CUTS Centre for International Trade, Economics & Environment

They say when one has to tell that love is happening or justice is being done then there must be something wrong. Everyone automatically finds out when there is love and justice. I would add prosperity and development to this list. My submission is that when governments have to repeatedly inform that it is bringing prosperity and development for masses then pro-public development is actually not taking place. People would automatically acknowledge when such development takes place. One can imply this principle to understand why our rulers (civilians, semi civilians or military) have to inform the masses of all the good things that they carried out in the 'larger national interest', including the extent to which they changed the destinies of the common masses.

June is usually the month when our rulers, during the launch of Economic Survey of Pakistan, and presentation of annual budget, inform us how sincere they are with their citizens. Since the launch of Economic Survey of Pakistan, government spokespersons are busy painting a rosy picture of robust economic growth, claiming that Pakistan is one of the fastest growing economies of the Asian region with 7 per cent GDP growth, with per capita income of $925, foreign investment of $6 billion and a recipient of $5.5 billion in the form of workers remittance.

The economic managers have all rights to celebrate the above mentioned macro-economic achievements. However, they should not forget that economic survey also revealed that all was not well at economic front and the country would miss the export, import, trade deficit, current account deficit, and large scale manufacturing targets by the end of the current fiscal year. The survey also revealed that contingent liabilities cost (specific government obligations defined by a contract or a law), internal and external debts, and spending on defence as well as on debt repayment go up.

To me the most alarming aspects of our economic performance are missed inflation target and widening of rich-poor gulf. According to the government sources the average inflation for the year is likely to be around 7.5 per cent --100 bps above the target. Food inflation during current fiscal year is expected to be 10.5 per cent as against 7 per cent of last year. According to economic survey, "This year's inflation has largely been driven by higher food inflation as opposed to last year where the major culprit was non-food inflation". The type of inflation (food or non-food) that hits an ordinary person is irrelevant as both types would have equally negative consequences. It is just like asking someone whether she/he would like to be killed by gunshot or by getting stabbed.

In my personal opinion, the intensity of food inflation would be much severe for low-income and bottom quintiles of the society. What should the general masses eat if the commodities like pulses, rice, chillies, onions, tomatoes and edible oil go beyond their economic access?

With this type of food inflation do we deserve to celebrate the 5.0 per cent growth in agriculture sector? Highest wheat crop and second highest sugarcane crop would turn meaningless if these bumper yields fail to bring any improvement in the life of their growers. Perhaps it is more to do with the lack of planning than irony of luck that despite promising performance in agriculture sector and despite the fact the Pakistan is a member of Cairns group (food exporting countries) in WTO, our food imports grew by 5.3 per cent and touched a historic figure of $2.3 billions during first ten months of the current fiscal year. Major contributors to the rise in food imports include pulses, milk and milk products, dry fruits, and edible oil.

Government tries to defend her position by pointing out that higher food inflation is a global phenomenon and the global food price index is up by 16.1 per cent. This may be true to some extent, but merits a detailed analysis. Government duties on edible oil are major source of revenue generation. Pakistan imported edible oil worth $763 million during first ten moths of this fiscal year (spent 24 per cent higher than previous year in this regard). Government levies 23 rupees per litre duty on edible oil. Is this duty not contributing to increased food inflation?

Now let us consider the imports of milk and milk-products. Pakistan is the fifth largest producer of milk and second largest producer of buffalo milk in the world. Despite this massive production, is it not a dilemma that value of milk and milk-products imports in current year saw a change of 36.9 per cent compared to previous year?

As a measure to combat food inflation, government has announced supply of essential food items through Utility Stores. This is an ad hoc solution that would lead to market distortions as well as social problems. General masses have not forgotten the agony when they had to queue up at Utility Stores for hours to obtain subsidised sugar in recent past. The cases being investigated by National Accountability Bureau against Utility Stores corporation high-ups reveal that such subsidy lead to corruption. Government should try to check the hoarding of food items to bring down the food prices at a reasonable level. In the case of edible oil, the better option would be to reduce the duties to the extent to an amount that government wants to spend in the form of subsidy through utility stores. This would automatically lower down the price of edible oil and ensure its supply to each and all at a reduced price.

