Linda M. Young Political Science Dept. Montana State University Pakistan: Agricultural Trade and Development Challenges.

Linda M. YoungPolitical Science Dept.Montana State University

Pakistan: Agricultural Trade and Development Challenges

Will start with background• on me• on Pakistan

Overview of the agricultural negotiations

What Pakistan wants• how that surprised me

Developmental challenges

My Talk Tonight

How Did I Get There?

Agricultural trade economist• dealing with agricultural trade issues, NAFTA, then WTO for

numerous years

Member of the International Agricultural Trade Research Consortium• three commissioned papers on “export competition”

Other work on food aid and state trading• “Experts” meeting in Rome, over Thanksgiving

Pakistan new WTO unit

Agricultural position for Hong Kong Ministerial

November, 8 days, Islamabad

2x size of California

135 million people

97% Muslim

English common

World’s 8th largest army

Insert map here

Islamabad

India wanted independence

Idea of a separate Muslim state

Muhammad Ali Jinnah, leader of the Muslim League

• endorsed the Lahore resolution

1947 Britain gave independence to India and Pakistan

• “Princely States” could join either one

Create a bifurcated Muslim state separated by 1,600 kms• including present day Bangladesh

6 million Hindus from Pakistan to India and 8 millionMuslims vice-versa

Remember …

Muhammad Ali Jinnah

Conflict Over Kashmir

Maharaja of Kashmir – Hindu• population mostly Muslim• Maharaja hesitated, Muslims revolted to join

Pakistan• Maharaja gave loyalty to India, for military

assistance – Indian troops occupied eastern portion of

Kashmir, including Srinagar– western part under Pakistan

Relationship with India tense ever since

But, India should be Pakistan’s natural trading partner

Sir Hari Singh BahadurMaharaja of Kashmir

Pakistan – Political Instability

1948: The revered Jinnah assassinated

1949-1970: Eleven administrations, sporadic martial law

1970: Bhutto, civil war

1971: East Pakistan split, independent Bangladesh, Bhutto rules

1976: Bhutto put to death, Zia in power

1988: Zia dies in airplane crash

1988-1996: Benezair Bhutto in and out of power

1997: Shariff and Tarar Note: President/Prime Minister change of powers

1999: Musharraf (Chief Executive, now President)

Pakistan and the World Trade Organization

Pakistan wants to develop technical capacity

Negotiations complicated, technical, data intensive

Many developing countries unhappy with URA

Brazil: • leader of G-20• making a difference• one factor is new technical capacity• example?

Mário JalesICONE Projects Coordinator

OECD Producer Subsidy Equivalents (PSEs)by Country

0

10

20

30

40

50

60

70

80

Australia Canada EU Japan US OECD

Per

cen

t

9%

1997

20%

42%

73%

16%

35%

10%

42%48%

69%

30%

45%

1986-88

Source: Agricultural Policies in OECD Countries, Organisation for Economic Co-operation and Development (OECD) Secretariat, 1998.

1970s: Scarcity and high prices

1980s: Abundance, high stocks and low prices• large government expenditures on agriculture

Agriculture

• tariffs averaging 40-60%

• quotas on 30% of agricultural products

• history of domestic sub subsidies

• export subsidies used by many

Agricultural Markets

U.S. Agricultural Policies

Loan rates and target prices• program crops• spurred production

Export subsidies

Tariffs and quotas

U.S. Wheat Stocks and Prices Received

0

1

2

3

4

5

70/71 73/74 76/77 79/80 82/83 85/86 88/89

Crop Year

Do

llars

/bu

shel

0

25

50

75

100

125

150

175

200

Mill

ion

met

ric

ton

s

StocksStocks

PricePriceReceivedReceived StocksStocks

Price ReceivedPrice Received

Source: U.S. Dept. of Agriculture, 1995. Wheat: Background for 1995 Farm Legislation, AER-712, Economic Research Service, Washington, DC, Appendix Table 3.

