BEAUTIFUL PAKISTAN

Selective liberalisation

Increased market access in developed countries is vital to the
promotion of developing countries' exports

By Hussain H. Zaidi

Of the total 153 members of the World Trade Organisation (WTO), an overwhelmingly majority are developing countries. To help these countries secure a share in global trade commensurate with their development needs is one of the objectives of the WTO.

The principal way by which the multilateral trading system can contribute to development is to throw up enhanced export promotion opportunities for developing countries. However, to date, there has been at best only modest progress in enhancing market access for developing countries. Though trade among developing countries - also called south-south trade - is on the increase, developed countries continue to be the major markets for exports originating in developing countries.

Therefore, increased market access in developed countries is vital to the promotion of developing country exports. However, high levels of protection continue to be applied in the markets of developed countries against those products which are of special interest to developing countries, such as labour-intensive manufactures (e.g. textile and clothing) and primary commodities.

This indicates bias against export opportunities for developing countries. Also important is the difference in tariffs applied on labour-intensive manufactures and non labour intensive manufactures exported by developing countries. For instance, while average weighted average tariff on non-labour intensive manufactures is less than 1 percent that on labour intensive manufactures is about 10 percent.

Products of export interest for developing countries are often subject to specific tariffs, tariff peaks and tariff escalation in the markets of developed countries. Specific tariffs, which are based on quantity or volume of imports rather than their value and are generally used in case of agricultural products, target low priced exports with the level of protection increasing as world market prices fall.

Higher tariffs are not the only impediment to market access for developing country exports. Domestic support and export subsidies, particularly in agriculture, also tend to make developing country exports less competitive. Developed countries dole out billions of dollars worth farm subsidies making their farmers prosperous at the expense of those in developing countries. Developed countries' reluctance to liberalise their trade in agriculture has brought the Doha Round of negotiations to a stalemate.

Even where traditional trade barriers are low, non-traditional barriers (NTBs) make market access difficult. The NTBs include anti-dumping and countervailing duties, and health, environment and safety standards and technical regulations. Of these, technical standards and regulations are of more serious concern for developing countries. The health and safety standards are covered by two WTO agreements: the Agreement on Technical Barriers to Trade (TBT) and the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS). The basic purpose of these standards or technical regulations is to protect human, animal and plant life as well as preserve the environment.

A country's right to apply the standards to achieve these legitimate policy objectives is indisputable. The problem arises, however, when these standards are used to distort trade. According to Unctad (Trade & Development Report 2006), the use of technical measures nearly doubled between 1994 (when negotiations leading to the birth of the WTO were completed) and 2005. While this reflects the growing concern for consumer health and environment, this also indicates that one form of protectionism is being replaced with another.

The limited export opportunities for the vast majority of developing countries are indicated by their share in global exports. Though the share of developing countries in global merchandise exports has gone up from 24.21 percent in 1990 to 37.51 percent in 2007 (Unctad Handbook of Statistics 2008), the increase in share can easily be attributed to a handful of bigger or relatively advanced economies including China, Hong Kong, South Korea, Taiwan, Singapore, Mexico, Malaysia, India, Thailand and Brazil.

Like other developing countries, Pakistan is a victim of selective trade liberalization by developed countries. About 65 percent of Pakistan's total exports consist of textile and clothing (T&C) products, which face higher tariffs in the markets of developed countries than other industrial products, as explained below:

In case of the European Union - a 27-member trading bloc - whereas the average applied tariffs on industrial products are 4 percent, for T&C products average applied tariffs are 8 percent.

In case of the USA, the average applied tariffs on industrial products are 3.3 percent, however, in case of T&C products average applied tariffs are 8.7 percent.

In case of Canada, whereas the average applied tariffs on industrial products are 4 percent, for T&C products average applied tariffs are 11.3 percent.

In case of Japan, the average applied tariffs on industrial products are 2.5 percent, however, in case of T&C products average applied tariffs are 6.7 percent.

In case of Switzerland, whereas the average applied tariffs on industrial products are 2.1 percent, for T&C products average applied tariffs are 6.6 percent.

In case of Norway, the average applied tariffs on industrial products are 0.6 percent, however, in case of T&C products average applied tariffs are 7 percent.

Two courses are open to developing countries as they seek increased market access in developed countries: bilateralism and multilateralism. The former entails entering into free trade agreements (FTAs) with developed countries. The problem with such an option is two-fold. One, developed countries are more interested in negotiating FTAs with bigger (like China and India) or relatively advanced developing countries (like Singapore, South Korea) and generally look down upon smaller or backward countries as potential FTA partners - unless there are strong political reasons for striking trade deals.

Two, even if developed countries agree to enter into FTAs with developing countries, the latter are forced to undertake very taxing commitments, which expose their economies to the latter's firms. The recently concluded or under-negotiation FTAs of developed countries, particularly those of the EU and the USA, provide for 'deeper integration', which covers not only trade in goods but also services, investment, intellectual property rights, competition, environment and labour standards, and public procurement. Hence, these FTAs are also called comprehensive economic partnership agreements.

This leaves multilateralism, despite its slow progress, a better option for the vast majority of developing countries including Pakistan. While it may be difficult for these countries to take on developed countries individually in a bilateral arrangement; they can certainly do so collectively on the multilateral forum.