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Trade not Aid ‘A Viable Option

The EU is Pakistan’s largest exchange associate and has been dynamic in reinvigorating the equitable course of action and fortifying the social and financial fabric of this country through its growth and help approaches.

Pakistan is facing a downturn in economy and it seems unlikely — at least in near future — that it would be able to come out of such a formidable recession in the foreseeable future, mainly on account of its long-standing huge debts. There is a need to realize that looking for aid is not a tangible and permanent solution for Pakistan. On the other side, the grave situation is weakening the country’s economic structure. Pakistan’s dependence — rather overdependence — on aid is rooted in the very structure of its economy.

It has been shaped by an institutional framework that restricts the process of savings, investments and the new trade ventures to the elite. Therefore, aid dependence can be overcome only by restructuring the economy through policy shifts that enable to generate greater opportunities and open up new vistas of trade. The World Trade Organisation (WTO) waiver is however encouraging for Pakistan. Pakistan has an easy access to one of the largest markets in the world. Trade with European Union (EU) on ever-relaxing terms could prove as the greatest boon to Pakistan’s economy. The EU is Pakistan’s largest exchange associate and has been dynamic in reinvigorating the equitable course of action and fortifying the social and financial fabric of this country through its growth and help approaches.

The EU’s engagement with Pakistan is predominantly dependent upon support as a component of the EU’s security system. It is a benefactor-beneficiary connection. There is, undoubtedly, the delicate majority government rule in Pakistan that needs the backing and help of international actors. Either they are major powers or financial institutes, such as the International Monetary Fund (IMF), the World Trade Organisation (WTO) and the World Bank etc. The newfangled administration should take prompt steps to reinforce the lawful framework, improve a unique budgetary model, plan state foundations and cope with the threat of terrorism and radicalism.

The presence of Osama bin Laden on the Pakistan soil, the current struggle of Pakistan’s armed forces in areas such as FATAA and Balochistan are current examples as to how much Pakistan has been plagued with the war on terror and it is very hard to wash the strains of terrorism from the soil of Pakistan. The EU has come forward in recent years with the aid and assistance programmes to pull Pakistan out of the clutches of strong wave which has affected its stability and threatened peace at large over a decade. The EU’s multi-track approach could be very effective in this perspective.

Bringing economic stability and development to Pakistan is vital to tackling the root-causes of poverty and conflict. Pakistan’s economic independence and stability are hostage to its trade relations with the economies of countries like neighbouring India and China and its access to the world’s big markets. The EU is one of Pakistan’s top trading partners. The EU accounts for 20 per cent of Pakistan’s external trade with its exports to the EU amounting to 3.4 billion, mainly textiles and leather products and the EU’s exports to Pakistan amounting to 3.8 billion, mainly mechanical and electrical equipment and chemical and pharmaceutical products.

The assistance Pakistan is receiving from the EU has proved constructive both in economic and political terms. The measures include resumption and upgrade of the political dialogue, signature of a Third Generation Co-operation Agreement as well as the additional development assistance. To enhance Pakistan’s capability on the WTO issues, the EU launched an assistance programme in year 2004 to reform procedures and processes for trade facilitation in accordance with the EU policies and values. The efforts and dialogues of the EU with those which object to this move are remarkable and commendable. The WTO waiver — certainly a bold step — will alter the dynamics of Pakistan’s economy by giving it a greater access to the EU’s market.

Pakistan and the EU also moved forward to implement a new Five-Year Engagement Plan which attempts to strengthen vis-à-vis diversify their traditional donor-and-recipient relationship and to enhance their cooperation and partnership in other areas of mutual concerns. The dialogue provided an opportunity to review the EU’s development cooperation including the broad parameters of the second EU Multi-annual Indicative Program (MIP) for 2007-2013, which included projects for rural development and natural resource management, education and human resource management, governance and human rights and trade development.

 Pakistan’s exports are dominated by textiles and clothing, up to the value of the 2.6 billion, about 80 per cent at a preferential rate. Currently, efforts are under way to broaden the base of the export profile and reduce reliance on the textiles and clothing sectors.
 The EU also reiterated its commitment for the area-based community development, particularly in the Malakand Division. Appreciating the measures taken by Pakistan in implementing its international human rights commitment, the High Representative Ashton said that both sides would further work closely in this regard. The EU is also benefitting Pakistan from its Generalized System of Preferences (GSP), according to which Pakistan would receive duty-free treatment from year 2014. The concessionary access which Pakistan achieved back in 2002 lasted for three years.Pakistan has been trying for a similar arrangement. The scheme would replace the current GSP scheme from January 2014 under which some of the existing criteria for the GSP Plus beneficiaries have also been changed. Most significantly, as per the new criteria, a country will be eligible for GSP Plus only if its GSP covered exports to the EU account for less than two per cent of the EU’s total GSP imports, instead of the one per cent applied currently. This increase in the criteria from one to two per cent will make Pakistan eligible to apply for GSP Plus by fulfilling the commitment to implement 27 international conventions relating to good governance, human rights and sustainable development etc.

