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Globalization and Pakistan Economy

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  G LOBALISATION   AND P AKISTAN E CONOMY  Rizwan Ullah Kokab G lobalisation has become the all-inclusive, all-enveloping catchword of ourtimes. Almost all aspects of human life, political, social, economic, culturaland even, in some cases, religious, have some type of link with globalization.Migration, refugee flows, “brain drain” from the developing world, spread of Western culture in the form of soap operas, music, fashion, and similar trendsare often considered as consequences of globalization. 1 Therefore, there is noaspect of modern life that is not being positively or negatively influenced bythe concept of globalisation. The srcinal founding field of this concept is the field of economics,where globalization may be termed as the process of the development andpromotion of market-oriented practices across the globe, with similarity of concepts and applications that are irrespective of geographical or territorialconfines. 2 The main focus of the movement for globalisation is free trade,which means three things: liberalisation of country’s trade regime(progressively lowering tariff and non-tariff trade barriers), fair competitionand transparency of trade policies and regulations. The principle of competition has two aspects: national treatment and most favoured nationtreatment. The national treatment prohibits from discriminating betweendomestically produced goods and those imported from other countries withregard to application.In short, consumerism, material values, corporate life styles withuniformity attire and approach, fast communications, private enterprises andtotal submission to market economy doctrines are a few references toglobalization. 3 Economists generally agree that globalization is driven by twoforces: first, the developments in technology and second, the developmentsin policy. In technology, modern globalisation has been spurred by the rapiddecline in the cost of communication and transport. In communication, thegreatest single breakthrough was probably the telegraph, followed closely bythe telephone, satellite relays, the internet, the mobile telephone and theemail. 4  Globalisation is hardly a brilliant new idea. The highly industrialisedand leading manufacturing countries have been desiring the freedom of world markets from political constraints since centuries. For two third of the 1 Catarina Kinnvall, “Analysing the Global-local Nexus,” Globalization and Democratization in Asia, edited by Catrina Kinnvall and Krist Kristina Jonson,(London: Routledge), p. 3 2 Noman Ahmad, “Heritage vs. Globalization” Dawn , September 1, 2002 3 Ibid. 4 Rahim Panjwani, “Globalization Balance Sheet,” Dawn - Economic & BusinessReview , February 17, 2003, p. vi  19 th century , Britain being “workshop of the world” and therefore being ableto produce efficiently the cheaper products became the leading proponent of free trade and used its colonial military might to enforce it. During the lastone-third of the 19 th and for the first half of the 20 th century, the world turneddoubtful about ideas of free market. This was the time that saw the GreatDepression and the rise of Russian Bolshevism. The Communist and theSocialist models were being tried out. With the sad demise of theseexperiments, US has now reached the same stage as that of Britain in the19 th century and any restrictions on free trade, appear stifling to itsentrepreneurs. This time, the US is not the only “workshop of the world” andsecondly, it is not economically feasible and hence out of fashion to conquercountries, merely to sell manufactured goods. Today’s economists andstrategists have invented subtler ways to achieve the objectives of freetrade. 5  Multinational Corporations, international financial institutions likeWorld Trade Organization (WTO), International Monetary Fund (IMF), WorldBank (WB), business professionals and governments of developed countries,are seen as instruments and agents of globalization. Most important of themis WTO. The history of WTO starts with the General Agreement on Tariffs and Trade (GATT). In 1945, to avoid catastrophe of mass slaughter, destruction,and disruption of free flow of trade on the trade front, the contracting partiesagreed to create GATT with the objective to regulate the flow of goods atglobal level. 6 Several rounds of tariff reductions initiated by GATT, resulted inreduction in industrial tariffs. Numerous other barriers to trade were alsoreduced or eliminated. 7 The WTO came into existence as a single institutionon January 1, 1995, on conclusion of the 8 th round of the multilateral tradenegotiations under the GATT. It was a set of agreements that applied to allthe members in a package deal. The negotiated agreements include theagreements on agriculture, tariffs, textiles, services, intellectual properties,anti dumping duties, permissible limits of subsidies, safeguards on non-tariff barriers, settlement of trade disputes, issues related MFN, environment,investment, competition, procurement, simpler procedures, electroniccommerce, labour standards. 