Introduction

The main trend in the world since the end of the Cold War in 1989 has been towards economic globalization.  The process involves “the inexorable world integration of finance, market, nation states and technologies within a free market capitalism on a scale never witnessed before, in a way that is enabling individuals, corporations and nation states to reach around the world faster, cheaper and deeper”.1

            An extraordinary paradox exists in the world as mankind enters a new century and millennium.  The two fundamental value systems that triumphed at the end of the Cold War were those of democracy and the market economy.  While democracy lays stress on equality and values of social justice, the market economy system as it operates, increases inequalities and fosters an unjust order.  The share of the developing countries in international trade, as well as in the global economy, has been shrinking steadily.  There is growing realization that while political imperialism suffered an eclipse in the second half of the 20^th century through the demise of colonialism, the world has entered the new century with most of the former colonies now held in economic bondage by the same group of former colonial powers which dominate the globe even more completely.

            Though political globalization, through an increased role for the UN system, has not come about, economic globalization is turning into a reality, mainly with help of the globalization of communication.2 Therefore, when we talk of globalization, it is primarily in the economic context.

            Since the 1990s, globalization has become a major economic factor and has been marked by a shift from a world of national economies to a global economy.  Its principal manifestation has been a quantum growth in world trade by 55% between 1990 and 1998, from $ 4300 billion to $ 6700 billion.  Whereas the world growth in GDP has been about 3% annually, trade volume has grown by 6.7 percent per year.  The openness of national economies increased significantly, and the ratio of global trade to GDP rose from 19% in 1990 to 23% in 1998, the figure for developing countries being over 30%.3

            Globalization has become an unstoppable phenomenon, as it is driven by the universal desire of people everywhere to increase their prosperity.  There is a widely held view that the process has “dramatically increased inequality between and within nations”.  However even analysts critical of capitalism view “globalization  as something to be tamed, not killed”.4

Role of the World Trade Organization

            The phenomenon of globalization is not entirely new and existed at the start of the 20^th Century, when falling transportation costs stimulated global trade.  This trend was halted by the First World War in 1914, after which the world witnessed fierce protectionism by major trading countries, accompanied by restricted capital movement.  This ended with the Great Depression of 1929. The creation of GATT soon after the Second World War represented the first institutional attempt to stimulate trade by lowering trade barriers.  GATT created in 1947 primarily served the interests of the industrialized nations that dominate world trade.  It ran out of steam in the 1970s.  Negotiations that began in 1986 through the Uruguay Round led to the emergence of the World Trade Organization, WTO, in 1995.

            The stated purpose of WTO is to stimulate world trade, and to make it truly global by reducing tariff borders, and promoting an international division of labour. What has emerged since the establishment of WTO in 1995 is that no proper mechanism has been evolved to introduce factors of equity in the global competition in trade.  This is a competition between two unequal groups.  The West is rich, powerful and armed with the latest technology and also exercises worldwide influence through the multinationals.  The developing countries are weak and technically backward, the bulk of their production coming from small industrial units and land holdings.  The outcome of unregulated competition is that the big fish eat the small fish, and inequalities are further accentuated as the management of local units in the developed countries passes to outside forces.  The West also imposes high costs on the transfer of technology, and the poorer countries face an increasing debt burden, as the rich countries become richer, while the poor countries face growing destitution.  With aid transfers being replaced by investment, the developing world attracts less and less investment.

            The developing countries utilize only 10% of the world’s borrowing.  The result is that the developed countries share of the world trade grew steadily, while that of the developing countries declined from 27% in 1958 to 13% in 1991.  The future trends as of this time are not reassuring at all.  Out of annual world gain of $ 510 billion in world trade projected under WTO for 2005, only 22.7% will go to developing countries.5

            The World Trade Organization (WTO) charter commits its members to a policy of opening their markets progressively to goods from all over the world by lowering tariffs and eliminating other import restrictions. WTO has adopted this strategy as a result of long years of discussions among the representatives and experts of all countries, developed as well as developing, at the Uruguay and Tokyo rounds. In practice, however, the trends and results produced by globalization have worked in such a manner that it is being dubbed as disguised neo-colonialism.  The developed countries, with their rich capital resources and a decisive edge in technology have been the main beneficiaries while the developing countries, already groaning under heavy debt, and lacking technical skills have been further impoverished. 

