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MGT601 - SME Management - Lecture Handout 40

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WTO MINISTERIAL CONFERENCES

The apex body of WTO, the Ministerial conferences has a mandate to meet at least once every two years in order to strengthen the political guidance of WTO and enhance the prominence and credibility of its rules. Four ministerial conferences have been held till now and fifth one is scheduled for September 10-14 this year.

  • First Ministerial, held in Singapore 1996 declared the information technology as tariff free till the year 200. It emphasized the importance of regional trade agreements and talked about further liberalization of services. It was unable to resolve the controversies on issues like link between trade and labour standards.
  • Second Ministerial, held in Geneva on implementation issues, discussed the US and EU demand of making E-Commerce tariff free.
  • Third Ministerial, held in Seattle was disrupted by violent protests by anti-globalization organizations and conference failed to follow its proposed agenda.
  • Fourth Ministerial, convened at Doha in 2001 agreed to launch a new round of talks under the ‘Doha Development Agenda’ to take into account the areas of interest of developing countries.
  • Fifth Ministerial, held in Cancún, Mexico from 10 to 14 September 2003. The main task was to take stock of progress in negotiations and other work under the Doha Development Agenda.
  • Sixth Ministerial Conference was held in Hong Kong, China, 13–18 December 2005. In general, ministerial conferences are the WTO’s highest decision-making body, meeting at least once every two years and providing political direction for the organization

Doha Development Agenda

Doha Round of negotiations include critical issues such as production subsidies to Agriculture, TRIPs/Geographical Indications, access to generic medicines in case of public health crisis, requests/offers for services sector, antidumping agreement, revision and dispute settlement negotiations, market access to nonagricultural products. Special and Differential treatment of developing countries.

Though deadlines for reaching agreement on modalities for negotiations on most of the issues have been missed but still hopes are alive and these matters would be taken up at the forthcoming Ministerial in Cancun, Mexico.

Pakistan and WTO

Pakistan being the founding member of GATT, the predecessor of WTO, accepted all the Uruguay Round agreements and is in the process of implementing them. It is modifying its domestic legal and administrative rules so as to make them consistent with WTO rules. Under these agreements Pakistan has to open up its market for full blown foreign competition, must have stringent enforcement of Intellectual property laws and maintain international quality standards.

Pakistan committed to bind 33% of its tariff lines. Approximately 81% of agricultural import tariffs are bound, most at the ceiling rate of 100%. Tariffs on Tea, wheat, maize and sugar are bound at ceiling rate of 150%. For the Industrial products are bound at 25% of its tariff, most at ceiling rate of 40-50%. For these
products, tariff reductions were to take place in five equal installments beginning in July 1995. For a number of products like leather items, travel goods, wood products, some textiles and certain equipment, tariffs will be bound at ceiling rates of 22 to 30 percent. Tariff reduction on textiles and clothing are scheduled in 10 equal installments.

The textile sector, which contributes 67 percent to our total exports, would in 2005 face severest competition from other major suppliers like China, Hong Kong, Thailand, India and Bangladesh. We have made some progress in facing post quota era to take the production of textile goods upwards in the value chain. It is apprehended that the MFA phase out will start another era of non-tariff barriers (including social standards, child labour, environment and other, quality standards, anti-dumping duties etc.). With the phasing out of quotas, textile manufacturers in industrialized and some quota free countries may decide to relocate; Government should notify policies providing incentives to ensure that they relocate in Pakistan.

The country urgently needs to build a strong network of Anti-dumping and countervailing duties to protect the local industry against the onslaught of unfair foreign competition. It is heartening to note the trade Policy 2003-04 envisages enhancement of capabilities of National Tariff Commission. It is recommended that NTC should be restructured and converted into an autonomous body employing private sector professionals and its chairman should be from the judiciary.

To enhance the credibility of our products we need to adopt international quality standards. Pakistan still has a long way to go in obtaining certifications of ISO- 9000, ISO-14000 and other standards. We need to set up accredited testing laboratories for conformity assessment. Pakistan is committed to fulfilling TRIPs obligations, for which five laws have been promulgated. The Government had announced, in Trade Policy 200-03, establishment of umbrella organization PIPRO for improving the administration and enforcement scenario, but necessary legislation for PIPRO to start functioning, is still pending.

Pakistan has done well by undertaking liberalization measures relating to communication and financial sectors under GATS. Pakistan in collaboration with other LDCs is pressing for further progress on the issue of movement of natural persons, which is an unfinished agenda of GATS. While Pakistan till now has
paid a great deal of attention to export its own services. This needs to be rectified. We still do not possess the institutional and technical capabilities to develop, advocate and formulate the standards and legislations to meet the WTO requirements. While WTO, in principle, offers technical assistance to developing countries to develop the capabilities to implement obligations and to benefit from its membership rights, Pakistan has not tapped into these opportunities well. It is time that we take full advantage of technical assistance and capacity building programs of WTO and other multilateral agencies.

Lastly, in this era of globalization, regionalism has assumed great importance. It is high time that we make SAARC and ECO more proactive to spur up intraregional trade toward off the risk of being marginalized.

