Globalization WTO

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Table of Contents

INTRODUCTION: ...................................................................................................................................... 1

THE CONSEQUENCE OF GLOBALIZATION ......................... ................................ ...................... ................... 1

WTO AND DOHA DEVELOPMENT ROUND 5

GLOBALIZATION AND ITS IMPACT ON PAKISTAN ECONOMY7

AGRICULTURE.7

EDUCATION: ............................................................................................................................................ 9

TEXTILE: ................................................................................................................................................. 10

TECHNOLOGY AND GLOBALIZATION: ..................................................................................................... 11

FINANCIAL GLOBALIZATION: .................................................................................................................. 11

UPGRADING QUALITY OF PRODUCTS: .................................................................................................... 12

GLOBALIZATION AND ITS INITIAL PROBLEMS IN PAKISTAN ............................ ....................... .................. 14

ECONOMIC ASPECTS OF GLOBALIZATION............................................................................................... 16

PRIVATIZATION ...................................................................................................................................... 16

IMPACT OF PRIVATIZATION: .................................................................................................................. 18

TRADE REGIME: ..................................................................................................................................... 19

PAKISTANS TRADE LIBERALISATION EXPERIENCE ........................... ................................ ........................ 20

CONCLUSION: ........................................................................................................................................ 21

RECOMMENDATIONS 22

BIBLIOGRAPHY.23


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INTRODUCTION:

Globalization is multidimensional and impacts all aspects of life, economic, social,

cultural and political. Globalization in tastes is leading to globalization in productsand globalization in production and labor markets is leading to increasing

outsourcing of parts, components, and services. Driven by the collapse of the

centralized economies and the triumph of the market based economic systems and

spurred on by the strategic imperatives of the multilaterals such as the World Bank

and the International Monetary Fund the drive towards market liberalization has

rapidly accelerated the pace of globalization during the past decade. The formation

of the World Trade Organization has formalized the global trading system and

provided, in principle, a structured framework for ensuring a level playing as well

as a mechanism for dispute resolution. Theoretically globalization opens up

markets and ensures competition thereby removing inefficiencies and leading to

greater growth. The market forces ensure that specialization takes place in areas of

comparative advantage. Thus for labor abundant economies this means increased

employment as well as growth. Poor countries are generally labor abundant and

capital scarce. Thus globalization, in theory, provides an effective means of

poverty reduction through enhanced employment of labor.

THE CONSEQUENCE OF GLOBALIZATION

Globalization means different things to different people. Mainly, the general viewsabout globalization can be categorized into three main perspectives that aretechnological, development, and societal respectively.

THE TECHNOLOGICAL PERSPECTIVE:

Today we witness phenomena that no futurist dreamed of half a century ago. It isclearly the availability of cheap, rapid and reliable communications that permits

such phenomena, just as this is the key to the integration of the international capital

market. With globalization instigating cost effective strategies and technologies

channelized big MNCs (Multinational Corporations) to switch operations to

cheaper developing countries. Companies like GE Capital Services have been


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outsourcing in India for simple jobs such as collection of money from delinquent

credit card users. British Airways along with other airlines like Swissair have large

centers for programming and handling everything from computer messages to air

ticket bookings today.

Hence, the information and communication technology (ICT), and internet in

particular, has been instrumental in integrating, providing potential for bridging

time and space, income and knowledge gaps to catalyze the chemical process of

globalization. This created a chain reaction of transfer of skilled and semi-skilled

IT experts export into US and Europe from the developing countries especially

from India and to some extent from Pakistan as well.

THE DEVELOPMENT PERSPECTIVE:

It touches the heart of dichotomy which today globalization phenomenon faces. It

tries to find the clues of the increasing divide between the rich and the poor, the

existing cleavage between the haves and have-nots, under the umbrella of one

world concept of integrated markets and capital flows. Above all it challenges the

greatest protagonists of globalization, the global institutions of World Bank, IMF,

and even WTO one hand. The question is not to reap the benefits of globalization,

but a greater one, that is how the share these benefits between the developed,

developing and least developed countries in an equitable manner.

THE SOCIETAL PERSPECTIVE:

This includes the condition of human rights, women empowerment, gender

sensitization, civic education, status of women in the society, political status

becoming more democratic, freedom of speech, rule of law, equal access to

resources and level of education.

Globalization is also a key to future environmental changes. Globalization is

having a major impact on population migration, population distribution,

particularly through accelerating urbanization trends, and growth of mega-cities.

These population changes are in turn impacting on security, governance, poverty,

health and environmental factors.


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In addition to this, the core of the developing world problems is lack of education,

which puts restrains for nations and societies alike to reap the benefits offered by

globalization genuinely.

