Special Edition-07.pdf - Lahore School of Economics

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158 Naheed Zia Khan earnings from oil exports, while both Egypt and Singapore are now considered overwhelmingly service economies. Part II Since 1945, multilateral trade has been a greater engine for prosperity than any other form of international economic cooperation. However, tensions in the world trading system began to arise in the early 1970s. A first attempt to shore up the system came with the Tokyo Round of GATT talks which continued from 1973 to 1979. As mentioned earlier, the UR was launched in 1986. It had 116 participants and it was originally supposed to end in 1990 but did not, and lasted for eight years. The UR began on a note of optimism with the exercise of opening markets including the markets for agricultural commodities. However, seven years later in 1993, the issue of the developed countries’ huge farm subsidies brought the UR close to desperation. After a protracted feud between the European Union (EU) and the United States (US), the UR ended successfully in the formal signing of the trade agreements in April 1994. The UR agreement was heralded as a watershed in the history of world trade and was expected to lead to huge welfare gains around the world. Table-3 lists the welfare gains, computed both for the developed and the developing countries, from removing trade barriers globally, in the post- UR world of 2005. It is interesting to note in Table-3 that not only are the welfare gains for the developed countries the largest in freeing international trade in agriculture and food, it is the only sector where the potential gains leave the current distribution of world income virtually unchanged between the two country groups. 5 All the more reason for developed countries to seriously consider the opportunity cost of their huge farm subsidies. During the first reform period, Pakistan has overdone the fulfillment of the UR commitments in freeing agricultural commodities trade. Table-4 shows that the divergence between the average unweighted applied and bound tariff in agriculture has been widest in Pakistan amongst the four major South Asian countries. 5 According to the World Bank’s estimates for 1997, the developing countries, with almost 80% of the world population, subsisted on less than 20% of the world’s income (See World Bank, 1998).
Implications for Economic Reforms in Pakistan and other Southern Countries 159 Table-3: Welfare Gains from Removing Trade Barriers in the Post- Uruguay Round World of 2005 (1995 US$ billions) Category Developed countries Developing countries Agriculture and food Other primary Textiles and clothing Other manufactures Total Total % Total % Total % Total % Total % 122.1 48.0 0.0 0.0 3.3 1.3 14.2 5.6 139.7 54.9 42.6 16.7 2.7 1.1 14.1 5.5 53.3 21.7 114.7 45.1 World 164.7 64.8 2.8 1.1 17.4 6.8 69.5 27.3 254.3 100 Source: Anderson et. al. (2001) Table-4: Uruguay Round Commitments in Agriculture: South Asia Country Average tariff rate (unweighted) (2000) Bound (%) Applied (%) Bangladesh 188 25 India 124 19 Pakistan 197 24 Sri Lanka 50 27 Source: Athukorala (2000) and WTO (2001). More importantly, even before the first reform package was announced, Pakistan has been gradually removing input subsidies since the early 1980s, which virtually ceased to exist by 2000. The input subsidies were to be phased out and replaced by the output support price system under the recommendations of the Pakistan Agricultural Prices Commission (APCom), established in 1981. However, the support price policy scarcely made the national exchequer dole out any funds to the country’s farmers, particularly after signing the UR commitments. The scenario presented in Table-5 supports the author’s position. The figures in Table-5 show that the support prices of both rice and cotton in Pakistan have been lower than the domestic market price in the post-UR period. Although the government was not restricted by the UR ruling of the WTO, it has never made any procurement of rice and cotton, except in the first year of implementation, 1994-95, when a very small
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THE LAHORE JOURNAL OF ECONOMICS Con
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96 Shakil Faruqi State Bank of Paki
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98 Muhammad Arshad Khan and Sajawal
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100 Muhammad Arshad Khan and Sajawa
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11. All references used in the text
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The Lahore School of Economics The
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