8  The process of globalization got momentum due to the disintegrationof USSR, resulting in the unipolar world, the establishment of WTO andrevolution in IT. The opposition to globalization appeared when the SeattleMinisterial Conference of WTO (December 1999), followed by World EconomicForum at Davos, Switzerland, witnessed unprecedented violentdemonstrations by the opponents. A borderless global village and a free 5 Zia-ul-Islam, “Globalization Entering Pakistan’s Backyard,” Dawn Economic &Business Review ,September3-9, 2001 6 Muhammad Aslam Shad, “Textile and Clothing in the WTO Regime,” DawnEconomic & Business Review , September 27- October 3, 2004, p. vi 7 Faisal Usman Malik, “Institutional flaws of the WTO,” Dawn Economic & BusinessReview, October 13-19, 2003, p. iv. 8 Syed Shahid Hussain, “WTO: Are We In Step?,” Dawn Economic & BusinessReview , August 4-10, 2003, p. i.  movement of workers across the borders, emerged as one of their principaldemands. It shows that the opponents of the globalization were not againstglobalization but they opposed the partial usage of globalization by thedeveloped countries.On the endorsement of G8 Summit, the important Doha round of talks   started in Qatar in 2001, in order to work towards a system of trade rules thatwere fairer to poor nations. But it and even its subsequent 5 th ministerialmeeting in Cancum, Mexico (September 2003), failed. Agriculture, being thelifeblood of developing and least developed nations, was the stumbling block. The poor countries accused the developed nations of protecting their farmersthrough subsidies, usually funded by tax payers via governments or tradeassociations, and then dumping their goods on poor countries at knock downprices, undermining local farmers. The subsidies made the farmers of developed nations more competitiveand led to inefficient resource allocation. On the other hand, while trying toimport their goods to developed nations; poor countries had to face an unfaircompetition, due to subsidies, which goes against the very concept of comparative advantage, the foundation stone of the WTO. The rules are sorigged that Washington collects as much in tariffs on Cambodian imports as itdoes from France, despite the goods and services it buys from France, beingworth 15 times more. A new alliance of developing nations (G-22 later G-33)arose and refused to agree to the proposed agreement. Instead of slashingthe $330 billion subsidies lavished on their farmers, the rich countries haveramped up their support of the agriculture sector. The US alone has increasedits support by $175 billion over 10 years and European Union's CommonAgricultural Policy, which swallows up nearly half of its budget, wasmaintained – any real cuts being put off until 2013. 9 Moreover, the US,instead of dealing with the G-22 as a whole, in 2003, initiated measures toclinch regional free trade deals with small poor countries to woo them awayfrom the G-22 bloc. Peru, Colombia left G-22 under pressure from US and dueto trade agreements with the US. 10 Five years into the round, progresscontinues to be frustrated by a spat between the US and the EU, with eachusing the intransigence of the other, as an excuse to avoid concessions of farm programmes. 11  During the period of deadlock on the issues of subsidies in agriculturesector, the development on globalization continued in other sectors. As theagreement on Textile and Clothing expired on December 31, 2004, the worldwitnessed quota free regime in textile sector. Moreover, the agreement inAugust 2004 recognized the need of free trade in services. 12 With the effortsto break the deadlock of the Doha trade round, on 27 January 2007, 9 Qaes Hussain, “WTO’s Appearance and Reality,” Dawn Economic & BusinessReview , May 30-June 5, 2005, p. vi 10 Ashfak Bokhari, “Cracks Begin Appearing in G-22 Bloc,” Dawn Economic &Business Review , November 3-9, 2003, p. i 11   The Guardian (London), reprinted in Dawn 29 January 2007. 12 Qaes Hussain, op. cit.  ministerial meeting of World Economic Forum (WEF) was held in Davos. Thenegotiations had left untouched the protective walls shielding sectors, suchas farming, in which the poor world would otherwise have had a chance tocompete.Despite all these differences and disputes, the process of globalizationis going on and is inevitable. There are many reasons for this.Firstly, the whole opposition, whether it is from NGOs or from poorgovernments, is not against the very idea of globalization but against thepartiality of the developed countries and among the comity of nations, thereis some type of consensus on the implementation of globalization. It isevident from the stand of the poor countries and NGOs. Poor countries wantfair competition and NGOs demand the mobility of labour force, without anyrestriction. Both stands are fundamental elements of globalization.Secondly, all countries of the world, including Russia and China, haveentered into the negotiations and proceedings of the WTO. Moscow has beeninvolved for years in painstaking bilateral talks with WTO member states, allof which, except the US, have backed Moscow joining the world trade body. 