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WTO Calls for Pakistan to Increase Transparency of Export Subsidies

Pakistan's continued use of export subsidies for products such as textiles and apparel "opens the possibility of distorting competition, trade and...

GENEVA — Pakistan’s continued use of export subsidies for products such as textiles and apparel “opens the possibility of distorting competition, trade and production patterns,” according to a World Trade Organization report.

This story first appeared in the January 23, 2008 issue of WWD.  Subscribe Today.

Since the end of the global quota regime in 2005, the textiles and apparel subsidies “have received priority” to help meet competition from other developing countries such as China and Vietnam, the study said.

The subsidies were also criticized by trading partners during a WTO session that examined Pakistan’s trade regime. The South Korean delegation said the increase in export subsidy measures in recent years “could complicate Pakistan’s trade regime and undermine fair trade.”

“We would like to request Pakistan to notify its export subsidies to the WTO in order to enhance the transparency of the scheme,” South Korean officials said. “This Pakistan has failed to do since its last review” in 2002.

The report said exporters of apparel, home textiles and footwear receive research and development subsidies of 3, 5 or 6 percent of the value of the goods, but this will be reduced to a uniform 3 percent rate this year.

The review highlights that in 2006 textiles and apparel accounted for 66.4 percent of Pakistan’s total merchandise exports of $16.5 billion. Between 2002 and 2006, about $6 billion was spent to modernize and restructure much of Pakistan’s textiles and apparel sector, the WTO said, which included the importation of machinery, especially for spinning and weaving. Under the current development plan, the study said the government is looking at another $20 billion to $23 billion in investments for textiles and apparel.

WTO experts believe Pakistan stands to benefit in the new quota-free era. While textile production is likely to expand, the apparel segment “may contract as it faces greater competition,” the report said.

“So far, Pakistan has been unable to benefit from the quota abolition due to its high costs, low productivity and inefficient production processes,” the study said.

The government has launched an initiative to establish textile and apparel centers in cites such as Karachi, Lahore and Faisalabad, where a public-private partnership aims to improve the infrastructure and attract foreign investment.

Shahzada Alam Mannoo, Pakistan’s Minister for Commerce & Textiles, told WTO delegates that the economy has grown in the last five years an annual rate in excess of 7 percent. Since 2002, Pakistan’s total trade has expanded annually by 18 percent and the average applied tariff rate is 14.5 percent, down from 20.4 percent in 2001-2002.

Peter Allgeier, deputy U.S. trade representative, said Pakistan’s growth “is in large part the result of improved economic policy making.” But he said “Pakistan could do even better” and urged the country to enhance investor protection. The U.S. is the biggest investor in Pakistan with about $1.2 billion in foreign direct investment, he said. Last year, bilateral trade between the U.S. and Pakistan totalled $5.9 billion, imports from Pakistan increased to $3.6 billion and U.S. exports to $2.3 billion.