EU leaders set to back trade waiver for flood-hit Pakistan

Pakistani floods small.jpg

EU heads of state meeting this week in Brussels are set to approve a trade waiver for Pakistan to help the Asian country recover from the devastating August floods.

The Pakistani trade waiver proposal will be on the agenda of an extraordinary European Council scheduled to take place in Brussels on Thursday (16 September).

Ahead of the meeting, EU trade and foreign affairs ministers discussed over the weekend different options to help the Pakistani economy by offering temporary trade facilitators, in addition to a conspicuous package of humanitarian aid that has already been decided.

The majority of EU member states backed the idea of granting Pakistan a trade waiver, which would facilitate exports and help the economic recovery of stranded regions hit by heavy flooding.

Diplomatic sources confirmed on Saturday (11 September) that a temporary trade waiver is likely to be the measure which the EU will pursue to help Pakistan. EU leaders are expected to have the final word on the issue.

However, the move is likely to trigger criticism from Pakistan's regional competitors like India, which might see their industry suffer as a consequence of the facilitators enjoyed by Islamabad.

World Trade Organisation (WTO) rules require a wide consensus for granting trade waivers to a WTO member country. India could oppose the waiver and bring the case to Geneva, where the WTO is headquartered.

However, EU diplomats predict that a legal case could have harmful political consequences for the countries intending to file it, since they would appear to be denying a stranded nation help.

Moreover, a WTO dispute takes at least a year to be officially addressed. This means that in the meantime, Pakistan could benefit from temporary trade facilitators which could be withdrawn before a legal case starts, according to the reasoning of EU diplomats.

De Gucht's proposal dropped

Should the trade waiver option prevail as expected, it would mark the failure of the most recent proposal made by EU Trade Commissioner Karel De Gucht.

The Belgian commissioner had presented a plan to grant Pakistan temporary duty-free access to Europe for a list of 13 textile and clothing products. He thought this would have been the quickest way to help Pakistan while at the same time avoiding WTO disputes.

However, his plan clashed with the interests of the EU textile industry, which feared competition not only from Pakistan, but also from other Asian manufacturers, namely India and China.

Indeed, De Gucht's proposal implied granting duty-free windows for all exporters of the listed products, in line with the WTO rule on Most Favoured Nation (MFN) which forbids offering special trade conditions to a single partner.

The plan was also reportedly subject to criticism within the Commission itself (EURACTIV 09/09/10).

Third option?

A third option also remains possible. It concerns the ongoing review of the EU's Generalised System of Preferences-Plus (GSP+), which offers trade support to specific partners. Pakistan may be included in the list of beneficiary countries, but the bureaucratic procedure is expected to last many months.

This option was considered insufficient to address the immediate needs of the disaster-hit Asian country. 

Catherine Ashton, the EU's High Representative for Foreign Policy, said: "Our message is that we have to do something which is useful and effective and that is applicable in a short term. Everyone agrees we have to think comprehensively."

"If we want to stabilise Pakistan so that it doesn't degenerate into extremism and fundamentalism, we have to address the economic consequences of this natural catastrophe," said German Foreign Minister Guido Westerwelle.

EU Trade Commissioner Karel De Gucht denied on Friday that his proposal had faced criticism within the College of Commissioners. "The College reached an agreement on the proposal," he said at a press conference.

Oxfam called on EU member states to take the lead in helping Pakistan to recover from the devastating floods. ''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 expected impact of such measures on European industry and employment.

The textile and clothing sector are the most vulnerable to Pakistani competition. 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. In the same year the overall EU import of goods from Pakistan was worth €3.4 billion.

After an inconclusive EU-Pakistan summit last June, the issue of trade facilitations to Islamabad climbed the EU agenda in recent weeks in connection to the aid campaign which Brussels is running to help Pakistan recover from the summer floods, which affected over 20 million people in the country.

  • 16 Sept.: EU heads of states meeting in Brussels. Trade faciliations with Pakistan on the agenda.

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