            The basic reason for the failure of the world trade system envisaged by the WTO Charter is that the principle of creating a fair, equitable, multilateral trading system through reduction in tariffs under various agreements has not been implemented.  This principle has been amplified through specific agreements providing “special and differential treatment” for developing countries.  However, these agreements have been virtually ignored in the implementation, so that the developing countries face a serious challenge through increased competition in capturing markets.

            The global market does not offer a level playing field to developing countries. The rich countries levy tariffs on manufactured products from developed countries that are on the average four time higher than those they levy on products from industrialized countries. Anti-dumping duties and non-tariff barriers are also imposed to exclude goods from developing countries.6

            Violent protests and demonstrations are becoming a feature of all conferences of international trade and economic organizations, and some significant amendment of existing strategies appear unavoidable.  It is necessary to carry out an objective analysis of how the process of globalization is functioning, and to identify the measures that need to be taken to make sure that the existing inequalities in the world are corrected rather than exacerbated.  Above all, the goal of ensuring a modicum of welfare and social justice which guides national governments needs to be ensured also at the international level.

 

Global Ground Realities   

The 20^th century saw a quantum increase in economic and social inequalities in the world.  At the start of the century the disparity between the poorer and richer countries  in terms of per capita income was estimated to be about 1 to 3.  By the end of the century, it stood at 1 to 300 (the lowest per capita income being $100 while the highest one was $ 30,000).  What is more, the sense of deprivation and disadvantage was much greater owing to the revolution in communications.
            The market economy system is proving to be exploitative notwithstanding its buzzwords of ‘privatization’ ‘deregulation’ and ‘decentralization’, the markets are not proving poor friendly, with global economic growth hardly trickling down to the poor people. Here are some startling revelations:7  

i)        Developing countries are denied $ 500 billion in economic opportunities every year because of trade restrictions, immigration controls and uneven capital flows.  This is ten times the annual foreign assistance they receive.

ii)       The poorest 20% of the world’s population receives 0.2% of global commercial credit, 10% of world trade and 2.7% of global foreign private investment.

iii)     Capital markets operated in such a way that lowering of the value of primary commodities led the Sub-Saharan African countries to lose $ 50 billion in export earnings between 1986 and 1990. The share of Sub-Saharan Africa in global trade declined from 3.8% in 1970 to 1% in 1989, despite trade concessions.  

            The “Global Village” that the world has become as a result of the revolution in information technology, and economic globalization, is characterized by a great divide.  Whereas the developed world is getting richer at a phenomenal pace, the inequalities between the rich and the poor have been increasing.  Two billion people earn less than $ 2 per day, with 1 billion earning less even than $ 1 per day.  The main causes for this are the barriers to immigration and agricultural imports erected by the richer countries, and the failure of the developing countries to attract investment.8

            In the aftermath of the end of the Cold War, the US, now the unique superpower, was successful in achieving unprecedented growth with exports accounting for one third of that growth.  However President Clinton realized the need to improve the management of the world’s economy towards the end of his tenure as a result of the backlash against globalization.9 In his farewell Foreign Policy Speech at Nebraska on 10 December 2000, he urged his successor to address the issue of global trade but with a human face, and address disparities between the rich and the poor.  

South Asian Scenario  

            South Asia has the largest concentration of the world’s poor.  Though its area is 3.3% of the world, it has 22% of the world’s population and produces only 1.5% of the world’s GNP.  Of a total population of 1.3 billion, India alone has 76% or over 1 billion, while Pakistan comes next with 10.6% or 140 million.  Bangladesh has 9.7%, Sri Lanka 1.6%, the rest being shared by Nepal, Bhutan, and Maldives.  India has the largest economy (GDP $ 400 billion) followed by Pakistan ($ 62 billion).  All the countries have low per capita incomes ranging from $ 600 for Sri Lanka, to $ 180 in the case of Bhutan.  The figures for India and Pakistan are around $ 430. 

