Trade Liberalization in Pakistan
Dr. Syed Wajid H. Pirzada*
*Consultant, assisted by Mr. Sohail Paracha of EJAD,
The Study:
Objectives:
- Examining the implications of trade liberalization on livelihood of poor farming communities in
- Examining the impact on women, traditionally being important player in sustaining household livelihood and country’s socio-economic development.
- Suggesting way forward in the form of set of recommendations, on how the situation could be improved by more effectively discharging their important regulatory responsibilities while maintaining and/or further improving its contribution to the overall trade facilitation objectives set by government.
- Examining the role government currently plays in providing livelihood to poor communities and to identifying ways in which gap between masses and the policy makers could be narrowed so that government take well informed decisions from people’s perspective and the masses remain aware of new national/international developments.
The study endeavors to undertake:
(a) Overview of the existing trade liberalization policies with regard to developing countries and specifically in
(b) Case studies of selected countries, identifying the extent to which trade liberalization in specific sectors or occupations prove impact (positive or negative) to the employment opportunities and rural livelihoods, especially for women.
(c)
(d) Record issues of skilled and non-skilled labor in rural areas of
(e) Suggestions for action at the national level to enhance the positive aspects of trade liberalization and to mitigate negative effects.
(f) Suggestions for action at the international level to take benefit of trade liberalization and tackle hard conditionalities of IFIs.
(g) Recommendations
Methodology:
While undertaking this study, a combination of research tools on lines of PRA/RRA & RMA, including inter alia semi-structured questionnaire /check list, group discussions, interviews and direct observations were employed, working closely with the key stakeholders. The success stories/case studies from selected developing countries (DCs) have been adopted/quoted to substantiate the argument and thus suggest the way forward-The Development Pathway. The study captures the essence of policy instruments and benefits from the earlier work conducted in this and related areas. It suggests in conclusion a development pathway- a set of recommendations, for the policy makers, the development practitioners and other stakeholders alike.
Outline:
- Introduction
- Global, Regional & National Context
- Findings
- Way Forward: Development Pathway
- Resources Cited
Introduction: These days, national policies are deeply embedded in variable geometry of multilateral policy frameworks carved by the multilateral institutions, like for example the World Trade Organization (WTO).
The WTO, that succeeded its forerunner- the General Agreement on Tariffs & Trade (The GATT), was now responsible for evolving policy multilateral framework on trading system. The Uruguay Round (UR) of the GATT (1986-1994), brought for the first time agriculture in to the tighter fold of the GATT, and mandated major reductions in tariffs, export subsidies, and domestic price supports. The WTO Agreement on Agriculture(AOA ) stipulated specific requirements seeking liberalization of agricultural trade. To this end, the Members were to reduce import tariffs, domestic support and export subsidies over the implementation period of the AOA.
Likewise, WTO regime on trade liberalization sought liberalization of trade in other sectors of economy like industry, services and enforced regulation in the area of trade in ideas(Intellectual Property)
Trade liberalization in general and that of agriculture in particular under the WTO regime, promised to be a ‘win win ‘ opportunity that would improve economic efficiency, potentially accelerate economic growth and lead to greater equality in the distribution of income. Research however, has shown that this may not often be the case. The study in hand seeks to explore impact of trade liberalization on
2.The Global, Regional & National Context:
Trade liberalization in
This process of [unilateral] liberalization, according to the report, puts
The world average growth of trade as a share of GDP, at 1 percent per annum, has also been higher than that of
Effects on poverty:
Poverty & income inequality in
Trade liberalization in
A rise in Foreign Direct Investment (FDI) appears to increase income inequality: With respect to income inequality, the evidence suggests that although trade liberalization by itself leads to a slight reduction in inequality, a rise in Foreign Direct Investment (FDI) appears to increase it. The review in this context, suggest that the economy can potentially gain from further trade liberalization but only if the adjustment costs are guarded against by following pro-poor fiscal policies. If average import tax incidence is further cut to 5 percent and at the same time development expenditures are raised to 5 percent of GDP, there can be sizable gains in economic growth and poverty reduction, provided that the macroeconomic stability is not compromised through large increases in the fiscal deficit. This would necessitate a rise in tax revenues and some expenditure switching. This, in turn, would require the political will to raise taxes and tap other sources of potential revenues; eliminate waste, inefficiencies and corruption in public expenditures; and reallocate these savings on appropriate development programs such as rural infrastructure, education, health, water supply and sanitation.
External environment:
Ignoring the importance of external shocks to Pakistan’s economy runs the risk of becoming complacent about the economy’s long-term prospects for growth: The SDPC Annual Review further argues that external shocks arising from the events of September 11, 2001 have contributed to a relaxation of balance of payments constraints for Pakistan and played a role in the recent strong performance of the economy. Policy changes and other structural changes in the economy have also played a major role. But ignoring the importance of external shocks runs the risk of becoming complacent about the economy’s long-term prospects for growth.
In this context, it suggests that attracting FDI; further reducing trade barriers; improving the institutions related to governance, political stability, law and order, corruption and regulation; and improving market access for Pakistani exports including through greater development of nearer export markets, would significantly improve
Policy implications:
· Pro-investment policies needed: Further reduction in trade barriers can enhance growth and reduce poverty in
· Increases in development expenditures should be rigorously pursued in order that the adjustment costs of trade liberalization do not negate the gains from trade: But budgeting for more development expenditures is only the first step in this process. Delivery systems and monitoring systems of these development outlays must also be improved.
· The development expenditures should not largely be financed through increased fiscal deficits: Otherwise the hard-earned macroeconomic stability and credibility will be put at risk. Some expenditure switching is required and taxes as a share of GDP need to increase, including through such measures as taxation of agricultural income and services as well as of capital gains on stock and real estate.
