Agriculture plays an important role in Pakistan's economy, accounting for about 25 percent of GDP and almost half of the country's labour force. Agricultural output has increased at an average annual rate of over 4 percent in the past two decades, contributing significantly to overall economic growth, food supplies and nutrition and exports. Crop production accounts for the largest share of agricultural GDP (63 percent in 1995), followed by livestock (32 percent) and fishery and forestry (5 percent).
Despite the rising trend of agricultural output, the country faces a number of challenges in respect of the sector. One is to reduce food imports, which have been growing steadily, especially in recent years. According to FAO projections, food demand will rise substantially by the year 2010, with the share of imports in domestic consumption likely to go up further. With limited scope for expansion of cropped land, higher crop output will have to come essentially from higher yields, which requires investments in agricultural research and irrigation, among others. Yet, investment in agriculture has been on the decline.
Continued high incidence of poverty is also a major challenge. According to FAO estimates, 20 percent of the population was undernourished in 1995-97. One response of the Government in the area of food security has been to keep down consumer prices of basic foods through a public food distribution programme (the ration scheme) and more recently through open-market operations, but the programme has been an expensive one, costing almost 1.5 percent of agricultural GDP in 1995/96. Broad-based agricultural growth provides the best chance for reducing poverty in general and rural poverty in particular.
Agricultural exports have contributed significantly to overall export growth. Pakistan has a strong comparative advantage in the production for exports of a number of agricultural products, including cotton and rice. In recent years, horticultural exports have increased rapidly, with little by way of subsidies. The country's climate and location give it an advantage in accessing a number of niche markets and it is generally considered that, given an enabling environment, horticultural exports could grow substantially.
Until the mid-1980s, the Government pursued an economic policy that was strongly interventionist. One of the consequences has been price discrimination against agriculture. According to one study, the taxation of the sector amounted to 39 percent during 1960-85, through both the direct and the indirect effects of policy.2 As a result, resource transfers from agriculture to industry were substantial, about 156 billion rupees from 1980/81 to 1989/90, according to some estimates.
However, following substantial policy reforms that have been undertaken in recent years, the structure of incentives facing the agricultural sector is now broadly neutral.
In the UR, Pakistan committed itself to bind more than 90 percent of the agricultural tariff lines. Products for which tariffs have not been bound include alcoholic beverages, swine, pig meat etc., for religious reasons. As in many other developing countries, tariffs were bound at relatively high levels - at 100 percent for virtually all products. For ten tariff lines however, the binding was 150 percent and for ten others it was understood that these high levels of binding were adopted in order to safeguard import-competing agricultural sectors in the short run from possible disruption as non-tariff barriers (NTBs) were removed. As Pakistan offered "ceiling bindings", no commitment was required to reduce the tariffs during the UR implementation period.
The structure of border protection has undergone significant change over time towards greater trade liberalization, involving both the dismantling of various NTBs and the reduction of ordinary tariffs. The NTBs included outright import bans, special dispensation and licensing, quotas, negative lists and parastatal monopolies. Import surcharges were removed in 1992/93. Licence fees and the eqra surcharge were abolished as from 1994/95. Import quotas have been progressively eliminated since 1987, and by 1995 few remained. The number of items included in negative and restrictive lists has also fallen considerably. In the meantime, the maximum applied rate of ordinary tariffs has been reduced substantially in phases. From as high as 225 percent in 1987/88, it was brought down to 65 percent in 1996 and over the following two years to 35 percent (since end-March 1999) - see Table 1. The number of tariff slabs was also reduced, to 11 in 1996 and to only four at the end of March 1999. As a result, in 1999, applied rates varied from 0 to 35 percent.