General Agreement on Trade in Services (GATS)

Pakistan has participated in GATS negotiations, but did not undertake extensive commitments. Pakistan signed the second protocol to the GATS that pertains to financial services, which apply to insurance, banking and other financial services. Pakistan also provided offers in the negotiations on Basic Telecommunication which were completed on February 15, 1997.

Pakistan’s schedule of specific commitments consists of both;

  • Sector-specific commitments
  • Horizontal commitments.

Sector- Specific Commitments

The Sector- Specific Commitments cover 47 activities within the business, communications, construction/engineering, health, financial and tourism/travel services. The GATS agreement recognizes 12 main sectors for the purpose of classification of services are as follows.

  1. Communication.
  2. Financial.
  3. Construction/Engineering.
  4. Health.
  5. Tourism/travel.
  6. Distribution.
  7. Education.
  8. Environment.
  9. Recreation/culture.
  10. Sporting.
  11. Transport.
  12. Others.

Pakistan has so far made commitments in only first six of above mentioned twelve sectors which are business services, financial services, communication services, health and related services, construction and related engineering services and tourism and travel related services.

Pakistan also submitted two lists of MFN Exemptions, One relating to telecommunications on April 11, 1997 and the Second relating to banking and other financial services on February 26 1998.Under Article II of GATS, Pakistan maintains MFN exemptions for four financial services/activities with a view to presenting reciprocal requirements, for four financial services/activities with a view to presenting reciprocal requirements. Islamic financing transactions and join ventures among ECO countries.

Pakistan also maintains exemptions in two identical communication services in favours of countries/operators signatories of bilateral agreements on rtes with the PTCL. It may be mentioned that the maintenance of Article II exemption is not unusual: 79 member countries have maintained 390 MFN exemptions. However, such exemptions should not exceed a period of ten years (beginning from1995). In any event, they shall be subject to negotiation in subsequent trade liberalization.

The activity or Industry-Specific Commitments have been made under;

  • Article XVI (Market Access).
  • Article XVII (National Treatment).

Of the GATS, MFN exemptions on the other hand originate from Article II of the GATS.

Horizontal Commitments of Pakistan

The Horizontal Commitments of Pakistan, that is, commitments that apply to all sectors, relate to “commercial presence” or “presence of natural person”. Pakistan’s commitments regarding “commercial presence” are subject to incorporation in Pakistan with maximum foreign equity of 51% unless different percentage is inscribed against a particular sector or sub-sector. All expenses of representative offices have to meet by foreign remittances. A Foreign undertaking is allowed to hire up to 50% of its total executive and specialist from abroad.

Acquisition of real estate by non-Pakistani entities and/or persons is subject to authorization on a case by case basis taking into consideration the purposes and location of the undertaking.

A study on Trade in Services commissioned by Ministry of Commerce, Government of Pakistan (March 2003) brought forth following important points;

  • Pakistan like a large majority of countries was rather cautious in its approach to GATS commitments. This was only natural. But what was unique to Pakistan was that while it had paid a great deal of attention to inward flow of foreign investment and technology it did not view the GATS as a mean of expanding export of its services. The central lesson of this Study is that Pakistan should increase the range of its objectives from inward investment and importation of foreign technology to the expansion of its exports. In future its objective should be attraction of foreign investment, increase in importation of modern technology, and promotion of exports of services.
  • Pakistan has already liberalized substantially at least 16 of its major services.
  • Pakistan should also extend its interest to all the four modes of supply instead of focusing on politically difficult on or two modes such as mode 4, the movement of natural persons.
  • The GOP institutions concerned with the 12sub-sectors of the Services should make arrangements for preparing strategies aimed at the promotion of their exports.
  • Pakistan should notify to the WTO Secretariat its own Enquiry and Contact point.
  • The Ministry of education, in collaboration with the engineering Council, needs to create a specialized institution to deal with issues relating to “mutual recognition” and pursue in particular the right conferred on member countries by Article 7 of the GATS.
  • This study recommends that Pakistan may undertake partial or full commitment, at least in respect of those liberalization policies that have remained in force for five to seven years after proper evaluation of their impact.

It is a matter of great concern the exports in services sectors has grown marginally in Pakistan, while it has grown four fold in India and fie fold in China during decade of 1990s. In fact, share of export and import of services in total exports and import of Pakistan fell during the decade. Pakistan has done well by undertaking autonomous liberalization measures relating to communications and financial sector, well over and beyond its commitments under the GATS. Policies regarding telecommunication and banking are the other two examples of ‘autonomous liberalization’. This has brought technology and investment in these sectors.

Pakistan did not upgrade its commitments to the level of its higher actual liberalization partly because it was too early for it to bind its hands, partly because of lack of time-tested regularly framework for services, but mainly because the industrialized countries did not offer sufficiently attractive export opportunities for its service sector. These measures taken for liberalization have not been translated into internationally binding commitments. The binding will provide an assured and relatively stable environment for investment for foreigners and overseas Pakistanis/ the Government can offer to commit these policies as bargaining chips and seek credit for these. Attempts are made to obtain commercial quid pro quo.

Report, Pakistan has received offer from 20 countries for talks for concluding most favored nation (MFN) treaties. It has not made any request for concessions because it has adopted a wait and sees posture to see what concessions are announced at Cancum for the developing countries.

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