EU PACKAGE

FOZIA AROOJ
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June 25 - July 1, 20
12

In order to compensate the losses caused by flood, which wrecked havoc in Pakistan two years ago, the EU had announced concessions for Pakistan on 75 dutiable products exported by Pakistan. The EU package for two years, extendable for a 3rd year, was offered last year. Out of a total of 75 items, 65 are textile products. This package was designed by the EU in response to the humanitarian appeals from the United Nations (UN).

The UN estimated that the floods affected some 20 million people and nearly 20 percent of Pakistan's land area, out of which about 160,000 sq km came in the category of near total devastation and 12 million people required urgent assistance.

In February 2012, World Trade Organization's (WTO) Council on Trade in Goods (CTG) unanimously approved the much-awaited European Union (EU) waiver on duties for 75 products from Pakistan, allowing their duty-free import. These products included certain textile products, leather goods and ethanol. But now, the fate of the EU trade concessions package for Pakistan hangs in the balance.

The EU package is considerably delayed due to various reasons including the opposition by some nations. The textile producing nations notably France, Portugal, Spain, Italy and Greece have been bickering against the trade incentive package. Pakistan's neighboring countries initially raised objections to the trade package meant to boost the distressed economy. Some EU member countries have now resorted to protectionism, which is likely to hurt Pakistan's prospects of textile and garment exports to one of its largest international markets. Europe is facing many challenges in a rapidly changing world. The recent economic and financial crisis has dramatically shown the extent to which the well-being, security, and quality of life of Europeans depend on external developments.

Pakistan fears that European Union's trade package may be further delayed due to existing tensions between Islamabad and NATO over suspension of transit facility to Afghanistan. The package has become severely politicized when it was discussed during an EU parliamentary meeting held in May 2012. During the meeting, it was being redrafted after Spain, Portugal and Germany opposed it, citing the economic slowdown in Europe. Now, it seems that the package will either be further diluted or scrapped altogether. Pakistan's exports of woven garments, knitted garments, and home textile to EU during calendar year 2011 were 738 million euros, 516 million euros and 920 million euros, respectively. The year-on-year garment exports to EU have already declined by approximately 10 per cent. Earlier, the number of items under the quota was increased to 20 from about a dozen when South Asian countries, particularly Bangladesh, opposed the package, saying it would hurt their exports to EU.

Textile exporters are expecting that out of the total 75 items included in the package, the number of products with the quota ceiling of 120 per cent would increase from 20 to 26 under the redrafted package. Technically, the ceiling of 120 per cent means that Pakistan can export 1.2 times the average volumes exported between 2007 and 2009 in each of the 26 product categories without paying any duty. Any exported volume exceeding the quota ceiling will be subject to regular import duties.

India, at the WTO, objected followed by Bangladesh and some other countries to the trade concession. But India withdrew its opposition after Pakistan granting it most favored nation (MFN) status in November 2011. As the Indian government has withdrawn their objection followed by settlement with the other complainant countries and finally WTO has given NOC to the EU for the said trade concession. Pakistan would get GSP plus status in January 2014, which would increase Pakistan's exports up to $200 million per year.

At the moment, 26-nation block has finalized a list of 26 items on which tariff rated quota (TRQ) will be applied initially as opposed to the original EU agreement to allow export of 75 items from Pakistan duty free. Initial estimates suggested that Pakistan will earn about $900 million through this package to be spent on the victims of 2010 floods but now its financial benefit will be far less.

If the implementation of this package failed, it would have severe harmful effect on Pakistan's bid for GSP Plus, which was going to start from January 1, 2014. This could be a dangerous development for Pakistan and our textile industry and we can expect further drop in our exports if this packages does not go through.

Value-added textile industry especially garments exports are badly suffering due to various factors and the EU's package, which is long awaited by exporters, would bring a little life into garment and apparel industry. Approval of concessions by relevant EU bodies has not yet been granted yet various ministries declared their success. It is unclear as to when the approval process will be finally completed. As this concession is time bound, delay in its implementation is hampering prospects of any kind of export growth and/or better price realization for Pakistani exporters. It is expected that the package will now be implemented from second half of 2012 till the end of 2013, which will further retard our efforts to boost exports.

While the government is claiming that the concessions can lead to an annual increase in our exports of around 400 million euro, the figure seems farfetched because the EU quarters themselves are pointing to an effect of about 100 million euro/annum.

Nevertheless, the benefits of this award are actually quite far-reaching and go far beyond the mere numerical calculations in euro or rupee terms. One of the principal obstacles to progress, market access, and investment that Pakistan faces today is that of perception. The approval means that not only does the world recognizes Pakistan's sufferings and sacrifices, but it is finally now also willing to extend a hand of friendship to engage Pakistan constructively to help overcome its troubles.