Table 1: WTO tariff bindings and applied rates for selected major products (percentage, ad valorem)
|
Product |
Bound rate |
Range of applied rates | ||||
1995 |
1996 |
1997 |
1998 |
1999 | ||
|
Cereals Oilseeds Vegetable oils 2 Live animals Meat Dairy products Sugar Coffee and tea 3 Simple average 4 |
100-150 1 100 100 100 100 100 100 100-150 100.5 |
0-65 10-70 25-70 15-65 35-70 25-70 35-70 15-70 - |
0-65 10-65 25-65 15-65 35-65 25-65 35-65 15-65 - |
0-25 0-65 25-65 15-65 15-65 25-65 45-65 0-65 - |
0-25 0-45 15-45 10-45 15-45 25-45 25-45 15-45 - |
0-15 0-35 10-35 10-35 10-35 25-35 25-35 0-35 - |
|
1 100% for rice and wheat flour and 150% for wheat. 2 There were also specific rates of duty for some oils during 1995-97. 3 Bound rate for coffee 100% and tea 150%. Applied rates are also typically high for tea. 4 Average of roughly 670 tariff lines. Sources: Bound rates: Pakistan's WTO Schedule; applied rates: compiled from various official sources. | ||||||
During 1995-99, applied tariffs were even lower than these statutory maximum rates, even on foodstuffs that are produced locally. In fact, the Government often waives tariffs completely, for food security reasons, on products such as wheat and sugar. Pakistan had a long tradition of subsidizing the import of wheat and maintaining low prices also through a domestic food distribution programme. There are many other cases where occasionally duty-free imports, or imports at very low tariffs, are decreed. For example, tariffs on a large number of high-value products, e.g. cereals preparations and fruit and vegetable products, were reduced in 1999 to levels much below the statutory maximum of 35 percent.
This observation is confirmed by estimates of the rate of protection as measured by the nominal protection coefficient (NPC), i.e. the ratio of the domestic to the world market price (import parity price). Although the NPCs fluctuate from year to year with changes in world market prices (since domestic prices are typically more stable), they were generally lower than unity, e.g. for wheat 0.77 during 1990/91-94/95, 0.63 in 1997/98 and 0.85 in 1998/99.
A key policy challenge has been setting "optimum" applied tariffs that address different policy objectives, notably those of safeguarding the interest of import-competing domestic sectors, maintaining full capacity of domestic processing industries, raising the value-added content of output and assuring the food security of the large urban population and the rural poor. These difficulties were most evident in the case of vegetable oils. At nearly US$800 million, the cost of edible oil imports is second only to those of petroleum and projections point to a rise in the import bill. The Government has undertaken measures to raise the degree of self-sufficiency in edible oils, e.g. the introduction of canola production and minimum support prices for other oilseeds. Border policies need to be supportive of these measures. A related concern has been ensuring capacity utilization of edible oil industries and thus adding to domestic value. In support of these objectives, the Government often allows duty-free imports of oilseeds, e.g. in 1998 and also in 1999, at the same time raising tariffs on vegetable oils. However, by the same token, the incentive for domestic producers to increase production is undermined.
In sum, the overall picture that emerges is that the import regime has been fairly liberal in recent years with applied tariffs mostly much below the WTO-bound rates, which in turn were largely determined unilaterally by the Government. However, implementing these reforms has not been smooth. In some cases tariffs had to be lowered substantially for food security reasons, even though that undermined incentives to domestic producers and to longer-term growth of the sector. In many other cases, tariff rates had to be varied, often in response to swings in world market prices, in order to stabilize domestic markets. Tariff changes often have economy-wide consequences, and there is no easy solution to setting appropriate tariff rates. This is obviously an area where in-depth policy analysis should generate handsome payoffs.
In the UR, Pakistan provided details of its domestic support measures in the various areas specified in the AoA. As may be seen from Table 2, its outlays on green box measures have risen from US$230 million in the base period (1986-88) to US$440 million in 1995/96, an increase of 92 percent. In rupee terms, the rise amounted to 258 percent, or by about 32 percent per year, which was higher than the rate of inflation. Nevertheless, the total outlay in 1995/96 was only about 3 percent of agricultural GDP, and the outlay fell by 21 percent by 1997/98. In the base period, infrastructural services accounted for 64 percent of total outlays, followed by irrigation (flood protection) (14 percent), extension services (10 percent) and research (6 percent). By 1997/98, the share of infrastructural services had increased to 85 percent, at the expense of other categories. Flood protection services increased considerably in importance in recent years. As green box outlays are exempted from reduction commitments, there are no AoA-related issues here.
