The EU concession

The news that European Parliament has finally approved the long-awaited regulation to import more duty-free goods from Pakistan on 13th September, 2012 is indeed very encouraging. Such a "trade aid," it may be recalled, was first proposed about two years ago when the country had suffered massive losses due to floods. According to the announcement, Pakistan will be allowed temporarily to export more goods duty-free to the EU, so as to help the economic recovery of its flood-devastated regions and this exceptional move, to apply until the end of 2013, will include fabrics, garments, linen, ethanol, leather and several other goods.
In order to grant autonomous trade preference to a single country (Pakistan), the EU had to first obtain a special waiver from the World Trade Organisation (WTO). This waiver was initially blocked by some of its members, including India and Bangladesh, who were concerned about its possible negative impact on their own exports. A significant minority of Members of European Parliament abstained from voting on grounds that the EU trade should not be used as a humanitarian aid tool. Although, the measure will give a preferential (duty-free) access to 75 types of goods from Pakistan, certain safeguard clauses were also inserted by the European Parliament to protect EU industry and jobs in several sectors, which were sensitive to some member states.
These clauses stipulated that duties could be reintroduced if imports into the EU of the concerned products from Pakistan grow by 25 percent or more, concessions would "not constitute a precedent for the Union's trade policy" and the autonomous preferences would be immediately suspended "if Pakistan adopts measures restricting human rights and workers' rights, gender equality or religious rights or if it provides terrorist organisations any kind of backing or support."
Although preferential and duty-free EU market access to Pakistan was delayed for a considerable length of time, the very fact that the country was finally able to clinch the deal indicates the degree of sympathy for the flood-affected people in the European Parliament and its desire to support the country at a critical time. The delay was of course due to some very genuine reasons. A special waiver had to be obtained from the WTO which was not possible without a positive nod from several countries who were themselves afraid of an adverse impact on their exports to the EU countries. After the grant of the required waiver, members of the European Parliament had to be persuaded to vote for the concession. The final vote count was 342 in favour, and 97 against with 165 abstentions, which indicates a reasonably favourable response by the European Parliament for the cause of Pakistan. The fact that several EU members were concerned about cheap imports from Pakistan and their consequent impact on job market in their own countries and insisted upon inserting safeguard clauses was no surprise.
The EU parliamentarians had to satisfy their own constituencies back home and Pakistan could expect to abide by those clauses by monitoring the situation carefully and controlling certain undesirable elements in the country. However, it needs to be remembered that the EU concession to Pakistan could only be fully availed if the country was able to increase its exportable surpluses in the duty exempted categories by enhancing the productivity of the economy which is presently constrained by several factors such as acute energy shortages, dismally lower level of investment, political uncertainty and poor law and order situation. If these impediments are not removed well before 31st December, 2013, there could only be little hope of expanding exports to the EU market. Whatever the expectations and response from the authorities in Pakistan, the EU concession has, nonetheless, been awarded to the country at a time when it was most needed to increase the level of exports which, of late, had tended to decline and putting increasing pressure on the external sector of the economy. For instance, our exports had declined by 4.71 percent to dollar 23.6 billion during FY12 as compared to dollar 24.8 billion in the previous year. During the first two months of the current fiscal year, these have already fallen to dollar 3.97 billion from dollar 4.1 billion during July-August 2011, showing a decline of 3.27 percent. If this trend continues, it would be very difficult to achieve the 2012-13 export target of dollar 25.62 billion. The EU is Pakistan's largest trading partner with textile and clothing products contributing more than 60 percent of Pakistan's exports to the EU. Keeping all these factors in view, the country needs to grab the opportunity provided by the EU with both hands, whatever the odds, and enhance its exports to the region to the maximum extent possible by undertaking necessary measures at the earliest.