Research Article

The Implementation of WTO and its Impact on Pakistan External Trade

Robina Karim* and Dawood Jan

Department of Agricultural and Applied Economics, Faculty of Rural Social Sciences, The University of Agriculture, Peshawar, Pakistan.

Received | August 30, 2016; Accepted | November 01, 2016; Published | November 15, 2016

*Correspondence | Robina Karim, Department of Agricultural and Applied Economics, Faculty of Rural Social Sciences, The University of Agriculture, Peshawar, Pakistan; Email: [email protected]

Citation | Karim, R., and D. Jan. 2016. The implementation of WTO and its impact on Pakistan external trade. Sarhad Journal of Agriculture, 32(4): 399-404.

DOI | http://dx.doi.org/10.17582/journal.sja/2016.32.4.399.404

Keywords | WTO Implementation, Pakistan’s External Trade, Trade Bulk

Introduction

The World Trade Organization (WTO) is an international organization that aims at providing open trade opportunity for all. The ultimate goal behind this organization is to help exporters, importers and producers of goods to conduct their business. The General Agreement on Trade and Tariffs (GATT) established in 1948 is called the predecessor of WTO. WTO is originated on 1st January 1995, though among all the international organization WTO is the youngest still its multilateral trading system is fifty years old. It is the only organization which deals the rules of trade between the nations. WTO is called a rules based organization and it fulfils its objectives through a number of multilateral agreements which are negotiated, accepted and signed by all the WTO members and approved by their parliaments. The main agreements of WTO are GATT, General Agreement on Trade in Services (GATS) and Trade Related Intellectual Property Rights (TRIPs). Goods and services are generally covered under GATT and GATS respectively while the intellectual property rights are addressed by TRIPs. The Agreement on Agriculture and Textile come under the umbrella of GATT (WTO, 2007).

A good number of WTO agreements aim at improving import and export trade; these agreements include GATT-1994, market access clause of AoA (Agreement on Agriculture), Agreements on Anti-Dumping, Agreement on Countervailing Duties, Agreement on Safeguards and Agreement on Rules of Origin, besides trade facilitation and other provisions. Under the direct and indirect effects of the stated WTO agreements, Pakistan’s foreign trade is expected to be largely better off. Since most of these agreements improve competitiveness, both components of foreign trade, that is, exports and imports, must face relatively less restrictions over time, and especially when compared with pre-WTO periods.

Being a member of the WTO, Pakistan has bilateral and multilateral agreements with many other WTO’s members and international trade organizations. It has a signatory of the South Asian Free Trade Agreement as well as part of the Pakistan-China Free Trade Agreement (Khan and Latif, 2009).

Fluctuating exports demand, internal disorders and political uncertainty, and the impact of occasional drought on its agricultural sector have all caused variability in trade balance. The trade deficit estimated for the fiscal year 2013-14 is $7.743 billion. Exports is $10.367 billion (July-November 2013) and imports is $18.110 billion (World Bank, 2014).

The ratio of Pakistan’s exports to GDP was calculated as round about 12 percent during the 1980s and hovered around 17 percent in the first half of the 1990s. After this a downward trend has been noticed for more than 15 years. Exports ratio was less than 15 percent of GDP in 2004-09 as compared to other competitors whose export ratios rose continuously, in some cases, sharply (Haque, 2014).

Pakistan’s exports are continuously dominated by cotton textiles and apparel, while the imports are mainly consist of capital goods, industrial raw materials, petroleum and petroleum products, fertilizers, chemicals, edible oil and consumer products. Table 1 shows the list of Pakistan’s main trading partners.

Table 1: List of trading partners for the year 2012

According to international statistics Pakistan’s export regarding textiles and clothing has shown some recovery after the 2009 when global financial crises melt down. According to statistical record this increased has been estimated as 17% that is US$ 602.2 billion in 2010 to US$ 706.0 billion in 2011. China and European Unions are the major exporters of textile and clothing. In 2010 china has been listed as the top exporter of textile and clothing pushing the EU to second position on the list of exporters. EU and United States have the major markets for textile and clothing of world imports comprising 45% and 21% respectively. Table 2 shows the comparison of textile and clothing exports from Pakistan and whole world.

Table 2: Export of textile and clothing (Billions US$)

As for as imports in the industrial sector are concerned, the major products are petroleum products, machinery, edible oil and fertilizers, chemicals and transport equipment. If we put a glance at the imports of Pakistan, then most of the imports are raw materials that are used for further production. The demand for these raw materials has been estimated as inelastic (GoP, 2012-13).