On the occasion of the 50th anniversary of diplomatic relations between both entities, the EU and Pakistan realized the need for much closer economic and business ties between the two. The EU has recognized Pakistan’s efforts for its liberalizing trade policies with India.

The EU’s 27 member states are engaged in development programmes with total value of 750 million Euros. Over the last four years the EU’s humanitarian agency, ECHO, provided over 370 million Euros in humanitarian aid to Pakistan making it the number one international humanitarian actor in Pakistan. The EU is still working to increase its investment to empower local communities in Pakistan which are threatened or victimised by militancy and extremism.The EU’s support and assistance to Pakistan at crucial times is of great importance as it can be a major source of direct investment in future, which would be a great opportunity for Pakistan to boost its economy.

Pakistan’s exports are dominated by textiles and clothing, up to the value of the 2.6 billion, about 80 per cent at a preferential rate. Currently, efforts are under way to broaden the base of the export profile and reduce reliance on the textiles and clothing sectors.

The EU has supported Pakistan’s efforts to integrate into the global economy by granting Pakistan’s exports to the EU-reduced tariffs under the EU’s Generalized System of Preferences (GSP). This allows almost 20 per cent of Pakistan’s exports to enter the EU at zero tariffs while a further 70 per cent are allowed to enter at a preferential tariff. The EU imports textiles and clothing with a value of 3.5 billion Euros annually, but the EU’s anti-dumping investigations have strained the trade relations.

 India stands with EU on the grounds of strategic and business partnership while, on the other hand, the relations of Pakistan with the EU are always referred to as the ‘donor’ and the ‘recipient’
 Pakistan is unhappy over its exclusion from the EU’s GSP-Plus Scheme since the EU restored the system after India won a WTO dispute panel against Pakistan’s inclusion in 2005.India is a strategic partner of the EU and its relations with the EU are far better than that of Pakistan. India stands with EU on the grounds of strategic and business partnership while, on the other hand, the relations of Pakistan with the EU are always referred to as the ‘donor’ and the ‘recipient’. However, with improvement in relations with India and with the grant of the MFN status, Pakistan has been able to improve its relations, to a large extent, with India in the recent past. One of the important aspects is that India has withdrawn its opposition on the controversial trade-aid package proposed by the EU at WTO’s General Council. Around 75 tariff lines or products from Pakistan would get concessional access to the European markets for three years, of which 67 would have zero tariff. On the remaining eight, the tariff rate quotas (TRQ) limited imports at reduced duty would apply. The package is expected to be for two to three years with about $300 million of yearly benefits to Pakistan’s exports to the EU. The WTO’s proposal was initially opposed by India, Brazil, Bangladesh, Peru and Vietnam primarily because their exports to the EU would be impacted with that move. These countries are now agreed as the result of efforts made by EU and Pakistan. However, the major obstacle was India.

The policymakers must realize the importance of trade instead of looking for aid. Pakistan is in dire need of plans in order to boost its economy for addressing the debt burden. We better prefer a rule: Give a man a fish, and you feed him for a day; show him how to catch fish, and you feed him for a lifetime. Pakistan has been provided fish yet, therefore, today it is facing problems to sustain its economy and reduce its debts. There is a need to look forward to greater opportunities to better the economy and to focus on trade. Pakistan needs to have a look on the world economies, particularly that of India and China which stand today as the economic giants. India’s Prime Minister Manmohan Singh’s reforms to liberalise India’s economy and Mr Deng Xiaoping’s economic reforms in China have enabled them to compete the world’s economies in the international market. Mr Deng’s economic reforms stood on the entrepreneur business principles in 1978 which included de-collectivisation of agriculture along with opening up China for foreign investment and the encouraging local entrepreneurs.Similarly, the reforms introduced by Mr Singh have given his country a big boost in the local market with enormous capacity to compete big markets worldwide which will finally help a lot in alleviating poverty in the country. In his regime, the growth rate of the Indian economy was 8 to 9 per cent as a result of which India has become the second fastest-growing economy of the world, next to China. In both the cases, aid was considered as the major constraint in development and the policies stressed trade, thus opening up new vistas of development and prosperity.

 By: Munazza Khan

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