OTHER ADVANTAGES AND DISADVANTAGES OFGLOBALIZATION:

Globalization is the buzzword of today. The economies of the world are being

increasingly integrated. Mobile phones and Internet have brought people closer.

The world is becoming a smaller place. Goods, which were once confined to

western countries, are available across the globe. Work can be outsourced to any

part of the world that has an Internet connection. Because of improvements in

traffic infrastructure one is able to reach ones destination in a relatively short span

of time.

The negative effects of globalizationOpponents of globalization point out to its negative effects. Some of them are

listed below.

y Developed nations have outsourced manufacturing and white collar jobs.That means less jobs for their people. This has happened because

manufacturing work is outsourced to developing nations like China wherethe cost of manufacturing goods and wages are lower. Programmers, editors,scientists and accountants have lost their jobs due to outsourcing to cheaperlocations like India.

y Globalization has led to exploitation of labor. Prisoners and child workersare used to work in inhumane conditions. Safety standards are ignored to

produce cheap goods.y Job insecurity. Earlier people had stable, permanent jobs. Now people live in

constant dread of losing their jobs to competition. Increased job competition

has led to reduction in wages and consequently lower standards of living.y Terrorists have access to sophisticated weapons enhancing their ability to

inflict damage. Terrorists use the Internet for communicating amongthemselves.

y Companies have set up industries causing pollution in countries with poorregulation of pollution.


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y Fast food chains like McDonalds and KFC are spreading in the developingworld. People are consuming more junk food from these joints which has anadverse impact on their health.

y The benefits of globalization are not universal. The rich are getting richerand the poor are becoming poorer.

y Bad aspects of foreign cultures are affecting the local cultures through TVand the Internet.

y Enemy nations can spread propaganda through the Internet.y Deadly diseases like HIV/AIDS are being spread by travelers to the remotest

corners of the globe.y Local industries are being taken over by foreign multinationals.y The increase in prices has reduced the governments ability to sustain social

welfare schemes in developed countries.y There is increase in human trafficking.y Multinational Companies and corporations which were previously restricted

to commercial activities are increasingly influencing political decisions.

The positive aspect of globalization

Globalization has a positive side as well. Supporters of globalization argue that it is

good and beneficial. Some of their arguments are listed below.

y Globalization has created the concept of outsourcing. Work such as softwaredevelopment, customer support, marketing, accounting and insurance isoutsourced to developing countries like India. So the company thatoutsourced the work enjoys the benefit of lower costs because the wages indeveloping countries is far lower than that of developed countries. Theworkers in the developing countries get employment. Developing countriesget access to the latest technology.

y Increased competition forces companies to lower prices. This benefits theend consumers.

y Increased media coverage draws the attention of the world to human rightviolations. This leads to improvement in human rights.

THE 4 WHEELS OF GLOBALISATION:IMF WB WTO

TNCs Joint Ventures (JVs) Big Business Houses (BBHs)


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NGOs International NGOs (INGOs)

Modern Media Information and Communication Technology (ICT) used by

promoters of capitalism and globalization.

WTO AS A PART OF GLOBALIZATION:

Globalization is often used to refer to economic globalization, that is, integration of

national economies into the international economy through trade, foreign direct

investment, capital flows, migration, and the spread of technology

The World Trade Organization (WTO) is an international organization designed to

supervise and liberalize international trade.

Therefore the term globalization and WTO are different WTO is just anorganization that promotes globalization in trade between various countries

however globalization is vast and global trade is just one part of it.

DOHA DEVELOPMENT ROUND:

The World Trade Organization conducts negotiations through what is called

rounds. The Doha Development Round commenced at Doha, Qatar in November

2001 and is still continuing. Its objective is to lower trade barriers around the

world, permitting free trade between countries of varying prosperity. As of 2007,

talks have stalled over a divide between the developed nations led by the European

Union, the United States and Japan and the major developing countries

(represented by the G20 developing nations), led and represented mainly by India,

Brazil, China and South Africa.

The Doha round of WTO negotiations began in November 2001. This round was to

have begun at the WTO Ministerial Conference of 1999 in Seattle, and was to have

been called "The Seattle Round" but some developing countries refused to launch

the second round by blocking the "explicit consensus" needed at the final Heads of

Delegation meeting. Severe demonstrations distracted attentionfrom the refusal of

developing nations to expand the WTO after having been devastated by the

Uruguay Round. The new round could only be launched at a meeting in Doha,

Qatar. The explicit consensus at the conclusion of the Doha Conference was


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reached only after some delegations of the developing nations had been forced to

leave the country. The new trade agenda of the developed world was dubbed the

Doha Development Agenda, and from there all countries were committed to

negotiations opening agricultural and manufacturing markets, as well as services

negotiations and expanded intellectual property regulation. The intent of the round,according to its proponents, was to make trade rules fairer for developing

countries. Opponents charged that the round would expand a system of trade rules

that were bad for development and interfered excessively with countries' domestic

"policy space".