Table 2: Green box outlays, in US$ million
Type of measures |
1986-88 |
1995/96 |
1996/97 |
1997/98 |
|
General services on research Storage facilities Marketing services Extension services General services Infrastructural services Flood protection services Water supply services |
14.5 4.8 0.1 22.1 0.3 147.5 7.9 31.3 |
12.8 0.8 0.1 2.4 0.5 335.0 34.6 53.7 |
7.7 0.3 0.1 2.2 0.0 312.6 15.9 53.9 |
7.6 0.2 0.0 1.6 0.0 266.1 22.8 14.1 |
Total |
229 |
440 |
393 |
312 |
Source: WTO notifications | ||||
Table 3 shows product-specific aggregate measurement of support (AMS) for the base period (1986-88) and current years. Pakistan's submission covered 11 crops for which there were market price support programmes in the base period. The total product-specific AMS in that period was a negative 11 524 million rupees (US$640 million), with positive AMS only for sugarcane. The total AMS amounted to a negative 7.6 percent of the total value of agricultural production, with wheat, cotton and rice together accounting for most of the negative support.
Table 3: Product-specific Aggregate Measurement of Support (AMS), in million US$
In dollar terms3, product-specific AMS levels have fallen sharply. For example, the level in 1996/97 was only 11 percent that of 1986-88, and 22 percent in 1997/98.4 This was mainly because Pakistan notified the eligible production for most crops, and hence the AMS, to be zero. For example, of the 11 original crops for which AMS was computed for 1986-88, eligible production was assumed to be zero for seven in 1995/96, nine in 1996/97 and 10 in 1997/98, for which year AMS was computed only for wheat. This assumption about the definition of eligible production has been questioned in WTO and, as noted below, the question has not been fully resolved. Part of the sharp decline in total AMS was also accounted for by wheat, where support became less negative.
The total subsidy on farm inputs for the base period was notified as having been 3 652 million rupees (US$203 million), 43 percent of which fell within non-product-specific AMS and 57 percent under SDT. The AMS-related expenditures amounted to US$87 million in 1986-88 but have been much lower in the implementation period (Table 4). Some two thirds was originally on account of electricity subsidies, followed by subsidies on fertilizers (32 percent) and very little on credit. Only the electricity subsidy was reduced as from 1996/97. The total non-product specific AMS, which amounted to less than 1 percent of the value of agricultural production in 1986-88, has since fallen even further, to around or below 0.1 percent. The level of support is thus minimal, compared to the 10 percent de minimis level specified in the AoA.
As regards the SDT subsidies, where the total outlay was 2 085 million rupees (US$116 million) in 1986-88, 67 percent was on fertilizer, 32 percent on credit and 1 percent on tubewell. In Pakistan's notification, tubewell subsidies were justified under the SDT category as being part of a national strategy for agricultural and rural development. The 74 percent of the total subsidy on fertilizers that was reported under the SDT category benefited poor farmers, with land holdings of less than five hectares. Credit subsidies were estimated separately for interest-free loans and subsidized credits. The former was shown under the SDT category and the latter under the AMS, again using the five-hectare criterion. In the 1995/96 notification, the total SDT outlay was reported as only one million rupees (US$55 500), a drastic cut from the base period, and exclusively on fertilizers. No SDT outlays were reported in the subsequent two years, essentially indicating that all forms of SDT subsidies had been eliminated.
Table 4: Non-product-specific Aggregate Measurement of Support (AMS), in US$ million
Type of measure |
1986-88 |
1995/96 |
1996/97 |
1997/98 |
|
Fertilizer subsidy Electricity subsidy Credit subsidy Total As percent of prod. value Status |
27.4 58.1 1.6 87.1 0.80 de minimis |
0.4 10.4 1.0 10.8 0.06 de minimis |
0.0 15.5 0.0 15.5 0.08 de minimis |
0.0 22.5 0.0 22.5 0.12 de minimis |
Source: WTO notifications. | ||||
Thus, on the whole, there are hardly any consequences for Pakistan in respect of reduction commitments. The base period product-specific AMS was negative (or zero, technically, from the AoA viewpoint) for all crops bar sugarcane, which itself was within the de minimis level, as was non-product-specific AMS. The AMS outlays in the implementation period were also negative or very small. Consequently, the policy changes and/or reductions in support outlays during 1995-99 could not have been due to the AoA.
Notwithstanding this conclusion, it is important to note that Pakistan's domestic support notifications for current years triggered much discussion in the CoA of the WTO and raised a number of issues. Resolving these issues is important for both Pakistan and other WTO members:
Pakistan did not notify the existence of any export subsidies on agricultural products in the base period and accordingly cannot resort to them in the future. As regards the entitlement to provide subsidies to reduce the costs of marketing exports and internal transport as well as freight charges on export shipments, it notified relevant expenditures for 1995/96 to 1997/98. They consisted of a 25 percent subsidy on the actual freight paid to exporters on export consignments of fresh fruit and vegetables, amounting to US$1.7 million in 1995/96, US$2.3 million for 1996/97 and US$2.8 million for 1997/98.
