From 1st May 2004, the EU membership will go up from 15 to 25 states. The 10 new members are essentially different from the present members- both ethno-culturally as well as in the level of economic development.

Earlier, the EEC was formed as a result of the Treaty of Rome (1957) and was subsequently enlarged by inclusion of Denmark, Ireland, the United Kingdom, Portugal, Spain, Finland and Sweden.

The 381 million or so population the EU of which 307 million live in the Euro zone will welcome an additional 74 million of the 10 acceding countries. These 7.3 per cent of the world's population will be among the most affluent and productive societies; competing with the USA for that coveted number one position, at least in the economic sector, with a GDP of approximately $15 trillion, accounting for 28 per cent of the Earth's GDP.

In the short run, the EU's per capita GDP will decrease by Euro 300 to Euro 21,100 as a result of the poorer new relatives, its share in global trade in goods will also decrease from 19.4 to 17.7 per cent. This decline will be on account of increased inter-EU trade rather than any slowdown in the economy.

The new member states will adopt the entire set of EU legislation known as the 'acquis'. This includes provisions on European trade policy. The 25 members of the enlarged EU will constitute one single market with a 'common commercial policy'.

The EU's commercial and trade policy will automatically be adopted by the new members and their bilateral arrangements, if any, will cease. There will be free movement of goods with uniform trade policy and tariff.

As a result, there will be violation of agreements by these 10 countries and the WTO commitments by the enlarged EU itself as textile and steel quota will also be imposed by the 10 new members. The EU is expected to offer compensation for such violations with or without a sincere consultation.

What then are the implications for Pakistan's export in the new scenario?. Pakistan's export to the EU was $3 billion in 2002/2003, i.e., a little over one-fourth of its total export making EU the largest export destination for Pakistan. Of this, textile, clothing and made-ups accounted for $1.5 billion, $570 million were accounted for by yarn and fabric; of the remaining non-textile products, leather and leather garments, seafood, rice etc were major exports. Pakistan's export to the 10 new members was to the tune of $52 million during the same period comprising mainly of fabrics.

The Euro has grown stronger compared to the Dollar, thus the EU will remain a better market for our exporters on this account alone. The EU has provided 0 per cent custom duty access to almost all Pakistani products except a few sensitive ones like seafood and rice and those which have graduated out of the GSP scheme like yarn and fabric and leather.

Major benefit is in the clothing and bed-linen and towel product group where there has been increase in exports to the EU since 2001. This 0 per cent facility has been allowed under the EU's GSP scheme as Pakistan along-with 11 other countries are classified by the EU as effective combatants of the menace of drug production and trafficking. The EU thus seemed an ideal market to concentrate for export enhancement.

All this has changed recently or will change for the worse soon for the Pakistani exporters. The first negative signal came from the EU in mid-2002 when it refused to grant an extra quota of 4000 MT under its bilateral obligation to Pakistan by using legal basis rather than implementing the spirit of the agreement.

When it did allow this facility, it reduced equivalent quota for 2003 against all norms and practice though its position was legally and technically tenable. The second sign came in end 2002 when it initiated anti-dumping investigation against Pakistani bed-linen.

The irony is that while it provided 0 per cent duty benefit and increased the quota by 15 p.c. in 2001, it suddenly claimed surge in imports and injury to its domestic industry.

Again, while the EU's action may be legally and technically tenable, it was against the very spirit of benefits it extended to Pakistan. The enhancement in quota and 0 p.c. duty benefit was meant for Pakistan's export to increase, its export of bed-linen could however not exceed the quota limits in any case.

The allegation of surge and injury was thus not very logical. In 2003, the EU continued to demonstrate that it is not open to any constructed solution as envisaged in the WTO agreement.

In end 2003, the EU also removed Pakistani 'super' Basmati rice from its abatement scheme and simultaneously announced that Pakistan's clothing and made-ups will cease to benefit from its 0 p.c. concession under the EU GSP's complex and covert calculations.