13  China has already become the member of world body and is taking steps forthe globalization. Thirdly, the unipolar politics of the world has weakened the resistantblocs and efforts of the poor countries. Every country is making efforts togain its own interests in proper conditions. Serious cracks have appeared inthe resistant blocs. On the other hand, a lot of mediatory efforts is under way.Poor countries, led by the G-33, have articulated their position on SPs and theSpecial Safeguard Mechanism (SSM). Recent development shows that US andEU are about to make a deal on agriculture. If this happens, pressure wouldbe built around poor countries and specifically on G-33 to step back from itsposition. Pakistan, in the hope of giving some balancing proposal, has madeup its mind to relax its position on SPs in future negotiations on Agreementon Agriculture (AoA). 14 Therefore, many countries, including Pakistan, aremaking efforts for reconciliation between the rival groups on subsidies issue.Whether under the pressure of US and EU, their views are accepted or thereis some reconciliation between the rival parties, the result would be smoothmarch of globalization.Fourthly, regional blocs and Free Trade Agreements (FTA) are alsopaving the way for globalization. Almost every country of the world, isindulging in signing agreements with other countries. For very few examples,there are the Greater Arab Free Trade Area (GAFTA),European Free Trade Association(EFTA),North American Free Trade Agreement(NAFTA) and South Asia Preferential Trade Agreement (SAPTA). Under SAPTA, SAARC membercountries have granted tariff concessions to one another on as many as 4951items in 2002. 15 On bilaterl grounds, the US finalised its FTA with Jordan, 13   Dawn, 5 July 2006. 14 Tahir Hussain, “Proposals at WTO to Hit Local Farmers,” Dawn Economic &Business Review , January 29- February 4, 2007, p. iii. 15 Mubarak Zeb Khan, “Tariff Relief Granted on 400 Items” Dawn, 12 November 2002  Morocco, Columbia, Peru, Bahrain etc., until 2004. 16 Pakistan also is makingefforts to conduct FTA with the US and China. Such efforts for FTA are underway on the platforms of Gulf Cooperation Council, ASEAN and ECO. 17   Economy of Pakistan Although for forty years, between 1950 and 1990, Pakistan was transformedfrom being, by far, the most backward area of what was once British India   into the most prosperous and vibrant part of South Asia, yet it remained apoor and developing country. It relied chiefly upon the US aid and debt.According to State Bank of Pakistan, as of end-December 2001, Pakistan'stotal external debt and liabilities (EDL) were $38 billion, which included $33billion debt and $5 billion foreign exchange liabilities. 18 If we have a look onthe recent table of external debt and liabilities, issued by the State Bank of Pakistan, the total external debt of Pakistan on end of 2006, lies US$ 36907million increased from 35679 in June 2006 that was 34037 in June 2005,which was increased from US$ 33307 million on June 2004. 19 If weakeconomy means that a country is loaded with heavy debts but unable togenerate its resources by itself and cannot decrease the burden of debt byitself, then Pakistan may be called a weak economy.Five developments during present regime were considered as a strongbase for Pakistan’s economy. These included introduction of professionalismin economic management, giving clear regulatory and supervisory authorityto the SBP and SECP, over different segments of the financial sector,improvements that are palpable in the working of the financial system,devolution of power to the local level and some revival of foreign investmentin the country. 20 It is claimed that on the basis of such developments,Pakistan’s economy has delivered solid economic growth after September 11,with economic growth at 6.6 % in 2005-06. It has grown at an average rate of almost 7% per annum during last four years. The success story, narrated in the Economic Survey of Pakistan,describes Pakistan as one of the fastest growing economies of the Asianregion. The growth momentum is underpinned by dynamism in industry,agriculture and services, and the emergence of a new investment cycle,supported by strong credit growth. In the fiscal year 2005-06, the overallmanufacturing sector continued to maintain its growth momentum with morevigour. Overall, manufacturing recorded an impressive and broad-basedgrowth of 8.6 per cent and large-scale manufacturing registered an impres-sive growth of 9.0 per cent. The Survey further describes that the servicessector continued to perform strongly at 8.8 per cent. Construction, too, con-tinued to perform strong showing, partly helped by activity in private housing 16 Pervaiz Ashfaq Rana, “US FTAs to damage Pakistan’s interests,” Dawn  June 6, 2004 17 Sultan Ahmad, “How Helpful are the Free Trade Deals?,” Dawn Economic &BusinessReview , July 3-9, 2006, p. vi 18  http://www.pakistaneconomist.com/issue2002/issue20-21/f&m2.htm. 19 http://www.sbp.org.pk/ecodata/pakdebt.pdf , 26 February 2007 20 Shahid Javed Burki, “Reviving Economy Growth” Dawn 26 November, 2002.
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