· Efforts to improve social safety nets and skill development and training schemes are needed: This will guard against the employment losses in the transition period
· Institutional development, export-oriented FDI and securing new export markets needed: For sustainability of exports, further progress in improving institutions, attracting export-oriented FDI and developing new export markets is needed as well as making a better case for improving market access in existing markers.
Textile quota removal represents a potential opportunity, but given stiff competition from China, India and others Pakistan’s international competitiveness needs to improve to take advantage of this.(Social Policy & Development Centre-SDPC, May 20,2006-Press Release).
The Impact of Structural Adjustment Programs on Pakistan
Much before, the WTO heralded [new] the era of trade liberalization, many of the DCs including Pakistan opened up their markets [unilaterally] as precondition of the Structural Adjustment Programs (SAPs),pursued by the Bretton Wood Institutions(BWIs)-the IMF and the World Bank.
The SAPs carried out over the last two decades in many of the DCs, including
The IMF is beginning to understand that SAPs are likely to have ill-effects on the vulnerable: According to Dr.Pasha *, former Finance Minister of
he International Monetary Fund (IMF)'s economic SAPs are likely to have ill effects on the most economically vulnerable people in
"The almost-obsessive concern with short-term macroeconomic stabilization has with it the danger... that some of our basic social programs might be affected, and this would have inter-generational consequences on development in
Under the IMF conditions imposed upon
IMF "grossly overstates"
Removal of subsidies has increased poverty:
Its not the BWIs alone-A case Study: The Asian Development Bank(ADB) approved, a program to liberalize Pakistan agriculture and open it up more to the private sector will be boosted by loans totaling US$350 million equivalent approved by the Asian Development Bank (Press Release, ADB, 13th December 2001).
According to ADB, the Agriculture Sector Program II (ASP II) envisaged to help small-scale and marginal farmers improve productivity and profits. It aimed at bringing in reforms to promote more efficient markets for commodities, including wheat, cotton, rice, sugar, fertilizer, and seeds. It also sought strengthening support for small-scale farmers with extension services and training, research, and regulations to improve quality control.
The role of the private sector in areas such as supply and marketing was to be expanded under ASP 11,by deregulation, liberalization, and privatization. "These reforms will help phase out government control in agricultural production and marketing which the private sector is better equipped to handle," the ADB authorities believed. Importantly, subsidies for wheat were to be gradually dismantled and the savings to be used for programs to help small-scale farmers and the poor.
The Bank authorities were of the view that “Sustainable growth in agriculture - which employs half the labor force and generates 70 percent of export revenues - is vital for economic growth and poverty reduction in
Besides main tranch of the ADB loan of US$123 million coming from its concessional Asian Development Fund and 2nd loan of US$225 million were to come from ADB's ordinary capital resources under its Libor- base Lending Facility, ADB under the loan
package had to provide a technical assistance loan of US$2 million on concessional terms for policy advice and program coordination on improving commodity markets, extension and research, and restructuring state-owned enterprises.
The argument & counter argument: The advocates of trade liberalization- a hallmark of globalization, especially with reference to the country agriculture reforms in the developed countries generally argue that the ensuing rise in world prices for agriculture products will boost rural incomes and thus will help reduce poverty in the DCs, which are home to majority of the world poor. On the contrary, the critics of globalization assert that globalization will increase poverty”. In this context, arguments like proliferation of low-wage jobs and higher food prices have been advanced.
Who is right and what is wrong with? A GTAP working paper titled ‘Trade Liberalization and the Structure of Poverty in DCs’- April 1,2003) reports results of a systematic study looking at the structure of poverty across a range of DCs in Africa, Asia and Latin America, and exploring how national poverty rates in some of the poorest countries in the world are likely to be affected by global trade liberalization.
The study analysis was based on national household surveys from 14 DCs. The study, under reference, took in to account both spending and earnings effects of trade liberalization, and argued that the earnings effects would generally be the dominant factor. It further maintained that ‘This is particularly true in the short run for households that are highly specialized in their earnings patterns. Consider the case of a self-employed farm household. Assuming that trade liberalization results in higher farm prices, we expect the short run effect on the returns to family labor and land to be positive, and somewhat larger in percentage terms (the so-called “magnification effect”). Furthermore, if this household is not employed off-farm, then the farm profitability effect translates directly into an income effect, and this is likely to be sufficient to lift some of the farm households out of poverty. Of course this same effect can work in reverse, with commodity price declines increasing poverty. This makes specialized households highly vulnerable to trade policy shocks. “
The study besides agriculture-specialized households, also focused on self-employed non-agriculture specialized households, households specialized in wage labor and those relying on transfer payments for 95 percent or more of their income. Together, these four types of specialized households accounted for an average of 56 percent of the poor in the 14 countries covered by the study. Thus a majority of the poor had specialized earnings patterns and were likely to be disproportionately affected by trade liberalization. The same was not true of the non-poor, where a majority of the households are diversified, and were therefore less vulnerable to sector-specific commodity price changes. The study revealed that the poor were over-represented among the agriculture-specialized households.
