EU compromise package for tariff cuts

The EU had approved a raft of time-bound trade concessions for Pakistan to help it recover from the recent flood disaster. File Photo

The European Union has considerably watered down its proposed time-bound scheme of tariff cuts for Pakistan to clinch a deal from its member states with strong textile industries. 

The final package of trade concessions that has emerged after a compromise between its supporters and opponents, say Pakistani textile exporters, would have a “dampening effect on the possible export growth” to Europe because of the newly agreed quantitative restrictions on duty-free import of some top textile products from the country.


The compromise package, according to them, agreed between the EU member-states is much less “attractive” than the original one announced in October and is unlikely to effectively boost the country’s exports to Europe or help the flood-ravaged economy.

Even EU officials are reported to have admitted that the final package is less extensive than the EU had hoped to agree, but they do not expect these adjustments to lower considerably the expected benefits for Pakistan.
Some EU diplomats are reported to have warned that “Europe’s concern for its own industries could undermine the credibility of its stated aim of using trade as a security and development tool”.

The EU had approved a raft of time-bound trade concessions for Pakistan to help it recover from the recent flood disaster, which is estimated to have inflicted damage of more than $9.5 billion to its social and economic infrastructure and crops.

The original package of concessions announced by the EU suspended tariffs for 75 items which accounted for 27 per cent (equaling 900 million euros) of Pakistan’s total exports of 3.3 billion euros to its 27 states, for a period of three years starting from January 2011.

The tariff concessions were expected to boost Pakistan’s exports of these items by 100 million euros a year, according to the European Commission’s estimates. The textile industry had termed it inadequate because it did not cover several knitwear and woven garments and bed linen where Pakistan has advantage over its competitors like China and India.

The compromise on the package, however, waters down the concessions under pressure from the EU textile industries that fear losing market to cheaper Pakistani imports. The final package slashes the period of tariff suspensions to two years, with a third year only granted after an assessment of the impact on Europe’s textile producers.

The compromise also sets a duty-free quota on the most sensitive products on the list: some fabrics, towels, women’s jeans and socks will lose their duty-free status if exports to Europe rise by more than 20 per cent per year, according to a Reuters report.

All remaining items may also lose their tariff suspension if there is a surge in their exports to Europe, under a safeguard mechanism whose method is yet to be agreed. Finally, the compromise has cut the duty-free allowance of ethanol imports from Pakistan to 80,000 tonnes, from an originally proposed 100,000 tonnes.

“The EU has diluted its tariff concessions, which will adversely undermine the scheme’s importance for Pakistan,” said Shahid Soorty, chairman of the Pakistan Denim Manufacturers and Exporters Association (PDMEA). “If the EU meant to help Pakistan’s sliding economy rebound from losses suffered from the recent floods and terrorism, it should not have made these adverse changes in the package.”

“The duty-free quota restrictions on our key export items like women jeans, fabrics, towels, socks, etc means that our exports to Europe will not boost by more than a few million euros,” he said, adding the exporters of the items subjected to duty-free quota would achieve the permitted 20 per cent growth in less than six months.

Many apparel exporters think that the changes in the trade concessions package had rendered it “worthless” for Pakistan. “The question is: do we really want to avail this package any longer?” wondered Shahzad Azam Khan, former chairman of the Pakistan Hosiery Manufacturers and Exporters Association. Many agree with him.

Soorty was of the view that the government should immediately take up the issue with the EU authorities and convey them the concerns of the Pakistani industry on the changes in the package.

“We must convince the EU governments that Pakistan is not a competitor of their respective textile industries in any field. Our apparel industry has hardly made any noticeable growth in exports to the EU since the abolition of the textile quotas in 2005.”

Shahzad was critical of the government’s handling of the matter of duty-free status for the country’s exports to Europe. “Had the government involved the stakeholders in the negotiations, we could have clinched a much better deal for our export industry.”