INTRODUCTION

Pakistan is a low income, food deficit country with a gross national product per capita of US $ 736^[1]. Agriculture is a major economic activity in Pakistan. The share of agriculture in GDP of the country though declined over time as a result of structural adjustment, its performance still have a major impact on the over all performance of the economy because of its linkages with the rest of the economy. Therefore, a higher and sustained growth in the agricultural production is imperative for a rapid development of the economy and poverty reduction in the country.

Until mid 1980s, the government pursued an economic policy that was strongly interventionist. One of the consequences has been price discrimination against agriculture in a sense that government taxed the producers and subsidized consumers^[2]. During late 1980s, Pakistan turned from inward-looking policies toward trade liberalization and export promotion strategies. Since then the government changes frequently but all of them considerably liberalized the economy^[3].

Pakistan joined WTO in 1994. The WTO Agreement on Agriculture (AoA) was one of the many agreements, which were negotiated during the Uruguay Round (UR). The Agreement comprises of three main areas namely; market access, domestic support and export subsidies.

In the UR, Pakistan committed itself to bind more than 90% of the agricultural tariff lines. Products for which tariffs have not been bound include alcoholic beverages, swine and pig meat etc., for religious grounds. For ten tariff lines however, the binding was 150% and for ten others it was understood that these high levels of binding were adopted in order to safeguard import-competing agricultural sectors in the short run from possible disruption as non-tariff barriers were removed. Tariff levels for wheat and rice were bound at 100 and 150%, respectively. The applied rates are much less than the bound rates. As Pakistan offered ceiling bindings, no commitment was required for the tariffs during the UR implementation period^[2].

After joining the WTO, Pakistan trade sector has undergone the radical changes in compliance with WTO rules and regulations. Pakistan’s applied tariffs have been reduced and simplified, the maximum tariff brought down in phases to 65% in 1996 and to 30% in early 2002^[4]. Similarly Pakistan made appreciable progress in reducing non tariff barriers. The quantitative quotas have been eliminated. Negative and restrictive list of imports has also undergone reductions. Only a few agricultural items are subject to restrictions^[5]. Pakistan presented a detailed schedule on domestic support measure under Uruguay Round of Agreement on agriculture. AMS figures being negative, Pakistan is not required to reduce its support level as per agreement^[5]. Pakistan did not notify the existence of any export subsidies on agricultural products in the base period and accordingly could not resort to them in the future^[2].

The challenges for agriculture sector of Pakistan and particularly for wheat are quite different from those met in the previous decades. Average wheat yield realized per hectare in Pakistan is far below as compared to the rest of the world. Estimates show that productivity gap from world’s highest average yield of wheat is 5.2 MT ha^-1 which is 69.3% higher than the national average^[6]. Although there is a big productivity gap yet it occupies the highest cultivated area of the country. The planted area, production, average yield and per annum growth rate of wheat is presented in Table 1.

Pakistan is one of the major producers of wheat in the world, but the domestic wheat production remains insufficient for the needs of its population. To ensure food security, the country has to supplement the local production with imports. Estimates show that import cover from 10-20% of national consumption needs^[7]. Because of the strategic importance of wheat as a major staple food commodity, government used to intervene not only to guarantee affordable supplies to consumer but also to provide market support to producers^[8].

The impact of the UR on wheat has been predicted more than most other grains due in part to the greater degree of subsidization of wheat in the past. Total subsidized wheat exports are scheduled to fall from 59 million tones in initial year to 40 million tones. During the UR Round of Talks, the United States and Canada, promised to reduce government subsidies on wheat farmers. These two countries are the price leader in the wheat world market. The elimination of subsidies on wheat by these countries would result in higher prices of Pakistan’s wheat imports. Most global exercises have predicted almost 7-11% increase in wheat price, following implementation of UR Agreement on Agriculture.

Since the landscape of the world economy is undergoing considerable change, there has been growing concern on the impacts of WTO on Pakistan’s agriculture production, price and market and consumption. In order to address to the question to sustain agricultural growth, achieve food security and increase farmer’s income with the process of agricultural trade liberalization.

To evaluate the price transmission elasticities in order to measure the effect on domestic prices of wheat resulting from change in international prices following the implementation of AoA.

Table 1:	Area planted, production, yield of wheat (Unit: Area = 000 ha; Production = 000 ton; Yield = kg ha-1; Growth = %)
Source: Agricultural Statistics of Pakistan (various issues)

To measure price elasticity coefficients for demand and supply of wheat for forecasting the likely impact of trade liberalization on domestic production and consumption of wheat at national level.

To examine the extent of benefits and losses to be gained by Pakistan as a result of trade liberalization with special reference to wheat.