The key findings of the above mentioned study are summarized below:
1.Global trade liberalization tends to raise food prices – particularly for staples, relative to non-food prices. This was true in all except two of the countries. The food price hike had an adverse effect on the poor, relative to the per capita household, since they spent a disproportionate share of their income on food. Also, the short run earnings impacts were quite varied, with agricultural profits rising relative to per capita income in 11 of the 14 countries, while relative non-agricultural profits and wages fell in many of these countries.
ii. The overall impact on poverty depends on the structure of poverty in each country. The study emphasize the differential short run poverty impacts of multilateral trade liberalization on poverty across countries, across strata, and within strata, thereby highlighting the links between the structure of poverty and the national impacts of trade liberalization.:
3.Findings:
In this study following areas of the country were sampled to look in to the issue of impact of trade liberalization on the livelihood on the national economy in general and on the poor in particular.
i. Layyah (
ii. Mussakhel (Balochistan)
iii. Badin(Sindh)
iv.
v. Ibrahim Hydri ,
Followings are the salient findings of the study:
A shift towards cash crops, with more pains than gains: In the key agricultural production/dependent areas sampled during the study like Layyah, Badin & Hyderabad it was observed that there is clear shift, moving from subsistence crops to the cash crops. For example, in Layyah, to which irrigation scheme was first extended twenty years back, was now producing sugar cane, cotton (Bt),rice and horticultural products including citrus and vegetables as against subsistence crops used to be grown in the area ten years ago.
Whereas, farm fields in these areas of Layyah & Badin, were found full of crops but the economic condition of the small-scale and land less farmers was worsening. They complained that by switching over to the cash crops they had been able to produce more but with high agricultural inputs and in balance they are the net losers. The key concern shown by marginalized communities of Bait & Katcha areas of Layyah, a flood- prone area, was that this shift risks food security and threatens their livelihood.
The market structure locally, like at global level, is skewed towards the bigger & influential ones, and the small-scale farmers can’t sell their produce with due return even on the local/national market place. The farmer pitted against the vagaries of the weather, ambient temperature at times may reach 52 Celsius in this part of the country, and disasters like flood, so common in the area, was found in quagmire, selling his sugar cane to the brickins, for example. Even if he succeeded to sell it to the sugar mill owner, he would get 2/3rd of what an influential one gets (Rs.40 vs. Rs.75/per unit sold), whereas, he is the one who suffers the most from volatility and cyclical nature of the market.
Despite world-class production of citrus, the farmers are unable to export their produce, for want of enabling public policies, quality infrastructure and market access. No processing industry is in place and high post harvest losses further undermine the profit. In such a scenario, it was even more painful for the farmers to cut the date palm trees planted by their forefathers to secure livelihood out of the ‘Fruit of the desert, ‘and sell it as fuel. This was a clear case how trade can impact on development, and what possible implications it may have for the environment, for instance.
Majority of farmers in Balochistan, one of the area sampled under the study, province depend on livestock in general and small ruminant’s production in particular. Despite the fact that
Similarly, gradually & slowly with trade liberalization imports of apple, pears & garlic especially from
The following table suggests an ever increasing trend in import of garlic alone.
Import and export of garlic crop from Pakistan
Year | Export | Import | ||
Quantity (Tonnes) | Value (000 Rs.) | Quantity (tonnes) | Value (000 Rs.) | |
2002-03 | ||||
2003-04 | 681 | 11720 | 31570 | 482285 |
2004-05 | 51 | 1005 | 51030 | 1074023 |
Source: Fruit, Vegetable and Condiments: Statistics of
Case Study:
The government is responding to a shortage of sugar in the country, Pakistani government adviser Ashfaque Hasan Khan told the BBC news website.
Pakistani sugar prices reached a four-year high in February. The move also reflects improving relations between
The government agreed to allow the duty-free import of raw and refined sugar by both the public and private sector three weeks ago, Mr. Khan said.
But the Economic Coordination Committee only took the decision to include
But low rainfall is forecast to have caused a 20 percent drop in
Sales Tax zero-rating on frozen meat:
On
Growing Food insecurity: food insecurity in
Eroding livelihood means: Like date palm, production of relished watermelon from Layyah too was on decline. The subsistence crops once grown in area, like millet, sorghum and cowpeas have almost disappeared.
It is not only the farm income the farmers were losing, the traditional non-farm income like rug-making & ‘Khadi’ used for making popular fabric of are 'Khaddar’ are now at the verge of extinction. It is not only the means for livelihood that are eroding but the indigenous knowledge and skills too are being lost. This has long-term implications for the poor in terms of livelihood and food & human security.
The reason for erosion of income means, not pronounced though, are the import surges, and yet in other case the lack of competitiveness, For example imports of cheaper ceramic tiles & rugs, from China, threatened the ‘Blue pottery’ from Multan & wool rugs of export quality from many areas of the country respectively. Likewise cheaper shoes coming from
The National Tariff commission of
It is worth mentioning that Pakistan signed Free Trade agreement with China on 24th November,2006.The Early Harvest Program under this prospective free trade arrangement, between the two countries, was put into operation on 1st January 2006, has since been merged into this bilateral FTA. In the overall package Pakistan will get market access at zero duty on industrial alcohol, cotton fabrics, bed-linen and other home textiles, marble and other tiles, leather articles, sports goods, mangoes, citrus fruit and other fruits and vegetables; iron and steel products and engineering goods. China will also reduce its tariff by 50 percent on fish, dairy sectors; frozen orange juice; plastic products; rubber products; leather products; knitwear; woven garments etc.
Pakistan has given market access to China mainly on machinery; organic; and inorganic chemicals, fruits & vegetables, medicaments and other raw materials for various industries including engineering sector, intermediary goods for engineering sectors, etc.
Denial of market access: During GATT/Uruguay Round developing countries were promised market access. In practice nothing happened and on one pretext or other the exports from DCs like
Case Study:
There is an old proverb, beloved of fisherfolk in Pakistan, that says when all else fails the sea will provide. Now, after centuries of surviving on fish such as the tuna and shrimp that thrive in Pakistan's coastal waters, many traditional fishing communities are facing ruin as the sea is stripped bare by foreign trawler fleets and industrial overfishing.
