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By Humayun Akhtar Khan
After having missed many artificial deadlines, it seems that the Doha Round is probably inching towards closure. It has been almost seven years since Ministers agreed on the Agenda and decided at Doha to launch this Round. This was to be an ambitious development round covering traditional issues, such as cutting tariffs to reforming agricultural policies that distort international trade, further opening up services and improving rules on trade facilitations, anti-dumping, subsidies on fisheries, intellectual property rights and a host of other issues. To achieve international agreement on all these issues, a rather ambitious time frame of three years was set.
However, this round turned out to be no different from the previous GATT rounds where negotiators tried to shelter their own sensitive sectors while ambitiously trying to get access to other countries’ markets. Since every previous round has been longer than its predecessor, it soon became clear that the Doha Round would take at least seven years which was the time taken by the Uruguay Round. Efforts at Cancun (Mexico) in September 2003 to prematurely bring it to a conclusion failed miserably and the negotiations had to be started afresh with a reduced mandate under which three out of four Singapore issues, namely investment, competition policy and transparency in government procurement had to be dropped. Only the issue relating to trade facilitation remained on the table.
Agriculture continued to drive the Round although other market access issues such as industrial goods and services also crept along. Although all 20 or so agenda items have to be negotiated and finalised as a single undertaking, the general view is that once negotiations on agriculture and industrial goods have been completed, other issues would not be problematic.
Recent signals by Pascal Lamy, Director General of WTO, that these issues are in the final stages of cooking up and that a ministerial level meeting is needed to be held at the end of July, means that the time has come to make a deal on these issues. Yet, the history of the Round allows us only guarded optimism. With 153 members, some with divergent views and so many issues still outstanding, it would be no less than a miracle if a final deal could be put together in the next few weeks.
What would be the implications if the ministerial gathering again fails to deliver?
A failure to conclude a deal on agriculture and non-agricultural market access (NAMA) by next month will probably mean the end of the Round. With the United States presidential elections getting so close, it would not be possible for them to engage. Without the active participation by the world’s biggest economy, no one else is likely to make any serious efforts. If the deal is postponed till the new US administration takes office, it is likely that the new administration might seek a re-negotiation of the Agenda. It has already happened in the case of bilateral trade agreements such as the one with Columbia. Unravelling the Agenda would effectively mean the end of the Doha Round.
With the world already going through unparalleled financial crises, with fuel and food prices breaking all records, breaking down of the Round can be catastrophic. We may see countries going back to protectionism. Just as in the past when the Roaring Twenties gave way to the Dirty Thirties because of the United States moving back to protectionism, we may see the growth cycle of 90’s turning in the opposite direction. Such an eventuality would mean sharp fall in business and manufacturing activity and hardship all around.
Why is the Doha Round so important for Pakistan? There is a general perception that Pakistan did not gain much from the previous rounds and the same would happen in this round. It may be true that our gains from the previous rounds were limited. However, our lack of engagement in those rounds was to blame, not the liberalisation achieved therein.
We were interested only in our defensive interests. It was at the end of the Uruguay Round that we undertook some commitments. But here again in the market access areas, we remained very defensive. We agreed to bind our agricultural tariffs at an average of 100 per cent. In industrial goods, we only agreed to bind a little over a third of our tariff rates and even then we only bound those tariff lines where there was hardly any trade. Unlike the rest of the world, we stayed out of Information Technology Agreement which now covers over 97 per cent of world trade in those goods.
The only effective commitment we undertook in 1997 related to telecommunications and financial services.Compliance with the WTO commitments in the telecom sector ended the exclusive right of the majority state-owned Pakistan Telecommunication Company Limited (PTCL). Under the WTO Financial Services Agreement, Pakistan committed to grant the right to establish new foreign banks and bring in more competition. As a result, both these sectors have undergone a dramatic transformation, and have contributed to the high GDP growth since we implemented those commitments in 2003.
It is commonly believed that our textiles and clothing industry has been a loser because of abolition of quotas at the end of 2004 under the terms of the Uruguay Round Agreements. Here again, statistics clearly show that while Pakistan may not have gained as much as China or Bangladesh or some other countries, it has been nevertheless increasing its exports at a steady rate. In 2004, prior to quota abolition, its exports of textiles and clothing to the EU and US markets were $5.432 billion which rose to $6.499 billion in 2007 or by about 6.2 per cent annually. This should certainly have been more if the political stability had been maintained and foreign buyers were at liberty to visit and place orders here.
