The EU foreign affairs chief will urge EU states next month to back trade concessions for Pakistan as worries grow about the impact of devastating floods on the stability of its fragile government. EU diplomats say support for such trade breaks appears to be growing, given Pakistan's strategic importance in the struggle against Islamist militancy, although they have been opposed by industry groups and EU states with competing textile industries.
Top EU diplomat Catherine Ashton will push the issue again at a September 10-11 meeting of EU foreign ministers - three months after a summit with Pakistan ruled out immediate concessions. "The international community needs to be ready to support Pakistan in a lasting manner," Ashton said this week. "This will be a significant element for the long-term recovery.
"A safe, secure, stable and prosperous Pakistan is in the interests of the EU and the wider international community." Concerns have grown about the stability of President Asif Ali Zardari's government after criticism of his response to the worst floods in Pakistan's history.
Representatives of Pakistan's key textile sector said this week that damage to the cotton crop and consequent supply shortages could be a final blow to an industry already suffering from shrinking global demand, crippling power shortages and instability brought on by a Taliban insurgency. According to EU data, Pakistan's exports to the European Union in 2009 totalled 3.02 billion euros ($3.86 billion), or 21.9 percent of its total exports.
IMPORT TARIFFS Some products from Pakistan already enter the EU duty-free or at reduced rates, but textiles such as bed linen and towels - more than 65 percent of Pakistan's exports to the EU - are still subject to a 12 percent tariff.
Pakistan wants better access through the EU's Generalised System of Preferences-Plus (GSP+) regime - offered to developing states that commit to rights and good-governance conventions. Pakistan has not qualified for this as its exports to the EU are too large and the EU remains concerned about its reluctance to implement human rights and other conventions.
However, a European Commission review of GSP rules could increase the number of eligible states to include Pakistan and those of similar economic ranking. The Commission proposals are due early next year, for entry into force in 2012 or 2013, but Ashton is looking to speed up the process, according to an internal document seen by Reuters.
EU diplomats say there is resistance from EU states such as Italy, Poland and Portugal, which see their own textile industries threatened. They say a powerful opponent to any quick move has been the European Commission president, Portugal's Jose-Manuel Barroso, who in June reaffirmed a timeframe of up to three years. European textile lobby Euratex warned in May that expanding GSP+ would "inflict a severe blow" to the EU industry. EU states in favour of concessions argue that the effect is overstated.
UNILATERAL WAIVER? Diplomats said that if it proved impossible to ease GSP rules, another option could be to waive duties unilaterally, as was done after the September 11, 2001 attacks in recognition of Pakistan's status as a key ally in the war in Afghanistan.
However, Pakistan's neighbour and rival India successfully challenged this step as a violation of World Trade Organisation rules, forcing Brussels to withdraw the concession. EU diplomats said it was too early to judge how the EU debate would evolve, but that there was a growing realisation that something significant needed to be done to help Pakistan.
"You have to decide you have the political will to do something, then create a mechanism robust enough to fit WTO rules," one said. "There are various ways that can be done." If there is strong enough political will from EU capitals, the EU could amend the relevant part of the GSP "in a few weeks or months", a senior EU trade official said. But with conflicting interests dividing each of the main European institutions, any quick change will be hard to pull off.
Countries including Britain and Sweden have pushed the issue strongly with growing German and French support, diplomats said. "The question is what is done, and over what timelines," the diplomat said. "The floods have increased the urgency, and the political imperative to act is different than a few months ago. "You have vast parts of Pakistan affected by floods; it's immensely strategically significant and the situation will sadly get worse and worse. There's a real need to demonstrate the international community as a whole can react.
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