The round was set to be concluded in four years (December 2006) after two

more Ministerial Conferences had produced a final draft declaration. The WTO

pushed back its self-imposed deadline to slightly precede the expiration of the U.S.

President's Congressional Fast Track Trade Promotion Authority. Any declaration

of the WTO must ultimately be confirmed by the U.S. Congress. Trade Promotion

Authority prevents Congress from amending the draft. It expired on June 30, 2007.

A Development Round of Trade Talks Developing countries would gain

enormously if rich nations make the WTO Doha Development Agenda a reality

and agreed to bring down their trade barriers. Poor workers in developing countries

today face tariffs twice as high as workers in rich countries. This must change.

Rich countries must also take action to reduce dramatically their agriculturalsubsidies which currently stand at $350 billion a year, roughly seven times what

rich countries spend on development aid. These subsidies not only hurt poor people

in developing countries, they also mean higher taxes and higher prices for people

in rich countries. Developing countries would also benefit from better access to

each others markets barriers between them are still higher than the barriers they

face in rich countries.

POTSDAM, 2007

In June 2007, negotiations within the Doha round broke down at a conference in

Potsdam, as a major impasse occurred between the US, the EU, India and Brazil.

The main disagreement was over opening up agricultural and industrial markets in

various countries and also how to cut rich nation farm subsidies.


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GLOBALIZATION AND ITSIMPACT ON PAKISTAN

ECONOMY

Like all other countries, Pakistan has been a part of this globalization process.

Pakistan has changed many of its policies regarding its contribution to theinternational stage. There have been significant changes in Pakistans economicand foreign policy, which are all part of the efforts to be a part of the globalization

process. A large proportion of the Pakistani population has viewed these changeswith growing skepticism. It remains to be seen whether this process ofglobalization leaves Pakistan better off or not.

The late Mahbubul Haq had very aptly summarized the debate on globalization

byobserving that Globalisation is no longer an option, it is afact. Developing

countries have eitherto learn tomanage itfarmore skillfully orsimply drown inthe globalcrosscurrents.

The sectoral average annual percent growth indicates that Pakistan remained

mostly dependent on agriculture, reflecting low skill and technology intensity. Inindustry, manufacturing and service sectors, it is placed at the bottom in terms ofgrowth rates.

In the case of Pakistan, a large share of the central Government expenditure hasbeen financed by foreign aid. Further, political interference, lack of transparency in

public expenditure management and weak institutional capacity have also affectedthe quality of public expenditure.

In the social sectors, Pakistan compares unfavorably to other countries with similarlevels of per capita income. Investment in education and heath care sectors willincrease the possibility of Pakistan entering a virtuous cycle of high growth andimproved living conditions for the population. The big landowner/ feudaldomination is quite visible on the economic and political scenes of Punjab andSindh, NWFP and Baluchistan. The social, cultural and traditional taboos havefurther restricted the role of women in society, particularly in education and health.Similarly, the mortality rate and total fertility rates are also not favorable.

AGRICULTURE:

The globalizationtrendis not favoring Pakistan and other South Asian countries as

the majority of these depend on agriculture where competition in the open market


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for products is intense. Due to natural calamities agriculture production isuncertain and prone to shocks. These countries will face big challenges ahead interms of global competition.

Some Basic FactsRural Areas

Poverty in the rural areas is significantly higher than in the urban areas.

68% of the Pakistans population lives in rural areas.

60% of Pakistans rural poor are landless.

45% are non- agricultural households 15% are landless agricultural laborers.

The List of the challenges to Pakistans Agriculture is well known:

1. Flat (low) yields and large yield gap;

2. Low productivity of water;

3. Non-reliability of water services;

4. Under-performance of rural factor markets and extension services;

5. Under-investment in research and technology development

Why have we not been able to take advantage of Pakistans Agricultural potential

in Trade?

Inadequate Research

Structural problems within Pakistan's agro-food economy

Barriers encountered in accessing export markets; and

Competition from other countries' exporters.

Imports and exports of agriculture commodities have also been liberalized and

private sector is allowed to trade in these commodities. Import tariffs and export

duties on these commodities have also been abolished and there are no quantitative

restrictions in place. Removal of subsidies, expansion of water storage and


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distribution channels, efficient use and conservation of water through land leveling

and lining of water courses, constructing spines for disposal of drainage effluent to

avert salinity, introduction of new seed varieties, encouraging corporate agriculture

to bring vast tracks of uncultivable land under cultivation are some of the measures

which are being implemented to enhance productivity in agriculture sector.