Even if our gains in the previous rounds were limited, it should not be so for the Doha Round. There are various estimates what the total gains may be. World Bank studies show estimated gains of $287 billion over time whereas Carnegie Endowment for Peace estimates about $168 billion. Whatever the estimates of gains, there is no doubt that the world will be better off if the round is successfully completed. Of course, countries which are better integrated will benefit more than those which remain protected.
For Pakistan, this Round is of special significance. Despite Pakistan being a GSP preference receiving country in its major markets, the average tariffs that our exporters pay are more than 10 per cent as against one per cent being paid by the exporters of developed countries. Its other competitors, such as the least developed countries and other smaller economies, enjoy duty free access under various schemes such as the Everything but Arms (EBA) scheme of the EU or Africa Growth and Opportunity Act (AGOA) and Caribbean Basin Initiative (CBI) schemes of United States.
Therefore, the only way for Pakistan seems to be a successful Doha Round. With a successful round, tariffs in our major markets should come down substantially. All developed countries would have to reduce their tariffs to less than six per cent. In agriculture, our farmers would have a better chance to compete if trade distorting subsidies of rich countries are reduced substantially and brought under more discipline.
In services, Pakistan’s offensive interests lie in getting predictable market access for our Mod-4 temporary service providers globally. Our interests also lie in Mode-1 in the area of Business Process Outsourcing (BPO). Other areas of key interest are the existing rules. We are often unfairly targeted by the EU and even at present anti-dumping duties are being collected from our bed linen exporters. We should seek more balanced rules in this area.
There is almost nothing required of us in terms of market opening. But we have to do unilateral liberalisation so that our industry has access to cheaper raw materials and is also competitive.
The writer, a former federal minister for commerce, was Pakistan’s chief negotiator at the WTO from 2002-07.
Monday, July 14, 2008
Sunday, May 4, 2008
Income Inequality
Source: http://jang.com.pk/thenews/may2008-weekly/nos-04-05-2008/pol1.htm
For the rich only
Income and wealth
disparities galore in our society
By Huzaima Bukhari and Dr Ikramul Haq
According to a study conducted by the Centre for Research on Poverty and Income Distribution (CRPID), 63 per cent of poor in Pakistan fall in the category of 'transitory poor'. The State Bank of Pakistan (SBP) has also admitted in its annual reports that the standard definition of 'transitory poor' includes those households that are below the poverty line for most of the time, but not always, during a defined period.
The remaining 32 per cent and five per cent of the population that subsist below the poverty line are 'chronic' and 'extremely poor', respectively. 'Chronic' and 'extremely' poor are those households that are below the poverty line all the time during a defined period. Similarly, on the other side, 13 per cent and 21 per cent of total non-poor (above the poverty line) are classified as 'transitory vulnerable' and 'transitory non-poor', respectively.
This portrays an alarming situation, as more and more people are moving from the 'transitory' category to the 'chronic category', courtesy inequitable distribution of income and wealth, monopoly over assets and regressive tax policies. Rulers in Pakistan have never showed any commitment to economic and social justice as their primary political goal. One wonders if the new government is aware of this state of affairs and is devising some practical ways to help improve the situation.
Political economy is the theory of wealth, and of how wealth is created and shared within the society. Its key concepts are production, distribution, exchange and consumption. Historically, political economy is a response to the rise of capitalism and capitalist society. Its concepts are refined, redefined and added to as capitalism progresses from the mercantile or merchant capitalism of the sixteenth and seventeenth centuries to the agricultural and manufacturing capitalism of the eighteenth century; to the industrial capitalism of the nineteenth century to the rise of a unipolar world power in the twentieth century; to the quest for monopolies in the twenty-first century.
In the last five years, unfortunately, no one has conducted a comprehensive research to determine all the dimensions of the rich-poor divide in Pakistan. Various studies, wherein inequality-measuring criteria like the Lorenz Curve and the Gini Coefficient have been used, however, provide estimates of inequality in Pakistan. According to A R Kemal, studies on income inequality in Pakistan show different estimates because of the following five important factors:
One, different studies use different data sets -- some are based on Household Income and Expenditure Surveys, others make use of income tax data and still others splice the two sets of data. Two, while some studies consider inequalities in income, others consider inequalities in the consumption expenditures. Three, while some studies are done for Pakistan as a whole, others examine income inequalities in both the rural and urban areas. Four, while some studies report income inequalities across households, others report inequalities across population or earners. Five, some researchers classify data by deciles prior to the estimation of the Gini Coefficient; while others employ the income intervals that are not uniform.