Prior to the establishment of WTO, Pakistan provided occasional direct export subsidies. Exports of rice and cotton were subsidized when the export trade was a monopoly of the public sector, but the subsidy was abolished when the private sector was permitted to trade in these products.
As in many other developing countries, some incentive measures are in force that aim at export promotion, of the types listed in Annex I of the Agreement on Subsidies and Countervailing Measures. For example, duty rebates are granted to some exports as well as imports of raw materials and machinery for export-oriented industries. However, agriculture has on the whole not benefited much from this assistance, perhaps with some exceptions, e.g. imports of agricultural equipment and machinery. There is an export refinance scheme under which credit is made available at concessional rates for the export of high value-added products, including some agricultural products like fish and packed rice. In 1997/98, the export of packed meat was allowed against the import of live animals on the condition that 60 percent of the gross weight of the live animal was exported as packed meat/beef. Duty-free import of raw sugar was also allowed for re-export after refining. Likewise, in 1998/99, eggs for hatching and day-old chicks were included in this scheme. Higher and specific credit limits are also allowed for cotton and sugar which ultimately are exported.
Pakistan has a long history of imposing quantitative export restrictions on a number of major agricultural products, e.g. outright export bans, export quotas, and the channelling of rice and cotton through export consortia. Likewise, minimum export prices were fixed for some commodities, such as breeding animals. In the case of agricultural raw materials such as hides and skins and cotton, the main objective of instituting export controls and taxes was to ensure adequate supplies for local industries as well as to promote value-added exports. Most of these restrictions, as well as export taxes, have been lifted as a matter of general policy.
Despite the general policy, export duties and restrictions are occasionally resorted to on a temporary basis, essentially for two types of commodities. One group includes essential foodstuffs, where exports are regulated for food security reasons, i.e. to ensure domestic supplies at fair prices. The other group includes agricultural raw materials such as hides and skins and cotton, where the objective is to ensure the availability to local industries at fair prices, as well as to promote the export of value-added products. For example, a 20 percent export duty was imposed on hides, skins and wet blue leather in 1998/99 for these reasons.
In the WTO, Pakistan has been designated as a net exporter of cotton and rice. While the AoA has very little to say on rules governing the export of non-food products like cotton, its Article 12 disciplines export prohibitions and restrictions on foodstuffs. A country instituting such measures has to give due consideration to their effects on importing countries' food security. Developing countries are not exempt from this provision, unless they are net exporters of the specific foodstuff concerned. No issues have arisen so far in the WTO on this matter in respect of Pakistan's exports of rice and cotton.
Pakistan does not have access to the SSG provisions and so has had no experience of them.
Since Pakistan did not have to open any TRQ for others, it has no experience with administering them. As regards accessing quotas opened by others, there is little information on which to draw any conclusion.
Pakistan is a NFIDC, but like other NFIDCs, it has little experience of any benefits so far.
Pakistan has a number of regulations and standards to prevent food adulteration and to ensure hygienic and quality standards, which apply to both domestic production and imports. The 1995 Trade Policy Review of Pakistan by WTO documented the country's efforts to base its standards on international norms. The Review also noted that national standards on a number of items were inferior to international norms due mainly to lack of required technology and resources to raise the standards. It also noted that, overall, the standards did not seem to constitute major impediments to exports by others. In some cases, Pakistan has relaxed standards on imports, e.g. on the prescribed shelf life of imported edible oils, which was reduced from 75 percent to 50 percent in 1995-96.
Exports of fruit and vegetables were assessed to have suffered considerably due to the limited ability to enforce SPS standards. The volume of exports to Europe, North America, Japan and China has remained minimal, as it was in the base period, despite the huge export potential. The general feeling in Pakistan is that the UR has hardly changed the situation since the standards and inspection systems of the major importing developed countries are considered to be too strict for Pakistan to comply with. Efforts are being made to improve the national standards. For example, in 1998/99 a scheme was announced for the inspection of all rice shipments by the Export Promotion Bureau in consultation with the Rice Exporters Association of Pakistan, so as to ensure quality exports. A similar system has been in place for the past two years for the export of Basmati rice to the EU.