According to trade campaigners, it is a story that is being replicated in poor fishing communities in DCs across the world. And as the current round of W TO negotiations splutter back to life, the demise of Pakistan's fishing communities is being held up as a warning of the impact that the moves to further liberalise global fishing could have on some of the world's most deprived communities.
The Pakistani Maritime Security Agency (MSA), which polices fishing along Pakistan's coastline, says there are currently 23 mid-size trawling boats and 21 trans-national trawlers operating with licences in Pakistani waters.
Local fishermen in Ibrahim Hydri, a small fishing town in the sparse Sindh coastal province, unload their fishing boats just yards from half-a-dozen trawlers with Chinese insignia in the town harbour. Many dispute the official figures, insisting that around 100 foreign ships have been spotted in local waters in the last 12 months.
"Since the government has let these foreign ships into our waters, our stocks have depleted and there is nothing left," says local fisherman Abbas Ali. "For hundreds of years, our forefathers have fished these waters, but our children are going to end up beggars."
He says the town's small wooden fishing boats are no match for the trawlers. "It's like trying to race a truck with a bicycle," he says. "In just a few years, these people have come here, destroyed the sea, and stolen our livelihoods from us."
In recent years, Pakistan has steadily been stepping up its efforts to exploit what it terms the "untapped potential" of its fish stock. In 1982, the government opened its waters to international fishing fleets, and in 2003-04 alone more than 90,255 tonnes of fish and fishery products were exported from Pakistan, to countries including the UK, Japan and Sri Lanka.
Pakistan's 2001 deep-sea policy set out a plan to further increase foreign exchange earnings from the increased export of fisheries and fishing products. The same policy relaxed regulations that restricted trawler activity to a zone 35km-200km from shore after pressure from "friendly" trading partners, such as China and Taiwan. Licensed medium-sized trawlers are now allowed to fish 20km from shore, an area previously reserved exclusively to protect the livelihood of local fisherfolk.
Men scrubbing down their boats at Ibrahim Hydri say the impact trawling and overfishing has had on their livelihoods and on the marine environment has been devastating. They estimate that the daily catch has declined by 70-80 percent in the last decade. Five years ago, it took Ali 36 hours to catch 1,000kg of fish that fed and supported his family. Now he and seven other men return after 15 days at sea with a catch that weighs in at just under 500kg.
As he hauls his nets to shore, Ali reels off the names of more than a dozen fish species no longer found in the surrounding waters. Reports by the Pakistani Fisherfolk Forum (PFF), a environmental campaigning group set up to protect the rights of local fishing communities, says more than 50 percent of local marine species have been almost wiped out by intensive fishing of Pakistan's sovereign waters.
According to its research, only 10 percent of the fish caught by the trawlers' nets can be sold on the international markets, leading to the other 90 percent being pumped back into the sea and increasing marine pollution in shallow waters.
"Tonnes of fish that could have been used to sustain the livelihoods of local fisherman have been needlessly destroyed through foreign trawling,according to PFF. Foreign trawlers, according to them are the "last straw" for fishermen who have seen their livelihoods destroyed in the name of progress.
Pollution from the trawlers joins 300 million gallons of urban sewage and 270 tonnes of industrial waste that is pumped into the sea from multiple channels every day. Dams and barrages built with World Bank loans along the delta of the Indus, Pakistan's longest river, have starved marine channels of fresh water, resulting in many inland fishing communities migrating to the coastal waters in search of fish. Pollution and over-population have contributed to the demise of the mangroves that provided breeding grounds for shrimps that previously provided the backbone for much of the local economy.
There is repeated criticism from environmental campaigners that, despite pressure from the UN's Food and Agriculture Organisation (FAO), Pakistan has yet to undertake an up-to-date fish stock survey. This means that licences to foreign trawling fleets could be issued without the government having a clear idea of how many fish are left in Pakistan's waters.
In a new report, entitled Taking the Fish, ActionAid, one of the international non-governmental organisations working with PFF, says the exploitation of Pakistan's marine environment is being done with no regard for the environmental or social impact on communities or resources. It is now calling on Pakistan's government to ban foreign trawlers and institutionalise in its fishing policy the FAO's code of conduct for responsible fisheries.
Marine Fisheries Department (MFD) in Karachi, admits that Pakistan's fish stocks are fast depleting, but insists that the government has not issued licences to foreign trawlers since 2005, saying that the declining fish stock and rising fuel prices have made it uneconomical for foreign fleets to operate in Pakistan's waters. "We always heavily regulated the trawling activity," he says. "Although we are in talks about issuing further licences, we would not do so without assurances from the trawlers that they would fish in a sustainable manner."
MFD believes the real problem lies in the growing number of people entering the fishing industry, and says the government is planning to institute no-fishing zones in an attempt to help stocks recover.
But many fishermen dismiss the government's claims, saying they have never been visited by anyone from the MFD, and that they have seen no evidence of any moves to regulate fishing. "The government has no idea what is happening here," says Mohammad Ali, a fisherman living in a makeshift tarpaulin hut in the village of Dabla Mohalla Rarri, a fishing community 15km from Ibrahim Hydri.
"There are many trawlers operating illegally in our waters. They stay away when the MSA comes, but when it leaves they come back. They come in so close they are nearly colliding with our fishing boats."
Trade campaigners argue that even though three-quarters of the world's fish stocks are deemed to be fully exploited, countries including those in the EU, and the US and Japan, continue to subsidise their fishing industries by an estimated $6.3bn (£3.2bn) a year.
On top of this, the current round of WTO negotiations on subsidies and non-agricultural market access could lead to an elimination or significant reduction of all tariffs in the fish and fish products sector. Already five WTO members, including Brazil and India, have made offers to liberalise parts of their fishing services.
