EU-Pakistan trade plan faces fresh criticism

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A plan to liberalise trade with Pakistan following last year's devastating floods is under fire for its expected impact on the EU's biofuels and textiles industries, especially in crisis-hit Portugal, according to internal documents seen by EURACTIV.

The European Commission will today (10 May) discuss a proposal from Trade Commissioner Karel De Gucht aimed at lowering import duties for products from Pakistan, following devastating floods last summer.

After a series of failed meetings at head of cabinet level last week, De Gucht will today try to win enough support in the College of Commissioners for his proposed revision of the EU's Generalised System of Preferences (GSP).

Via the GSP scheme, the EU grants trade benefits to developing countries in the form of reduced or zero customs tariffs on imported goods.

The current system is set to expire at the end of 2013.

De Gucht's draft proposal, seen by EURACTIV, would change the parameters that make third countries eligible for the EU's preferential trade scheme. As a consequence, Pakistan and possibly Ukraine would benefit from easier access to the EU market for their products.

This is not the first time that De Gucht has tried to grant better trade conditions to Pakistan (see 'Background'). And once again, he finds himself faced with strong criticism.

According to an internal document seen by EURACTIV, ten commissioners out of 27 have raised concerns over the draft proposal. The list includes Internal Market Commissioner Michel Barnier, Agriculture Commissioner Dacian Ciolo?, Industry Commissioner Antonio Tajani and Energy Commissioner Günther Oettinger.

Many commissioners are wary of the impact that lifting import duties on Pakistan's ethanol would have on the EU's nascent biofuels industry. Moreover, if Ukraine were to enjoy preferential trade status, Eastern European countries are likely to be faced with tougher competition in a number of sectors.

Double blow for crisis-hit Portugal

Questions were also raised as to the possible devastating consequences of cheap Pakistani textile imports on EU industry. 

Textiles and clothing already account for more than 70% of Pakistan's exports to the EU, making this sector the most vulnerable to Pakistani competition.

The EU imported €2.6 billion worth of textiles and clothing articles from Pakistan in 2007, around 80% of which entered the EU at a preferential tariff rate, according to European Commission figures. In the same year, total imports to the EU of goods from Pakistan were worth €3.4 billion.

Portugal is set to suffer most from the proposed changes at a time when it has just negotiated a €78 billion aid package from the EU and the International Monetary Fund.

Relatively speaking, Portugal is the EU country with the most important textile sector. Textiles represent 4.5% of manufacturing and 7% of manufacturing employment there, while the clothing sector represents 6.1% of manufacturing and 14% of manufacturing employment. In terms of external trade, textiles and clothing make up more than 10% of the country's exports, according to the Commission.

"We see such a proposal bringing severe havoc to the Portuguese textile and clothing industry due to potentially unfair competition resulting from dumping-level prices practised by Pakistan," reads a note from the Portuguese Economy Ministry, obtained by EURACTIV.

The College of Commissioners will meet today in Strasbourg and should agree on a compromise solution. De Gucht's team remains confident of a positive outcome of the meeting, and has already called a press conference for the same day.

However, decisions still need to be made on easing the parameters for third countries to secure preferential trade status as well as on the threshold to be met for triggering safeguard measures to guard against serious damage to EU industry.

EU trade ministers will meet in Brussels on Friday and could return to the issue, although the topic is not formally on the agenda.

After an inconclusive EU-Pakistan summit last June, trade issues climbed up the EU's agenda after Pakistan was hit by floods over the summer, which affected over 20 million people in the country.

In September, EU Trade Commissioner Karel De Gucht proposed to temporarily open up the European textile market to flood-hit Pakistan, but his plan failed amid strong attacks from within the European Commission itself. Indeed, some commissioners labelled the proposal "disguised aid" and a threat to the EU's textile industry.

Eventually, the initial plan was replaced with a proposal for a trade waiver for Pakistan, which attracted strong criticism from Pakistan's competitors, such as India. The EU move is still being challenged at the World Trade Organisation (WTO) and has not come into force yet.

The EU and Pakistan have long been negotiating ways to favour the access of Pakistani products to Europe. Although some Northern European countries support trade deals with Islamabad, southern and eastern member states are adopting a more cautious approach due to the expected impact of such measures on European industry and employment.

  • 10 May 2011: Commission College meeting in Strasbourg.
  • 13 May 2011: Meeting of EU trade ministers (Trade Council).

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