EU Self-Sufficiency

Source: U.S. Department of Agriculture – Economic Research Service. 1999. The European Union’s Common Agricultural Policy: Pressures for Change. International Agriculture and Trade Report, Situation and Outlook Series, WRS-99-2, Washington, DC, October, Figure 2, p. 7.

WTO Export Subsidy Notifications (Value), 1996

EU84%

South Africa – 9%

United States – 1%

Rest of World – 2%

Switzerland – 4%

Source: U.S. Department of Agriculture – Economic Research Service. 1999. The European Union’s Common Agricultural Policy: Pressures for Change. International Agriculture and Trade Report, Situation and Outlook Series, WRS-99-2, Washington, DC, October, Figure 3, p. 7.

Outcomes of the Uruguay Round Agreementon Agriculture (URAA)

Developed countries 6 years: 1995–2000

Developing countries 10 years: 1995–2004

Tariffs average cut for all agricultural products minimum cut per product

–36% –15%

–24% –10%

Domestic support total AMS cuts for sector (base period: 1986–88)

–20%

–13%

Exports value of subsidies subsidized quantities (base period: 1986–90)

–36% –21%

–24% –14%

Least-developed countries do not have to make commitments to reduce tariffs or subsidies. The base level for tariff cuts was the bound rate before January 1, 1995; or, for unbound tariffs, the actual rate charged in September 1986 when the Uruguay Round began. The other figures were targets used to calculate countries’ legally-binding “schedules” of commitments.

Source: World Trade Organization. 2003. “Understanding the WTO.” Geneva, Switzerland, p. 28.

Note: Data relate to 1998-00 for Canada and Korea, 1999-01 for the EU, Norway and the United States, and 2000-02 for Japan. National currency values converted to U.S. dollars at the average exchange rate applicable to the base period for each country. Source: David Blandford, “Disciplines on Domestic Support in the Doha Round,” Trade Policy Issues Paper 1, The International Agricultural Trade Research Consortium and International Food and Agricultural Trade Policy Council, July 2005, p. 14.

Total Domestic Support

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

EU US Japan Korea Norway Canada

Mil

lio

n U

S d

oll

ars

Green

Blue

Amber

Lack of faith in “de-coupled support” and high levels of support

Decline in terms of trade for some

Little implementation of Marrakech Decision

Developing Countries Unhappy

Idea of Decoupled Support

Support income without distorting production, and trade

Producers respond to price incentives in the market

Subsidies not linked to production will not increase production

Researchers• support this LESS OVER TIME• new ideas about modeling

and theory• Australia always suspicious

Ministerial Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries

Concern: increased price volatility and import bills

An agreement open to interpretation

Food aid, technical and financial assistance included

What Do Developing Countries Want?

Decrease in developed country tariffs and subsidies (mostly)

Developed country ag policies:• reduce ag exports by developing countries by $37 billion (25%)

End of export subsidies (mostly)

Technical assistance

Real access to developed country markets

Assistance with food imports

But: MUCH DIVERSITY BETWEEN DEVELOPING COUNTRIES

Preferences problematic

What Outcome Is Most Important?

According to who?

Market access (World Bank), but…

Subsidies matter too, underestimated

Process outcome most important

Shift in balance of powerwithin the WTO

Pakistan: Food and Agriculture

Rural population 66% of total

Ag employs 43% labor

Largest irrigation system in the world

Food consumption (calories consumed by average person)

• 41% wheat• 11% milk• 10% sugar and products

Food production• buffalo milk 18 mmt• wheat 18 mmt• cotton lint 1 mmt

Pakistan’s Agricultural Exports

Rice

Wheat (importer to exporter)

Cotton

Agriculture: 60% of export earnings

0

20

40

60

80

100

Bound Tariff % PSE

Protection Facing Pakistani Exports

Sources: (1) Organisation for Economic Co-Operation and Development (OECD). 2002. “Agricultural Policies in OECD Countries Monitoring and Evaluation 2002: Highlights,” Paris, France; and (2) US Department of Agriculture, Economic Research Service. 2003. WTO Agricultural Trade Policy Commitments Database, Washington, DC. Available at http://www.ers.usda.gov/db/wto.

