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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