Pakistan was actively involved in a dispute concerning cereals that came up in the very first year of the implementation of the AoA. A number of WTO members, including Canada, the United States, Uruguay, Argentina, Australia and Thailand, raised questions about the European Communities (EC) import regime for cereals, including rice. The use of reference import prices, rather than actual invoice prices, was alleged to result in higher customs duties being applied, in breach of EC's UR commitments. Pakistan stated that it was affected by this regulation. The United States had originally decided to request the establishment of a panel, but a compromise among the parties was eventually reached.
In another dispute, concerning export measures affecting hides and skins, the EC was the complainant against Pakistan. The issue was the latter's prohibition of the export of hides and skins and wet blue leather made from cowhides and cow calf hides, among other products. It contended that the measure limited access of EU industries to competitive sourcing of raw and semi-finished materials.
Pakistan was a joint complainant with India, Malaysia and Thailand against a United States ban on the importation of shrimp and shrimp products from these countries. The experience of the complaining countries was positive, as the United States agreed to implement the rulings and recommendations of the Dispute Settlement Body.
Food products accounted for roughly 70 percent of total agricultural imports during most of 1985-98, while their share in total agricultural exports has been on the rise, from 45 percent in 1985-87 to 70 percent in 1996-98. The main export products are cotton, rice and fruit and vegetables, and the principal imports are wheat and wheat flour, vegetable oils, pulses, tea and (occasionally) refined sugar. Vegetable oils, together with wheat and flour, have constituted as much as 80 percent of agricultural imports in some years.
Total agricultural imports increased rapidly during 1985-94, at the linear rate of US$49 million per year. In the post-94 period, they rose sharply in 1995, by 87 percent, fell slightly in the next two and rose by 12 percent in 1998 (Figure 1). As a result, the average value of agricultural imports in 1995-98 was 50 percent higher than in 1990-94 and still 30 percent higher than the extrapolated value for 1995-98, despite the strong positive trend (Table 5).
Table 5: Agricultural trade in 1990-94 and 1995-98 (average annual value, in million US$, and percentage change)
Period |
Imports |
Exports |
Net imports |
|
1990-94 actual (a) 1995-98 actual (b) 1995-98 extrapolated (c)1
(b) - (a) 2 (b) - (c) 2 |
1 404 2 104 1 617 700 (50%) 487 (30%) |
962 1 101 981 139 (14%) 120 (12%) |
441 1 003 636 562 (127%) 367 (58%) |
1 Extrapolated value based on 1985-94 trend. 2 Numbers in parentheses are percentage changes over (a) and (c), respectively. Source: Computed from FAOSTAT data. Agriculture excludes fishery and forestry products. | |||
Figure 1: Agricultural trade, 1985-98 (in million US$; thick lines are actual values, thin lines are trends for 1985-94 extrapolated to 1998)
Source: FAOSTAT
By contrast, agricultural exports, which are much lower in value than imports, trended slightly downwards during 1985-94, a linear decline of about US$6 million per annum. Performance was better in the later years; during 1995-98 exports rose in all years. Their average value in that period (US$1 100 million) was 14 percent higher than in 1990-946 and, since the trend was only slightly negative, almost as high (12 percent) when measured against the trend.
As a result of these movements in imports and exports, the import surplus in 1995-98 was 127 percent (an annual US$562 million) above the already high level prevailing in 1990-94. But since the net deficits had been on a strongly rising trend during the entire period 1985-94, the 1995-98 performance appeared better (58 percent higher) when measured against that trend.
Table 6 shows that for the major export products, the tonnages exported have generally been higher in the post-UR years than prior to 1995. Cotton enjoys favourable access terms in world markets, with few tariff and non-tariff barriers, but the persistent decline in domestic production as a result of pest attack and bad weather has reduced exports also from their pre-UR levels. In recent years, export prices of cotton have also been depressed. The share of lint in total cotton exports has fallen since 1985 while that of cotton waste rose markedly. As a result of all these factors, export earnings from cotton fell sharply, at the linear rate of US$26 million per year from 1985 to 1994, and continued to suffer thereafter.
Rice exports have increased steadily since 1985, accelerating in recent years; the tonnage exported in 1995-98 was 64 percent higher than in 1990-94. Of the two types exported, the aromatic Basmati rice faces competition only in its traditional markets (the Persian Gulf countries and the United Kingdom), while the coarse variety faces stiff competition in most markets in Asia and Africa. It had been hoped that the UR would improve access terms for rice, but that did not turn out to be the case, especially in several developed country markets.
