De Gucht under fire over EU-Pakistan trade proposal

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A proposal by EU Trade Commissioner Karel De Gucht to temporarily open up the European textile market to flood-hit Pakistan was denounced by other commissioners as "disguised aid" and a threat to the textile industry.

At a meeting of the college of EU commissioners on Tuesday (7 September), De Gucht proposed "to temporarily suspend duties […] for a limited list of products where Pakistan would be the main beneficiary," according to a note obtained by EURACTIV.

"The proposed measure could be time-bound, limited, targeted, and be relatively quickly implemented," reads the note, which aimed to gather support from the College ahead of a meeting of trade ministers in Brussels on 10-11 September.

The move was presented as further support for flood-hit Pakistan, in addition to EU humanitarian aid which is already worth more than €200 million, according to European Commission figures.

Windfall for India and China

The "limited list" includes 13 textile and clothing products worth an aggregate value of €231 million in Pakistani exports, according to Commission estimates. They are mainly cotton fabrics and man-made fibre.

The European offer would be "autonomous," meaning that EU products would not enjoy any reciprocal duty suspension when exported to Pakistan.

But the economic impact of the offer would not be limited to products coming from Pakistan, and would also cover those originating from other countries, notably India and China. This results from the Most Favoured Nation (MFN) clause, said De Gucht, which requires the application of the same conditions to all trade partners in line with WTO rules.

India and China would therefore be able to export the listed textile products to the EU without any duties.

Many commissioners oppose the proposal

De Gucht's move attracted criticism from fellow commissioners at Tuesday's Commission meeting, with some colleagues accusing him of trying to disguise a trade deal behind humanitarian aid motives.

De Gucht rejected the accusations. "We proposed options. Nothing has been decided yet," his spokesperson, John Clancy, told EURACTIV.

Employment Commissioner László Andor reportedly expressed concerns regarding the possible negative impact on jobs, and Industry Commissioner Antonio Tajani underlined the consequences for the textile and clothing industry, which is already affected by fierce competition from Asian countries.

Enlargement and Neighbourhood Policy Commissioner Stefan Füle pointed to the fact that Turkey, Morocco and Tunisia would likely suffer from the deal.

Humanitarian Aid and Crisis Response Commissioner Kristalina Georgieva and Development Commissioner Andris Piebalgs stressed the importance of using traditional aid to support crisis-hit Pakistan rather than trade measures, which may not benefit flood-affected people.

Opposition is also expected from Poland, Italy, Portugal, France, Germany and Belgium, where production of the listed products is concentrated.

De Gucht estimated that his proposals would have a negative impact on EU production of €23 million in a worst-case scenario.

Euratex, the European Textile Confederation, condemned De Gucht's plan, underlining that it would favour not only Pakistani but also Indian and Chinese exports to Europe, with the risk of killing the EU cotton industry at a moment when raw cotton prices are rising worldwide.

De Gucht was recently forced to apologise for negative comments made about Jews during a recent interview with Flemish radio (EURACTIV 06/09/10). 

Trade Commissioner Karel De Gucht proposed that "the Commission should pursue for immediate relief a time-limited autonomous duty suspension on an MFN basis for a list of selected products".

EU High Representative for Foreign Affairs Catherine Ashton supported his line, saying in a letter sent to the College that she supports the option of "seeking a WTO waiver for 12 months on all exports". She also supported the idea of "removing duties on a broad range of tariff lines of interest to Pakistan for a longer period," according to the letter, seen by EURACTIV.

Industry Commissioner Antonio Tajani clearly opposed the plan. "I am strongly against Karel's proposal," he said, according to people who attended the College meeting.

Luisa Santos, head of international trade at Euratex, the European Textile Confederation, condemned De Gucht's plan. "We understand Pakistan is facing difficult times, but we believe that trade is not the right tool to face the crisis. The proposed measures would indeed condemn EU industry," she told EURACTIV.

Oxfam called on EU member states to take the lead in helping Pakistan to recover from the devastating floods, in both the short and long term.

''Rebuilding the country will take years and billions of euros. European leadership on debt relief and increased market access for Pakistan could play a crucial role in speeding up its recovery,'' said Elise Ford, head of Oxfam's EU office.

''Prior to the floods, poverty was already widespread and food insecurity was alarming. The case for the EU to make trade concessions before was compelling. Now it is imperative,'' she added.

The EU and Pakistan have long been negotiating a number of trade facilities to favour access of Pakistani products to Europe. Although some northern European countries support trade deals with Islamabad, southern and eastern member states adopt a more cautious approach due to the impact of such measures on the textile and clothing industry and on employment.

In 2007, EU exports to Pakistan amounted to €3.8 billion, while goods imported from Pakistan were worth €3.4 billion. Textiles and clothing as well as leather products account for the majority of Pakistani exports, while its imports from the EU mainly comprise mechanical and electrical machinery, as well as chemical and pharmaceutical products.

Textiles and clothing account for more than 70% of Pakistan's exports to the EU. In 2007, the EU imported textiles and clothing articles from Pakistan worth €2.6 billion, of which around 80% entered the EU at a preferential tariff rate, according to European Commission figures.

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