EDUCATION:

Today, most of the developing countries including Pakistan are suffering from a

host of economic as well as socio-political maladies such as unemployment, low

earnings, inflation, corruption, exploitation, rapid population growth and, above

all, political instability resulting from low literacy rate. Globalization has made

economic life more competitive and demanding, making human expertise

development more significant. Only as educated workforce equipped with modern

skills can compete and benefit from exploiting the opportunities created by

globalization. The education system after 57 years of independence lacks cohesion

and even proper distribution. The education indicators in Pakistan have been

persistently poor:

y High illiteracy rate, especially of females.y The participation rate at primary level is around 73% and at secondary level

around24% Completion/survival rate to grade 5 is 72%.

y Poor quality of learning and instruction and high teacher absenteeism.y Poor governance and administrative structures.

The National Education Policy 1998-2010 was formulated to consolidate the

earlier efforts with renewed commitment. The policy envisaged the integration of

primary and middle levels into elementary education. It also emphasized

improvement in access and quality of elementary education by optimal utilization


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of existing facilities. The policy highlighted the importance of management,

monitoring and supervision at all levels.

TEXTILE:

The Pakistan Textile Engineering Sector is underdeveloped and under utilized.

Mostly it caters in the form of spares, components for modernization and machines

used in cottage or small scale industries.

Simulation results have shown that Pakistan will be one of the few developing

countries that will retain its competitiveness in international textile trade. Pakistan

is a major producer of Cotton and textiles are relatively more labor intensive,

which confers price advantage upon its exports. During the last two years, textile

industry has invested heavily in balancing, modernization and replacement and sofar imported new machinery worth $ 1 billion. This will certainly improve the

productivity, quality of products and capital efficiency but equal attention needs to

be given to the training and up gradation of skills in textile industry at all levels.

The institutional infrastructure such as Textile University, Textile Institutes etc.

does already exist in the country but the quality, staffing, standards of instruction,

curriculum and its relevance to subsequent job requirement are the issues which

need to be quickly resolved.

Pakistan should also take advantage of high growth in the volume of trade insynthetic textiles. As the U.S. and European firms become uncompetitive in textile

and apparel business, Pakistani firms should enter into joint venture agreements

with them for technology transfer and marketing. This combination of natural

comparative advantage, renewal of capital equipment, investment in training and

skill up gradation and joint ventures with the Western firms should enable Pakistan

to move from its existing rank to become the 5th largest exporter of textiles and

apparels as envisaged in the Textile Vision 2005.

SCENARIO AFTER GLOBALIZATION

Pakistan's textile sector due to its precarious condition and performance iscontinuously in danger of losing its share in the world export and the GDP ofPakistan. Especially, the post quota period will prove real test of performance of

Pakistan's textile industry. The Textile Engineering Sector is throttled throughtaxes on raw material, import of components, electronic and electrical parts.


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Competition

The present Textile Engineering Industry is up against competition from smuggled,under invoiced, and mis-declared components, parts and accessories. For example,in case of second hand machinery, there is little or no check and the competitionmainly rests on lower price. Machines smuggled especially from China, India,Taiwan are not better in quality but are selling cheaper. A bold initiative is neededwhich can boost the production as capacity and markets are there, only change in

environment is need.

All analysts and world observers are cynical about the performance of Pakistan'stextile sector and shed their doubts about its ability to compete in the world market,especially, in the post-quota period. Presently, Pakistan has the tenth positionamong exporters of textile and its position is continuously declining in terms ofvalue. China earning $39 bn at the top and India with $9 bn is the fifth.

Finishinglookandcontrolcomponents

The products manufactured locally, when displayed against foreign goods - offer a poor look primarily because of the unsightly finishing of welding seams,electroplating, painting and other surface treatments. In addition, the adoption ofwrong design parameters, or the attempt to reduce the cost of production, lead tothe incorporation of under-sized electrical motors and electric / electronic control

panels.

TECHNOLOGY AND GLOBALIZATION:

One of the worrisome developments during the last three decades has been a lackof attention to producing scientific manpower of caliber in the country. TheGovernment has realized that unless the governance and incentive structure of theuniversities, research laboratories, scientific establishments and technologicalorganizations are drastically revamped and larger allocations are made by the

private and public sector towards R & D, Pakistan may be facing a serious risk of

becoming a laggard. For the first time in three decades, measures are being takento implement these ingredients of S & T policy.

