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An overview of EU-Pakistan Trade
Relations:
The European Union remains Pakistan’s largest trading
partner receiving 27.4% of Pakistan’s exports and providing 17% of its total
imports. The overall volume of trade between the EU and Pakistan was worth
euro 5.06 bn (equivalent to Rs 303 billion) in the year 2002 with a trade
surplus of euro 765 million (equivalent to Rs 46 billion) in Pakistan’s
favour.
Pakistan’s trade with the EU is mainly composed of textiles, which account
for over 60% of the total Pakistani exports to the EU, followed by leather
products, which account for 13% of the total Pakistani exports. Pakistan’s
export structure lies very much on a traditional product mix. The imports
from the EU to Pakistan mainly comprise finished products like mechanical
and electrical machinery, which accounts for over 35%, followed by chemical
and pharmaceuticals for 10% of the total EU imports to Pakistan.
Trade with Europe is clearly in Pakistan’s favour. There is however scope
for more mutually beneficial commercial activity both ways. General trade
increase with its main partners, and hence with the EU, is part of
Pakistan’s economic revival agenda. The EU aims of course at increased
bilateral trade with Pakistan as trade is recognised as the engine of global
economic growth – largely thanks to the multilateral trading system. The
rule-based, open, multilateral, international trading system is a key factor
in global prosperity to all partners. The EU wants to see these advantages
extended and therefore is strongly in favour of an outcome of the current
WTO trade negotiations, which should entail concrete gains in particular,
for developing countries and contribute to better enhance benefits and limit
risks arising from the globalisation process.
Quite recently, the EU has initiated an offer in the WTO Geneva in the
negotiations on “trade in services” under the Doha Development Agenda (DDA).
The initial offer represents the EU’s response to the requests it has
received from both developed and developing countries (DCs) for improved
access for foreign firms to the EU services market. The initial offer
strengthens the EU’s already extensive commitments in the services sectors
made during the Uruguay Round and subsequent sector specific negotiations
and offers improved market access for foreign service suppliers in sectors
such as: financial services, computer services, telecommunications services,
transport services, distribution services, postal and courier services,
professional services, tourism services. On Mode 4 (i.e. temporary movement
of natural persons), a mode in which developing countries have expressed a
particular interest, the proposal improves EU commitments in several
respects. The offer is also supportive of the EU’s substantial offensive
interests in trade in services by encouraging other WTO members to come
forward with substantive initial offers. This initiative along with all
others mentioned above, are envisaged to benefit countries like Pakistan in
all respects.
Textiles and clothing sector and
GSP
Textiles and clothing is an important sector for EU-Pakistan trade
relations. A memorandum of understanding was signed in 2001 between the EC
and Pakistan whereby the EC agreed to increase by 15% the quota for textiles
and clothing. This formed part of the package of measures attributed to
Pakistan after September 11th.
Pakistan also benefits from the EC’s General System of Preferences (GSP)
designed to foster sustainable economic development by providing tariff
preferences to various countries. As a response to the September 11th
events, Pakistan enjoys additional specific arrangements under the GSP drug
regime, to help the country combat drug production and trafficking. In 2002,
Pakistan’s exports of clothing products to the EU increased by 25% following
implementation of the drug regime (i.e. duty free access for clothing
products to the EU). Due to their increased competitiveness, other sectors
of Pakistan have lost the benefit of GSP treatment since beginning of 1998,
such as leather, raw hides and skins, articles of leather and furskins and
textiles.
Bilateral and multilateral trade
negotiations
A number of sectoral agreements have been signed by the EC and Pakistan such
as:
*
Agreement for commercial, economic and development cooperation, which dates
from July 1985 and builds upon the first such agreement signed in 1976.
*
Agreement on trade in textiles products. The EU is Pakistan’s first trade
partner in textiles.
In addition, the EC and Pakistan also cooperate in WTO multilateral trade
negotiations and key aspects of the Doha Development Agenda (DDA). These
include, among others: special and differential treatment provisions,
including a package of results with real value-added for developing
countries after the Cancun Ministerial Conference;
implementation of developed countries’ commitments in field of trade related
technical assistance, as an important underpinning of the DDA negotiations
and their implementation; specific sectoral negotiations such as in services
and non-agricultural (industrial) products, where WTO should seek ambitious
tariff reductions in sectors of key export interest to developing countries.
At the regional level, Pakistan is a member of the South Asian Association
of Regional Countries (SAARC), which is made up of seven countries including
India, Bangladesh, Sri Lanka, Bhutan and the Maldives. Pakistan is also a
founder member of the Economic Cooperation Organisation (ECO), which also
includes Turkey, Iran, Afghanistan and the Asian republics of the former
Soviet Union.
EU investments in Pakistan
By some estimates, Pakistan has an immediate requirement for up to $20
billion in infrastructure development that could provide good opportunities
for EU exporters and investors. The most promising sectors for EU exports
include oil and gas (exploration and transportation), agro-industry,
information technology; textile machinery, gem mining, precious and
semi-precious stone cutting, franchising, consumer goods and environmental
technologies. A major privatisation effort in the telecommunications and
financial sectors should offer additional markets for EU services, producers
and investors.
Today, foreign investment by EU member states in Pakistan is
dominated by the UK, followed by the Netherlands and Germany.
See table EU member states investment in Pakistan
Facilitating trade and investment, and economic cooperation between
Pakistan and the EU
In 1976, the EC and Pakistan signed their first commercial
cooperation agreement, followed in 1986 and 2001 by a second and
third generation agreement.
The importance of EC economic cooperation in Pakistan has increased
in recent years, despite a rather unstable political and economic
context. Additional trade and development measures were adopted
after September 11th to respond to the crisis and to confirm EC’s
engagement with Pakistan. A 50 million euro project focused on
financial sector reforms was launched in May 2001, with a view to
strengthening micro-financing institutions. A memorandum of
understanding in the textiles sector was signed the same year, which
provides for a 15% increase in export quota to the EU.
Today, trade development and the promotion of business and
institutional links represent about 10% of the EC’s development
budget for Pakistan. The key objective is to enhance cooperation in
trade and economic fields, with a view to increasing income
generation and employment, as well as poverty alleviation. Bilateral
and regional programmes therefore focus on:
(i) strengthening Pakistan’s economic institutions, policy
instruments and infrastructure management;
(ii) trade development, and improved investment environment and
enhanced business-to-business cooperation;
(iii) enhanced mutual understanding in the academic, scientific and
cooperation fields.
Overall, Pakistan’s integration in the world economy is considered
crucial for the sustainable economic development of the country.
EU-Pakistan trade data |