Alex Wijeratna, author of Taking the Fish, and trade policy campaigner at ActionAid UK, says that since Pakistan joined the WTO in 1995 it has independently pursued a significantly more liberalised fish trade regime.
"If what is happening to poor fishing communities in Pakistan is already happening through bilateral trading agreements outside the WTO, we can only imagine the global impact it would have if liberalisation is locked in by the WTO," Wijeratna says. "It's nothing short of mad short-termism."
In Ibrahim Hydri, there is growing anger about the loss of its traditional livelihood. The community claims it has been duped by false promises of financial assistance, and that no effort has been made to provide alternative livelihoods. "We are not against development, but what is happening here is not development - we are going backwards," maintains PFF(The Guardian:Wednesday April 11 2007).
During this study Ibrahim Hydi village of coastal area of Karachi was visted and PFF was also consulted.The community of the area, believed that they can’t any more survive on fishing profession,and could hardly earn Rs.1000-1500 over 15 days period for which they remain in sea for almost fortnight.
Case Studies from the DCs*:
Below are some of the case studies from the DCs, which support the thesis that it is the poor and the marginalized who suffers the most from the onslaught of trade liberalization, especially in countries like
Poverty rises in Pakistan as a whole: A study that explored the impact of two shocks, trade liberalization policies and decline in remittances, on welfare and poverty in Pakistan, revealed that that during the 90s although import tariffs were reduced by 55 percent, poverty however remained higher in this period than in the Eighties. At the same time, Pakistan has experienced a slow down in the inflow of remittances, which reduces the incomes of households and puts pressure on the exchange rate resulting in reduction in the inflow of imports despite a reduction in import duties. Thus, in the absence of the effects of decline in remittances, the analysis of the impact of trade liberalization policies may render biased results. The simulation results of the study suggest that a decline in remittances reduces the gains from trade liberalization. The negative impact of remittance decline dominates the positive impact of trade liberalization in urban areas. But, the positive impact of trade liberalization dominates the negative impact of a decline in remittances in the case of rural areas,as a result poverty rises in
There continues to be substantial poverty and inequality, despite the rosy aggregate statistics:
Following open market policies, increases in raw measures of economic change in FDI, aggregate GDP per capita, and export volumes had been witnessed in the country. For example,
i. Imports had matched this rise, with a 6.7-fold increase from 1981 to 2001
.ii. At an aggregate level, it would appear as if
iii Yet, given that tariff barriers in these products were already low, before NAFTA, it was more reasonable to attribute the shift to these crops as a response to “push factors”, foremost among which was the rapid fall in the domestic price of maize. Maize farmers had been in particular badly hit, and given the rural dependence on corn farming, this meant that they had been hit the hardest. Subsistence farmers account for 45 percent of all corn growing units in
iv
The response of Mexican peasants to this dumping has puzzled proponents of free trade. Economic theory suggests that when prices decrease, supply should contract. But that has not happened. In fact, when prices fell, the amount of corn planted increased. This was predicted in advance by NAFTA’s critics.
v. Without options or access to credit, and with the “opportunities” under NAFTA being so limited for Mexican producers, peasant farmers responded by increasing their reliance on their 10,000-year-old staple, expanding the area under cultivation even as prices fell, as a last-ditch attempt to grow and sell enough corn to fight off life-threatening poverty.
And there continues to be substantial poverty and inequality in
Proponents and critics alike knew that free trade would hurt rural producers– the corrective winds of the global market were intended to “weed out” inefficient producers. Research has shown, however, that small producers are more efficient in terms of total farm output than large-scale producers. But lacking the subsidies and support of their larger competitors, these poor producers have been left to twist in the wind.
The one group in whose name these reforms have been carried out, however, is consumers. With a dramatic fall in domestic corn prices, it was expected that cheaper food for the Mexican people were made available. Yet, tortilla prices increased by 279 percent in real terms. This can be explained through the combination of two factors: first, the tortilla market has long been a duopoly; second, consumer price supports were removed by the government through its agricultural liberalization program.
The poorest farmers have adopted a number of coping strategies. Rural out-migration has been increasing since trade liberalization. People migrate in order to secure jobs and send remittances home. In 1998, 130,661 Mexicans were known to have migrated to the
Aware of the inherently political character of NAFTA and the liberalization program around it, farmers have been taking to the streets, with the largest assembly of peasants in
Yet the political will to address the hardship undergone by the poorest people in Mexican society was lacking. Under NAFTA rules, the Mexican government could legally, and without prejudice, have invoked tariffs on
Farming communities have made clear demands for an end to the agricultural provisions within NAFTA and, by extension, the cessation of Mexican participation in the WTO Agreement on Agriculture(AOA). These demands have been made by the poorest, and notably majority of the production sector in
3.
The data, assembled from the Brazilian government, World Bank, United Nations and scholarly sources, suggest that liberalization, rather than redressing the inequality that has persisted in rural Brazilian life, has cemented world prices for Brazil’s major crops, including its principal exports coffee and sugar, have been falling since the early 1980s. Poor farmers who attempted to enter the agro-export markets alongside profitable large producers were hit hardest by this trend because of their vulnerability to loss. In addition, prices for crops on the domestic market have fallen almost as drastically. From 1980-1991 alone, real producer prices for both domestic crops and exports were cut in half. Prices have continued to drop in the 1990s. Over the last thirty years, rice prices have declined 53 percent and maize prices by 60 percent. Again, the rural poor suffered, as rice and maize are two of their principal crops.
