ECONOMIC IMPACT OF DUTY-FREE EXPORTS TO EU
Nov 1 - 7, 2010
The recently announced unilateral suspension of duties by 27-nation European Union (EU) for the next three years, concerns goods accounting for 27 per cent of the country's current imports to the EU and it would result in an estimated increase of EU imports from Pakistan to the tune of around $140 million.
Analysts however argue that European Union has narrowed down the impact of trade concessions by excluding over $1 billion worth home-textile exports of the country from tariff concessions and allowing mostly duty-free import of textile's raw materials for a period of three years. Critics in Pakistan say that the duty-free exports worth 900 million Euros to EU will cost the country two billion Euros, as the south Asian country is likely to be deprived of billions of Euros of remittances income yearly from illegal Pakistani immigrants after implementation of agreement the country signed with EU in lieu of duty-free exports.
Analysts argue that the EU has actually taken advantage of financial and political uncertainties in the flood-ravaged country by announcing trade concessions, which are only meant to its own benefits. They contend that the utmost sufferer of the concessions would be the value-added textile sector, which would ultimately succumb to yarn shortage in days to come.
The trade concessions announced would send negative signals to the excluded value-added textile and clothing industries as the tariff concessions would kick off exports of raw materials from the country resulting into high input cost for local industry. Duty-free export of yarn and fabric to EU under the unilateral agreement would trigger the input cost for these products used in the domestic home textile industries.
Pakistani Commerce officials argue that it is a unilateral concession in which, unlike a Free Trade Agreement (FTA) or a Preferential Trade Agreement (PTA), duties are waived or reduced by importing countries without any quid pro quo. Pakistan will not be giving any reciprocal concessions to the EU. They contend that EU, while finalising this package, did consider Pakistan's preference for product lines, but since it is unilateral and non-reciprocal, the mechanism of formal negotiations was not used by EU in finalising the package.
The country's leather and leather products exports will be able to face the Indian and Bangladesh exports, as the package has exclusively been designed for Pakistan and it is not available to other countries.
The EU duty-free exports plan was reportedly unveiled on October 7 the same day as EU ministers approved an agreement with Pakistan that allows either side to return any illegal migrants to their country of origin. This month, the EU Interior Ministers in Luxemburg approved an agreement with Pakistan, which would allow for return of illegal migrants from either side. The agreement is aimed at establishing the identification of illegal immigrants and their safe and orderly return on the basis of reciprocity, rapid and effective procedures.
Luxemburg deal, which is expected to enter into force on December 1, covers migrants who enter either the EU or Pakistan illegally after December 1. The deal also covers economic migrants, who have entered illegally in search of work, and third-country nationals who illegally entered the EU through Pakistan including those coming from war-torn Afghanistan.
The EU is struggling to turn the tide of illegal migration, and has made cooperation with third countries one of its priorities. It is not unilateral suspension of duties by EU, the critics say, but conditional package that would allow return of hundreds of thousands Pakistanis, who are sending remittances worth billions of euros to their families every year from Europe.
Last month, the country received remittances of $31.66 million from overseas Pakistani workers in EU countries. Remittances from overseas Pakistanis continued to show a rising trend as an amount of $2,646.30 million was received in the first quarter (July-September) of the current fiscal year; showing an increase of $314.8 million or 13.50 per cent over the same period of the last fiscal year, according to the country's central bank.
The inflow of remittances in July-September, 2010 period from EU countries amounted to $84.64 million as compared to $78.27 million in July-September 2009.
Critics say that the country will lose remittances worth billions of dollars, which have been the strength of the country's foreign exchange reserves, from Pakistani workers in the EU as result of Luxemburg deal. Pakistan was offered to nibble some carrots at Brussels last week, as the EU unilaterally announced trade concessions, which will be largely meaningless unless the country's main products - bed linen and knitwear - are on the list of duty-free items receiving tariff cuts.
The trade-linked aid from European Union is under criticism of textile producers in EU causing consternation within the industry.
Many European countries have strongly opposed the recent decision of 27-nation European Union to give Pakistan unilateral trade concessions to help the south Asian country recover from devastating floods.
Critics in Europe say that the proposal to lift import duties on 75 Pakistani products, particularly on textile products would have huge impact on some European states where textile industry is already enduring a crisis. They contend that the decision would worsen the crisis and exacerbate unemployment in Europe.
"The proposal to lift import duties on 75 Pakistani products would be a tragic decision for Europe, AFP (Agence France-Presse) reported Nuno Melo, a conservative Portuguese lawmaker as saying. "The impact may not be great for the 27-nation bloc as a whole, but for us it would be huge."
Some European leaders deem it in the vital strategic interest of the EU to help Pakistan in the long-term with trade. Britain and Germany, which both have thousands of troops fighting Islamist insurgents in Afghanistan, reportedly backed trade concessions, but southern European states including Portugal, France and Italy with textile industries opposed them. These states that compete with Pakistani imports such as linen, garments and ethanol, are reluctant to give too much ground at a time of economic stress.
Euratex, a European association of textile producers has strongly opposed the idea of giving Pakistan a preferential treatment. Euratex believes that Pakistan is already a major world player on a par with India or China, and warned that unilateral EU moves will certainly be attacked in the WTO and could seriously jeopardise negotiations on a free-trade deal with New Delhi.