Article on “Accessing Foreign Markets” (Published on DAWN EBR (economic and business review pages on 29th August, 2005). You can also pick up this article from DAWN archives)
Accessing foreign markets
By M. Abbas Raza
THE trade policy 2005-06 has set an export target of $17 billion against the previous year’s earnings of $14.41 billion. The ministry of commerce plans to achieve the target by adopting a five-pronged ‘rapid export growth strategy’ (REGS). The policy has been well taken by the trade and industry except for the observation that it is textile-driven.
The REGS is based on five pillars (i) improved market access through trade diplomacy, and new free trade agreements/preferential trade agreements (FTA/PTA) with selected countries, (ii) focus on neglected regions and countries like Africa, Latin America, Eastern Europe, Central Asia and the Far East, (iii) strengthening of trade promotion infrastructure including the EPB and the trade offices abroad, (iv) improving skill development and productivity through provision of large scale training, and (v) provision of state of the art physical infrastructure to spur investment and FDI.
The first three pillars of the strategy are areas where most of the work has to be done by the ministry of Commerce. However, the last two issues relate to the national supply side constraints and are to be executed by other than the commerce ministry and only to be supported by it.
Each pillar is significant and complex. The REGS is directly related to the ministry and involve the rule-based system of the GATT/WTO. A fairly advanced level of understanding on the WTO, international trade rules and regulations is required for developing trade diplomacy skills. The REGS, if not supported by adequate training, skill development and participation of the stakeholders in policy execution, would not deliver.
The concept of acquiring increased market access is quite tedious and involves multifarious aspects of the WTO regime. Some of the major agreements under the WTO which directly affect market access are tariffs, technical barriers to trade, sanitary and phytosanitary trade remedy measures. stakeholders.
Principally, market access can be acquired on multilateral or regional trade basis. After the failure of the Cancun round of talks, the WTO member countries started focusing more and more on regional and bilateral trade. Market access under the multilateral trade discipline is guided by the concept of trade liberalization in terms of the GATT/WTO agreements namely (i) Article II – schedule of concessions and the understanding on their interpretation of Article II:1(b) of the GATT 1994, (ii) Article XXVIII – Tariff Negotiations bis, GATT 1994, (iii) Article XXVIII – modifications of schedules, GATT 1994, and (iv) Marrakesh Protocol to the GATT 1994.
Market access negotiations are carried out by the WTO member countries (WMC) on, (i) reciprocal and mutually advantageous basis from time to time, (ii) selective product-by-product basis, or by the application of such multilateral procedures as may be accepted by the WMC concerned. Negotiations may be directed towards the reduction and the binding of duties.
The success of multilateral negotiations depends on the participation of members which conduct a substantial proportion of their external trade with one another. Negotiations are usually conducted on a basis which affords adequate opportunity to take into account the needs of individual member countries and even the individual industries. All other relevant circumstances, including the fiscal, developmental, strategic and other needs of a member are also taken into account prior to binding of the tariffs.
Countries generally target specific tariffs of countries which they wish to see reduced through negotiations. At the same time, most countries have import sensitive products and industrial sectors for which they are not inclined to agree to duty reductions. To manage tariff negotiations, two primary negotiations have generally been used (i) request-offer methods, and, (ii) formula method. The Uruguay Round tariff negotiations are characterized as formula negotiations based on product / sector basis.
Such negotiations take place on two types of occasions. First, the multilateral trade negotiation (MTN) rounds provide this opportunity. Second, two members or a group of members get down negotiating among themselves for this purpose.
Negotiations, for increased market access, involve the establishment of maximum limits on the level of tariffs which can be imposed on individual tariff classifications. These limits are known as tariff bindings. The WTO rules provide a detailed procedure for upward modification of bound tariffs to which it has agreed. In case of modification it may be required to pay compensation or face retaliation.
