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European Union Trade Concessions Package: Technical Problems

Karachi: Much has been written about the proposed EU trade concessions package of 75 items to Pakistan. The package was announced in September 2010 by the EU after devastating floods and is pending at the WTO level for over than a year due to objections raised India, Bangladesh, Brazil Peru and Indonesia.

Although India has withdrawn its objections but Bangladesh is still blocking the EU decision to give the trade concession to Pakistan for a period of three years from 2012. Bangladesh objected against the decision saying aid and trade should not be mixed up and the trade concession to Pakistan might hamper Bangladesh garment exports to EU.

WTO System:

According to the rules of the WTO, necessary consensus is required from all the WTO member states in order to pass the package. Any member may raise an objection without specifying any reason for it and till the time all member states do not unanimously concur, the package cannot be passed.

WTO had been repeatedly criticized for not delivering on issues related to the developing nations. In the 10 years since the WTO pledged to deliver pro-development changes, developing countries have been completely sidelined by the global powers.

Objections by Bangladesh:

Bangladesh’s opposition to the proposed EU trade package for Pakistan seems to have no basis as it has insignificant exports to the EU in home textiles, while it has virtually no exports in cotton yarns and fabrics as well as polyester, synthetic yarns and cotton fabrics which constitute bulk of this package. While, in seven textile items on which quotas are proposed Bangladesh had only Euro 179 million exports which is less than 3% of its total exports to EU.

Bangladesh’s export to EU in 2010 was nearly Euro 6 billion while Pakistan’s garment exports was less that Euro 1 billion. Similarly, in 23 garment categories of the package, Pakistan had significantly lower average unit price than Bangladesh signifying that Pakistani exporters are targeting different market segments than their competitors in Bangladesh.

Also, Bangladesh’s Commerce Secretary, Mr. Ghulam Hussain, in a recent interview to press stated that “Bangladesh might lose $ 10 million a year if Pakistan gets this facility”.

Impact of Trade Concessions:

 

All values in Million Euros    Pakistan’s exports to  Bangladesh’s exports to
   EU in 2010     EU in 2010
Exports in 23 garment categories

included in package

    306,029     474,906
   
Total Garment exports to EU    985,181   5,779,712
Impact of Trade Concessions       31%       8%

Average Unit Price Comparison:

 Pakistan’s     Bangladesh’s    Price  
 Average Unit      Average Unit    Differential  
  Price (Euro/Kg.)     Price (Euro/Kg.)    
13 categories of knit products included in package     6.54 9.81 50%  
 
10 categories of woven products

included in the package

  8.69    10.89   17%  
 
         
Total knit garment exports to EU   7.32      9.22    26%  
Total woven garment exports to EU   9.47      10.44       10%  

Problems with HS Codes:

The EU has based this package on 75 items under the Harmonized System (HS) Codes which is very complicated.

HS codes are not taken seriously by the exporters or by the customs authority therefore wrong HS codes are usually put on export documents. But this problem is not limited to Pakistan; HS codes are also not taken seriously by the European importers as well. Research done by PRGMEA, shows that many leading EU buyers of garments are using wrong HS codes on their purchase orders.

Another problem with HS codes is that, Pakistani authorities use different HS Codes, while the EU uses different codes for many products. For example, the EU has included HS Code # 62046231 (ladies jeans) in the package but the same code is not recorded by Pakistan Customs.

This implies that we solely have to rely on data released by the EU and the data recorded by Federal Bureau of Statistics, Pakistan is of no help. Hence, we have no way to estimate the actual exports of certain items on which ceilings are proposed.

Unrealistic ceiling / quotas:

To further compound the situation, EU has imposed ceilings / quotas on eight major items in the package. If the ceilings are surpassed then normal import duty structure will be applied for these products. For example, it has set a ceiling of 7,571 tons on ladies jeans for 2012 and 13.

This implies that there is no room for growth for two consecutive years. Whereas, certain leading EU buyers have already increased their buying in these products in order to build capacities ahead of package approval.

The industry also claims that the proposed ceilings / quotas are unrealistic. For example, ladies jeans, number one item for woven garment industry, the export ceiling has been set at 7,571 tons. If based on average garment weight of 700 grams per piece, the production comes about 9.46 million pieces/year, which is equivalent to performance of a big denim jeans factory and Pakistan is exporting far more than this quantity.

For more information, contact:
Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA)
18-A Shaheen View Building, Block-VI, P.E.C.H.S., Shahra-e-Faisal Karachi-75400, Pakistan
Tel: +9221 3454 9073, +9221 3454 7912
Fax: +9221 3453 9669
Email: info@prgmea.org
Web: www.prgmea.org

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