FINANCIAL GLOBALIZATION:

The level of debt is another major area of concern where Pakistan remains at a

disadvantage; the reason being the low level of saving and capital formation.Countrys total debt and liabilities stock (TDL) rose by 10 percent YoY in FY07 to


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reach Rs 5,023.6 billion. The major causative factors for the increase in stock ofTDL were rising level of countrys current account deficit and a large fiscal deficitthat raised the financing needs of the country. Resultantly, the domestic andexternal debt both recorded substantial rise of 11.9 percent and 8 percentrespectively during FY07 with domestic debt having a slightly higher share in thetotal TDL stock. Another significant development is that the share of short termdebt continued to rise, reaching 43 percent during FY07.

UPGRADING QUALITY OF PRODUCTS:

A serious difficulty in expanding Pakistani exports in the Western countriesmarkets has been the perennial problem of low, uneven and inconsistent quality ofour products. It is only recently that a National Accreditation Council has beenformed to check the quality of products in order to bring these to internationallyaccepted standards. Work is underway to establish laboratories in the country andtrain the staff to carry out the quality verification work. Private sector has

responded well by improving the manufacturing processes and about 2000

companies have been given ISO 9000 certification. With this certification, theacceptability of products of these companies has increased in foreign markets.


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HAS PAKISTAN BENEFITED FROM INCREASED

EXPOSURE TO THE GLOBAL ECONOMY?

What this discussion on the impact of globalization on Pakistan via theInternational Financial Institutions has shown, is that as Pakistan's exposure to

these global organizations has grown since 1988, the economy has taken a nose-

dive. Not only have standard and conventional indicators worsened, but there has

been substantial worsening of the level and extent of poverty in Pakistan, which

has more than doubled in only a decade. Moreover, the provision of large amounts

of loans to the country, has not resulted in an improvement of the economy, but has

also doubledthe debt burden in a decade.

Indeed, just as much as trade globalization has advantages, it has a large number ofdisadvantages too which are going to be felt differentially by countries.

Households and farms now produce, not for the local or national markets, but

increasingly, for a sophisticated quality-conscious global market. While it has the

potential to provide new avenues of employment, the global market also decides

when we are to close-down our shops. Those countries which are not prepared and

do not have the skills and technology or commodities to export to others such as

Pakistan, may become mere recipients of products from the rest of the world

unable to provide much in exchange, as is increasingly visible. The consequenceson these economies are likely to be deleterious, just as they are for those countries,

which cannot compete effectively, and are forced to de-industrialize in front of

strong competition in the form of cheap imports. Moreover, many smaller

developing countries fear that they will become dumping grounds for cheap

imports wiping out domestic industry; again, growing evidence from. Pakistan

seems to suggest that this process is underway.


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GLOBALIZATION AND ITSINITIAL PROBLEMSIN

PAKISTAN

PROBLEMS FOR PAKISTANS MANUFACTURERS

In countries such as Pakistan, the dual edged sword of globalization seems to be

working only in one direction. Countries such as Japan and the European Union

have prohibited imports of certain fruits and vegetable from Pakistan on the plea

that these do not meet international standards. For the same reason, Iran has

banned import of wheat from Pakistan. On the other hand, free trade regime allows

unhindered imports into Pakistani. The influx of cheap goods has not only created

serious problems for the countrys manufacturers. It is also problematical in view

of the lack of adequate laboratories to check the quality of imported goods.

Researcher Mukhtar Ahmed Ali says that strict adherence to international

standards in the services sector and social compliance issues in manufacturing are

posing a serious threat to the common man in Pakistan. This, he says, will result in

huge job layoffs and business closures. Developed countries have provided due

protection to their consumers by enacting consumer protection laws by which they

can easily monitor the services and products from foreign countries. But in

Pakistan only two drafts laws one for the Islamabad Capital Territory (ICT) and theother for the North West Frontier Province were enacted but are yet to be

implemented.

At the persistent pressure of international donor agencies, the Pakistan government

has also launched on privatization of large industrial organizations. A large number

of employees were either given golden handshake or sent on forced retirement.

According to 2001 annual report of the Human Rights Commission of Pakistan,

Pakistan Steel was the main corporation affected. More than 6, 000 workers were

laid off. Subsequently, people in Pakistan are beginning to realize what more perilsthan benefits await them as a result of globalization. The globalization process,

reinforced by the World Trade Organization (WTO) set up in 1995, has become a

force that impacts on all regions, nations, societies, cultures and sectors of the

economy.


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RATHERNEGATIVE EVIDENCE

Pakistan, unfortunately, offers rather negative and least positive evidence. The

percentage of the Pakistani population under poverty line increased during the

1990s when the country opened up its economy in what proved to be a bleakeconomic decade.