In 1991,
The conditions of the poorest Brazilians remain grim. While estimates for poverty in Brazil range from the World Bank’s 20 percent to UNICEF’s 32 percent ,with rural poverty twice as high as urban poverty (a conservative World Bank estimate placed rural poverty at 41 percent, authorities agree that the reforms of the 1990s failed to improve the lot of Brazil’s poor. Small farmers were hardest hit by the changes, unable to withstand the price fluctuations that came with trade liberalization and the elimination of price controls. In addition, despite the fact that
This situation is particularly severe for
In large part, the continuing poor distribution of land is due to liberalization policies that favor large-scale, technologically-advanced, export-oriented agriculture rather than small farmers growing for local markets.
The result of trade liberalization has been to consolidate these inequalities. In a study on the impacts of the Uruguay Round of WTO negotiations and its AOA, the FAO found a trend of larger farms dominating, with the consolidation of maize and soybean farms, import substitution of wheat, rice, and cotton production, and increased firm failure in the dairy industry, while larger farms and foreign companies such as Nestlé and Parmalat take hold.
The Brazilian government support for its soybean sector has been lauded as an example for other developing countries to follow. Because of government support, soybean earnings jumped from US$393 million in 1980 to US$2.7 billion in 2001, and
Contrary to the aims of the government, the expansion of soybean production has actually diminished food security. The government’s stated aim in its initial subsidy of soybean production was to bolster food security by providing an inexpensive component of poultry feed, which would in turn make chicken a more affordable source of animal protein for Brazilians. There was a problem with this; officials apparently overlooked the fact that soybeans would compete with food crops for land use, and the farmers who grow them. In the first years of soybean production (1970-1973), 90% of soybean expansion displaced other crops such as rice, beans, manioc, potatoes, and corn. While later expansion often involved cultivating new land, soybeans have continued to compete with (and often replace) production of staple food crops.
There are alternatives to the export-agriculture model that has failed the majority of poor Brazilians. Social movements in
4.
Net availability of food grains per person plummeted to levels unheard of since the 1930s economic depression under British colonial rule: The policies adopted by the Indian government since country’s independence were a broad mix of state-led market-based policies, leaning towards heavy interventionism and high levels of economic protection for key domestic industries. This import substitution model was unevenly implemented, and while some industries and sectors benefited, the government was never fully able to wean itself from the influence of powerful Indian elites and their vested interests. Over time, these elites, combined with international pressure, pulled the Indian economy towards an open market. This economic liberalization crept slowly into
The two central components of these neo-liberal policies have been the liberalization of
All is not as it appears, however. In
The case study peels back the myth of "Shining India" over the past ten years using the government's own data, and has made a convincing argument that while some have benefited from India's new economic vision, for India's poorest, there has been very little to celebrate over the past decade.
Myth : The World Bank's policies led to unprecedented economic growth in the 1990s.
Facts: While the 1990s looked good on paper, when we tease the statistics apart, the 1990s weren't all that unprecedented. The average annual growth in per capita Gross Domestic Product (GDP) was 4.4 percent compared to 4.1 percent between 1985 and 1989. By the end of the 1990s, economic growth rates were similar to the average growth rates of the 1960s and 1970s. In other words, but for a fraction of a percentage, neo-liberal policies didn't outperform the previous periods in recent Indian economic history.
Myth: A higher percentage of people were lifted out of poverty under the free market.
Facts: Official data show a drastic decline in poverty during the last half of the 1990s. The Indian government and the World Bank attribute this to the free market. But the fall in poverty owes much more to a change in the way that poverty data were collected and interpreted (see pp 7-10 in the report). There is now a broad consensus among independent researchers and academics that these numbers are inflated and the actual numbers are closer to half of the official statistics. This is corroborated by the increased levels of malnutrition observed over the 1990s. Poverty declined at no faster pace than in the 1980s and there are in fact indications of a deceleration in poverty reduction despite a 30 percent increase in per capita income. .
Myth: The Green Revolution will save
Facts: The Green Revolution was a package of industrial technologies, such as chemical fertilizer and hybrid seed, designed to increase
The three-quarters of all farmers who cultivate one third of the total land mass, remain marginalized by the government. Small farmers produce 41 percent of the total grain and over half of
The environmental cost of the Green Revolution is now becoming apparent in the
The Green Revolution is not the answer to
Myth: Trade liberalization will benefit farmers.
Facts: For
Myth :
Facts: While the very poorest represent a higher percentage of people receiving government support, this has been achieved by lowering the threshold of poverty and cutting back funding for many poverty and development programs. For example, rural development expenditures as a share of GDP declined from 14 percent in the late 1980s to less than 6 percent of total GDP in 2000. Funding for irrigation, roads, and employment has decreased in almost all states. Without public investments in roads and irrigation, rural areas have been unable to attract private sector investments, which the World Bank and the Indian government claim should replace public investments and create jobs.
Myth: Economic reform(s) have helped more Indians eat better.
Facts: Malnutrition has increased during the 1990s. The average calorie intake has declined especially among
Myth: Economic liberalization will lead to better economic opportunities for women.
Facts: While women experienced higher employment rates in the 1990s, the work done by women was most often in low wage jobs or the informal sector. Historically, women have been the backbone of the rural economy, but they are paid less, work longer, and do harder manual labor than men. This situation has been exacerbated under neo-liberalism. Between 1991 and 2001, for example, the number of women in marginal jobs more than doubled from 25 million to 51 million.
Myth: These problems caused by economic liberalization are only temporary.
Facts: Rising inequality, exploitation, poverty, and environmental degradation have followed neo-liberal reforms in every country that has adopted them to date.
