World Trade Organization (WTO)

The World Trade Organization (WTO) is a multilateral organization whose objective is to help trade flow smoothly, freely, fairly and predictably. It does this by acting as a forum for trade negotiations, settling trade disputes and assisting developing countries in trade policy issues, through technical assistance and training programmes. The World Trade Organization (WTO) is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948. The organization deals with regulation of trade between participating countries; it provides a framework for negotiating and formalizing trade agreements, and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements which are signed by representatives of member governments and ratified by their parliaments. Most of the issues that the WTO focuses on derive from previous trade negotiations, especially from the Uruguay Round (19861994). The organization is currently endeavoring to persist with a trade negotiation called the Doha Development Agenda (or Doha Round), which was launched in 2001 to enhance equitable participation of poorer countries which represent a majority of the world's population. However, the negotiation has been dogged by "disagreement between exporters of agricultural bulk
~
1

commodities and countries with large numbers of subsistence farmers on the precise terms of a 'special safeguard measure' to protect farmers from surges in imports. At this time, the future of the Doha Round is uncertain." The WTO has 153 members representing more than 97% of the world's population and 30 observers, most seeking membership. The WTO is governed by a ministerial conference, meeting every two years; a general council, which implements the conference's policy decisions and is responsible for day-to-day administration; and a director-general, who is appointed by the ministerial conference. The WTO's headquarters is at the Centre William Rappard, Geneva, Switzerland.

What is Uruguay Round?

The Uruguay Round was the 8th round of Multilateral trade negotiations (MTN) conducted within the framework of the General Agreement on Tariffs and Trade (GATT), spanning from 1986-1994 and embracing 123 countries as contracting parties. The Round transformed the GATT into the World Trade Organization.

What is Doha Agenda/Round (DDA)?

Development

The Doha Development Round or Doha Development Agenda (DDA) is the current tradenegotiation round of the World (WTO) which commenced in November 2001.Its objective is to lower trade barriers around the world, which will help facilitate the increase of global trade.
~
2

Principles of the Trading System

The WTO establishes a framework for trade policies; it does not define or specify outcomes. That is, it is concerned with setting the rules of the trade policy games. Five principles are of particular importance in understanding the WTO.

1-Non-Discrimination
It has two major components: the most favoured nation (MFN) rule, and the national treatment policy. Both are embedded in the main WTO rules on goods, services, and intellectual property, but their precise scope and nature differ across these areas. The MFN rule requires that a WTO member must apply the same conditions on all trade with other WTO members, i.e. a WTO member has to grant the most favorable conditions under which it allows trade in a certain product type to all other WTO members."Grant someone a special favor and you have to do the same for all other WTO members." National treatment means that imported goods should be treated no less favorably than domestically produced goods (at least after the foreign goods have entered the market) and was introduced to tackle non-tariff barriers to trade (e.g. technical standards, security standards et al. discriminating against imported goods).

2-Reciprocity
It reflects both a desire to limit the scope of free-riding that may arise because of the MFN rule, and a desire to obtain better access to foreign markets. A related point is that for a nation to negotiate, it is necessary that the gain from doing so be greater than the gain available from unilateral liberalization; reciprocal concessions intend to ensure that such gains will materialize.
~
3

3- Binding and enforceable commitments

The tariff commitments made by WTO members in a multilateral trade negotiation and on accession are enumerated in a schedule (list) of concessions. These schedules establish "ceiling bindings": a country can change its bindings, but only after negotiating with its trading partners, which could mean compensating them for loss of trade. If satisfaction is not obtained, the complaining country may invoke the WTO dispute settlement procedures.

4- Transparency
The WTO members are required to publish their trade regulations, to maintain institutions allowing for the review of administrative decisions affecting trade, to respond to requests for information by other members, and to notify changes in trade policies to the WTO. These internal transparency requirements are supplemented and facilitated by periodic country-specific reports (trade policy reviews) through the Trade Policy Review Mechanism (TPRM). The WTO system tries also to improve predictability and stability, discouraging the use of quotas and other measures used to set limits on quantities of imports.

5- Safety valves
In specific circumstances, governments are able to restrict trade. There are three types of provisions in this direction: articles allowing for the use of trade measures to attain noneconomic objectives; articles aimed at ensuring "fair competition"; and provisions permitting intervention in trade for economic reasons. Exceptions to the MFN principle also allow for preferential
~
4

treatment of developed countries, regional free trade areas and customs unions.

