Pakistan and the trust deficit; first India and now Bangladesh

On the objection of Bangladesh, European Union move to grant trade preferences, GSP plus status, to Pakistan as an aid measure following last year floods in Pakistan, has been halted. These measures were to facilitate Pakistani textiles exporters to export to European market. In a recent meeting Bangladesh has objected entry of eight items of the clothing sector of Pakistan to the EU market. Pakistan was shocked over the ambigous opposition of Bangladesh in the session of council for trade in goods of WTO held on November 7.
Unilateral tariff concessions: Pakistan was expecting the two years unilateral tariff concession package proposed for about 75 items to be exported to EU. India announced to withdraw its objection over the facility the EU is willing to give to Pakistan. Earlier, India was opposing European concessions to Pakistan to extend this facility. India was opposing proposal with support of Vietnam and Peru. Trade officials said it was likely that Peru would also drop its reservations.
EU had announced concessions for Pakistan on 75 tariff lines on September 16, 2010, which were subject to the WTO wavier. But the proposal was continuously opposed by India in the WTO for the last one year. It was hoped that Pakistani exporters would get access to EU market but now Bangladesh entered the arena to oppose this scheme.
Competing with Pakistan: World Trade Organisation rules say there should be no discrimination and all trade partners must be dealt at par. Therefore, EU can not take an exceptional measure for Pakistan, i.e. the EU should treat all WTO members impartially, and any member of WTO can block the deal. Bangladesh competes with Pakistan for textile products in the European market. Therefore, Bangladesh Garment Manufacturers and Exporters Association said that it is worried about this decision. They said Pakistan is a cotton growing country and has an extra advantage that would create an uneven competition, if EU provides trade benefit to Pakistan.
On the other hand, Chairman of All Pakistan Textile Mills Association (APTMA) said that products of the South Asian country, Bangladesh, are more competitive than ours. He said it will not hurt their share because EU is a large and open market for products. Moreover, it is categorised as a least developed country and enjoys quota and duty free access to EU market, unlike Pakistan. Further, Bangladesh’s cost of doing business is lower as compared to Pakistan.
Pakistan qualifies for market access to the EU on humanitarian grounds similar to Bangladesh. Pakistan was badly hit by one of the worst floods in history, besides bearing the brunt of terrorism. Therefore, Pakistan has been given the special favour keeping in consideration Pakistan’s pivotal role in the war on terror and the colossal harm the economy suffered on account of floods.
$23 billion Bangladeshi exports to EU: It is to be noted that Bangladesh exported goods worth about $23 billion to EU, in FY2011. Out of the total, the share of readymade garments was more than 80 per cent. Against this, Pakistan exported textile items valuing only $2.5 billion to the EU in the same period. Therefore, Bangladesh should not worry with regards to Pak-EU trade deal, Chairman APTMA said.
Bangladeshi clothing sector exports increased from $2 billion, a few years back, to $16 billion to the EU. Against this Pakistan’s exports to the EU were $1.5 billion only in the clothing sector in a market of $80 billion. Furthermore, this facility of cut in tariffs is only for two years that would give a small boost to Pakistani exporters.
Bangladesh launched a petition to the WTO on the issue and expressed the fear that countries like Bangladesh would be badly affected, if the proposed GSP facility was granted in favour of Pakistan.
Pakistan sought EU GSP for 75 items included eight items in which Bangladesh has a big share. These items include leather goods, shoes, knitwear, jeans, home textile and readymade garments.
EU was to exempt Pakistani main value added textile and leather products exports from custom duty for the next two years. Further, undenatured ethyl alcohol of actual alcoholic strength of 80 per cent was also included in the 75 items.
Trade potential with EU: The exemption will benefit sixty five textile product categories. However, bed linen, with four out of 10 EU imports in that category already exported from Pakistan would not be benefited. The list also includes six items of leather goods and three of footwear.
The list includes dried mushrooms and truffles, whole, cut, sliced, broken or in powder, cotton yarn, plain weave cotton fabric, woven fabrics of cotton, twill weave cotton fabric, overcoats, anoraks etc, of cotton, knitted 100 per cent, floor cloths, dish cloths, dusters and similar cleaning cloths, made up articles of textile materials etc.
Lifting duties on the products would result in an estimated increase of EU imports from Pakistan to about $150 million. According to original EU proposal announced in October 2010 duty suspensions, if approved unanimously by the WTO, would benefit about 900 million euros, $1.27 billion, to Pakistani exports to EU and Pakistan could boost sales to the EU by 100 million euros. The plan would not only affect mainly textile but also ethanol exports.
Cotton and textile account for about two thirds of Pakistan’s exports. Exports from Pakistan to EU are currently valued around 3.4 billion euros per annum, 920 million euros of which comes from the 75 items.
No doubt the custom duty exemption will benefit these sectors of Pakistan but the actual beneficiaries will be European countries who will get finest products of the world on cheapest price that can be sold at higher prices in the international markets.
Multi annual indicative programme: Pakistan and European Union (EU) signed an agreement under which the latter would provide euro 225 million to the former under the Multi annual Indicative Programme 2011-2013 for rural and natural resource development, education and human resource development, governance and trade development. Finance Minister Dr Abdul Hafeez Shaikh and Dirk Niebel, German Federal Minister for Economic Cooperation and Development and Andris Piebalgs, European Commissioner for Development signed the agreement. Under the arrangement, EU committed a grant of euro 75 million per annum for a period of three years for rural development and natural resources management, euro 90 million, education and human resource development, euro 70 million, governance, euro 50 million and trade development, euro 15 million. EU is cooperating with Pakistan in trade and economic development.
Now the government should approach Bangladesh to withdraw its objection on Generalised System of Preference (GSP) facility to Pakistan, before the next meeting of WTO that is scheduled on November 30.