There are thousands of people in Pakistan who are desperately in need of jobs but

end up in desperation. Millions of other young people are seeking jobs, but

employing them productively will require a substantial investment by the private

sector, both domestic and foreign. But impediments like political uncertainty,

inconsistent economic policies and deficient law and order, deter foreign investors.

In Pakistan, 70 percent of the people are dependent on agriculture, its farmingcommunity will be the worst affected by globalization, it is feared. Many

agriculturists have stopped sowing their fields on the plea that they cannot get even

the cost of their effort from their produce. Farmers are crying for markets to sell

their produce like sugarcane and potatoes, whose prices have fallen because of a

glut and cheaper imports.

SOVEREIGNTY AT STAKE

The degree to which Pakistan's sovereignty stands eroded has become even moreapparent when the effect of reduced import tariffs to 25 per cent, the lowest in the

region, is taken into consideration. Standard-bearers of neo-liberalism defend the

lowering of import duties with the argument that raw materials for manufacturers

will also cost less as a consequence. However, duties on raw materials like talc,

solvent oil and edible oil have also shot up in Pakistan. The donor agencies are

pushing Pakistan to levy more taxes on consumer goods to raise revenue at the cost

of poor people. Such policies will further widen the gulf between the rich and the

poor, the haves and have-nots and, as a result, help breed sanctuaries of terror to

bring more destruction and devastation.

Industry in Pakistan has been exposed to greater competition but is often seen as

asking financial relief and government protection, oblivious to the question who

will pay. This has resulted in the closure of thousands of units with huge layoffs. A

senior official said on condition of anonymity: "Our industry needs import


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protection until we have acquired necessary skills to confront international

competition."

A serious blow people witness in Pakistan is the massive taxing of the economy

with the initiation of the liberalization process. Critics see the government policyaimed at taxing the poor, denuding the national economy of protective tariffs, and

letting the rich off the hook. A researcher and expert, Dr. Wajid Pirzada, says the

Bretton Woods Institutions International Monetary Fund and the World Bank

issue their diktat from western capitals and Pakistani policy-makers play "as

overzealous stenographers" to them.

To cope with challenges arising from globalization, Pakistan needs to focus on

enhancing quality of produce at low cost so that it could be competitive in

international markets. It also needs to provide due protection to manufacturers andfarmers from the influx of cheap imports. At the same time, it is necessary to raise

living standards of the people by increasing wages to a reasonable level. Similarly,

there is a need to encourage domestic and foreign investments to generate more

employment in the country for reducing poverty.

ECONOMIC ASPECTS OF GLOBALIZATION

PRIVATIZATION

Privatization is the incidence or process of transferring ownership of businessfrom the public sector (government) to the private sector (business). In a broadersense, privatization refers to transfer of any government function to the privatesector including governmental functions like revenue collection and lawenforcement.

ARGUMENTS FOR AND AGAINST PRIVATIZATION:

In general, the arguments forprivatization of an industry are as follows:

1. Government run industries cost more because they have larger

bureaucracies.2. Government run industries leave people with little choice in the market


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place.3. Privatizing an industry fosters competition in the market place, whichtransfers to lower prices and greater choice for the consumer.4. Governments should not be in the business of controlling industries orservices since this gives them too much control over the people.

Arguments againstprivatization include the following:

1. A privatized industry is most concerned with profit, so while initial benefitsto the consumer may occur, the industry may not be induced to keep priceslow unless government controls are exerted.2. The competition fostered in privatized industries may result in dirty orunsavory business practices.

3. Privatization may limit access to certain industries for people who cannot

afford them.4. The public has little control over a private industry, and decisions in thatindustry may adversely affect those in the public sector.

Progress in privatization to date:

Privatisation efforts began in earnest after the creation of Privatisation Commissionon January 22, 1991. Although the PC mandate initially restricted to industrialtransactions, by 1993 it had expanded to also include Power, Oil & Gas, Transport(aviation, railways, ports and shipping), Telecommunications and Banking and

Insurance. During January 1991 to June 2007 the Commission completed 165transactions for Rs 457.919 billion.

To date, Government of Pakistan had completed or approved 167 transactions atgross sale price of Rs 476.421 billion. The sources of the proceeds have beenshown in the figure 1.


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About 67% of the proceeds received were transferred to the Federal Government,26% was returned to legal entities whose shares were sold, 5% was used forrestructuring expenses associated largely with golden handshakes andrehabilitation, and 2% was used for PCs privatisation-related expenditures (Figure2).

While almost all the transactions were settled in local currency, about 66.3% of the

proceeds have been received in foreign exchange from transactions pertaining to

2nd tranche of PTCL vouchers, Kot Addu Power Plant (KAPCO), Six Oil & Gas

Concessions, Habib Credit & Exchange Bank, United BankLimited, Habib Bank

Limited, KESC, 26% shares of PTCL, OGDCL GDR and UBL GDR.

