Upholding Pakistan’s position on export promotion policies last week, the Geneva-based World Trade Organisation dispute settlement system has rejected the European Union’s decision of countervailing duties imposed on imports of polyethylene terephthalate from Pakistan.

The EU had imposed countervailing duties on the import of polyethylene terephthalate (PET) from Pakistan, Iran and the United Arab Emirates in June 2009.

As per trade remedy laws, the countervailing duties had remained in vogue for five years and expired on Sept 30, 2014. PET is used in plastic food and beverage containers.

The trade body rejetcs EU’s decision of imposing countervailing duties on PET imports

The WTO’s Dispute Settlement Body (DSB) established a panel on March 25, 2015 to study the complaint related to the trade-restrictive tax measures imposed by the EU on Pakistan’s exports of PET.

However, even though the EU did not extend the countervailing duty, Islamabad wanted the panel to make findings with respect to the measures that expired during the course of the proceedings.

It is the fifth case where Pakistan opted for litigation. It previously launched four complaints —two against the United States, one against Egypt and one against South Africa.

The only comment that came from PET manufacturer and exporter Razak Dewan was that the decision of the WTO panel will benefit the country at large.

He was right in a sense that his export proceeds are no more subject to countervailing duty in the European market.

It is also true that the EU had withdrawn the duty as a result of Pakistan filing the case — the present decision will have major implications for EU trade remedy policies and methodologies.

Pakistan’s exports to the EU of PET resin were rising fast but after the levy of duty, they started coming down.

In 2010, Pakistan’s exports were about $300 million and when Islamabad filed the case in late 2014, the volume had fallen to about $1m. Since there is no system of refund or any other compensation, no one can be sure what our gains were.

But the implication of the WTO panel ruling is much wider and far reaching for Pakistani policy makers.

“European Union had imposed countervailing duty thereby challenging our Manufactured Bond Scheme (MBS) administered by the Federal Board of Revenue, the long-term finance given for export-oriented projects (LTF-EOP), and many prevailing commercial practices in Pakistan,” observed Pakistan’s Permanent Representative to WTO Dr. Tauqeer Shah.

As a result, this ruling will dissuade and restrict other member countries from applying such trade restrictive measures against Pakistani exports and has sanctified our schemes and their administration, namely MBS and LTF-EOP.

According to the ruling, the point relating to the MBS scheme which went in favour of Pakistan is that the European Commission (EC) considered that it was appropriate to countervail all remissions, rather than excess remissions. The EC was obviously wrong to do this. The Panel did not agree on this account with the EC.

The Panel dealt with some fundamental issues relating to what constitutes a ‘subsidy’ under WTO rules.

These issues were addressed in the context of a ‘duty drawback’ scheme, under which domestic producers can obtain reductions of import duties paid on inputs that are consumed in the production of exports.

Pakistan has always met its WTO obligations, and this ruling of the panel clearly demonstrates that the Pakistan government’s trade policies and export promotion policies are strictly in accordance with the WTO rules, an official of the commerce ministry said.

“This will be a big moment for Pakistan and the multilateral system, where an economic giant like the EU is challenged by Pakistan in a WTO dispute system”, the official said.

According to the official, the WTO has endorsed Pakistan’s administration of export policies. “In the present environment of protectionism this decision will go a long way in protecting our trade”, he commented.

A leading trade litigation expert said that he was not sure this is a case to be celebrated. The EU imposed duty in 2010.

The exporter kept running around to convince the relevant agencies to file the case. It took them five years to do so and only after the EU had removed the duty.

However, he said the only good that can come out of it is that Islamabad should be bolder and file cases when Pakistan’s exports are being hurt rather than keep shuffling the files for five years.

The expert suggested the government make those people accountable who kept on sleeping on the case from 2010 to 2015.

The ruling also proves that the trade body has tremendous value for developing countries, wherein the system gives them the right to challenge other big and developed economies

When contacted, Dr. Tauqeer Shah in Geneva further told this correspondent that the panel ruling was the result of very coordinated efforts by all stakeholders in the government of Pakistan, namely, the FBR, the National Tariff Commission, the State Bank of Pakistan, the private sector exporting PET and the Ministry of Commerce.

He said there is lot of learning for our relevant institutions, like the FBR and the Ministry of Commerce, vis a vis administration of our trade facilitation schemes and it documentation. “We have to play by the global rules of the game, and be prepared for strict scrutiny”, he said.

“There are no winners or losers, every dispute decided at the WTO is a victory for the rule-based multilateral trading system called the WTO, this is about global rule of law, wherein multilateral systems guarantee the rights of developing countries,” he said.

In short, the panel ruling also proves that the WTO is unique and has tremendous value for developing countries, wherein the system gives them the right to challenge other big and developed economies through fair, impartial and transparent procedures.

Published in Dawn, The Business and Finance Weekly, July 17th, 2017