Coming back to the economic performance and government's claim of bringing prosperity, let us ponder how to define the type of development that widens the rich-poor gulf. According to the economic survey the share of consumption of the richest 20 per cent is far more than four times the share of the bottom 20 per cent population in the country. The poverty line set by the government is Rs 878.64 per month with caloric intake of 2350. The government claims nearly 10 per cent reduction in number of people living below poverty line during last 5 years. This claim is disputed by many non-governmental sources including international financial institutes. However, going by government figures, it is still sad that nearly a quarter of our population lives below a poverty line of 48 cent per day. One way of bridging the gulf between rich and poor is to use taxation system effectively. However, the three lucrative economic activities i.e., gain in real estate, gain in stock exchange markets, and agricultural income was not brought in tax net, thus leaving the salaried class and to some extent corporate sector to be the major tax payers.

There is no doubt that Pakistan's economy is growing at an average rate of 7.5 per cent during last four years. However, one needs to recognise that macro-economic indicators do not reflect the micro realities at grassroots level. It should also be recognised that strategy for economic growth and the same for distribution of gains of economic growth are two distinct things. For economic growth to be pro-poor, generation of employment opportunities and an increase in real wages is a must. This is certainly not the case in Pakistan. In 2000-01, GDP grew by 2 per cent and unemployment rate (official statistics, independent sources claim that it was even higher) was 7.8 per cent. In 2003-04, GDP grew by 7.5 per cent but unemployment rate was 8.3 per cent. In 2004-05, GDP grew by 9 per cent, however, unemployment rate remained almost constant i.e., 7.7 percent. In these circumstances, where GDP growth does not seem to have a correlation with employment generation, there may be instances where labour force is compelled to work on lower salaries due to scarcity of jobs.

Economic growth, without social justice is meaningless and certainly not a sufficient binding force to keep the society and nation intact. During the 1960s, Pakistan had an impressive growth rate. On an average it was 6.8 per cent from 1963-68. Just before 1971, Pakistan had observed a marvellous economic growth rate nearly 9.6 per cent. However, due to lack of social justice, this growth alone could not stop partition of East Pakistan.

Unfortunately we are not learning any lessons from our mistakes. One may observe infrastructure development activities, but those are confined to elite areas of major cities. These developmental disparities are giving rise to social injustice, a major cause of social unrest. It is more than a coincidence that according to a World Food Programme-SDPI report, the areas termed as 'axis of evil' in Pakistan such as Dera Bugti, South Waziristan, North Waziristan, Hungo, Bolan, Kharan are among the most deprived and food insecure districts of Pakistan.

Things become even worse when people find obvious disparities between developmental and non-developmental budget, especially the disparities between the allocation of resources for defence purposes and those for public sector development including health and education. Situation gets worst when masses find out that mere allocation for developmental expenditures do not mean anything and one third of allocated funds for public sector development programme remained unspent whereas there was an over expenditure on defence.

Along with these statistics and facts are issues like bad governance, judicial and democratic crises, and non-consultative, non transparent policies that widen the gap between micro-realities and macro-indicators. This leads to a situation where masses don't feel any ownership in the so-called 'development plans' of the government, leaving government in a situation where it keeps claiming and reminding that its policies are bringing prosperity and pro-people development in the country.

The writer is an Islamabad based policy analyst and columnist. Email suleri@sdpi.org

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Duty and Quota Free Market Access to LDCs — India, China must act now
The Hindu Business Line, June 13, 2007

By Pradeep S Mehta &
Pranav Kumar

As part of the international agenda of providing Duty Free and Quota Free (DFQF) market access to less developed countries, as an affirmative action programme to help the disadvantaged and weaker nations with concessions, not as a favour but as a right, India recently announced zero duty access to exports from LDCs of the South Asian region under the South Asian Free Trade Agreement (SAFTA) to be adopted by 2008.The European Union is the only major trading power that has a DFQF-type scheme: `Everything But Arms (EBA),' which has been operationalised to a large extent.

