In a very welcome move for Pakistan, on the first of February 2012, the WTO Council for Trade in Goods, by taking humanitarian considerations into account and to allow Pakistan recover from the tragedy of the 2010 floods, approved a European Union (EU) waiver on customs duties for 75 items (mostly textile related) from Pakistan. Originally, the EU had offered this one-time facility to Pakistan and approached the WTO accordingly back in October 2010 to seek a two-year waiver period (January 2012 to December 2013) on granting trade preferences to Pakistan on these products amounting to almost 900 million euros in import value to the EU or approximately 27 percent of total EU imports from Pakistan.
This package was designed by the EU in response to the humanitarian appeals from the United Nations (UN). At the time, the UN estimated that the floods affected some 20 million people and nearly 20 percent of Pakistan’s land area, out of which about 160,000 sq km came in the category of near total devastation and 12 million people required urgent assistance. However, WTO member countries, like India, Brazil, Bangladesh, Indonesia, Peru and Argentina, and textile lobbies within the EU had blocked the implementation of this preferential package originally scheduled to be effective from January 2011. In a renewed effort to get the package revived and approved through the WTO, a revised document was prepared by the EU after consulting all the member countries and which was resubmitted to the WTO secretariat on January 20, 2012.
As a result, all the opposing countries dropped their objections, following the amendments made by the EU in the original document by introducing tariff rate quotas (TRQ) on as many as 20 products, rather than granting full liberalisation. The TRQ provide a sort of comfort to the competing countries that the country being offered special relief will not be facilitated beyond a certain point. In the original document submitted in 2010, the EU had proposed only eight items for TRQ. The package after going through the EU Council of Ministers will be duly moved to the WTO General Council for formal approval, hopefully later this month, and if all goes well, the concessions could be in place by as early as March 2012.
However, there are certain quarters here who seem to be either unhappy about the very composition of the list of items for which the concessions have been granted, or remain sceptical about the benefits these concessions can yield for the overall increase in Pakistani exports. According to them,
n Bed linen, which accounts for more than $1 billion of Pakistani exports to the EU and easily classified as our most competitive product range within the home textiles ambit, and one that holds the most promising potential of future growth, has been dropped.
n The composition of the list has more to do with helping the European manufacturers than promoting Pakistani exports, because majority of the items in the list constitute raw materials, basic ingredients and accessories required by them in their production chain.
n Concessions’ list, as designed, does not promote value addition in Pakistani exports; in fact, the nature of its composition can be counterproductive to value addition in the long run.
n The TRQ are targeted specifically towards those 20 items where we could have made inroads in the EU markets and by limiting their growth the total effect on increase in exports will be minimal.
n While the government is claiming that the concessions can lead to an annual increase in our exports of around Euro 400 million, the figure seems farfetched because the EU quarters themselves are pointing to an effect of about Euro 100 million/annum.
n In the non-textile sector, the critics believe that even the originally proposed ceiling of 100,000 tons for ethanol was on the lower side and with the duty free quota being restricted to 80,000 tons the real benefit will not go to Pakistan by way of increased exports/revenues, but to the European customers by way of cheaper imports and by helping them become more globally competitive.
All very well and the critics may, indeed, have a point. But what they need to remember is that the benefits of this award are actually quite far-reaching and go far beyond the mere numerical calculations in euro or rupee terms. One of the principal obstacles to progress, market access and investment that Pakistan faces today is that of perception. The approval means that not only does the world recognises Pakistan’s sufferings and sacrifices, but it is finally now also willing to extend a hand of friendship to engage Pakistan constructively to help overcome its troubles - the mantra of “trade not aid” that we have been promoting so vociferously!
Further, even if the bed linen has been excluded, the 20 items selected for the TRQ have been awarded a generous ceiling of 20 percent over and above the average of 2008, ’09 and ’10. As we know that 2010 was a good export year for Pakistan and given the current demand slowdown in the Western markets, an average that includes export year 2010 and then topped up by 20 percent presents us with a very healthy opportunity for growth. Successful businesses are about connectivity and momentum, followed by the art of management to make that momentum sustainable by ensuring that market share once captured is retained and also built upon. With duty free access in the allowed categories, this could be our chance to regain our lost momentum and, more importantly, get reconnected as a preferred supplier. Also, we must not forget the potential of the law of ‘capital reverse osmosis’ effect that can possibly come into play here. Meaning, if over time the European manufacturers’ reliance on Pakistani raw materials (textiles or ethanol etc) grows, so would their investment in Pakistan to safeguard their supply chain.
Finally, the biggest gain that can come out of this EU package that has been approved and accepted through the bureaucracy of WTO may not be visible immediately, but can come to light two years down the road. That is if Pakistan on the basis of this can sympathetically present its case to the EU and once again successfully manage it in the WTO to qualify for the GSP (Generalised System of Preferences) Plus Scheme in 2014. The GSP Plus Scheme would result in allowing Pakistani goods to enter duty free into the EU markets. If this can be achieved, then it would be the real prize that Pakistan deserves from the world to allow it the opportunity to help itself and recover from the losses it has incurred for the larger good of the global economies. And it is this very goal that we should be working towards as we approach 2014. However, for the moment, well done!
The writer is an entrepreneur and economic analyst.