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    South Asia
     Nov 17, 2012


EU grants Pakistan flood deal
By Syed Fazl-e-Haider

KARACHI - Pakistan has won duty-free access for its products to the European market, as the European Union on Thursday gave notice of a trade concessions package to provide duty-free access to 75 Pakistani products in a bid to compensate the country in the aftermath of 2010 floods.

Senior Commerce Minister Makhdoom Amin Fahim told a press conference in Islamabad on Thursday that the financial benefit from the package is expected to be as much as 500 million euros (US$638 million) by the end of next year. He said the country also signed a memorandum of understanding in Geneva on November 12 with the European Free Trade Association (comprising Switzerland, Norway, Iceland and Liechtenstein) to explore the

 

possibility of entering into a free-trade agreement with the four-nation grouping.

The limited access to EU could become a bridge for Pakistan to secure Generalized System of Preferences (GSP) Plus status, effective from 2014. Access to GSP Plus status means duty-free access for all Pakistani products but it will be subject to implementation of human rights conventions, signed by the country at various international forums.

Under the approved deal, only the European Commission will manage the quota while Pakistani authorities will only confirm that the exported products are of Pakistani origin so that they can qualify for trade concessions. Only 25% of the annual quota will be made available for duty-free access for the remaining two months of this year (November-December), while a 100% quota will be available from January 1, 2013.

Though textile exporters have welcomed the duty-free access, which is expected to increase textile exports to the EU by 30%, but they may have limited opportunity to take advantage of the concessions, given suspensions of gas supply and power outages that halt production. The long-running energy crisis has already taken a heavy toll on the country's industrial production and exports. Textile exports constitute more than 55% of the country's total exports and the sector is the largest foreign exchange earner while directly providing jobs to 3.5 million people.

"We are unlikely to capitalize on the EU's preferential trade offer due to the severe energy crisis in the country," the Express Tribune reported Pakistan Textile Exporters Association chairman Rana Arif Touseef as saying. "Textile exporters will not be able to benefit from the concession unless the government takes serious measures to tackle the energy shortage."

The energy shortages cause production losses and delays along the entire textile chain, from spinning to finished goods, particularly in Punjab province, and prevent exporters meeting delivery deadlines. Pakistan is the second-largest exporter of yarn, third-largest exporter of fabric and fourth-largest producer of cotton. Textile exports compose 8.5% of gross domestic product (GDP) and provide about 40% of jobs in the manufacturing sector.
The present value of country's exports of the selected 75 products to the EU stands at US$1.4 billion, about 27% of the country's total exports of $5.1 billion to the 27-nation bloc.

The EU concessions offer fewer benefits to Pakistan than an original package announced in 2010 when floods devastated the length of the South Asian country. The original package allowed the duty free access to 75 products, while the redesigned package links the 75 items to quotas, instead of duty-free access. The waiver period has been reduced to less than 14 months, compared with 36 months under the original package.

The deal also carries some safeguard clauses empowering the EU Commission to reintroduce duties if EU imports of the products concerned grow by 25%. The safeguards have been inserted to protect local industry and jobs in the textiles, garments, ethanol and leather sectors, which are sensitive for some EU member states, against surges in cheap imports.

Under the agreement, the EU may withdraw the trade concessions in case Pakistan imposes restrictions on exports of raw materials such as animal hide from EU, used to produce the 75 listed goods. The EU may also suspend the package if the country adopts measures restricting human rights and workers' rights, gender equality or religious rights or if it provides any kind of support to terrorist groups.

The package was redrafted because of the objections raised by Spain, Portugal and Germany due to recession fears in Europe, according to the Pakistan Readymade Garments Manufacturers and Exporters Association. Of the total 75 items included in the package, the number of products with a quota ceiling of 120% would increase from 20 to 26 with a quota ceiling of 120% of past trade based on 2007-09, while a ceiling has been proposed on the remaining 49 items, based on 130% of past trade of 2007-09.

In technical terms, the ceiling of 120% means that the country 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.

The original EU deal, which was expected to fetch Pakistan an additional $1 billion, faced stiff opposition from textile lobbies within the EU bloc, particularly Southern European states including Portugal, France and Italy. Opponents of the package argued that the textile products would have huge impact on some European states where textile industry was already enduring a serious crisis.

Pakistan's competitors in textile exports to the EU, including Bangladesh, Brazil and India, also raised objections. These countries dropped their objections after the EU amended the scheme to use tariff rate quotas on 20 products rather than full liberalization. Under the revised package, the EU restricted that duty-free exports of fabric towel, women's jeans and socks from Pakistan should not rise more than 20% per year and also slashed ethanol export from 100,000 tonnes to 80,000 tonnes.

Syed Fazl-e-Haider (http://www.syedfazlehaider.com) is a development analyst in Pakistan. He is the author of many books, including The Economic Development of Balochistan (2004). He can be contacted at sfazlehaider05@yahoo.com.

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