All studies, however, confirm that income inequality in 2000-2007 was more than in any other time period in the history of Pakistan. The poorest 30 per cent lost their share, while the richest 20 per cent gained in both the urban and rural areas during the Musharraf-Shaukat era. The Gini Coefficient is named after Corrado Gini, an Italian economist who introduced it in 1912. The Gini Coefficient is derived from a statistical formula, and expresses the degree of evenness or unevenness of any set of numbers as a number between 0 and 1.
A Gini Coefficient of 0 would indicate equal income for all earners. A Gini Coefficient of 1 would mean that one person had all the income and nobody else had any. Thus, a lower Gini Coefficient indicates more equitable distribution of wealth in a society, while higher a Gini Coefficient means that wealth is concentrated in the hands of a few people. Sometimes, the Gini Coefficient is multiplied by 100 and expressed as a percentage between 0 and 100 ('Gini Index').
According to a US State Department report, released in 2006, the Gini Coefficient for Pakistan is 68.0. According to the same report, the 'Gini Index' for Japan is 14.9, for Sweden is 21.0, for Switzerland is 21.1, for Germany is 22.3, for the United Kingdom is 23.0, for Canada is 23.1, for France is 32.7, for Iran is 41.0, for the United States is 46.6, for Argentina is 52.2, for Mexico is 54.6, for South Africa is 57.8 and for Namibia is 70.7. According to another United Nations report, from 1987 to 1999, the Gini Coefficient for Pakistan was in the range of 0.33 to 0.43, but it increased to 0.68 in 2006, yet the previous government kept on harping the tune of a 'wonderful' economic turnaround.
Income inequalities in Pakistan, as elsewhere, largely reflect inequalities in the distribution of assets. Since the poor have virtually no assets and the lower middle-class owns very few assets, income distribution is skewed. Distribution of state land; development of plots and houses for the common people at affordable rates; the sale of shares of public enterprises in smaller lots; human resource development; and credit to micro-, small- and medium-enterprises are some of the ways that might help the poor in acquiring assets. However, the role of various official bodies set up by federal and provincial governments in this regard has been poor to say the least.
The income inequality in Pakistan has increased drastically in the last eight years and the trend continues unabated despite all claims of poverty reduction. The main factors that govern personal income distribution include distribution of assets; functional income distribution; transfers from other households, government and rest of the world; and tax and expenditure structure of the government.
However, the single most devastating factor for increased income and wealth inequalities in Pakistan remains the regressive tax system. Incidence of tax on the poor in the last 10 years has increased substantially (by about 35 per cent), while the rich are paying almost no direct tax on their colossal income and wealth. Study of Pakistan from this political economy perspective is very crucial, as our society is fast adopting dehumanising characteristics. We are faced with economic disparities, shortage of food and lack of essentials services. The great divide between the rich and the poor in today's Pakistan is assuming alarming proportions, and may eventually lead to a civil war if preventive measures are not adopted immediately.
(The writers are tax advisers and legal historians. They also teach at LUMS).
For the rich only
Income and wealth
disparities galore in our society
By Huzaima Bukhari and Dr Ikramul Haq
According to a study conducted by the Centre for Research on Poverty and Income Distribution (CRPID), 63 per cent of poor in Pakistan fall in the category of 'transitory poor'. The State Bank of Pakistan (SBP) has also admitted in its annual reports that the standard definition of 'transitory poor' includes those households that are below the poverty line for most of the time, but not always, during a defined period.
The remaining 32 per cent and five per cent of the population that subsist below the poverty line are 'chronic' and 'extremely poor', respectively. 'Chronic' and 'extremely' poor are those households that are below the poverty line all the time during a defined period. Similarly, on the other side, 13 per cent and 21 per cent of total non-poor (above the poverty line) are classified as 'transitory vulnerable' and 'transitory non-poor', respectively.
This portrays an alarming situation, as more and more people are moving from the 'transitory' category to the 'chronic category', courtesy inequitable distribution of income and wealth, monopoly over assets and regressive tax policies. Rulers in Pakistan have never showed any commitment to economic and social justice as their primary political goal. One wonders if the new government is aware of this state of affairs and is devising some practical ways to help improve the situation.
