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Losers and winners
under WTO regime
By Dr Abdul
Saboor
Globalisation has varying repercussions in terms of pro-poor
and anti-poor growth. Under the WTO regime, the degree of
trade liberalisation is different in different countries.
So, in order to understand how trade liberalisation affects
the poor, requires both macro- and micro-level analysis.
 It has been empirically proved that there are losers as well
as winners under WTO regime. The key question is: Will the
poor be among the gainers or the losers?
Trade liberalisation promotes economic growth, and there is
a correlation between growth and the reduction of poverty.
The indirect approach develops the impact of trade
liberalisation on economic growth and then links this to the
impact on poverty. The growth is pro-poor in some areas and
anti-poor in others.
Even the pro-poor growth scenario is different in different
places. As far as Pakistan is concerned, the opinion is
divided on whether the WTO regime is pro-poor or anti-poor.
Pro-poor reflections: The traditional view in favour of
positive relationship between liberalisation and poverty
reduction focuses on the fact that a large proportion of
poor work in agricultural sector where trade distortions are
significantly high.
Agriculture has a strong bearing on poverty reduction,
because the poorest households tend to be heavily dependent
on agriculture as a source of income and also spend a large
share of their income on food, making them especially
vulnerable to increases in food prices. There is great
likelihood that liberal policies could lead to higher world
agricultural prices and thereby enhance economic activities
and remuneration in this sector.
Trade liberalization reduces tariff barriers (TBs) and
non-tariff barriers (NTBs), which directly facilitates the
import of capital goods. This enhances physical investment,
thereby promoting economic growth and reducing poverty.
Trade openness may accelerate the transmission of
technologies.
Greater openness in trade and investment relations leads to
knowledge and skill spill-over as well as enhanced
competition. These forces increase efficiency and
productivity, which enhances economic growth directly as
well as through exports, thereby reducing poverty.
The increases in productivity and efficiency also lead to a
rise in employment in the efficient sectors of the economy
which can be poverty reducing agent. The removal of price
distortions and enhanced competition lead to decrease in
inflation which also helps to alleviate poverty.
Similarly, beneficial outcome could be generated in the
textile sectors where protections remain high and Pakistan
can enjoy comparative advantage.
Anti-poor reflections: There is no denying of the fact that
economic openness can have negative impacts on the economy.
It is quite possible that the government revenues would
shrink as liberalization cuts the government receipts of
trade-related taxes. Terms of trade can deteriorate as the
WTO can affect world prices.
Moreover, there are adjustment costs of liberalisation and
short-run risks due to competition from imports and
re-allocation of productive factors. The enhanced
competition can lead to sectoral adjustments which will
decrease employment and growth in the inefficient sectors.
If the poorer segments of the population work in these
sectors mainly, poverty will increase in the transition
period until reallocation of resources takes place and the
displaced workers are absorbed elsewhere.
The lost government revenue may require structural
adjustment. If this structural adjustment takes place, at
least partially, in the form of reduced development
expenditures on welfare and social sector programmes,
poverty will increase on this count.
Since independence trade policies in Pakistan have been
quite uncertain and fairly marked by high average level of
protection. However, there have been some efforts to reduce
trade barriers and liberalise the economy by following
policies like reduction in import tariffs.
A cross country analysis shows that countries which intend
to liberalise often need to follow complementary changes in
other areas to enhance the impact of trade reform and to
ensure that the poor are fully reaping the benefits of
growth generated from trade.
These allied changes are required to minimise the
transitional income and employment losses for the poor. The
other complementary measures may be improvement in the
quality of education, investment in rural roads and other
infrastructure, support for agricultural research and
extension, and the creation of effective social safety nets
for the poor.
Roads and agricultural extension services are two of the
most important examples of complementary policies. China and
Indonesia have practiced it successfully to reduce poverty
in the last 30 years. In both cases, one of the keys to
success has been the dissemination of agricultural
technology through extension services which proved to be
critical to ensuring growth that is pro-poor in the rural
areas.
How trade reforms affect poverty in any individual country
depends on the country’s specific circumstances and on the
situations of its poor citizens. A poor person working in
export-producing sector that expands in response to freer
trade or in a sector that received increased foreign direct
investment (FDI) because of greater financial market
integration would be better off with the passage to time as
compared to his fellow beings in less liberalised sectors.
In Bangladesh, trade and financial liberalisation has led to
rapid growth in manufactured exports and female employment.
Poverty has fallen steadily but from high level.
Mexico’s PROGRESA programme is well quoted. It was an
initiative that targeted at the rural poor to develop their
human capital by paying households to send children to
school and regularly see health care providers.
It has been revealed from some empirical findings that the
poorest farmer households in Mexico actually consume more
maize than they grow, so the poorest of the poor benefit
from the lower maize prices caused by imports. While the
opposite is true for less poor farmers who grow more maize
than they consume.
Policy lessons: The brief sketch of above diagnostics
suggests that Pakistan must liberalise to make the WTO
regime pro-poor besides avoiding anti-poor elements. It
needs the “policy space” to decide what, when and how
much to liberalise.
For example, liberalising financial markets too quickly and
too early can lead to serious volatility, which can be
anti-poor in any respect. Dr Harrison, Professor of
Agricultural and Resource Economics, University of
California, Berkeley in his book ‘Globalization and
Poverty’ suggests that people in export producing
industries and regions typically gain from trade
liberalisation while those in import competing industries
and regions often lose.
To make the WTO regime more pro-poor via the growth channel,
there is need to follow the East Asian Model under which
foreign markets are fully accessed while their own markets
are closed. In such export promotion adventures, Pakistan
needs to explore non-traditional markets like that of Latin
America and South Africa.
Trade reforms should not be viewed in isolation.
Complementary measures will often be needed to enhance its
impact and to ensure the poor share the benefits of trade
liberalisation.
Trade reform is an important part of pro-poor development
strategy and has a high “bang of the buck” compared with
other policy reforms because it can be adopted relatively
quickly and easily.
Improved excess to the markets of the developed countries is
essential to ensure that WTO regime is pro-poor in Pakistan.
A flexible labour market that helps workers move from
declining to growing sectors helps spread the benefit of
trade reform.
Moreover minimum wages are important to protect workers from
being exploited but these should be defined according to the
local income distribution pattern rather than linked to
wages in developed countries. In Pakistan what is needed are
social protection programmes that reach the poor who work in
informal sector and live in rural areas.
The DAWN
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