            Though possessing an ancient culture, and a rich history, the various countries acceded to independence fairly recently, about 54 years ago in the case of India, Pakistan and Sri Lanka and 30 years ago for Bangladesh.  Most countries have inherited socio-political differences which remain to be resolved.10 The most serious of these is that over Kashmir between India and Pakistan which fought three wars in the first twenty five years of their independence.  While having their own political, economic and social aspirations, all South Asian countries have similar problems of unemployment, deficit finance, trade imbalance and inflation.  All tend to rely upon industry as an answer to unemployment.

            Absence of good-neighbourly relations that are essential to promote development, has kept them mired in poverty and even their regional grouping, SAARC, has remained dysfunctional owing to the indifference of its largest member, India.

            Taking up the numbers specifically for Pakistan, its most critical problem is that of fiscal imbalance, with budget deficits running as high as 7%.  Low tax revenues and a low rate of savings have compelled dependence on borrowing, so that the debt burden has grown to a point where it eats up 75% of national revenues.  Pakistan’s national debt, which stood at 66% of GDP in1980, increased to 88% of GDP in 1990 and 100% of GDP in 2000.11  The growth rate of the economy, that averaged 6% per year till 1990, has slowed to 3-4% in the 1990’s.  As a result, the poverty ratio has grown from 17% in 1977 to 35% in 1999.  With a high population growth rate of 2.6%, the country needs to speed up its rate of growth by comprehensive measures to address its problems.

            The post May 1998 developments, namely the imposition of sanctions after Pakistan’s nuclear tests highlighted the structural problems and vulnerabilities of its economy.  Despite some positive indicators, such as growth of GDP, single digit inflation, and reduced fiscal and external deficits, the country’s macro-economic situation deteriorated.  The situation was prevented from disrupting economic activity through adroit domestic management and international financial assistance.  However, the country’s credibility with the multilateral and bilateral donors was affected.

            Pakistan’s economy entered a state of recession, with a steep fall in exports, and slower growth owing to poor performance in agriculture and the manufacturing sector.  Agriculture accounts for 25% of GDP and 60% of employment.  The dependence of the economy on a narrow agricultural base has made it highly vulnerable to vagaries of agricultural performance.12

            Since the end of the Cold War, Pakistan has had to adjust to the change from the protected environment of the Cold War to a world of competition resulting from globalization.  The liberalization obligations resulting from various agreements of WTO demand institutional and regulatory arrangements to open up its economy to volatile foreign capital.

            With a knowledge-based world business environment, the productivity of Pakistani labour has to be upgraded.  The role of information technology has increased, and to remain competitive, innovation and productivity are both important.  A belated start has been made to promote technology, and it is expected that the situation will be ameliorated.  However, the developed countries are likely to maintain their edge in technology through patents and property rights under the rules of WTO.

            The obligation for trade liberalization through lower tariffs results in some initial costs specially in lower customs revenues.  Financial liberalization which is also a part of globalization, exposes weak economies to the unpredictable movements of capital.  Such developments as East Asian crisis of 1997 and the Russian crisis of 1998 can cause serious destabilization and economic downturns.  This weakness as evident from lack of transparency in Pakistan’s banking sector, has to be overcome before the domestic financial sector can be opened to foreign capital.

            The IMF and World Bank have been used to exert pressure in favour of privatization, and over the past two decades, more than a hundred governments have sold stakes in state companies to private investors, raising $ 1 trillion and transforming their role in the global economy.  Pakistan also launched an ambitious privatization programme and over 70 units were sold to the private sector by 1996.  The best use of the proceeds is debt retirement, in order to diminish the fiscal imbalance.13

            Foreign direct investment has assumed a major role in generating growth, specially as aid flows have tapered off.  Inflows to developing countries have exceeded $ 100 billion, with China, Brazil and Mexico taking the lion’s share.  However, Pakistan has had difficulty in attracting foreign capital.

