Print
Share
Trading Up: Pakistan, the EU and Trade as Development
February 13, 2012
“Better late than never” has never been truer. Recent reports (Financial Times, Reuters) indicate that the European Union (EU) is on the verge of reducing tariffs on a range of Pakistani exports for two to three years. The proposed reduction covers 75 products that make up between 27 and 37 percent of EU imports from Pakistan. Industry analysts estimate that the move could generate between $100m – $300m per year in additional revenues to Pakistani manufacturers. The deal is unusual under international trade rules because it waives the core principle of nondiscrimination for the benefit of one country for humanitarian reasons. The EU requested that other WTO nations who compete to export these products make a short-term exception for Pakistan in the wake of the devastating floods that took place in Pakistan during the summer of 2010. Wrangling in Brussels and between WTO members meant that the deal has been held up for 18 months. However, it now appears likely to go into effect in May or June of 2012. By that point the deal will have been held up for almost two years, but Pakistani manufacturers certainly won’t be complaining
Perhaps someone at the EU has been reading CGD’s Pakistan report, or Nancy Birdsall’s recent open letter to the Obama administration on US support for Pakistani private sector growth? More likely, EU officials have simply come to the same conclusion that CGD senior fellow Kim Elliott did in a working paper last year on U.S. trade policy: opening up markets to Pakistani products can provide a substantial boost to the Pakistani economy at a negligible cost to U.S. domestic interests.
Despite the fact that it has taken 18 months of political haggling, inside and outside of Brussels, to reduce (some) tariffs , this precedent is good news. It represents a triumph of smart development policy over parochial interests. Particularly impressive is the fact that Pakistan’s arch-rival India agreed to a waiver that, in effect, increases discrimination against its own exports. This comes on the heels of a joint statement by the Indian and Pakistani trade ministers to double their trade volume in the next three years, and Pakistan’s subsequent promise to grant India “most favored nation” status. Could this be a sign of more good things to come in the India-Pakistan relationship?
This unusual decision by the EU raises several questions. First, if the concession is limited to two or three years, will this spur investment, or will it simply provide a short-term boost for established companies? Although the WTO explicitly warned that a waiver on humanitarian grounds should not be treated as a precedent, it seems likely that it will be viewed as one in Pakistan. Second, with the textile industry facing “imminent collapse” due to electricity and gas shortages, will Pakistani manufacturers be able to make use of the concession? Finally, if the EU can cut through its red tape, and if India can put aside its regional rivalry with, why can’t US legislators and the Obama administration strike a similar deal to promote trade with Pakistan? Fostering economic growth is one of the top priorities of the State Department’s civilian engagement strategy for Pakistan. Building on the EU’s new trade deal might be a good way for the US to make progress towards this goal.
Possibly Related Posts
- Is CGD’s Pakistan Initiative Off the Mark?
- Pakistan: Here’s What the United States Actually Can Do Right Now
2 Responses to “Trading Up: Pakistan, the EU and Trade as Development”
Post a Comment
We value frank and constructive exchanges and encourage you to use your real name in your comments.
February 13th, 2012 at 4:16 pm
This is better than nothing, but few manufacturing companies will make a substantial investment based on such a small window. You might try to squeeze more output out of your operations, but you are not going to add any machinery or hire anyone on a long-term contract.
Maybe that it why the EU could adopt the policy? They want to do something, but nothing that actually could make a large impact (because their own manufacturers will be upset).
I hope the precedent established here will allow them to make this move more permanent in the future.
February 13th, 2012 at 5:00 pm
Agreed. It will be a boon to those in the manufacturing industry who have the ability to increase output (ie those who are still getting electricity, or have generators), but if the EU keeps the concession to just 2-3 years, the overall impact is going to be pretty small.
And I’m with you on hoping the precedent will allow for something more permanent – either from the EU again, or the US. However, Im guessing the most substantial resistance to extending or repeating the concession will come from the WTO member countries (India, Bangladesh) whose goods are being temporarily displaced, rather than the EU itself. The fact that they allowed this in the first place is pretty remarkable though.