Political economy is the theory of wealth, and of how wealth is created and shared within the society. Its key concepts are production, distribution, exchange and consumption. Historically, political economy is a response to the rise of capitalism and capitalist society. Its concepts are refined, redefined and added to as capitalism progresses from the mercantile or merchant capitalism of the sixteenth and seventeenth centuries to the agricultural and manufacturing capitalism of the eighteenth century; to the industrial capitalism of the nineteenth century to the rise of a unipolar world power in the twentieth century; to the quest for monopolies in the twenty-first century.
In the last five years, unfortunately, no one has conducted a comprehensive research to determine all the dimensions of the rich-poor divide in Pakistan. Various studies, wherein inequality-measuring criteria like the Lorenz Curve and the Gini Coefficient have been used, however, provide estimates of inequality in Pakistan. According to A R Kemal, studies on income inequality in Pakistan show different estimates because of the following five important factors:
One, different studies use different data sets -- some are based on Household Income and Expenditure Surveys, others make use of income tax data and still others splice the two sets of data. Two, while some studies consider inequalities in income, others consider inequalities in the consumption expenditures. Three, while some studies are done for Pakistan as a whole, others examine income inequalities in both the rural and urban areas. Four, while some studies report income inequalities across households, others report inequalities across population or earners. Five, some researchers classify data by deciles prior to the estimation of the Gini Coefficient; while others employ the income intervals that are not uniform.
All studies, however, confirm that income inequality in 2000-2007 was more than in any other time period in the history of Pakistan. The poorest 30 per cent lost their share, while the richest 20 per cent gained in both the urban and rural areas during the Musharraf-Shaukat era. The Gini Coefficient is named after Corrado Gini, an Italian economist who introduced it in 1912. The Gini Coefficient is derived from a statistical formula, and expresses the degree of evenness or unevenness of any set of numbers as a number between 0 and 1.
A Gini Coefficient of 0 would indicate equal income for all earners. A Gini Coefficient of 1 would mean that one person had all the income and nobody else had any. Thus, a lower Gini Coefficient indicates more equitable distribution of wealth in a society, while higher a Gini Coefficient means that wealth is concentrated in the hands of a few people. Sometimes, the Gini Coefficient is multiplied by 100 and expressed as a percentage between 0 and 100 ('Gini Index').
According to a US State Department report, released in 2006, the Gini Coefficient for Pakistan is 68.0. According to the same report, the 'Gini Index' for Japan is 14.9, for Sweden is 21.0, for Switzerland is 21.1, for Germany is 22.3, for the United Kingdom is 23.0, for Canada is 23.1, for France is 32.7, for Iran is 41.0, for the United States is 46.6, for Argentina is 52.2, for Mexico is 54.6, for South Africa is 57.8 and for Namibia is 70.7. According to another United Nations report, from 1987 to 1999, the Gini Coefficient for Pakistan was in the range of 0.33 to 0.43, but it increased to 0.68 in 2006, yet the previous government kept on harping the tune of a 'wonderful' economic turnaround.
Income inequalities in Pakistan, as elsewhere, largely reflect inequalities in the distribution of assets. Since the poor have virtually no assets and the lower middle-class owns very few assets, income distribution is skewed. Distribution of state land; development of plots and houses for the common people at affordable rates; the sale of shares of public enterprises in smaller lots; human resource development; and credit to micro-, small- and medium-enterprises are some of the ways that might help the poor in acquiring assets. However, the role of various official bodies set up by federal and provincial governments in this regard has been poor to say the least.
The income inequality in Pakistan has increased drastically in the last eight years and the trend continues unabated despite all claims of poverty reduction. The main factors that govern personal income distribution include distribution of assets; functional income distribution; transfers from other households, government and rest of the world; and tax and expenditure structure of the government.
However, the single most devastating factor for increased income and wealth inequalities in Pakistan remains the regressive tax system. Incidence of tax on the poor in the last 10 years has increased substantially (by about 35 per cent), while the rich are paying almost no direct tax on their colossal income and wealth. Study of Pakistan from this political economy perspective is very crucial, as our society is fast adopting dehumanising characteristics. We are faced with economic disparities, shortage of food and lack of essentials services. The great divide between the rich and the poor in today's Pakistan is assuming alarming proportions, and may eventually lead to a civil war if preventive measures are not adopted immediately.
(The writers are tax advisers and legal historians. They also teach at LUMS).
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