World Agricultural Tariff Averages, by Region

Note: Tariffs are bound MFN rates based on final URAA implementation.

Source: Gibson, P., J. Wainio, D. Whitley, and M. Bohman. 2001. Profiles of Tariffs in Global Agricultural Markets. Agricultural Economic Report No. 796, Economic Research Service, U.S. Dept. of Agriculture, Washington, DC, Figure 2, p. 9.

India included here

My Job

Export competition pillar• food aid • export subsidies• export credits• state trading

The Dilemma of Food Aid

Subsidy element make it part of export competition, but…

Strong humanitarian component

Viewed as a historical US subsidy• discourse extremely difficult

Emergency food aid no disciplines but• disagreement on definitions

Relevant to Pakistan

Divergent Interests but Sticking with the G-20

Secretary disagreed: gave me homework

Shares with G-20: decline in tariffs and subsidies

“Policy Space”

Special products

Finance ministers and heads of central banks of the G-20 countries at meeting in Berlin, Nov. 2004.

Intra-Developing Country Trade

One-third ag trade between developing countries

High tariffs by Brazil, China, India, and Mexico (25%)

United in calling for in developed country tariff

No consensus in developing country tariffs

Developed country ag trade reform useful, but also developing country tariff reduction

• consumers lower prices• MORE POLITICAL POWER

Pakistan … isolated

US: help with terrorism but little opening for textiles

• textiles 60% manufacturing exports

Doesn’t receive preferences from anyone

Geopolitically isolated

Limits to multilateralism• regional trade agreements

– ASEAN– China

Photo courtesy of theCentral Asia Institute

Easterly: Growth Without Development

Compared to other countries, similar income, Pakistan has• 36% lower attended births• 42% less health spending per capita• 27 excess infant deaths per 1,000• 23% less population access to sanitation• 24% higher illiteracy

Massive spending on defense and roads etc• defense spending 3.3% more GDP than countries same

income • overspending on defense = under spending on health and

education

Missing women-gender discrimination• girls 1 to 6 have a 66% higher death rate than boys

Easterly, William. 2003. “The Political Economy of Growth Without Development: A Case Study of Pakistan.” In Rodrik, Dani, In Search of Prosperity: Analytic Narratives on Economic Growth, Princeton University Press, Princeton and Oxford.

Ethnic Diversity

Research: ethnic diversity linked to poor institutional outcomes• ethnically diverse US cities

– less investment in education and other public resources– bloated public payrolls

• ethnically diverse countries – same outcome in terms of education and institutions

Pakistan: both elite dominance and ethnic diversity

Photos courtesy of the Central Asia Institute

Educational Gaps in Pakistan

Attained grade 1• 92% of rich males• 12% of poor females

Attained grade 9• 61% of rich males• 2% of poor females

Photo courtesy of the Central Asia Institute.

How and Why

Pakistani economist Ishrat Husain, “The ruling elites found it convenient to perpetuate low literacy rates. The lower the percentage of literate people, the lower the probability that the elite could be displaced.”

In the 1960s, 22 families controlled 66% of industrial wealth and 87% banking and insurance

Landowners – great power • rural gentry captured 70% of parliamentary seats in 2000• blocked direct taxation of agricultural income • school teachers related to land owners and protected – and absent

Male elite: does not want to invest in women’s education-will demand greater rights

Foreign donors: low emphasis on social progress instead of GDP growth

• tiny percentage of lending until 1990s, then only 22%

Duality the Challenge

International community has a challenge

Development requires active participation in institutions and decision making

Pakistan faces difficulties in gaining voice in international institutions

• my view the challenge and potential positive outcome of this round

Pakistan needs to promote at home

• health and education required for more people to

Further and profitably participate in the workforce

Inequality in holdings of assets, including land

Questions?