PM’s visit to US: Govt uncertain about seeking tariff concessions

ISLAMABAD: The PTI government is still clueless and indecisive if it should seek tariff concessions from US authorities or not during the maiden visit of Prime Minister Imran Khan, fearing it may prove counter-productive keeping in view of the unpredictability of US President Donald Trump.

Prime Minister Imran Khan is to leave for US today (July 19, 2019). More importantly, the US is in protectionist mode too, a senior official requesting anonymity told The News.

US under Trump administration, the official feared, will try to ensure safe US troops evacuation free of cost from Afghanistan by using the strict IMF programme and FATF (financial action task force) as bargaining chip.

FATF has already asked Pakistan to fulfill its remaining obligations on anti-money laundering and terror financing till October and if Pakistan fails to satisfy FATF, then it will be put in black list. IMF has already said in its latest report that continuation of IMF programme also depends upon Pakistan’s total compliance of FATF terms and conditions.

However, the official said Pakistan will try to use its help for smooth evacuation of US troops from Afghanistan with ensuring of peace in a war ravaged country in the absence of US troops as bargaining chip to qualify for more trade concessions. Pakistan has already arrested Hafiz Saeed and Chief of Army Staff General Qamar Javed Bajwa also held meetings with Ulema running madrasas across the country for reforms as required by US to make PM’s US visit successful.

More importantly, since the Trump administration takes over, the US is at trade war with China and so far has done away with concessions on tariff lines of China valuing over $225 billion and in return China has either imposed or proposed the tumbling of tariff lines of US valuing $110 billion.

Basically, President Trump is too much sensitive over tariff concessions. US so far has reduced concessions on tariff line of Turkey and also tumbled the concessions on items from Mexico and Canada to boost the US industry and ensure maximum jobs of American.

More importantly US has also expelled India which is strategic partner of America in South Asia region from the GSP facilities scheme giving the impression that US is no more tolerable to continue concessions on tariffs lines. Now India will send its products in US markets under competitive regime.

Keeping in view the record of US Trump, the official said, the authorities in commerce ministry are still indecisive as to whether the government should seek any trade concessions which may help make strong Pakistan’s economy.

The official said, Pakistan has current concessions available to it on unconventional items under GSP (Generalized System of Preferences) scheme the US is extending to developing and Least Developed economies. However US has expelled India from GSP scheme.

Under new scenario, US wants Pakistan to provide ease in safe evacuation of troops from Afghanistan and also help establish peace in war ravaged Afghanistan and use influence on Taliban to behave in the case of absence of US troops. The government wants to use it as bargaining chip and seek US assistance to improve economic outlook of the country.

The official said that under GSP facilities US is not extending any kind of tariff concessions on Pakistan textile products, but we want the concessions under another arrangements.

If Trump, he argued, agrees to provide concessions on Pakistan textile sector it is not possible under GSP as in case US amend GSP scheme to accommodate Pakistani textile products, WTO will strike down immediately as under GSP scheme, no disparity in the accord is allowed. At present US is extending tariff concessions on 3500 tariff lines to developing countries and on 1500 tariff lines to least developed countries (LDCs).

On 3500 tariff lines US is extending the tariff concessions under GSP to developing economies but not giving any concessions on textile products. However, US is extending the concessions on 1500 tariff lines to LDCs including textile products. So under GSP, no window is available for Pakistan for more concessions.

Pakistan has decided to seek concessions on Pakistan’s textile products under special arrangements as was extended by European Union that had given to Pakistan after 2010 floods. EU had extended ATP (Autonomous Trade Preferences) to Pakistan to compensate the loss incurred owing to 2010 flood. It is to be noted that EU got the special waiver from WTO while giving ATP to Pakistan for one year to improve its trade to EU.

The EU managed to persuade the WTO member countries of India, Bangladesh and Sri Lanka arguing Pakistan sustained huge loss during catastrophic 2010 flood. “We will ask United States Trade Representative (USTR) to give ATP like trade concessions to Pakistan as US can also get waiver from WTO in this regard as EU had managed for Pakistan,” he said.

“We will pitch this proposal before US authorities seeking concessions on Pakistani textile products in return of Pakistan’s help to US for smooth evacuation of US troops and ensure peace in Afghanistan in the absence of US troops,” the official sources close to Mr Razaq Dawood Adviser to PM on Commerce, Textile, Industries and Investment. Dawood will be the part of PM entourage during US visit.

Under another proposal, Pakistan will pitch before US authorities seeking limited FTA (Free Trade Agreement) with US with maximum tariff concessions Pakistan textile products and in return Pakistan will offer same kind of concessions on agri products of US. If US agrees to ink limited FTA with Pakistan the it would be 21st country with which FTA will be done.

At present, the US has free trade agreements with 20 countries including Peru, South Korea, Mexico, Morocco, Oman, Bahrain and Jordan. Because of the free trade agreements, Bahrain and Jordan have developed their textile sector and have begun to compete with other countries in the US textile market.

The trade volume, the official said, between Pakistan and US stands at $5.5 billion that direly needs stimulation. As per data, Pakistan’s exports in 2017 stood at $3.57 billion with a trade surplus of $765 million.

Pakistan’s exports had only 0.16% share in total US imports of around $2.34 trillion in 2017. Top five exporting countries to the US last year were China ($505 billion), Mexico ($314 billion), Canada ($300 billion), Japan ($136 billion) and Germany ($118 billion). Pakistan ranks at 59th place in this list. Pakistan’s main export goods include articles of apparel and home textile, leather, surgical instruments, cotton fabrics and yarn, plastic, carpets, sugar confectionery and rice.

Pakistan’s main imports from the US include machinery and electrical equipment, soybean, milk powder, maize, peas, cotton, iron and steel, rail locomotives, chemicals and pharmaceuticals.

In case of textile and apparel, Pakistan has a share of around 3% in total US imports of $99 billion, which is smaller compared to 36% for China, 12% for Vietnam, 7% for India and 5% for Bangladesh.

Vietnam and India have both increased their share in the US textile market since 2012 while China’s share has shrunk. The US has an elaborate regulatory mechanism governing imports. As of July 2018, the harmonised tariff schedule (HTS) of the US had 105,168 tariff lines, of which 36.8% were duty-free tariff lines, 1.9% were subject to tariff quotas and the dutiable tariff lines had average rate of 7.6%.

The US has also bilateral investment treaties with 42 countries and trade and investment framework agreements (TIFA) with 52 countries.

During the visit of US president junior George Bush to Pakistan in Musharraf regime, US announced to sign TIFA with Pakistan. However, after TIFA came into existence, next step of Bilateral Investment Treaty was proposed to ensure investment from US entrepreneurs bus no progress could be made because of unacceptable conditions of US authorities for BIT.

Pakistan may ask, the official said, US administration to soften their conditions for BIT. The official said that US which is very sensitive to violation of IPRs (intellectually property rights) of US products in Pakistan may highlight this very issue. Though Pakistan has overcome this issue substantially by taking various steps but US is feared to highlight this issue too.