IMPACT OF PR

IVAT

IZAT

ION:

The direct negative impact of privatization has been seen on the working class. At

least 600,000 workers have lost their jobs during the 15 years of privatization andthose still working in the privatized factories are on a contract system. There are no

permanent jobs in these factories. Meanwhile the informal sector has grown. Butno labor laws govern informal work, consequently super-exploitation rules,

particularly for female workers.

In the economic field, it has failed to make any positive impact. Pakistans level of

poverty is increasing day by day. The electricity crisis in Pakistan is worse thanever and is not only making the lives of the people further miserable, but isdestroying whatever of Pakistans industrial potential is there. The agriculture isalso strangulated to produce enough food for the countrys own consumption, andthere is a dire need for designing an immediate sustainable agricultural framework.But alas, there is no hope for an agricultural policy concept coming from anincompetent government.


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The privatization of KESC, PTCL and Habib Bank would need a detailed scrutiny,to unearth the true facts hidden under the carpet because there is no parallel of sucha privatization. It is reported in print media that Abraaj Capital, the new owners ofKESC have so far not injected any further money to upgrade its operation, whichwas the prime factor of its privatization, and a German company by the name ofSiemens (Pak) Ltd, who were the technical collaborators of KESC in the initialstage of privatization had strongly suggested for up-gradation of its generation and

transmission capacity. Up till now the new owners have only inducted a battery ofhighly paid bosses at an unimaginable salaries and perks. The CEO, who is aPakistani national, is paid nearly sixty thousand dollars per month in foreignexchange, while another 30 to 40 new bosses are also receiving somewhat thesame level of high salaries.

The other two privatized units were most profitable one, PTCL was giving an

annual profit of 6 billion per annum in spite of all odds, while Habib Bank was thelargest private bank with huge real estate assets and fixed deposit funds, which wassold for just peanuts.

TRADE REGIME:Economic liberalization: who benefits from the removal of barriers to trade?

Pakistans experience with

globalization has not led to

significantly increased

growth and poverty

reduction1

The poverty rate has

jumped to 37.5% from

23.9% during the past three

years. More than 64

million people, out of a160-million population,

were living below the

poverty line in 2008, as

against 35.5 million people in 2005, according to the Planning Commission of

1www.finance.gov.pk/admin/images/poverty/Globalization-and-Poverty.pdf


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Pakistan. Strict IMF conditions have forced the government to ignore social-sector

spending and more people are being pushed below the poverty line.2

A common critique to globalization and to the role of FDI flows in developingcountries comes from the perception that they are mainly driven by largecompanies seeking the cheapest production sites in terms of labor costs and naturalresources. As a consequence, their surge is frequently viewed with great suspicion,as it is considered that it only brings limited benefits to recipient countries.However, two important facts should be noted: first, that more than three quartersof total world FDI flows are between developed economies, and only 20.9% go todeveloping countries, including the C&EE/CIS economies. Thus, cheap labor and

natural resources are certainly not the most important factors driving foreigninvestment flows. Equally important, or more, are domestic conditions in recipientcountries such as labor productivity, education levels, the macroeconomic

environment and economic policies, the institutional framework and infrastructure,amongst others. The second fact is that the increasing share of FDI as a proportionof total investment in developing countries has also contributed to higher overallinvestment. FDI recorded a decline of 6.2% (its currently $1.6bn) during July- Nov09; the deceleration may be attributed to absence of privatization proceeds andtight liquidity condition in the international capital market.

3

PAKISTANS TRADE LIBERALISATION EXPERIENCE

One of the factors contributing to Pakistans growth performance is Pakistanstrack record on trade liberalization reforms. According to a World Bank studyPakistans recent reforms have been substantial. Its trade regime is now one of the

more open in South Asia

Using both partial equilibrium and the general equilibrium impact of trade

liberalization and the simulations for the future concludes that, contrary to popular

beliefs and perceptions, the process of trade liberalization in Pakistan does not

appear to have had a significant adverse impact on poverty and income inequality.

These results indicate that trade liberalization has, if anything, reduced poverty andinequality although only modestly so on balance. The main channels of

transmission leading to this outcome are growth, productivity, investment and

price stability. Foreign direct investment that has come into Pakistan does appear

2http://www.atimes.com/atimes/South_Asia/KB20Df01.html

3http://www.sbp.org.pk/reports/quarterly/fy09/first/Section_6.pdf


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to increase income inequality as it is focused on sectors that use highly skill labor

and capital intensive technologies and does not use much of the abundant factor of

production, labor.

