the WTO, particularly when textile quotas will cease to exist from January 1, 2005. We do not know what posture the government is going to take at the Cancun meeting – an offensive or defensive stance.”

The report quoted a leading Pakistani textile exporter as saying that the two-year moratorium sought on anti-dumping duties in the Doha WTO round was an issue that directly affects the country’s exports. “As Pakistan does not have the fiscal space, we cannot afford to give subsidies (to exporters) as are being given by China and India,” he said.

Another issue of concern to Pakistan is that of Trade Related Intellectual Property Rights (TRIPS), on which the United States and the European Union have conflicting views. The TRIPS issue has been a cause of friction between three Pakistani ministries – the education ministry, the commerce ministry and the industries ministry.

The education ministry was said to be fighting to control the subject of copyrights, the commerce ministry was fighting to control trade marks, while the industries ministry wanted control over patents and industrial designs.

In an interview with an Indian newspaper in New Delhi on August 23, 2003, Rubens Ricupero, the then secretary-general of the United Nations Conference on Trade and Development (UNCTAD), said that the WTO should work for a trading system that is non-discriminatory, rule-based, stable, predictable and equitable.

Ricupero said developing countries needed flexible economic policies. He said the success of any WTO talks depended on how the organisation tackled issues such as access to rich countries’ markets, a key demand of India, Pakistan and other developing countries.