Many Pakistani exporters see this as a sign of things to come. As the new members have strong stake in textile and clothing and agriculture, the EU may continue to seek refuge in its complex rules and regulations and devise ways to neutralize the earlier benefits given to Pakistan or it may even actually make the situation worse.

From the regular press clippings about Pakistan-EU bilateral trade issues, it is evident that the government has been very active in protecting the exporter's rights.

Even the President and the Prime Minister have been talking of economic and market access issues wherever they visited. While there were good intentions, positive results have not been achieved and perhaps will not be achieved by these actions.

So what can Pakistan do about it? While to some extent, there may be no option but to adapt to these new developments and threats , two recourses are available. One is to fight out with the EU within the EU legal system and the other recourse is to the WTO.

The EU weakness is going to be its voluntary and conscious violation of WTO commitment when it imposes quota. It will be willing to negotiate mutually acceptable compensation. Pakistan can get increased market access for its textile for 2004 if the negotiations are handled well.

Under both the WTO and the EU regulations, if there is a change in circumstances, a review is to be undertaken on anti-dumping. On 1st May there will be a substantial change in circumstances. Either Pakistan may negotiate termination of anti-dumping duty on its bed-linen under final stages in the EU's heretical system or seek review on 1st May if the EU imposes anti-dumping duty.

More important, it must negotiate better tariff rates for its clothing and made-up sector if 0 per cent duty is expected to be removed on any account. This is the time to play hardball with the EU.

If the EU does not agree, Pakistan may go to the 'dispute settlement body' of the WTO and have the EU's unilateral action of expanding the quota regime to the 10 new members challenged as illegal and seek compensation which may however not come before 2005.

With the new entry of the 10 members, there is a danger of increased use of NTBs and anti-dumping allegations. Pakistan must address this issue with its like-minded partners in the WTO and any concession on the so-called 'Singapore issues' in the future must include agreement on this aspect besides the agriculture sector.

While the above measures relate to trade defence mechanisms, Pakistan can also try out some positive confidence and market access building measures by engaging the EU in mutually beneficial trade deals.

While at present, Pakistan is a relatively small market for EU with only $2 billion import, Pakistan can become a major market in the future with more imports of textile and leather machinery, chemicals, dyes, synthetic staple fibres, pharmaceutical electrical and non-electrical machinery and transport equipment and cars when Pakistan reduces import duty.

The EU companies have a stake in Pakistan as they have large investment in Pakistan and their investment may increase in the future. In return Pakistan should seek easy access in textile, clothing and made-ups, agriculture products.

Pakistani exporters can contact European textile tycoons for relocation or joint venture or brand name manufacturing. At the macro level, Pakistan may enter into a free trade agreement with the EU. At the micro level, our textile tycoons may import from the EU only on the assurance that their export will not be resisted.

Some of the above actions may alter the otherwise negative implication of the EU's enlargement for Pakistani textile exporters. The timing is crucial. While they were expecting a better deal in the post-quota era beginning 2005, they will be faced with tariff and NTBs.

This will place them at a disadvantage compared with LDCs and those countries and regions with whom the EU has FTAs. They cannot suddenly divert their exports to the other major importer, viz, the USA as there also they will face major resistance and competition.

This is all the more reason the government should make export friendly policies. While the ministry of commerce and the State Bank of Pakistan have virtually dereguralised their regulations, the CBR-initiated rules are still major constraints. Perhaps the CBR itself is not exclusively to be blamed.

The problem stems from commitments made by Pakistan to IFIs in terms of withdrawing SRO 410 and replacing it with DTRE, non-friendly sales tax regime and its refund scheme, irrational tariff for raw material in the name of protection of local industry etc. The CBR and the customs is not responsible for enhancement in exports; its sole duty is to collect revenue and implement the trade policy.

All such rules and implementation of regulations like SRO 410, DTRE, sales tax refund for exports should be made by the ministry of commerce and/or the EPB who are responsible for facilitation and enhancement of exports.

Unless the government can see this basic truth, I am afraid, given the track record of the CBR and the customs, the bad implications for exports may turn to worse.