Despite pressure and protests from rent seeking businesses, the risks of reversal ofthese reforms are low as the main political parties are not only committed to tradeliberalization but have actually been behind the implementation of these reforms inthe decade of 1990s.

4

RATIONALIZING THE TARIFF STRUCTURE

Some Progress has been made but the focus for trade liberalization during the

next one to three years should be on reducing tariff dispersion, increasing

transparency, making indirect taxes trade neutral, and closing loopholes in

exemptions

CONCLUSION:

Critics of globalization cite the westernization of Pakistani society as a significant

adverse effect of globalization. The internet and the international media are

considered responsible for the loss of religious and cultural values, particularly

amongst the impressionable youth. Most of Pakistan's most capable workforce,

find foreign countries more attractive options and the country has lost a large part

of its educated youth to foreign countries.

Globalizationis, however, heretostay.The clock cannot be turned back because

turning it back would hurt the standards of living of the vast majority of

consumers. The main issues really are how to makethe processyieldthe

maximum amountofbenefitsforthe majorityofpeople?

It is globalization which has allowed Pakistan to use its cotton production and

abundant labor to produce massively more added-value textile than it needs for its

population, and to export it all over the world. The foreign exchange earned has

allowed Pakistan to pay for the imported inputs of other segments of its industrial

production, as well as its construction and services sectors.

4http://www.eastasiaforum.org/2008/07/07/pakistans-trade-liberalization-experience/


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It is globalization which has offered millions of job opportunities for Pakistani

abroad, in the Middle East and elsewhere; remittances from these workers are

sustaining their families and also increasingly financing, through the Pakistani

banking system, private domestic investment and thus economic growth.

It is globalization which has allowed surplus capital in industrial countries to come

to Pakistan to finance the development of its oil, gas, and power industry, and more

recently, the rapid expansion of its telecommunication industry. The transfer of

technology with these investments will benefit productivity for years to come.

RECOMMENDATIONS

Maintainingmacroeconomicstabilizationis critical to create for the private sector

a macroeconomic environment conducive to production and investment decisions.This means low inflation and a relatively stable exchange rate, which requires

sound macroeconomic management, in particular a sustainable fiscal deficit which

does not crowd-out the private sector, as well as a cautious monetary and credit

policy which does not inject excessive liquidity in the economy. The link between

macroeconomic stabilization and economic growth is well established by the

empirical evidence.

In presenting the private sectorwith a legal, regulatory, and tax environment

enablingproductionandinvestmentdecisions.

First of all, the rule of law must apply. Property rights have to be clear and

enforceable, as do commercial and debt contracts; government red-tape (regarding

licensing, registration, etc.) has to be kept to a minimum; direct and arbitrary

government interventions in the operations of private sector activities have to be

banned; tax policy has to be economically coherent, simple and predictable, offer a

leveled playing-field, and administered in a transparent way; the regulatory

environment for the operations of utilities, banks, and financial markets has to aim

at the highest international standards; and corruption has to be severely controlled.

In many of the above areas, there have been significant improvements in Pakistan

during recent years, e.g. the recent strengthening of financial supervision, and the

progress towards making civil servants more accountable, etc.


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Further developmentof theadministrative , physical, and human infrastructure

of thecountry. There is a role for government here because market forces alone

are unlikely to produce this infrastructure in sufficient amount. The competition

implied by globalization means that traded goods and services must meet certain

international standards (health and security, in particular), and governmentinterventions might be necessary to make it possible to meet these standards.

Competition also necessitates better physical infrastructure, in the transport, water

management, and power areas, in particular, to improve efficiencies and decrease

costs, and to extend the opportunities for productive activities throughout the

country, including rural areas. Notwithstanding the possible role for the private

sector in the provision of infrastructure, government involvement is likely to

remain key. The same applies to health and education. There is little doubt that

Pakistan, given its abundant labor resources, could be part and beneficiary of theoutsourcing revolution, not just for producing cheap goods but also more

expensive services, such as in the information technology field. This, however, is

likely to require a more educated and better empowered labor force. Government

has to assume the responsibility for improving education standards on a broad

base, especially in the technical fields. Of course, to implement these tasks,

resources have to be mobilized, including domestic resources. This is why it is so

important for Pakistan to broaden its tax base and improve its tax revenue

collections in a least-distortion fashion as possible. All these are big challenges,

and it will take time to fully meet them. Policies supportive of globalization might

need to take such a timeframe as well as existing institutional weaknesses into

account. But the benefits from economic integration should not be in doubt.

BIBLIOGRAPHY:

Wikipedia.com

Encarta.com

Plato.stanford.edu

Darkseptemberrian.com

Pide.org.pk

Pakistaneconomist.com


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