            Regional cooperation has emerged as a parallel trend, which is regarded as a second tier in the process of easing the passage towards globalization.  However, the bodies to which Pakistan belongs, ECO and SAARC have not contributed significantly to its development. There is great potential for activating these organizations, provided the political problems between the member states can be resolved.

Challenges for the Future

UN study on poverty in South Asia stated, the South Asian “landscape of poverty is simultaneously static and dynamic, transient and chronic, sporadic and systemic”.14 The region suffers from endemic poverty and sense of deprivation.  Poor consumption, nutrition, education and health create insecurities and vulnerabilities of all kinds.15

            National, regional and institutional mechanisms have to be devised to reverse the vicious circle of poverty which breeds all kinds of social evils and lowers the quality of life.  Unfortunately, lack of political stability in most South Asian countries has hampered the pursuit of long term policies oriented towards economic growth, and the workings of an unjust international economic order have exacerbated the difficulties.  After the end of the Cold War in 1989, the external sources of finance have begun to dry up.  In real terms, development aid has fallen by 20% since 1992.16

            The developing countries not only have to face the challenges of domestic poverty and backwardness, they also have to tackle the constraints arising from globalization.  They have to chart strategies that operate at all different levels, regional, national and local.  Indeed, while they labour under the pressure of domestic compulsions to overcome poverty, they also have to cope with the inexorable demands of globalization.

            What is needed to cope with the challenges facing the developing countries is “globalization with a human face”.  Amartya Sen, the Nobel Prize winning economist who has studied famine and poverty, has argued that “globalization can be a boon only if it is coupled with credible social sector safety nets.17

            The most meaningful steps towards an equitable distribution of the benefits of globalization have to be taken through trade.  The fiasco at the Seattle ministerial conference of WTO highlighted the need for a considerable revision of strategies and goals in a broad agenda covering trade and competition, labour, environment and investment policy.  These came up at the Doha round in November 2001.

Doha Development Round           

The Fourth Ministerial Meeting of WTO at Doha in November 2001 assumed a critical importance.  By then, the harmful effects of WTO had come to world wide notice, notably in the developing countries. It had hardly conferred any tangible benefits on them, and the undemocratic way in which its charter had been adopted under US pressure was having a negative impact on labour and human rights, the environment and even local development.  There was mounting resentment as the principal beneficiaries were seen to be the transnational corporations, with intellectual property rights defended at the cost of health and human rights.  The supra national court system undermined national sovereignty, with three trade bureaucrats deciding whether domestic laws were barriers to international trade.  A backlash against corporate globalization was the result, and the tide of opinion was turning against free trade and the WTO itself.18

            South Asia, containing the bulk of the world’s poor, was particularly agitated, and the SAARC members decided in May 2001 to put up a united front at the Doha Ministerial meeting.  They were resentful of the way issues of “environment, governance and labour standards were used to limit market access”.  They decided to press for “increased access for textile and clothing sectors”, and to oppose “arbitrary anti-dumping, anti-subsidy and other protective measures by the developed countries”. Another major issue was that of greater access for their manpower exports.19

            Mike Moore, the Director General of WTO, gave an assessment of the Doha meeting that was upbeat.  He recalled that the fiasco at the Seattle round in 1999 had highlighted the growing  disenchantment with the functioning of WTO.  The terrorist attack on the US on 11 September 2001 had resulted in a sharp economic downturn all over the world, and caused a growing sense of international insecurity.  “Another debacle at Doha would have condemned WTO to irrelevance”.20

The Doha round saw Ministers from 142 member governments gather to engage and cooperate, “to craft a balanced agenda” that would give everyone enough, and no one too little.  Confidence was revived in the multi-lateral trading system, especially among the developing countries, many of whose concerns were met.  The meeting approved a two-stage 3 year work programme, including negotiations on market access.  A major decision was to override drug patents to enable the poor countries to utilize generic drugs to fight such menaces as AIDS, and to run affordable public health programmes.

            The highest immediate priority for the developing countries was that of implementation of WTO’s provisions in their favour, which were addressed in a separate Declaration at Doha.  These included extension of exemptions for smaller developing countries, and longer phase out period for some types of export subsidies.  The remaining implementation issues are to be addressed during the next work programme of standing WTO bodies.

