EU gives Euro 100mn Three Year Trade Package to Pak in Textiles, Leather and Ethanol

Pakistan is set to receive a package of trade concessions from the EU, over a year after Brussels initially tabled its request for a WTO waiver. The flood-battered Asian country will receive preferential treatment for 75 tariff lines, though not all of those will receive full liberalisation. The granting of the WTO waiver follows a politically fraught process that saw the original trade package altered in response to concerns from some members.

The WTO Council for Trade in Goods, meeting on 1 February, approved Brussels’ request to temporarily waive tariffs on imports from Pakistan. The agreed waiver will allow Brussels to temporarily discriminate in favour of Islamabad, in an effort to help Pakistan’s economy to recover from the devastating floods of July 2010.

Under WTO rules, members are required to secure a waiver from all other WTO members if they wish to deviate from the ‘most favoured nation’ obligation.

The package of trade concessions has been forwarded to the WTO General Council for adoption at their meeting on 14 and 15 February. The measures, if adopted, would be in effect from 1 January 2012 to 31 December 2013.

The approval comes over a year after the EU initially tabled a request to grant Pakistan tariff preferences for textiles, ethanol, and other goods.

Pakistan currently benefits from the EU’s Generalised System of Preferences (GSP), which provides Pakistan with preferential access to the EU market. The GSP allows Pakistan to export to the EU more than 3,000 tariff lines duty free; Islamabad is also granted reduced duties on another 3000 tariff lines under the scheme.

The two trading partners also have a Cooperation Agreement that entered into force in September 2004, with the objective to promote the increase and development of two-way trade between them.

“Under normal circumstances, the combined effects of the Cooperation Agreement and the GSP preferences would allow to generate trade and to support the objective of a harmonious economic growth in Pakistan in respect of the WTO obligations,” the final waiver request reads.

“However, the EU considers that, as a consequence of the [2010 floods], an emergency response is required.”

The waiver’s approval was lauded by Pakistani government officials, with Foreign Office Spokesperson Abdul Basit telling The Dawn - a leading Pakistani newspaper - that the government “particularly appreciates the European Union and its member states for their commitment to help Pakistan revive and stabilise its economy through trade.”

“I’m very happy. It was a long drawn out exercise, and something of a success for diplomacy,” Pakistan’s ambassador to the WTO, Shahid Bashir, told Reuters.

The EU is Pakistan’s largest trading partner, receiving nearly 30 percent of Pakistan’s exports - worth nearly €3bn. Pakistan’s trade with EU is primarily composed of textiles - 70 percent of exports to EU - followed by leather products, which make up 13 percent of exports.

Terms of final package

The revised EU request (G/C/W/640/Rev.2) includes a series of changes from previous versions, reflecting discussions Brussels held with various members. Members that had previously had concerns regarding the waiver said they could now agree to it after having consulted with both the EU and Pakistan.

The revised waiver includes a list of 75 products from Pakistan, including 20 on which tariff rate quotas would be applied instead of full liberalisation; the waiver applies primarily to textiles, leather, and ethanol.

In addition, the EU reserves the right to request an extension by another year “if it considers that this is necessary for the economic recovery of Pakistan.”

The selected product lines amount to nearly €900mn in import value, or 27 percent of the €3.3bn in EU imports from Pakistan.

Former Pakistan Ambassador to the WTO Manzoor Ahmad said that the package “has some economic value, but not really something very significant,” particularly since the list covers just over a quarter of Pakistan’s exports to the EU.

The heavy focus on raw materials will also make it more attractive for Pakistani producers to sell yarn and other raw material to the EU, rather than to local industry - potentially posing a competitiveness problem, he said.

The EU could also have avoided the difficulties of the waiver process by adjusting the criteria for its GSP-plus preference scheme, Ahmad noted, so that Pakistan could be eligible for improved market access that goes beyond the standard Generalised System of Preferences.

“When the floods took place in 2010, it would have been much easier for the EU to make a bit of an adjustment to the [GSP-plus] criteria and include it,” he said, noting that such a change could be in the works for 2014.

Another option to help the flood-stricken country could be for the EU to negotiate a free trade pact with Pakistan, the way it is currently doing with India and might soon do with Vietnam, he said.

On the other hand, the “positive side is that maybe it increases benefits by 100mn or so euros. It’s not much, but it’s psychologically good,” the former senior trade official told.

The process also helped bring India and Pakistan a bit closer, he added, noting that Islamabad and New Delhi had to consult with each other so that India would agree to lifting its objections to the waiver. “They’re trying to normalise trade, and this step could help in this.”

Over a year in the making

The initiative has been in the works since September 2010, following the floods in July of that year. The World Bank and Asian Development Bank have put the total losses associated with the disaster at US$9.7bn.

The original waiver request was dated November 2010, after the European Council agreed on 16 September to “grant exclusively to Pakistan increased market access to the EU through the immediate and time-limited reduction of duties on key imports from Pakistan.”

The European Commission had come up with a list of 75 tariff lines - primarily textiles - to receive preferential access. The concessions package was cut down, both in terms of the scope and duration of the tariff cuts, due to opposition from import-sensitive EU member states.

The process hit further roadblocks once it reached the WTO, with concerns being raised by India, Bangladesh, Peru, Vietnam, and others over the possible systemic implications of such a waiver for the multilateral trading system and the effects on exports from other developing countries with interests in the same tariff lines.

The terms of the revised waiver request make clear that this situation “will not constitute a precedent for similar measures to be considered as a systemically appropriate means to address humanitarian crisis situations by WTO members.”

Following the General Council approval, the concessions package will next need to go to EU Council of Ministers to be approved into law, after which it will be implemented.