Like the other South Asian countries, Pakistan also believes that developing countries must be provided with free market access. Similarly the tariff peaks should be removed and the tariff escalation must also be minimized as the tariff rate of the developing countries is several times that of the developed countries which is creating a problem for market access (Khan and Latif, 2009). It is also believed that tariff is only applied on the goods of developing countries and there is hardly any tariff implication to goods of developed countries which is again a big discrimination in case of developing countries (Khan and Latif, 2009).

The current study is about the analysis of Pakistan’s external trade to see how much Pakistan has gained after the implementation of WTO. For this purpose, the following objectives have been set:

• • To evaluate implications of the implementations of WTO for Pakistan’s external trade
• • To analyse the change in trade bulk before and after the WTO
• • To recommend policy prescriptions based on findings of the study

Methodology

The analysis for achieving the stated objectives has been divided into three parts. In the first part of the study, a graphical representation of the data on exports and imports has been given for the period 1985-2013, to evaluate the change in trade. In the second part, a statistical analysis was carried out to see whether Pakistan’s exports and imports trades have been smoothened over the post-WTO period.For this purpose, coefficients of variation (CV) has been computed, using the following formula:

An econometric analysis has been carried out in the third part of the study. The main theme behind this analysis is to estimate how the total trade bulk (exports + imports) of Pakistan is related to the industrial sector (value added as percent of GDP), agricultural sector (value added as percent of GDP), world income and Gross Domestic Product of Pakistan before and after the WTO. The data for this purpose covers the period 1985-2013 that has been taken from the World Bank (World Bank, 2014). As the WTO has been originated on 1st January 1995, so the analysis has been divided into two groups, the eleven years before and the eighteen years after the WTO orientation. The model specifications (This is a general econometric model and will be used two times i.e. for pre and post-WTO periods. The stated model has also been used by Khan and Latif (2009)) are given as:

Where;

TRG: Trade Bulk (exports + imports) as percent of GDP; IND: Value added by industrial sector as percent of GDP; AGR: Value added by agricultural sector as percent of GDP; WIN: World Income (in US $ billions); GDP: Gross Domestic Product of Pakistan (in US$ Million).

Results and Discussion

Exports and Imports of Pakistan

Graphical Analysis: Table 3 provides data on export and import trade of Pakistan for 1985 to 2013. An examination of exports and imports trends for the period 1985-2013 suggests that Pakistan’s exports increased continuously over the past three decades, but the change in trade deficit was, by and large, driven by imports (Figure 1).

Table 3: Exports and imports of Pakistan (Value in Million US$)

Statistical Analysis: A 5-year mean, standard deviation and coefficient of variation, computed for 1985-2013 are provided in Table 4.

The coefficient of variation (CV) of exports trade estimates at 0.1657 during 1985-90 and 0.0936 during 1990-95 pre-WTO periods, which with the exception of sub-period 2000-05 decreased throughout post-WTO period; this suggests Pakistan exports got smoothened after WTO’s implementation in the world arena, perhaps due to less restrictions on trade after WTO arrival relative to pre-WTO period. Compared to exports, Pakistan imports’ coefficient of variation does not show significant declines; rather it appears largely static, suggesting Pakistan imports trade could not be benefited and facilitated much by reductions in trade restrictions associated with the implementation of WTO.

Table 4: Exports and imports of Pakistan (Value in Million US$)

Table 5: OLS model results for Pakistan (Pre WTO)

The estimated results for pre WTO and post WTO periods are shown in Table 5 and 6, respectively.

Table 6: OLS model results for Pakistan (Post WTO)

GoP. 2013. Pakistan Economic Survey 2012-13, Finance Division, Ministry of Finance, Islamabad, Pakistan.

GoP. 2014. Pakistan Economic Survey 2013-14, Finance Division, Ministry of Finance, Islamabad, Pakistan.

Federal Board of Revenue. 2012. Website: http://www.fbr.gov.pk/newcu/Exports/default.asp/defaults.asp

World Bank. 2014. World Bank Indicator. Website: http://web.worldbank.org/external/projects/

World Bank. 2014. Bussiness Reports. Website: http://web.worldbank.org/wbsite/external/statistics

Haque, I.U. 2014. Towards a competitive Pakistan: The role of industrial policy. Lahore J. Econom. 19: 61–90.

Khan, R.E.A., and Latif, M.I. 2009. Analysis of trade before and after the WTO: A case study of South Asia. Pak. J. of Commerce Soc. Sci. 2: 53-67.

Pakistan’s Board of Investment (BoI). 2012. Website: http://www.pakboi.gov.pk/invest.pack.htm and Board of Investment, Pakistan. (www.pakboi.gov.pk).

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World Trade Organization. 2007. WTO’s multilateral agreements system. Website: www.wto.org