Agreements of WTO
The WTO oversees about 60 different agreements which have the status of international legal texts. Member countries must sign and ratify all WTO agreements on accession. A discussion of some of the most important agreements follows. The Agreement on Agriculture came into effect with the establishment of the WTO at the beginning of 1995. The AoA has three central concepts, or pillars: domestic support, market access and export subsidies. The General Agreement on Trade in Services was created to extend the multilateral trading system to service sector, in the same way the General Agreement on Tariffs and Trade (GATT) provides such a system for merchandise trade. The Agreement entered into force in January 1995. The Agreement on Trade-Related Aspects of Intellectual Property Rights sets down minimum standards for many forms of intellectual property (IP) regulation. It was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) in 1994. The Agreement on the Application of Sanitary and Phytosanitary Measures also known as the SPS Agreement was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade, and entered into force with the establishment of the WTO at the beginning of 1995. Under the SPS agreement, the WTO sets constraints on members policies relating to food safety (bacterial contaminants, pesticides, inspection and labeling) as well as animal and plant health (imported pests and diseases). The Agreement on Technical Barriers to Trade is an international treaty of the World Trade Organization. It was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade, and entered into force with the establishment of the WTO at the end of 1994. The object ensures that technical negotiations and standards, as well as testing and certification procedures, do not create unnecessary obstacles to trade. The Agreement on Customs Valuation,
~
5

formally known as the Agreement on Implementation of Article VII of GATT, prescribes methods of customs valuation that Members are to follow. Chiefly, it adopts the transaction value approach.

Pakistan & WTO

Pakistan was one of the 23 founders of GATT in 1947. It actively participated in all the subsequent GATT negotiations and was involved in the Uruguay Round that resulted in the creation of the WTO. Pakistan was thus also one of the founding members of WTO that was established in 1995. There is a considerable impact of WTO on all sectors of Pakistan's economy, particularly, its industry, textile, agriculture and services. The nature of impact is predictable for some sectors, whereas, it is difficult for others in view of global developments in trade and degree of complexity involved. Pakistan, like all other developing countries, is in the process of implementing the provisions of WTO. As a result, its trade and industrial sectors are undergoing radical changes in compliance with GATT/WTO rules and regulations. Where these rules give industries and business enterprises certain rights, they also place some obligations on them. Unfortunately there has not been enough development in Pakistan to raise awareness and understanding about WTO. With not much time now remaining for the WTO (till January 2005) to be fully effective, there is an urgent need for all the stakeholders, those involved with international trade and industry in particular, to explore WTO's implications. Pakistan agreed to join WTO in 1994, one of the benefits of which is the integration of the textile sector into General Agreement on
~
6

Tariff and Trade (GATT). Looking at 2005, people mostly believe that the major impact of WTO on Pakistan would again be on the textile sector. However, WTO comprises several protocols and agreements focusing on various sectors and have different implications for different sectors and thus the impact might not just be limited to the textile sector. For example, a few subjects or agreements signed by the government mentioned below show which sectors will be the most affected: 1) Improved access to foreign markets (reduction/binding of tariffs, abolition of quotas) 2) 3) Subsidies, countervailing on and anti-dumping and measures Clothing

Agreement

Textiles

4) Trade-related Aspects of Intellectual Property Rights (TRIPS) 5) Trade-related Investment Measures (TRIMs)

6) Agreement on Agriculture

Pakistan Exports through WTO

Cement exports rise to $750 million
The cement industry, despite being affected by the global economic crisis, has managed to boost exports to $750 million. Being an irregular sector if compared with textile, the cement industry increased exports to $750 million.

Pakistani mangoes arrive in China

~
7

The first consignment of Pakistani mango, famous worldwide for its taste and aroma have arrived in China by PIA.

Rice export tops $2bn

Pakistan's rice export crossed the value of $2 billion in FY08-9 for the second consecutive year.

Textile exports could jump to $25bn

Textile exporters could bring $25 billion from exports in next two years and $120 billion in next 10 years, if they are provided level playing field.