The US has a similar scheme but only for sub-Saharan Africa: The African Growth and Opportunity Act (AGOA). Both the US and the EU came under pressure at the World Trade Organisation's ministerial meeting in Hong Kong, in December 2006, to extend a higher level of DFQF market access. At the same meeting, a call was also made to major developing countries such as Brazil, India and China to join in this move. While Brazil has notified its scheme, India and China have only stated their intentions, but not moved forward yet.

MFN shortcomings
The concept of DFQF is based on the argument that trade on MFN (most-favoured-nation) basis ignores the unequal economic realities among the trading nations, especially between the rich and the poor. As part of global policy responses to correcting the imbalances in global economic relations, special and differential treatment needs to be provided to developing countries.

Pursuant to the growing feeling within the international community of an urgent need to intensify efforts to enable LDCs better integrate into the world economy, several countries have shown their intention to provide non-reciprocal trade preferences to them.

It is not only the rich countries commitment to DFQF for LDCs but efforts are on to bring even advanced and large developing countries under its purview. The root of this particular initiative lies in the Global System of Trade Preferences (GSTP) among Developing Countries.

The idea received its first political expression at the 1976 Ministerial meeting of the Group of 77 (G-77) in Mexico City and was further developed at G-77 Ministerial meetings in Arusha (1979) and Caracas (1981). The agreement, however, was formally adopted in 1988 by a group of developing countries that participated in the negotiations. The following year, the agreement entered into force.

Region-Specific
The signing of GSTP in 1989 did not have any immediate impact. Only in the late 1990s did a few developing countries announce offers on non-reciprocal trade preferences to LDCs. Announcements regarding the introduction of a type of GSP for LDCs were made by Egypt, Republic of Korea, Malaysia, Singapore and Thailand.

Morocco proposed the same but only for African LDCs, while India and South Africa sought to provide preferences to LDCs that are members of their respective integration groupings — the South Asian Association for Regional Cooperation (SAARC) and the Southern African Development Community (SADC) respectively. In a nutshell, most of these announcements did not go beyond mere good intentions and were limited to their own regions.

However, two major developments in the recent years call for larger developing countries to make more serious efforts in providing DFQF to LDCs. First, in June 2004, during the UNCTAD XI Conference in Sao Paulo, Brazil, the Ministers decided to launch the third round of negotiations under the GSTP.

To date, 43 countries have ratified/acceded to the agreement that includes Brazil and India. In October 2006, the GSTP received a major boost with the accession of Mercosur, the Southern Common Market, comprising Argentina, Brazil, Paraguay and Uruguay.

The second important breakthrough was achieved at the Hong Kong Ministerial of the World Trade Organisation, in December 2005, when a separate annexure was added to the Declaration, which inter alia urged both developed and developing countries "to provide DFQF market access on a lasting basis, for all products originating from all LDCs by 2008 or no later than the start of the implementation period in a manner that ensures stability, security and predictability".

The aim was to institutionalise this process and also make it more binding in nature. However, one caveat was added that, "Members facing difficulties shall provide DFQF market access for at least 97 per cent of products originating from LDCs, defined at the tariff line level." This particular clause has made it a zero-sum game for LDCs.

Much has been written and discussed about this 97 per cent clause. LDCs have every reason to feel let down by the WTO members, especially the developed countries.

It is no secret that it was the US that vehemently opposed granting DFQF market access on all products to LDCs. The US' main target was Bangladesh and perhaps Cambodia, which are major exporters of apparels.

As per recent information only the Brazilian government plans to start granting DFQF market access to exports from 32 of the world poorest countries in 2007.

If realised the move would make Brazil the first developing country to accord unrestrained access to goods from the 32 LDCs members of the WTO.

India too is under immense pressure to announce a similar scheme. According to official sources, the process is on to work out for LDCs acomprehensive trade package; this is likely to be notified soon. In the process, India has also consulted LDCs.

Quid Pro Quo for LDCs
The effective promulgation of DFQF market access for LDCs from larger developing countries and their implementation would herald an innovation in the South-South trade and economic cooperation. Moreover, developing country members of the WTO are indebted to LDCs for the crucial support in the ongoing Doha Round of trade negotiations.

