Publication details

• Thursday | 01 Apr, 1999
• Shahrukh Rafi Khan
• Policy Briefs/Papers
• 29

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Shahrukh Rafi Khan, SDPI 1999 Many gung-ho free trade advocates believe that there is now overwhelming evidence  that trade liberalization generates growth. This is in fact not the case.  The studies that have established such results are methodologically flawed. The cross country models used to establish these result assume a high degree of similarity exists across countries which is clearly not the case.  Using the same method and data, numerous studies have fount the opposite holds true. Thus the results are very sensitive to country sample, time period and specificities of the model chosen i.e. the results are not robust. More careful country studies did seem to show that high rates of protection generated inefficiency and hence adversely affected growth. However, the real issues is an “internal competition policy” and not protection. If countries have a competition policy (deregulation and monopoly control), they do not need trade liberalization to achieve competition i.e. trade liberalization is not the first best policy for attaining internal competition. Countries like Korea retained protection but ensured internal competition.  Thus when confronted with the virtues of liberalization, LDCs should not be on the defensive. From a negotiating perspective, external competition is of critical importance for less developed countries (LDC’s) including Pakistan.  This means that oligopolistic (in selling) and monsopsonistic (in buying) practices of large MNCs need to be discussed seriously within the WTO.  Anti-dumping measures, subsidies, quotas and other non-tariff barriers that act as a restraint to trade of LDC exports need to be taken up. It is completely illogical for DCs to even consider anti-dumping in the case of Pakistani yarn. How can any producer/trader in his or her right mind, that is confronted by a quota, engage in dumping. Developed countries will want to focus on “market-access” for their MNCs with regards to their markets.  LDCs must argue that since they do not have MNCs that can be granted reciprocal benefits, this is a very one-sided view of competition policy. Measures agreed to must potentially benefit all members equally. Pakistan should make it quite clear that currently agricultural export is highly monopsonistic and dominated by MNCs of DCs. Thus no “free-trade” as such exists for many commodities and the WTO should take serious note of this.  Pakistan should also argue for self-sufficiency in basic foods to preserve food security. Of late, many new issues have been springing up on the trade agenda.  These include social standards, labor and the environment.  The reason for including this in the trade agenda is that the WTO has teeth since trade sanctions can be applied.  This is not the case for other international organizations like the ILO.  However, the LDCs resisted “labor standards” to be part of the WTO agenda at the Singapore ministerial.  The fact that they could do this is another interesting aspect of the WTO in which decisions are made by consensus. Much has already been conceded on the environment. There are many good reasons for LDCs to clean up their environment. Most important, environmental degradation leads to poverty via damaging health, productivity, loss in working days and degradation of the resource base.  However, further concessions should only come with major and meaningful liberalization on textiles and clothing.  However if it can be done, “win-win-win” is possible because: a.    Better environment means less poverty and a better quality of life in Pakistan. b.    Access to environment “niche” markets with ISO 14000 or other certification. c.    Real gains conceded by DCs. Pakistan has much to gain here and should not go cheap.