Consequences of WTO on Pakistan

A positive impact of quota free trade on Pakistani textile sector would definitely be an abrupt increase in the demand for Pakistani products for being cheaper in price than they previously were due to no quota charges in the black market. According to textile sector experts, quota is being sold in the black market and constitutes a major part of the exported item's price. While all sectors of the economy come under the WTO, it severely hits Pakistan's agriculture and those directly or indirectly involved with it. Studies have revealed that the Agreement on Agriculture signed by Pakistan with WTO and the Trade Related Aspects of Intellectual Property Rights are directly relevant to agriculture. As far as the industrial sector is concerned, Pakistans main exports are textile and related products. The non-textile exports of Pakistan are negligible but have a potential to grow tremendously under the WTO regime. On the import side, Pakistan has been rationalizing its tariff structure to a large extent under the trade
~
8

liberalization principle as envisaged by WTO. The average tariff in Pakistan is around 17 percent however, there is a need to ensure that there are no adverse affects of trade liberalization on the domestic producers. This calls for a need to make adjustments in the policies for the domestic industry, so that they may be able to face the increased competition from global market. The complete integration of all textile and clothing products into the free trade environment under the Agreement on Textile and Clothing (ATC) on 1st January 2005 was one of the most significant changes for Pakistan under the world trade regime. Pakistans economy finds itself heavily dependent on the textile and clothing (T&C) sector. It is because of the nature of textile industry being labor intensive and requiring less capital and technical skills. However, a quota-free trade era calls for structural and operational adjustments in the textile sector, to enable Pakistan's exporters to be globally competitive. China is the biggest challenge to Pakistan T&C exports in this post ATC regime. As regards agriculture, Pakistan being an agrarian economy is still a net importer of food items. The Agreement on Agriculture (AOA) of WTO has been significant in molding agricultural policies of Pakistan. The Agreement on Agriculture provides rules regarding export subsidies, domestic support and market access. Furthermore, the WTO Agreement on the application of Sanitary and Phytosanitary Measures (SPS) with regard to food safety and protection of human and animal life, and health from agricultural imports has considerable impact on Pakistan. Apart from the major crops, Pakistan needs to exploit its comparative advantage in the production and exports of meat, dairy products, fruits, vegetables, horticulture, etc. The developing countries and the developed world are at loggerheads over agriculture. With regard to agricultural negotiations in the
~
9

WTO, Pakistan along with the other developing countries, insists on a world trading system that is fair. Moreover, Pakistan has a comparative advantage in many primary commodities. But in order to fully utilize its comparative advantage, it needs to focus on and solve the problems in supply side (domestic requirements). Pertaining to the Agreement on trade related aspects of intellectual property rights (TRIPS), Pakistan needs to ensure that the industry is encouraged to provide intellectual property protection for its products and also make certain that there is effective protection of the intellectual property rights attached to imported products. Services are the largest and most dynamic component of both developed and developing country. It is impossible for any country to prosper today under the burden of an inefficient and expensive services infrastructure. In Pakistan, the services sector contributes more than half of the GDP. Workers remittances account for the largest component of services and the country has a large number of expatriates throughout the world. Being a developing country, Pakistan has adopted a cautious approach while making commitments in trade in services. However, the actual policy of the government is far liberal as compared to the binding commitments scheduled in the General Agreement on Trade in Services (GATS). Pakistan has made some horizontal commitments that apply across the board, while in six sectors specific commitments have been made. These include Business services, Construction and related engineering services, Tourism and travel related services, Health and related social services, Telecommunication services, and financial services. Pakistans domestic industry also faces problems of increased imports and unfair practices under the global trade regime. WTO Agreements have an in-built mechanism providing for trade remedial measures to counteract the effect of dumping, subsidies
~
10

and surge of imports. Accordingly, Pakistan through national legislation has come up with anti-dumping laws against dumping, countervailing duties laws against subsidies and safeguard action laws against surge of imports in order to protect its domestic industry. In a nutshell, at present Pakistan maintains a fairly liberal trade regime, where all quantitative restrictions on imports have either been removed or converted into tariffs. It is noteworthy that the applied tariffs in Pakistan are well below the bound tariffs under WTO, translating into market access. However, quality control is integral to competitiveness of Pakistan's exports. Low quality products fetch low price in the international market. The obvious problems of quality for Pakistan are those of technical precision, grading and specialization. The WTO Agreement on Technical Barriers to Trade is relevant in this regard. Proper support and prudent policies for the industry, along with intelligent balancing of imports and exports is vital for the sustainability and growth of Pakistan's economy and is likely to lead towards a bright future and trade enhancement under the WTO regime.

Thank You
~
11