WTO’S TRADE LIBERALIZATION: IMPLICATIONS FOR PAKIST AN WHEAT ECONOMY

This study of Pakistan’s wheat crop develops econom etrically estimated supply and demand functions, id entifies government policies and interventions, estimates welfare effec ts associated with existing interventions and analy ses implications of the implementation of WTO’s trade liberalization in the country and abroad. The study points out that whea t crop had been subjected to ‘price tax-cum-import subsidy’ regime during 198 5-1995 and ‘price support-cum-import tax’ regime du ring 1995-2005 study sub-period. These interventions were found associat ed with welfare effects – higher losses to consumer s (Pak Rs.967.95 million per year) than gains to producers (Rs.918.91 millio n per year) during the latter period. Free trade si mulation results showed greater gains to consumers than losses to producers . If trade liberalization was introduced in world m arket, it would have resulted in additional gains (Rs.1619.68 million) to consume rs than losses (Rs.1537.01 million) to producers. B ased on the analysis, the study presents the following recommendations. First , government interventions should be minimized and the trend of narrowing down gap between domestic and international prices should be kept continue till the two prices arrive at the same level. Second, supply of various fertilizers, availability at appr o riate times and use on crops in recommended propo rti ns should take prime attention in formulation of input market policy. Th ird, trade liberalization process should be stepped up, and more specifically, world prices should be allowed to prevail in domest ic wheat market. Fourth, Pakistan should also work f implementation of WTO’s induced trade liberalization on global basis and especially in major global economies of US, EU and other OECD countries. Fifth, Government of Pakistan should gra dually reduce its role in trading through State Tra ding Enterprises (STEs). Rather it should step up its role as facilitator of trade as envisaged in the ‘Green Box’ of Agreement on Agriculture and other WTO agreements. More importance should be given to research, development and out-reach areas and to th e introduction and adoption of international quality standards develop d by FAO/WHO’s Codex Alimentarius Commission. INTRODUCTION A review of Pakistan’s wheat domestic wholesale price, import price and world trade price helps rev eal the types of interventions Government of Pakistan has adopted to regulate its wheat economy during la st 20 years. A casual view of the data on prices (Anne x Table) reflects that Pakistan’s domestic wholesale price (Pd) has remained, on average, at US$151.43 (Pak Rs.5803.22) per M. ton against the world average trade price (P w) of US$155.50 (Rs.5958.17) per M. ton, suggesting that Pakistan has taxed its wheat output during the 1985-2005 study period. In addition, Pakistan has imported wheat at an annual average import price (P i) of US$162.80 (Rs.6239.23) per M. ton during 1985-2005 and sold at US$151.43 (Rs.5803.22) per M. ton in domestic market, subsidizing import at US$11.37 (Rs.435.74) per M. ton. It thus reflects that Pakistan wheat has been subjected by ‘price tax-cum-import subsidy’ regime instead of Government of Pakistan’s popular claim o f supporting wheat producer prices. The purpose of this paper is to study Government of Pakistan’s interventions in wheat economy in detail , estimate welfare effects associated with such interventions and present an analysis of the implications of the possible implementation of WTO’s Agreement of Agriculture on Pakistan’s wheat economy. MATERIALS AND METHODS The objective set for this research required to eng age three methodologies, namely: (a) analysis of prices and identification of government interventions; (b) computation of associated welfare effects in terms of changes in producer and consumer surpluses; and (c) analyzing implications of implementation of WTO’s Agreement on Agriculture. Identification of government interventions Since the main objective of study was to analyze th e effects of WTO trade liberalization, the study peri od (1985-2005) was divided into two sub-periods: preWTO (1985-1995) and post-WTO (1995-2005). The mean values of prices for the two sub-periods were computed, as follows. Pre-WTO period Post-WTO period (1985-1995) (1995-2005) Pakistan’s wholesale price (P d) US$135.52 (Rs.3101.13) US$167.33(Rs.8505.31) World average price (P w) US$152.24 (Rs.3483.88) US$158.69 (Rs.8066.17) Pakistan’s import price (P i) US$163.54 (Rs.3742.50) US$162.06 (Rs.8237.26) Since average P d remained at US$135.52 per M. ton against average P w at US$152.24 and average P i at * Kohat University of Science and Technology Kohat – Pakistan. ** Department of Agricultural Economics NWFP Agricu lt ral University Peshawar – Pakistan. Muhammad Zulfiqar, et al. WTO’s trade liberalizatio n: implications for Pakistan wheat economy . 138 US$163.54 during the pre-WTO period, the ‘price tax-cum-import subsidy’ regime (Figure 1) seemed to have been in practice during the pre-WTO period. However, situation during post-WTO period appeared entirely different as average P d had remained higher (US$167.33) than P w (US$158.69), suggesting practicing of price-support. In addition, P i had remained lower than P d, which means import had been taxed during post-WTO period. Hence, a regime of ‘price support-cum-import tax’ (Figures 2) was exercised during post-WTO period. Computation of welfare effects Welfare effects of the existing situations (prean d post-WTO), measured in terms of changes in producer and consumer surpluses ( ∆PS & ∆CS), along with computed import subsidy (IS) or import tax (IT) were estimated for arriving at net social welfare gains or costs (NSWG/C) of the two policy regimes identified earlier. Pre-WTO situation: The welfare effects of ‘price tax-cum-import subsidy’ regime remained in practice during pre-WTO period may best be depicted as per Figure 1. The associated welfare effects were captured using the following model.