EU capitals approve trade aid package for Pakistan

The package covers 75 Pakistani exports which will be allowed to enter the EU duty-free from 2011.

BRUSSELS: European Union (EU) governments have approved a raft of trade concessions for Pakistan, diplomats said on Thursday, a move to help the country rebound from the floods which caused nearly $10 billion of damage.

The final package is less extensive than the EU had hoped to agree but still covers 75 Pakistani exports, from cotton sheets to clothing and ethanol, which will be allowed to enter the EU duty-free from 2011, an EU spokesman said.

The duty waiver now needs approval from the World Trade Organization (WTO) and the European Parliament.

Following pressure from EU industries that feared losing market share to cheaper Pakistani imports, the tariff suspensions will now apply for two years, with a third year only granted after an assessment, EU diplomats said.

The compromise also sets a duty-free quota on the most sensitive products on the list: some fabrics, towels, women's jeans and socks will lose their duty-free status if exports to Europe rise by more than 20 percent per year, diplomats said.

All remaining items may also lose their tariff suspension if there is a surge in their exports to Europe, under a safeguard mechanism whose method is yet to be agreed, diplomats said.

Finally, the compromise has cut the duty-free allowance of ethanol imports from Pakistan to 80,000 tonnes, from an originally proposed 100,000 tonnes, diplomats said.

"These adjustments are not expected to lower considerably the expected benefits for Pakistan's flood-stricken economy," said John Clancy, trade spokesman for the EU's executive Commission, which drafted the original plans.

Reactions to the compromise

But some EU diplomats warned that Europe's concern for its own industries could undermine the credibility of its stated aim of using trade as a security and development tool.

"Some member states believe Europe has watered down its aid to Pakistan too much. This creates a credibility problem, after all this was supposed to be the method by which the EU helps Pakistan reconstruct," said one EU diplomat.

Another involved in the negotiations said: "It's not ideal, but at least we have a deal that we can put to the WTO."

The original plan unveiled in October, said duty suspensions would affect about 900 million euros worth of Pakistani exports to the EU and estimated Pakistan could boost sales to the EU by 100 million euros.

Most of the trade concessions will be on textile products, though there are no tariff cuts for bed linen, Pakistan's main export product, because of EU industry opposition.

Britain, Germany and Sweden have led calls for trade the concessions but countries with large textile and clothing industries such as Italy, Spain and France were reluctant.

The EU is drafting separate plans that could allow Pakistan access to long-term trade discounts from 2014 under the so-called GSP Plus regime, though that also faces opposition.