Experience has been mixed as regards the export of fruit and vegetables, but positive on the whole. Notable progress has been recorded in the post-UR period, particularly in 1996/97 and 1997/98, but it is not clear if it can be sustained. Market access terms are difficult and the UR made very little difference in most developed country markets. Moreover, the level of SPS standards has been a major impediment. Although Pakistan has not so far taken any formal action in WTO, it did approach bilaterally some of its developed trading partners, such as EU and Japan, requesting them to relax their SPS standards. In response, Japan has offered a food-processing plant. But the vast potential for fruit exports remains to be exploited.
Table 6: Exports of major agricultural products, 1995-98 (in 000 tonnes)
Period |
Cotton |
Rice |
Primary fruit |
Primary vegs. |
Non-primary fruit & vegs. |
All fruit & vegs. | |
|
1990-94 actual (a) 1995-98 actual (b) 1995-98 extrapolated (c)1 Percentage change: (b) / (a) (b) / (c) |
359 186 295 -48 -37 |
1 095 1 798 1 148 64 57 |
111 168 123 51 36 |
28 28 7 0 293 |
41 53 41 29 31 |
180 249 171 38 46 | |
1 See note 1 to Table 5. Source: Computed from FAOSTAT data. | |||||||
As noted above, food products predominate in agricultural imports and are becoming increasingly important in exports. Trends in food imports are thus similar to those for agricultural imports as a whole. During 1985-94 the trend was strongly positive, rising at the linear rate of US$38 million per year (Figure 2). There followed a sharp increase in 1995 (by 87 percent) and, although there was some decline thereafter, they remained at a relatively high level. As a result, the average value of imports in 1995-98 was 53 percent higher than in 1990-94, and 31 percent higher when measured against the extrapolated value for 1995-98, despite the strong positive trend (Table 7).
Figure 2: Food trade, 1985-98 (in million US$; thick lines are actual values, thin lines are trends for 1985-94 extrapolated to 1998)
Source: FAOSTAT
Food exports rose modestly during 1985-94, at the linear rate of US$13 million per year. They surged by 68 percent in 1995, fell by 5-10 percent in the following two years and rose again by 46 percent in 1998. As a result, the average value of food exports in 1995-98 exceeded that of 1990-94 by 64 percent and the trend average by 45 percent.
In spite of this impressive export performance, because food exports are small relative to imports the deficit in 1995-98 was 43 percent higher than in 1990-94, and 19 percent more when measured against the trend.
Table 7: Food trade in 1990-94 and 1995-98 (annual average value,
in million US$, and percentage change)
Period |
Imports |
Exports |
Net imports |
1990-94 actual (a) 1995-98 actual (b) 1995-98 extrapolated (c)
(b) / (a) 1 (b) / (c) 1 |
999 1 527 1 166 527 (53%) 360 (31%) |
480 785 543 305 (64%) 242 (45%) |
519 741 623 222 (43%) 118 (19%) |
|
1 See note 1 to Table 5. 2 Numbers in parentheses are percentage changes over (a) and (c) respectively. Source: Computed from FAOSTAT data. Food excludes fishery products. | |||
Table 8 compares the quantities imported of selected major food products in 1995-98 and 1990-94. It can be seen that the volumes imported in 1995-98 exceeded those of the preceding four-year period in the case of wheat and wheat flour, vegetable oils, fruit and vegetables and pulses, but were below the earlier levels for dairy products and tea. On the other hand, the 1995-98 imports of the basic foods were lower than the trend values, with the exception of fruit and vegetables and pulses. In other words, there was a slowdown in the rate of import of several food products.
Table 8: Imports of major food products during 1995-98 (in 000 tonnes)
|
Period |
Wheat & wheat flour |
Vegetable oils |
Fruit & vegs. |
Dairy products |
Pulses |
Tea | |
1990-94 actual (a) 1995-98 actual (b) 1995-98 extrapolated (c)1 Percentage change: (b) / (a) (b) / (c) |
1 966 2 429 2 619 24 -7 |
1 074 1 248 1 322 16 -6 |
258 410 376 59 9 |
168 93 142 -45 -34 |
157 205 261 31 22 |
113 107 132 -5 -19 | |
1 See note 1 to Table 5. Source: Computed from FAOSTAT data. Food excludes fishery products. | |||||||
Most of these food products are of an essential nature and their import demand is inelastic with respect to the world market price. Moreover, for food security reasons, the Government refrains from excessive regulation of the imports, often preferring to reduce tariffs or allow duty-free entry. At the same time, most of these products are also produced domestically, and accordingly Pakistan faces the usual policy dilemma of reconciling the interests of producers with those of consumers. Import trends are consequently closely monitored, and applied duties are varied in response to changes in domestic supply conditions and world market prices.
