Friday, August 28, 2009

WTO and its Impact on the Textile Sector of Pakistan

The WTO came into being in 1995 as a primary international organization which deals with the global rules of trade between nations. All the countries which were the members of GATT automatically became the members of WTO. At present there are 150 members of the WTO while 30 other countries are also negotiating to become members of WTO. The present 150 members of the WTO account for over 97% of the world trade.

The main object of WTO is to liberalize the world trade by removing and reducing all the implements like tarrifs, quotas, VERs and subsidies etc. Another object is the removal of trade barriers following WTO trading system, the other barriers social political, legal linguistic, cultural, social economic will also is eradicated. It means WTO will pave-out the way for Globalization and harmonization amongst people of the world. The WTO is a move toward free trading allocation of resources, improvement in factor efficiency, and attainment of all the benefits which are associated with trade creation.

World Trade Organisation and Textile Sector of Pakistan:

The trade era which started after 1st January 1995 in the world is attributed to the arrangements of WTO. This era has following characteristics.

It will be period of trade liberalization where the powerful will survive. After 2005, the countries like Pakistan will not have any textile quota in the US markets. No country will be given preferential trade treatment and all the countries will be both allies as well as rivals. It is told that US is the biggest exporter and importer of the world, as its share in the worlds exports is 12.4% while in imports it is 18%.

In the East Asian countries, Singapore, Hong Kong, South Korea and Taiwan are the countries which have climbed over the ladder of Product cycle. As they have engaged themselves in the production of value-added goods from the low value products. These goods are concerned with electronics as TV, Fridges and VCRs. The other tier of NICs consists of East Asian countries like Malaysia, Indonesia, Thailand and Philippine etc. These countries are also producing a variety of export goods, in addition to textile. However South Korea and Hong Kong are the major textile exporters of the world. As in 1998 the share of Korea was 10.4%, of Hong Kong it was 7.2% and of Pakistan it was 4% which went to 4.2% in 1999. While the share of China in World’s exports of textile was 28% and of Thailand it was 33.5% in 1998. The value of exports of Pakistan was $6469 million in 1999. It is told that textile includes cotton yarn, cotton fabrics, cotton hand made goods, embroidery fabrics, floor covering, readymade garments of children, ladies and gents, bad sheets and grey cloth. The major share of exports of China, India and Pakistan consists of Textiles. There exists a lot of quantitative restriction (QRs) on the world trade of textile and clothing which have been imposed under Multi-Fibre arrangements. These restrictions are exempt to GATT. The Ureguay Round of GATT where WTO has been setup wishes to abolish MFA during the period of ten years from 1995 to 2005. The MFA is desired to be merged with framework of GATT and WTO.

The question is what will happen with Pakistan and other developing countries when under MFA the concessions given and quotas provided by the Developed countries to developing countries are withdrawn. It is obvious that Pakistan will have to sell its exports of textile in open market once the quotas are abolished. Here Pakistan will be competing with India, China and Bangladesh. After Uraguay Round the MFA came to an end and new agreement on textile and clothing (ATC) inherited quotas. But all the members of WTO agreed to abolish these quotas in four phases during the period of ten years. In this period of ten years both exporters and importers will be adjusted. Now there rises the issue that what will the impact on textile exports of Pakistan once the quotas are abolished. Some experts are of the view that because of abolition of quotas our textile exports will increase because of easy access in foreign markets. Because of the termination of MFA, where various restrictions were imposed on our value added exports, we shall get benefits of different nature. As, according to study made by an economist Mehmood from PIDE in 1999 that the abolition of MFA will result in increasing our market access by 62% for textile and 67% for clothing. According to Ingeo and Winters, on the basis of 1992’s prices Pakistan will get the benefit of $500 million when MFA is over. The economists like Trela and Walley are of the view that Pakistan will get benefit of 0.008 billion as the tarrifs and quotas removed. Again Mehmood thinks such benefits may go to $1 billion to 1.3 billion.

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