April 3, 2012
Beelam Ramzan

“You may delay but the time will not.”

— Benjamin Franklin

The long-awaited trade concessions proposed by the European Union were finally approved by the WTO. This was a move intended to help Pakistan recover from the colossal humanitarian crisis caused by the devastating floods in 2010. Rejecting conditionality-loaded aid packages in those critical circumstances and, preferring a trade package, instead, was a step in the right direction.

It will provide a much-needed boost for our besieged economy, battered by the fallouts of the war on terror, energy shortages and poor law and order condition. However, the real test of success will be to see how well this trade package is utilised in the face of emerging global and national challenges and given the enormous delay in seeking these trade concessions, almost sixteen months.

The Pakistan specific trade concessions consist of a ‘waiver’ on customs duties for 75 items, mainly textile related, to help the country strengthen the textile sector that account for almost 60 percent of the country’s export earnings. Twenty products will be subject to quantitative limitation, in other words quotas. Waiver means the duty will be reduced to zero for a period of two years.

Acquiring this waiver was not an easy job and it was only due to effective negotiations, that Pakistan was able to surmount the enormous opposition from competing textile exporters led by India, Bangladesh, Brazil, Indonesia and Argentina.

At present, the average existing tariff on the import of 75 products included in the package is 7.19 percent within EU. Despite facing this tariff structure, Pakistan’s exports of these products to EU were worth 1.4 billion Euros for January-October 2011. Hence, it is clear that Pakistan has considerable potential to increase its share manifold from the present, if it fully avails the waiver on duty within 27 EU countries. The net impact of zero custom duty to EU will, consequently, increase Pakistan’s exports by at least 40 percent, or in other words add exports worth 800 million Euros for two years, according to official estimates.

The duty free trade concessions are effective for two years starting from January 1st, 2012 to December 31st, 2013. Two months have passed already and the implementation of concessions is not in sight. Hence, many exporters fear that within two year’s time-frame, Pakistan’s industrial sector’s ability to derive full benefits from this duty waiver may be hindered greatly by the changed circumstances. Truly, the package came at a time, after a delay of almost one year and half, when the industrial scenario changed dramatically by an acute energy crisis, domestically, and a spiralling Euro-zone economic crisis, globally. In the wake of these emerging challenges, reaping the full gains of trade concessions will be a daunting challenge.

The acute energy crisis alone has taken a heavy toll on the textile industry in the country, especially in Punjab and Faisalabad. Almost 40 percent of textile manufacturing units remain inoperative, resulting in loss of export orders and massive lay-offs. Forced shut down of industry, at large scale, means that the true potential to export is in jeopardy. Hence, our major exports in cotton made ups and garments declined by 20 percent and those in textile reduced by a staggering 40 percent during a period of eight months, from July 2011 to February 2012. This translated into a phenomenal loss of $4billion, in export value. If the energy crisis is not managed skilfully and timely, utility of hard-acquired trade concessions will be in doldrums.

Apart from the energy crisis, our exports are also very badly hit by the global recession. Although the jitters are being felt equally from China to India with an unprecedented slide in their export figures, in our case the slowdown in Europe is weighing heavily on our main engine of growth; textiles and clothing sector that accounts for more than 70 percent of our export to the EU. A weak global demand will have an adverse impact on the supply side, thus effecting a negative growth in exports from Pakistan.

Experts fear that the slowdown in exports will continue in the coming months because the demand from the EU is unlikely to revive. If that is inevitable and beyond control, the government can at least ensure uninterrupted supply of electricity and gas to the ailing industry, enabling them to function at their optimum level and increase their share in the bearish EU markets by being more competitive.

It is feared that due to these impediments, Pakistan is likely to miss the overall export target of $25.618 billion, whereas the textile and clothing sector will fall below the projected target of $14billion by June 2012, as estimated by the export associations. If that is the case, we cannot afford to miss our export targets next year too, and with it the much deserved fruits of EU’s duty free trade concessions. Good management is nothing but making up for limitations imposed by unavoidable circumstances, through optimal use of resources. The clock is ticking fast. We must not delay anymore!

The writer holds a degree with distinction in LLM International Economic Law, University of Warwick (UK). Email: beelam_ramzan@ yahoo.com
-The News