Pakistan has grievances against the continuation of the anti-dumping duty on bed linen export to the EU (levied at 13.1 per cent initially in March 2004, later reduced to 5.8 per cent in May 2006 . It has resented being excluded from the Special Incentive Arrangement for Sustainable Development and Good Governance under the Generalised Scheme of Preferences (GSP Plus). Also hurting the country are the new rules of origin proposed in March 2005 which, officials in Islamabad believe, could cause dislocation of domestic industries to Bangladesh and Sri Lanka. Reports emerging from Brussels convey that the European Union is considering a Free Trade Agreement with India which, it is believed, would isolate Pakistan in the region.
“This is outright discrimination'', a senior official of the Commerce Ministry told this correspondent in London. He said a delegation, headed by Federal Commerce Minister Humayun Akhtar Khan, had been invited by the British government in last week of July to discuss how best London’s good offices could be used to put across Islamabad’s point of view in Brussels.
“A reduction of one billion dollar in our exports means loss of livelihood to one million people in Pakistan'', Mr Khan told John Hutton, the British Secretary of State for Business, Enterprise and Regulatory Reform, during a meeting in London in the last week of July. “We are your strategic ally in war against terrorism from day one’’, he added.
Discussions were also held with Sir Digby Jones, the new minister of state for trade and investment, at the new department of the Business, Enterprise and Regulatory Reform. The delegation also held in camera meeting with senior officials of the Foreign and Commonwealth office and all parties parliamentary Pakistan group in the House of Commons, where sensitive political issues were said to have come under discussions. “Obviously recent developments in Pakistan and their implications for the national economy, and a possible future course of events, were some of the issues raised and discussed’’, one of the participants hinted.
With an economy of the size of $1.93 trillion, import market of $603 billion and Pakistan expatriates numbering about one million, Britain is the single largest trading partner within the EU and one of the biggest investors in Pakistan. Islamabad expects the UK to play a key role in its deliberations with the EU to sort out its problems.
Giving a background of the continuing hectic diplomatic activities, the officials explained that the EU was embarking upon initiating Free Trade Agreements (FTAs) with a few Asian economies that included ASEAN, South Korea, China and India as WTO plus arrangements.
After realising that the Doha Development Agenda is stuck up with stalemate, Pakistan is also looking for options to seek market access. In January, Prime Minister Shaukat Aziz and Commerce Minister Humayun Akhtar Khan met Trade Commissioner of EU Peter Mandelson to persuade him to enter into FTA negotiations with Islamabad. The EU Trade Commissioner’s reply was “the list of FTAs is not closed but EC has finite resources’’.
But the German Chancellor and President of EU Council was a bit more forthright and he proposed that the “EU would like to strengthen its relationship with Pakistan within the framework of a comprehensive dialogue through the joint commission and a working group on trade’’.
The FTA proposal was formally taken up on May 23 last at the meeting of Pakistan-EU sub-group on trade at Islamabad that was constituted under the Third Generation Agreement. The sub-group on trade decided to identify possible options for improvement in Pakistan-EU bilateral trade. Both Pakistan and the EU agreed to hold next meeting of the sub-group in autumn to initiate a study on impact of these trade policies on Islamabad. “The study will be a step towards Pakistan-EU FTA’’, a senior official pointed out who disclosed that the terms of reference for the proposed study were being finalised for autumn meeting.
“Our position is that Pakistan meets the economic criteria proposed by the EU for FTA’’, the official said. “With a population of 160 million, Pakistan ranks among 25 emerging markets in the world market with an average annual economic growth of seven per cent plus in last three years. Pakistan has one of the most liberal investment regimes in the region and has been attracting direct foreign investment which is on the rise. In 2005-06 Pakistan received $421 million investment from EU out of a total of $3.5 billion. In 11 months of the last fiscal year, more than $2 billion investment flowed from western Europe. The EU investment amounted to $1.98 billion”.
The Overseas Investors Chamber has 87 EU companies as its member of which there are 45 British, 15 Swiss, six French, eight German, eight Dutch and one each of Belgium, Denmark, Greece, Italy and Norway. With an ambitious infrastructure programme, Pakistan offers an investment opportunity of $20 billion in the coming years. Pakistan’s FTA with China was also mentioned as an opportunity for the EU companies to enter the Chinese market. Then the programme of building a huge trade and energy corridor to provide transit facilities to Central Asia, Western China and Afghanistan provide an opportunity to all those countries that would enjoy duty-free import of machinery and equipment.
Officials are bitter on Pakistan being excluded from the GSP plus, though they acknowledge that the preferences under GSP are no substitute to the FTA. “These preferences are not governed by any international treaty and can be modified or withdrawn’’, one official explained. But then there is a feeling of being let down and discriminated, as he said: “This unfair treatment does not go down well with the people of Pakistan and it places the government in negative light’’.
The current GSP preferences, under which Pakistan gets tariff concessions from the Most Favoured Nation duties, have not helped her in sustaining the fragile development trajectory built during three years of duty free access enjoyed during 2002 to 2004 under the Drug Arrangement of the EU’s GSP scheme. Under this arrangement, Pakistan’s exports to the EU grew at a good pace. After the withdrawal of these preferences at the end of 2004, Pakistan’s exports to the EU declined by 11.7 per cent in one year. In the same period India’s export increased by 33 per cent.
“If Pakistan’s exports are unable to compete at the current level playing field, then it can get only harder for Pakistan, in the wake of an India-EU FTA’’, the official summed up his ordeal in tackling this issue.
As he explained, after phasing out of textile quota in January 2005 and denial of duty-free access under the GSP plus, Pakistan’s exports to the EU during 2005 suffered a decline of nine per cent. The market share loss was from 0.12 per cent to 0.09 per cent. China gained 25 per cent, India 17 and Sri Lanka two per cent.
Another aspect of the Pakistan-EU trade worth noticing is that in 2005, the EU exports to Pakistan increased by 30 per cent to reach $4.8 billion.
Pakistan’s reliance on textile and clothing is around 60 per cent to the EU whereas its bigger competitors like China depend to the extent of 13 per cent and India 25 per cent.
Bangladesh, Nepal, Bhutan and Maldives enjoy least-developed countries status and are given duty-free access while Sri Lanka qualifies for the GSP plus and in the event the EU signs an FTA with India, Pakistan will be isolated in the Saarc.