Since the 2003 WTO Cancun Ministerial Conference, LDCs have stood up to the pressure from developed countries and lent crucial support to G-20 and G-33 in their aggressive effort to dismantle the huge farm subsidies of the West. Now, it is time for larger developing countries to repay the LDCs by granting them DFQF market access. This is economically and politically very significant.

This article can also be viewed at: http://www.thehindubusinessline.com

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New Indo-Brazil power alliance
Financial Express, June 08, 2007

By Paranjoy Guha Thakurta

Brazil and India are together sending out a clear message to the rest of the world – do not ignore us when it comes to discussing and resolving important issues such as global warming, peaceful uses of nuclear energy, bio-fuels, farm subsidies and United Nations reforms.

Analysts believe the third meeting in three years between Brazil's President Luiz Inacio Lula da Silva and India's Prime Minister Manmohan Singh could mark the beginning of a new chapter in international relations.

Meetings held by the two heads of state in New Delhi since Sunday and set to last through Tuesday signify not only a strengthening of South-South solidarity but a growing confidence on the part of the two developing countries to engage with the United States and the Group of Eight (G8) developed nations.

As Lula stated: "...our countries share a converging, innovative and hopeful perception of the worldà Faced with an unequal world order incapable of responding to problems of development and collective security, India and Brazil avow their confidence in multilateralism and, through democratic dialogue, have been undertaking increasing international responsibilitiesàThe international community regards both of our countries as indispensable actors in reshaping the economic order as well as international politics."

In a joint declaration ahead of the G8 summit in Germany, India and Brazil held "unsustainable production and consumption patterns of the developed world" responsible for the problems of climate change and stated that perpetuation of poverty in developing countries could not be a solution to global warning. This formulation seeks to counter the view held by certain developed countries, including the U.S., that the burden of adjustments for climate change on account of global warming should be shifted to fast-growing countries of the South like China, India and Brazil.

As Brazil's President said: "It is high time the main emerging economies were heard more on major global issues such as climate change, sustainable development, new and renewable energy sources and finance for development. It is necessary to listen to emerging economies not only because the populations of our countries are directly affected by those issues, but particularly because our countries have been capable of innovative solutions to these multiple challenges."

Lula's engagements in New Delhi had a strong economic content. Addressing a gathering of corporate captains on Monday, he said that annual two-way trade between India and Brazil could touch 10 billion US dollars by 2010 against 2.4 billion dollars at present. This figure had stood at less than half a billion dollars in 2000. The President pointed out that in the last three years, Brazil's exports to India had risen dramatically by over 420 percent and imports from India by more than 340 per cent.

"The fact that Lula came with 100 businessmen from his country makes a lot of sense," says Pradeep S. Mehta, secretary general of Consumer Unity and Trust Society International, a policy research and advisory group based in Jaipur, India. He told IPS in an interview that the initiatives to strengthen South-South trade were significant and prudent because "if both Brazil and India increase their dependence on trade with the West, such a move would be fraught with danger"

Mehta said he would have liked to see another head-of-state in New Delhi. "The only person missing was Thabo Mbeki (President of South Africa)," he quipped referring to the India-Brazil-South Africa (IBSA) dialogue forum. The IBSA forum emphasizes economic cooperation and has also created a facility for alleviation of poverty and hunger with the support of the United Nations Development Programme. "At IBSA, our three great democracies in the southern hemisphere have signposted their vision of new world architecture based upon collective solidarity," Lula said.

Brazil, India and South Africa have come together in the World Trade Organisation (WTO) to oppose the US government's decision not to cut agricultural subsidies, while pressing developing countries to provide greater market access to the products of developed countries. Speaking to Indian journalists in London before flying to New Delhi on Sunday, Lula said he was hopeful that the Doha Development Round of the WTO would be concluded soon.

He identified agriculture, information technology, alternative energy, pharmaceuticals, information technology, aerospace and nuclear power as areas that held tremendous scope for cooperation and collaboration with India. On pharmaceuticals, the President said: "Brazil's recent decision to opt for compulsory licensing of an anti-retroviral drug paves the way for the purchase of cheap generics from India and hence, ensures the continuity of Brazil's successful AIDS treatment programme, saving thousands of lives."

