EU divided on trade help to flood-hit Pak

The European Union is in the throes of a debate about whether and how to use trade as a means to assist flood-ravaged Pakistan rebuild its economy, the outcome of which will have knock-on effects for India as well. On Friday, European trade and foreign ministers met in separate sessions to try and thrash out general agreement on a strategy, ahead of a summit of EU leaders next week.

The key proposal being looked at has been put by European trade commissioner Karel De Gucht. A list of 13 textile and clothing products, it proposes, would be granted duty-free access to European markets for a fixed period. (two-thirds of Pakistan’s exports to Europe comprise textiles). This would be done on the basis of the ‘Most Favoured Nation’ clause in the World Trade Organisation, allowing India and China to also boost their exports to the EU.

Other proposals doing the round include the granting of Pakistan’s long-term demand for GSP (generalised system of preferences)-plus status, as well as a special WTO waiver for Pakistani exports to the EU. Two-way trade is now about ¤7 billion.

Both options have met with fierce opposition. The EU’s GSP-plus trade scheme is intended as a special incentive arrangement to promote sustainable development and good governance, by offering additional tariff reductions to support vulnerable developing countries in their ratification and implementation of international conventions in the fields of human rights, core labour standards and good governance.

But Islamabad has not met the human rights and good-governance criteria that usually go with GSP-plus. The possibility of a special WTO waiver is not favoured either by trade officials, as it is likely to lead to resistance from India and opens the way to lengthy litigation within the WTO.

If duties on the 13 categories of products proposed by De Gucht are suspended on an MFN basis, the EU trade chief has calculated that of the ensuing $135 million increase in EU textile imports, the lion’s share of $55 million would come from Pakistan, compared to $15 million from India and $25 million from China. He, thus, argues that the benefit for Pakistan would be more than twice that accruing to any other exporter.

There is, however, strong opposition to all proposals from within the EU. There are concerns that countries in the neighbourhood of Europe like Turkey, Morocco and Tunisia would suffer unduly from the deal. Resistance is also expected from Poland, Italy, Portugal and other southern and eastern European countries which have textile industries of their own. The UK is, however, known to be in support.

De Gucht has estimated that his proposals would have a negative impact on EU production of textiles by ¤23 million in a “worst-case scenario”.

Pakistan’s foreign minister, Shah Mehmood Qureshi, is currently in Brussels to lobby for the trade concessions. He has said Pakistan urgently needs greater market access to Europe to stabilise its economy, while cautioning that Islamist militants would try to exploit an economic crisis and social instability.

The EU’s new foreign policy chief, Catherine Ashton, has been supportive of this line of reasoning. She has been urging member-states for several weeks to consider granting Pakistan more favourable trade terms as a means to shore up the government’s fight against Islamist militancy.