May 23 - 29, 2011

European Union (EU) parliament has cleared the unilateral trade concessions, announced by the European Council last year for the flood-stricken Pakistan economy. The only hurdle now remains World Trade Organization (WTO) waiver, which will take less than a month, according to the Pakistani officials.

The time-bound trade concession package remains unapproved even nine months after the floods hit Pakistan, affecting some 20 million people. This month, the WTO General Council meeting ended inconclusively due to continuous opposition by India and other nations including Bangladesh, Sri Lanka and Vietnam. Some analysts believe that India will be the key player and its support will be crucial for Pakistan to win the case at WTO, as China is not interested in becoming the Third World advocate. Last month, Islamabad requested India to stop opposing the package in the secretary-level trade talks held in Islamabad.

Under trade concession package, EU announced last year duty free access to Pakistan on 75 tariff lines. The total worth of export of 75 tariff lines is US $ 1.03 billion and the average tariff on these products is around 8.86 per cent, while the country's global export on these products is $3.80 billion. Critics point out the government's weakness in lobbying the case with the WTO at a critical time when domestic politics and the recent killing of Osama Bin Laden have overshadowed the economic priorities.

After the approval of EU parliament, Pakistani officials hope that the WTO will take less than a month to endorse the EU parliament's approval of a tariff concession package, as the package will be part of the WTO working agenda for May 26 meeting.

European Council in its meeting on 16th September, 2010, had decided to grant Pakistan Special Concessions to support the Pakistan Economy in the wake of devastation caused by the unprecedented floods. The EU package for the country faced tough resistance from within the EU bloc and WTO-member countries, mainly India and Bangladesh.

Earlier this month, the WTO General Council failed to convince the nations opposing trade concessions for Pakistan. India wants Pakistan to grant it the Most Favoured Nation status. WTO waiver was blocked by four WTO-member countries, Vietnam, Bangladesh and Peru led by India in the last meeting of the council, which was mandatory for the implementation of the EU preferences offer to Pakistan. China neither supported nor opposed the waiver to Pakistan.

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 stayed on the opposing side. 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.

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 serious crisis. They contend that the decision would worsen the crisis and exacerbate unemployment in Europe.

Euratex, a European association of textile producers 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 jeopardize negotiations on a free-trade deal with New Delhi.

Pakistani Commerce officials however 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 finalizing 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 finalizing 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.

Some analysts however argue that the EU trade concessions 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.

Under the revised package, the EU has restricted that duty-free exports of fabric towel, women's jeans and socks from Pakistan should not rise more than 20 percent per year and also slashed ethanol export from 100,000 tons to 80,000 tons. The EU has revised its package of trade concessions for 75 textile and other imports from Pakistan adversely undermining the package value, as final package is much less attractive than the original one announced in October.

The final package is unlikely to effectively boost the country's exports to Europe, as the compromise on the package waters down the concessions under pressure from the EU textile industries that fear losing market to cheaper Pakistani imports, according to local textile exporters. Local apparel exporters think that the changes in the trade concessions package have rendered it worthless for the country.

The final package slashes the period of tariff suspensions to two years, with a third year only granted after an assessment of the impact on Europe's textile producers. All remaining items may also lose their tariff suspension if there is a surge in their exports to Europe, under a safeguard mechanism, according to the new adjustments made in the trade package.

The analysts argue that EU has already 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 and finally the new adjustments have made the package less extensive and less attractive.