Lula said private enterprises in both countries needed to cooperate with their governments to create a new world market for bio-fuels. "There is a huge potential in the renewable energy sectoràThis can generate jobs in the countryside and reduce poverty," he told Brazilian and Indian industrialists, adding that another area of cooperation was to build infrastructure facilities in both countries. He was of the view that "not even 10 percent" of the bilateral trade opportunities had been identified.

Lula said Brazil offered Indian goods access to the entire region of Mercosur or Mercado Común del Sur (comprising Brazil, Argentina, Uruguay, Paraguay and Venezuela). India's commerce minister, Kamal Nath, pointed out that while India had signed a preferential trade agreement with Mercosur in March 2005 providing for tariff concessions on 450-odd traded products, the agreement had not yet come into effect as ratification by the legislatures of Brazil and Argentina was awaited.

The India-Brazil joint declaration looked forward to a "programme of cooperation in the peaceful use of nuclear energy consistent with... international obligations". New Delhi and Washington hope to sign a controversial civilian nuclear agreement and India is keen on obtaining the support of Brazil in this regard. Brazil is said to be an influential member of the Nuclear Suppliers' Group comprising 45-countries.

India and Brazil reiterated their support for each other's candidature as permanent members of an expanded United Nations Security Council and said "no reform of the UN would be complete without reform of the Security Council". "The democratisation of the Security Council is no longer a far-flung dream," Lula said, adding: "Our joint aspiration to become permanent members of the Security Council has gained increased support revealing the credibility which we have attained in the global debate on the future of collective security."

Of the seven memoranda of understanding and agreements signed by the two countries, the biggest was the one to swap offshore hydrocarbon assets between the two largest government-owned oil exploration companies, India's Oil and Natural Gas Corporation (ONGC) and Brazil's Petroleo Brasiliero SA (Petrobras). The two have offered equity stakes varying between 15 percent and 40 percent in each other's offshore oil exploration blocks.

On the space front, an agreement was signed to allow the Indian Space Research Organisation to develop an earth station in Brazil that would enable it to receive data from Indian remote sensing satellites. In a speech at an official banquet, Indian President A.P.J. Abdul Kalam said Brazil and India could cooperate in the development of a 100-seater passenger jet aircraft that could be marketed all over the world.

"The two democracies realise that they are poised to play a more important role in the evolving global scenario as they are both regional growth poles as well as pillars of regional stability in South Asia and Latin America," says Abdul Nasey, professor and head of Latin American studies at New Delhi's prestigious Jawaharlal Nehru University.

Nasey told IPS in an interview that it would be in the interests of the U.S. and other G8 countries to seek closer partnerships with two important developing countries like India and Brazil. But would the distinctly left-of-centre ideological inclinations of the current governments of the two countries not dissuade the West from forging closer links with them?

"We use the term 'left' for want of a better word," says Nasey, adding that the governments of both Brazil and India "are firmly on the path of economic liberalisation and believe they stand to gain by integrating their economies with global market forces." He explained that since Brazil is a major exporter of agricultural products, the country wants greater access to U.S. and European markets. "Both Brazil and India are not against free trade, they want fair trade."

There was more than a flavour of Brazil in New Delhi during President Lula's visit. Food festivals, dance performances, art exhibitions and Samba music shows were organised, featuring prominent people from the Portuguese-speaking country. In his speeches, Lula lavished praise on India's political leaders, Gandhi and Nehru.

He said Brazil greatly admired India for its 'unity in diversity' and compared the efforts of both countries to build secular, multi-cultural societies. He was struck by the proximity of a mosque, a temple, a church and a gurudwara (a Sikh temple) to one another in the older quarter of the Indian capital.

Born 62 years ago to an impoverished, illiterate family and having worked as a shoe-shine boy and street peddler, the labour-union-leader-turned-head-of-the-largest-Latin American-country, Lula has become quite a cult figure in India. The government in New Delhi pulled out all the stops for him and his entourage. On Monday, he received an award for 'international understanding' named after India's first Prime Minister Nehru, an award whose earlier recipients include Martin Luther King, Mother Teresa and Nelson Mandela.

Inter Press Service

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