            Major areas of concern that will be tackled over the next few years are agriculture services and access to markets.  The rich countries pay $ 1 billion a day to subsidize their farmers, which is six times all development assistance.  Negotiations are to be held to phase out subsidies, and to open markets to the produce of developing countries.  So far as greater employment of labour from the developing countries is concerned, such opportunities will be opened up in the areas of telecommunications finance, transport and business management, provided tariff protection is reduced by a third.  The richer countries will reduce or eliminate tariffs on products of export interest to the developing countries, with special assistance to the least developed countries.  Non-tariff barriers would also be addressed.  According to the World Bank, complete liberalization could add $ 1.5 trillion to the incomes of developing countries.

            The broad goals adopted at Doha are expected to reduce the number of the poor by 300 million by 2015.  Global income is expected to expand by $ 2.8 trillion in the next ten years.  In the words of Mike Moore, the Doha Development Agenda involved “willingness by all countries to work together flexibly and constructively, to overcome considerable differences”.21

Assessment in South Asia

            In an editorial entitled “Success at Doha”, the Dawn, Pakistan’s leading English daily,22 evaluated the results of the Doha round positively.  The paper considered that the entry of China into WTO had added enormously to the inherent strength and jurisdiction of WTO; China had shown sagacity by not keeping Taiwan out.  Though the outcome represented “some gains and some pains”, it constituted a “boost to the foundering world economy.”  The problems of development in the poorer countries had been dealt with “perfunctorily” and many issues remain to be tackled in a new round of “broad and balanced negotiations” on further lowering of tariff and reduction of direct and indirect barriers to free trade.  The new round will begin in January 2002 and conclude by January 2005.  The ticklish issues tackled at Doha included the phasing out of farm subsidies, and liberalization of trade.  The compromise on TRIPS (Traditional Intellectual Property Rights) represented a substantial gain for developed countries.  Labour and environmental issues remain to be taken up comprehensively by the concerned organizations (ILO and UNEP).

            India has been a strong critic of WTO, and some Indian economists had questioned the value of remaining in the organization, specially as the entry of China was likely to pose new challenges to India.  However, the Indian strategy at Doha was to promote unity among the developing countries with a view to winning concessions for the longer term,23 and commentators thought this had been achieved to a substantial degree.

Conclusions  

The prevailing disenchantment with the process of globalization relates largely to “the failure of the industrialized countries” in implementing the promises made at the time  of the  launching   of WTO that would provide them a fair deal in international trade.24 On the other hand the poorer countries paid a high price in honouring copy rights and patents for drugs and other products.  The Doha round addressed some of the concerns of the developing countries by agreeing to phase out agricultural subsidies.  The US played a major role in revising enforcement of patent rules to enable the third world countries to produce their own generic drugs at lower cost, even though the American firms stand to lose the most.  Some of the other third world complaints, such as the enforcement of tough environmental standards to block competition were also addressed.

            The WTO alone cannot address all the problems and inequalities of the existing economic order.  The World Summit on Social Development held at Geneva in 1995 had witnessed 117 heads of state declare war on poverty, unemployment and other side effects of globalization.  The follow up session of the UN General Assembly in Geneva in July 2000 had issued broad guidelines to intensify the anti poverty effort.  These included annulment of debts of the poorest countries, whose interest payments exceed budgets for health and education, transfer of information technology and medical assistance to developing countries, provision of social safety nets, and enforcement of transparency and accountability in national policies.25

            All round social development can be achieved only if strong governments pay attention to the needs of weak ones.  The dynamism of the private sector is an indispensable engine of growth.  However, a robust private sector must be balanced by an effective public sector at the national level, and effective institutions at the international level.  These institutions have not paid adequate attention to human rights, poverty reduction, protection of the environment and health.26

            Globalization is emerging as the most advanced form of capitalism.  However it must not merely be seen as a commercial phenomenon to get rich.  There has to be a sense of international responsibility, to ensure that the benefits of globalization as indeed of scientific and economic progress, are shared equitably among all segments of mankind.n