WMC generally agree to impose tariff on particular classifications at or below the bound level. Further, once a tariff is prescribed for a product, it has to be applied uniformly to the particular product coming from different member countries according to the ‘most favoured nation’ (MFN) principle. The rates are published so that other members and interested parties, i.e., the trade and industrial sectors in different countries, are fully aware of them. One of the primary objectives of these bindings is to reduce uncertainty and create predictability about the market access.
Under the multi-trade negotiations held in the Uruguay round of talks, Pakistan received 1390 requests in 1992-93 from Canada, Australia, USA, EC, Switzerland, New Zealand, Japan, Korea and Sweden. Pakistan acceded to most of the requests and bound about 30 per cent of its tariff lines. (table 1)
The basis for the reduction / binding of tariffs in 1992-93, inter alia, included (i) protection levels required by various industrial sectors of Pakistan, (ii) improved cascaded tariff structure, (iii) review of para tariffs and their phasing out, (iv) gradual withdrawal of tariff concessions / exemptions and translation of concessionary tariff regime to statutory tariff regime, (v) tariffication of non-tariff barriers except those which were applied on account of religion, security and health, (vi) commitments to international donors, (vi) preferential tariff rates under GATT protocol relating to the trade negotiations among developing countries, (viii) GATT bindings in respect of certain commodities at that time.
It is reliably learnt that Pakistan has unilaterally bound rest of the 70 per cent of its tariff lines at 50 per cent. However, such a unilateral action with out engaging in the trade negotiation deprives a country from its negotiating strengths.
A comparison of the bound tariffs on some industrial products at simple average by Pakistan, India, Malaysia and Sri-Lanka. (table 2)
On the regional front, there is a system of regional trade agreements (RTA). Under RTA system parties enter into particular trade agreements. They offer to each other more favourable treatment in trade matters than to the rest of the world (including WTO members).
The depth of such preferential treatment varies from one RTA to another. It may involve only a few products/sectors or it may apply to the whole range of trade-related relations among parties. Trade barriers may be completely abolished in intra-RTA trade or merely reduced. The discriminatory nature of RTA contrasts with MFN principle. The WTO allows WMCs to enter into RTA, earlier GATT also did the same.
Prior to the WTO Rules concerning customs, unions and free-trade areas were spelled out only in Article XXIV. Despite the criteria contained in that Article, the examination of RTA in the GATT led to numerous problems throughout the years. The Understanding on the interpretation of Article XXIV of the GATT 1994 complements Article XXIV of the GATT 1994. Disciplines on economic integration agreements liberalizing trade in services have also been included in the General Agreement on Trade in Services (GATS).
Tariff negotiations have very important and far-reaching implications in regard to the economy and industry of any country, specially a developing country like Pakistan as they firstly affect the protection levels of the domestic industry and secondly increase the market accessibility for its products.
Pakistan and China have recently signed the early harvest agreement of Pakistan-China free trade area. Under this programme, all exportable items of Pakistan including textile, surgical and sports goods, vegetables, fruits, rice, citrus and mangoes will have duty-free market access from January, 2006, while Pakistan will import machinery and raw material from China. Apparently, the arrangement seems to be quite ambitious.
However, the ground realities are much different, Pakistani market is already flooded with Chinese consumer and other goods as Pakistan has extended unwarranted and unintentional clandestine market access to Chinese goods. Pakistan’s trade and industry is adversely being affected by the Chinese goods with special reference to textile (made ups and fabrics), table ware, shoe and toys industry. The Chinese goods are very popular among consumers.
The tariff concessions, if not done appropriately considering the individual needs of the economy and industry will adversely affect the domestic industry.
It will be advisable to assess the present bound level of tariffs and their impact on Pakistan’s trade and industry and develop a strategy for participating in the regional and multilateral trade negotiations.
Implications of not binding or not adequately binding of tariffs on Pakistan and grant of unintentional market access to goods of other countries could adversely affect the domestic industry.
The proposals for market access should be based on interaction and discussions with major stake holders, manufacturers, associations and chambers of commerce and industries etc.