The case study concludes that myth of 'Shining India' benefits many people, both inside and outside
Indian agriculture has always been a very unequal affair. Even before colonization, there was rampant inequality arising from the feudal structures of agriculture and regional differences. Under British rule many of these inequalities were further exacerbated through heavy taxation of even the smallest farmer. Despite half a century of independence, these inequalities are still getting worse. The arrival of the World Bank and International Monetary Fund strengthened the hand of those within the Indian government who believe that export-oriented agriculture and free trade would 'lift all ships' out of poverty despite the lack of evidence that this has worked in India. We conclude that the absence of strong political leadership, the erosion of serious redistributive mechanisms, and the deepening exploitation of women in the promotion of neo-liberal
Perhaps the greatest tragedy is that there is nothing inevitable about this state of affairs.
4.
An untold story : This case study tells us a story rarely told outside. Trade liberalization in
The process of agricultural liberalization has had a high human cost. The study examined trends in rural and urban poverty, and Chinese agricultural output to tell a story that is rarely told outside
The scale and speed of trade liberalization following WTO membership has transformed the pace of Chinese economic opening, and the balance of power within it. Scholars have noted that the “cuts... appear far greater, and faster, than any other developing country was required to commit to in the Uruguay Round Agreement on Agriculture”. One might ask quite what
While the Chinese government was clearly keen to join the WTO, the reasons for the precise timing and conditions of
The period immediately prior to China’s WTO accession saw a decisive policy shift in favor of less government intervention in agriculture and, with it, a consolidation of a shift in power to an urban elite largely unconcerned either with agricultural issues or with the rural communities dependent on agriculture. While grain trading was partially deregulated, the government removed itself completely from management of “non-strategic” agricultural products such as vegetables, fruits, seafood and livestock. With sales from producers’ surplus grain added in, the share of retail agricultural commodities sold at market prices increased from 4% in 1978 to 83% in 1999 with the lion’s share of reductions in subsidies and price supports occurring in the late 1990s and thereafter. In addition to a steep drop in soybean import tariffs, the government also eliminated protective prices for certain “unmarketable” varieties of rice and wheat at the beginning of 2000. In 2001, markets in the principal grain-consuming coastal regions were liberalized. To the extent that they increased the real incomes of those in rural areas, these policies are to be commended. But it is not clear that the benefits of increased incomes are going to
The U.S. Department of Agriculture forecasts that
One immediate consequence of migration is that families lose a form of social security when they leave the land. It provides basic subsistence and at least some guaranteed income, and many families stay on their land hoping that the government may eventually grant them formal landownership. The land also cannot be sold, only subcontracted, so farmers would not even have the necessary collateral to buy an urban residence. Rural migrants also lack access to the same social entitlements that urban residents enjoy -- such as subsidized food, health care, education and housing -- thanks to the continuing rigidity of the hukou system and local regulations in many cities. Subtract rural family support networks as well, and the opportunity cost in terms of social security poses a major hurdle to off-farm migration. More than 25.5 million state enterprise workers were laid off between 1998 and 2001 alone, following Zhu Rongji’s public promise to solve the problem of declining state enterprise profitability in three years.
More than mere statistics, the results are evident in labor protests and complaints that have become increasingly commonplace and, in the cases of some public immolations, spectacularly desperate. Between January and June of 1999, 55,244 labor disputes involving a total of more than 230,000 workers were reported, up from just 7,905 disputes in 1994. In one instance, layoffs at PetroChina, located in
The longer- term future for Chinese agriculture is uncertain. Clearly, those destined to feel the affects most acutely are those in already vulnerable positions. They are faced with difficult choices, either to exploit themselves further in rural areas, or to migrate to urban areas, where jobs are increasingly scarce. The Chinese government has, however, felt able to reverse its policies when faced with overwhelming evidence of social harm. Membership of the WTO makes this considerably harder to do in agriculture, at least in the short term. Yet, with increasing levels of social protest, and increasing evidence of the failure of urban-growth policies, and with a newfound voice at the WTO, there is some small hope that the Chinese government may yet intervene to support the livelihoods of the largest sector of its population. The appointment of President Hu Jintao to succeed Jiang Zemin earlier in 2003 may yet signal a sea-change in Chinese multilateral economic policy.
*Dr.Pasha is an internationally respected economist who was
Current state of play:
Imports more than double of exports: Country's escalating trade deficit, has widened by 39 per cent reaching 12 billion dollar mark, during the first eight months of current fiscal year(2007-8), mainly because of huge imports and the rising curd oil prices in the world market.
The import of wheat on higher price from the international market for local consumption is yet another reason of the increasing trade deficit.
According to the Federal Bureau of Statistics,
The deficit is some 39 per cent higher when compared with the (same period) last fiscal year, for the trade deficit stood at 8.9 billion dollar during July-Feb of last fiscal year.
During the first eight months of last fiscal year, overall exports were around 10.85 billion-dollar as against imports of 19.796 billion dollars. The statistics depict imports of 3.66 billion-dollar in February 2008 alone, as against only 1.55 billion dollar exports, suggesting a deficit of some 2.1 billion dollar, which is some 62 per cent higher than that of February 2007(the country then faced trade deficit of 1.3 billion dollar).
The figures further reveal that during these eight months, imports were more than double of exports, which is not a healthy sign for the economy. In percentage terms, therefore the trade deficit grew by 39.05 per cent during eight months as against the same period of the last fiscal year.
During this period the country exported goods worth 11.707 billion dollar against 10.854 billion dollar of the last year, with a very slow growth of 7.86 per cent during the first eight months of current fiscal year. While, imports grew by 21.95 per cent( to 24.14 1 billion-dollar) during the July-February of fiscal year 2008 (over the 19.796 billion-dollar)when compared to the same period of last fiscal year.