Figure 3 shows how food imports have varied annually in relation to total agricultural exports. In 1985-87, the ratio was 0.9, i.e. food imports were 90 percent of agricultural exports. This ratio fell to a low of 0.6 in 1988 and increased thereafter, fluctuating from year to year. The average value for 1995-98 was 1.42, some 31 percent higher than in 1990-94 (when it was 1.1), and still 11 percent higher than the extrapolated trend value. Thus, there has been a clear and marked deterioration in the balance of food imports and agricultural exports.
Figure 3: Ratio of the value of total food imports to that of total agricultural exports, 1985-98
On market access, Pakistan's only commitment was on bound tariffs. Most non-tariff barriers were lifted and applied tariffs reduced in stages to a maximum of 35 percent in 1999. These were unilateral initiatives as the AoA did not require Pakistan to reduce the bound tariffs. In Section II it was concluded that Pakistan should, on the whole, be able to "live" rather comfortably with its AoA commitment.
Nevertheless, it must be stressed that in this study it was not possible to analyse the full consequences of tariffication and tariff reductions and the impact of imports on domestic import-competing sectors. Such analysis is important for any economy where a large segment of the population depends on agriculture, and it should be undertaken as a matter of priority before further tariff reductions are undertaken or similar commitments made at the WTO. The review of the experience of the past five years showed that it was not always easy for the Government to rely on particular, low applied rates. For many products, tariffs often had to be revised, upwards or downwards, in response to developments such as local crop conditions and world market prices. This flexibility was important, but more analysis would be required to fine-tune the process and to determine the range of the bound tariffs that help attain agricultural development objectives. On a related matter, Pakistan also needs to determine a negotiating position on agricultural SSGs, e.g. whether to press for access to such measures or for the complete abolition of agricultural safeguards for all WTO members, keeping in mind their importance when bound tariffs are very low.
On domestic support, there is very little by way of constraint on policy. Pakistan's product-specific AMS was negative and non-product-specific AMS was less than 1 percent of the value of agricultural production. There is accordingly ample scope for raising support outlays without contravening the AoA. That Agreement sets no ceiling on green box and SDT expenditures, so there are no direct consequences for policy. Rather, the main problem seems to be very low levels of support to agriculture, given the important role of the sector in the economy.
Nevertheless, Pakistan needs to follow the debate in the CoA closely. First, there is a need to clarify a number of definitions (e.g. eligible production) and methods (e.g. measuring AMS), areas in which, it was noted above, Pakistan faced many questions. Second, it is important to ensure that the current exemptions granted to developing countries under the AoA are protected, e.g. the de minimis threshold and SDT. Third, the Government needs to prepare itself for negotiations aimed at reducing domestic support in its major export markets and enlarging access to them, issues taken up in the following paragraphs.
While Pakistan has broadly fulfilled its contractual "obligations" under the AoA, there is a general feeling that the country has not yet realized the promised benefits. Although a number of problems on the domestic side are recognized, it is held that the realization of these benefits also depends upon the extent to which the country's major trading partners undertake policy reforms, in both the spirit and the letter of the various WTO Agreements.8 Much still remains to be done in this respect.
A case in point is the continued high levels of protection and support to agriculture in the OECD countries, a major market for Pakistan, which is well documented by OECD itself. It so happens that the very commodities that receive high support and protection in these countries are also the main export products of Pakistan, namely rice, sugar, fruit and vegetables and meat. Policy in those countries has not only undermined Pakistan's access to their markets directly. Indirectly it has also undermined exports to other markets. For example, as a non-subsidizing, low-cost rice exporter, Pakistan has been hurt by the very high domestic support to rice in the OECD countries, where the Producer Support Estimate amounts to 74 percent of the value of rice production. It has also been hurt by the nominal rate of border protection of 3.8 for rice, unusually high among all commodities.
