European Union tariff preference plan for Pakistan hits roadblock

Brussels, April 07, 2011 (PPI): The attempt by European Union EU to help Pakistan’s economy recover from devastating floods last year by granting it tariff preferences for some textile exports has hit a roadblock, with India, Bangladesh & Peru withholding consent from a World Trade Organization WTO waiver authorizing Brussels to deviate from multilateral rules to discriminate in favour of Pakistan.

Proposed initiative dates back to September, 2010, when EU member states agreed in principle to temporarily remove tariffs on key Pakistani exports on a non-MFN basis (in other words, other comparable WTO members will not benefit from lowered duties). European Commission came up with list of 75 tariff lines - mostly textiles - to receive preferential access, keeping eye on import-competing industry in EU, effects on least-developed country export prospects, and potential opposition from other developing states. Scope and duration of prospective tariff cuts were whittled down in face of opposition from import-sensitive EU member states, which met with disappointment in Pakistan.

But winning consent from all WTO members to authorize EU to provide Pakistan with market access on a non-MFN basis has thus far proved an insuperable obstacle. WTO rules require a government seeking to deviate from ‘most favoured nation’ obligation - the obligation to treat countries equally - to secure a waiver from all members.

At meeting last month of WTO Council for Trade in Goods, India, Bangladesh & Peru said they were still consulting on the matter with EU. EU delegate said talks were helping to ease some concerns but delaying too long would defeat purpose of proposed tariff cuts to provide immediate help to Pakistan economy. According to EU, a May meeting of General Council, WTO’s top decision-making body, presents that last real opportunity to resolve issue.

India’s commerce ministry says EU proposal would help Pakistan’s textile industry, not flood victims, a report in Economic Times said. A Ministry official said New Delhi suggested to EU that “if they want to help they could do it in other ways, including giving direct cash aid to Pakistan.” India fears trade concessions could cost its textiles industries market share in EU. Indian objections are political rather than economic as package of trade concessions is too small to matter to India’s overall economic interests.

Manzoor Ahmad, a former Pakistan ambassador to WTO says EU never needed to enter into politically fraught quest for a waiver: in order to grant Pakistan significantly improved market access, Brussels could have made small adjustment to eligibility criteria for its GSP-plus trade preference program. Currently, countries cannot benefit from this scheme, which goes beyond EU’s standard Generalized System of Preferences, if they account for over 1% of EU’s total GSP-related imports. Pakistan accounts for only a fraction above this threshold; by lifting threshold, say to 1.5%, EU could have given Pakistani textile exporters substantially improved market access without running into complications at WTO.

Pakistan had been seeking inclusion in EU’s GSP-plus scheme even before last year’s floods and met EU’s criteria for economic vulnerability resulting from a relatively undiversified export basket, and had been in process of ratifying international conventions that were other requirements for GSP-plus qualification.

On whether EC was contemplating changes to its GSP-plus qualification threshold that would enable Pakistan to qualify, John Clancy EC trade spokesperson said European parliament recently granted a GSP ‘roll-over’ meaning that current GSP structure will be valid until 31, December 2013.” He said a proposal to revise GSP is currently being developed, and could be tabled for discussion later this spring.

Policy course chosen by EU had much to do with bloc’s internal politics. Non-MFN tariff initiative was idea that came from EU’s external relations directorate; trade directorate was lukewarm about it. Since mid-2010, EU levied countervailing duties of over 5% on Pakistani polyethylene terephthalate to offset harm to EU producers resulting from what Brussels alleges are bond and export financing policies that are tantamount to a subsidy. Interim duties introduced in June 2010 amounted to 9.7%; in September, which was after floods in Pakistan. EC confirmed duties will remain in place for five years, albeit at a lower rate of 5.1%.