In February 2008, exports grew by 5.31 per cent (to 1.554 billion dollar against 1.476 billion dollar). Trade deficit was 2.104 billion dollar in February 2008 over the same month of last year (with 3.659 billion dollar imports and 1.554 billion-dollar exports). Whereas, during February exports grew by 22.25 per cent, the imports registered growth of 42.55 per cent.
The country has to adopt a long-term trade strategy to do its exports performance better and makes products attractive in the global market: In the prevailing scenario, the leading economic wizards like Dr. Akmal Hussain have shown their concern over the widening gap of exports and imports, which can further increase the current trade deficit..
They argue that country has to adopt a long-term trade strategy to do its exports performance better and makes products attractive in the global market, and to increase its exports by arresting inflation, capital cost and energy prices which could be among the causes of falling exports.
Increase in the global oil prices and the rising commodity prices along with wheat have been hurting the overall trade deficit: Experts further maintain that increase in the global oil prices and the rising commodity prices along with import of wheat have been hurting the overall trade deficit. At the same time because of oil factor cost of doing business is increasing, and thus hurting the of the local industry and exports.
Main export commodities register decline in 2008: Exports of main commodities registered a decline during February, 2008,for example cotton cloth declined by some 19.05 per cent (to 139.240 million dollar) as compared to February 2007, bed wear exports up by 0.31 per cent ( to 133.124 billion dollars), knitwear gone up 1.55 per cent (to 130 million dollar) and readymade garments up by 37 per cent( to 125.14 million dollars), yarn exports by 15 per cent( to 89.941 million dollar).
The export of Basmati rice however increased by 39 per cent (to 65 million dollar), petroleum products exports by 207.25 per cent (to 55.4 million dollars), towels exports by 20 per cent( to 46 million dollars) and leather garments exports raised by some 78 per cent (to 46 million dollars) during the last month. Rising crud oil prices are key factor responsible for increasing import bill, and during the February 2008 petroleum/other related products imports depicted an increase of some 154 per cent (to 1.344 billion dollars) as compared to some 84 million dollar in the previous fiscal year.
The growing imports of food items tend to deepen inflationary pressure further: The food- related imports including inter alia pulses, wheat & milk, along with imports of medicines , machinery and others mentioned earlier tend to deepen the inflationary pressure.
Yet, other agro-food imports also like raw cotton, increased by 107 per cent (to 185 million dollars), wheat un-milled by 100 per cent (to 153 million dollars) and palm oil by 54 per cent (to 125 million dollars)r by February 2008.
Likewise, import of power generating machinery was up by 154 per cent (to 116 million dollars) and plastic materials by 4 per cent(to 111 million dollars).The import of iron & steel on the other hand has reached 808 million dollar with a dip of 2 per cent( to 103 million dollar) and import of other appliances including that of telecom has declined by 14 per cent (148 million dollar).
Overall export performance is not satisfactory: Despite the fact that net exports have gone up by some 8 per cent in the first eight months of the current fiscal year(2007-8) and 22.25 per cent on monthly basis, the economist maintain that overall export performance is not satisfactory and need improvement.
4. The Way
A research study ‘“Impact of Trade Liberalization on Pakistan’s Agriculture’ commissioned by the Action Aid Pakistan argues that Pakistan needs to move cautiously with the process of trade liberalization, especially with regard to lowering of bound tariffs, a limit beyond which customs duty on products could not be increased, and withdrawal of subsidies in the agriculture sector..
The report further suggested that for informed policy-making, a broad -based consultation needs to be institutionalized involving major stakeholders, especially small farmers, civil society, progressive farmers, breeders, academia, researchers, policy-makers and planners.
The report underlined the need that in the WTO,
According to the report, food and social security issues need to be focused sharply in national agriculture policies and national development plans, seeking enhance investment in farm & farming and the very poor.
The report highlights the growing food insecurity in the country, and maintains that if present trend in agriculture growth, food production, income of small producers, employment opportunity and thus poverty continues, the gap between food production and requirement would grow rapidly, making
The study recommends to the government to revisit policy of withdrawal of support to farmers, including subsidies for agriculture inputs, and must avail of 10 per cent de minimis provision under the WTO Agreement on Agriculture(AoA) and specially should invest in Green Box subsidies of AoA..
Further,
Besides aforementioned the development path way needs to be guided by, following initiatives:
1. Twin-track policy on trade liberalization, like
2. Adjustment costs related to trade liberalization should not be under estimated, and must be guarded against by pursuing pro-poor fiscal policies in general. Further, the poor & marginalized needs to be protected from the onslaught of trade liberalization through well-informed compensatory policies and elaborate social safety net in particular
3. The development expenditure be increased at least by 5 percent. Export performance in terms, especially of market access & institutional capacity & product, quality be improved
4. Skill up-gradation and. mobilization of human capital based on initial public offerings needs be build and developed.
5. Focused investment in farm& farming and agricultural research be mobilized and made.
6. Targeted subsidies be provided to resource poor and infant industries.
7. As the demand for water from urban & industrial users is continuously increasing, integrated NRM in general and land/water in particular needs to be followed.
5.Resources Cited:
1.
2. Nina Gera, 2004,Asian Survey,
Vol.44,Page:353-368
3. Institute for Food & Development policy (http://www.foodfirst.org/ )
4. Daily Dawn,
5.Weekly Pulse ( http://www.weeklypulse.org/pulse/ )
6.Pirzada, Wajid H., 2004,Impact of Trade Liberalization on
7.BBC,
8. The Business Recorder, http://www.brecorder.com/index.php?id=704055&currPageNo=1&query=&search=&term=&supDate=2008-03-27 ) .
8. Institute for Food & Development Policy(http://www.foodfirst.org/ )
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