A major related area of concern is the current TRQ system. More than 70 percent of all tariff quotas under the AoA are on products that are of export interest to Pakistan: fruit and vegetables (26 percent), meat products (18 percent), cereals (16 percent) and dairy products (13 percent). Overall, tariff quota fill rates have been less than two thirds. Perhaps even more importantly, the administration of the quotas is far from being transparent, access thereto being largely limited to traditional, specified suppliers, to the detriment of countries like Pakistan. The administration of the quotas is also complex, requiring a great deal of effort and resources to understand the system. There is a need for a general overhaul of the current TRQ system.
It is felt that the various reduction formulae and approaches used in the AoA allow countries to liberalize sectors selectively. As a result, except for cotton, Pakistan's principal export products, namely rice, sugar, fruit and vegetables and processed hides and leather, face difficult market access terms in all major markets, since imports have not been, or hardly been, liberalized for these products. Processed hides and leather products are subject to tariff peaks and considerable tariff escalation, and it was noted above that rice is one of the most protected and supported commodities. The UR did very little to reform the world sugar market, leaving the old quota-ridden import regimes intact. Import regimes for fruit and vegetables also continue to be complicated, notably in the EU.9 There is much at stake for Pakistan in the new round of negotiations, but in order to achieve concrete results for the commodities of export interest to it, Pakistan needs to prepare itself in terms of analysing the issues and putting forward concrete proposals for reform, together with like-minded WTO members.
Although the SPS/TBT Agreements are not part of the mandated negotiations beginning in 2000, these Agreements are too important to be left out of any discussion on agricultural trade. As noted in Section II above, a concerted effort is required to collate the experience so far, based mainly upon the experience of traders who would know the situation well. This is one priority area for work. In addition, unfair cases should be identified and remedial action sought in the appropriate WTO forum. It seems that already there is much to be learnt from the experience with the export of fruit and vegetables, both fresh and processed, as it is these products which were reported to have been most affected by the SPS/TBT Agreements.
At the same time, it is important to recognize that much of the battle to be fought is on the domestic front. As consumer concerns over safe and quality foods intensify all over the world, there is no alternative to upgrading the standards of the products exported. Experience in many other countries has shown that product standards on exports can rarely be upgraded without first improving them for the home market. Much remains to be done in Pakistan in this respect. Finally, Pakistan, like many other developing countries, should continue to voice its dissatisfaction at the slow pace, and at the low level, at which various technical and financial assistance promises contained in the SPS/TBT Agreements are being implemented.
Over the past five years, Pakistan has contributed considerably to the debate on food security and the cause of agriculture in developing countries, e.g. in the CoA's Analysis and Information Exchange (AIE) process and through the analysis of SDT provisions. It also played an important role in discussions on the implementation of the Marrakesh Ministerial Decision, also to the benefit of other NFIDCs. Taken together, these were important contributions towards ensuring that food security concerns of the developing countries are fully taken into account in agricultural trade negotiations. With the prominence given to Article 20 of the AoA in the new negotiations, Pakistan would be expected to continue these contributions in the coming years, which requires further analysis and debate at home and elsewhere.
1 Based on a background study prepared for the FAO Commodities and Trade Division by Mushtaq Ahmad, Islamabad.
2 See A. Krueger, M. Schiff and A. Valdés, "Agricultural incentives in developing countries: Measuring the effect of sectoral and economy-wide policies", World Bank Economic Review 2(3):255-71, 1988.
3 Base-period AMS, as reported to WTO, was calculated in rupee terms. As from 1996/97, it has been calculated in dollar terms, since it was claimed that the rupee-denominated AMS gave a distorted picture of domestic support. This change was the subject of considerable discussion in WTO (described below).
4 In rupee terms, the AMS fell less markedly, amounting to 25 percent and 54 percent for these two years, respectively.
5 WTO Document G/AGRICULTURE/W/44, 12 March 1999.
6 The average values for the two periods were about equal when exceptional years were excluded from the averages, namely 1994 for period 1 and 1996 for period 2.
7 Food excludes fishery products.
8 This sentiment has been expressed by Pakistani officials in many forums, within and outside the WTO. Similar frustration was expressed in Pakistan's statement to the Third WTO Ministerial Conference, at Seattle.
9 The issues facing exporters of fruit and vegetables to the EU are discussed at some length in the Egyptian case study in this volume.
