TRADING FAVORS

Byline: Kristi Ellis

WASHINGTON — As the U.S. builds its coalition of nations in the fight against terrorism, apparel and textile trade benefits have become a key negotiating tool.
Pakistan has become the biggest beneficiary to date of economic aid in return for its support of the U.S. antiterrorism campaign in Afghanistan. Its textile industry, which exported $1.9 billion to the U.S. for the year ending July, has also become a bargaining chip.
As U.S. officials were considering a request by the Pakistani government to temporarily suspend textile and apparel tariffs and quotas, the European Union announced a proposed pact with Pakistan last week that would remove all tariffs on apparel and increase quotas for Pakistani textiles and clothing by 15 percent.
Alan P. Larson, U.S. Undersecretary of state for economic, business and agriculture, who was in Pakistan on Sunday, said in a news conference that the U.S. would open its market to Pakistani textiles, its leading export commodity. He added that the U.S. is reassessing the current quotas on Pakistani imports.
Many countries, who constantly request increases in quota levels, could feel the impact if Pakistan enjoys preferential treatment, though most understand the extraordinary circumstances.
Pakistan’s president, Pervez Musharraf, has risked a great deal to stand as a key ally with the U.S., despite violent anti-American protests in his own country, observers noted.
Developing countries, however, are closely monitoring what, if anything, the U.S. offers to Pakistan in the way of textile and apparel breaks. Similarly, the U.S. is taking their concerns into consideration as it devises a trade-benefit package for Pakistan.
“If the U.S. would go forward and give Pakistan more favorable duty-free and quota-free goods, there would be broader pressure to consider comparable provisions for other countries,” said Lael Brainard, senior fellow of economic studies and foreign policies with the Brookings Institution, a Washington think tank. “Countries who compete in the same product lines will have concerns about diversion of trade.”
She pointed to the passage of NAFTA in 1994 and the subsequent concerns raised of Caribbean Basin countries that experienced a diversion of textiles and apparel trade. CBI countries received parity last year with a free-trade pact of their own.
Erik Autor, vice president and international counsel at the National Retail Federation, said some countries have already started to express concerns.
“The Indians, Bangladeshis and Sri Lankans are making rumbles and intimating that whatever Pakistan gets, they should get as well,” he said. “Any country that competes with Pakistan will be interested in what Pakistan gets and what it means for them.”
The U.S. Trade Representative office receives several requests for quota abatement a year, but only in a few cases does it grant these countries more latitude to “borrow” quota from future years’ allocations.
Historically, only a handful of countries have requested and received apparel and textile breaks as a quid pro quo for wartime alliances. In the late Nineties, Macedonia asked the Clinton administration to drop all apparel import quotas in return for its willingness to accommodate refugees from the Yugoslavian province of Kosovo during the war in the Balkans.
But the administration’s response fell short of the request. The U.S. granted an 807 program to Macedonia, in which duties are paid on the value added to apparel assembled of U.S.-cut fabric. Quotas were also waived if U.S. wool fabric was used in wool apparel. But the breaks fell far short of Macedonia’s request for quota abatement on all products.
Turkey was given duty breaks during the Gulf War in exchange for allowing the U.S. to use its air landing strips.
“But [the pending Pakistan deal] is the first time there has been a kind of direct link in advance of enduring action,” said Julia Hughes, vice president of international trade at the U.S. Association of Importers of Textiles & Apparel.
That is what alarms Pakistan’s competitors. Many countries fear the world economic slowdown has reduced demand for exports overall. Therefore, a larger share of a shrinking pie for one country will come at the cost of the others.
Bangladesh, which exported $2.3 billion worth of apparel and textiles to the U.S. for the year ending July, according to the Commerce Department, stands to lose a lot if Pakistan is granted duty-free and quota-free benefits for textiles and apparel.
The country has spent the past year asking for the same trade liberalizing benefits given to African countries under the Trade Development Act of 2000, according to Jhulam Hussain, commercial counselor of the Bangladesh Embassy.
“Bangladesh is competing with many countries, including Pakistan, and it would hurt Bangladesh severely if Pakistan gets quota-free and duty-free benefits,” said Hussain, noting that the average duty on apparel and textile exports to the U.S. is 17 percent. “If that is not charged on Pakistani goods and they don’t have quotas, they’ll export as much as possible. That would be a diversion of business from Bangladesh to Pakistan and that would be serious.”
He said shrinkage in textile exports could lead to massive social and economic unrest. Bangladesh employs about 1.8 million workers in its garment sector.
Pakistan’s archrival India will most likely be hit by the EU’s proposed package of apparel and textile benefits to Pakistan, as well as any U.S. quid pro quo deals. U.S. companies have canceled orders and India has already seen a decrease in apparel and textile exports to the U.S. in the wake of the military activity in Afghanistan, according to news reports. A prolonged war could only make matters worse. India exported $2.7 billion in textiles and apparel for the year ending in July, according to Commerce.
The American Textile Manufacturers Institute, which represents domestic interests, opposes a big trade liberalization package for Pakistan. The ailing industry has lost 60,000 jobs in the past year.
In a letter to the U.S. Department of Commerce, the ATMI said it would support duty-free treatment for hand-knotted and hand-hooked floor coverings from Pakistan, valued at $100 million annually. But ATMI does not support duty-free or quota-free treatment for a broad range of Pakistani apparel exports.
Most developing countries have been fighting for market access since the completion of the Uruguay Round of GATT in 1994, which created the World Trade Organization. Led by India, developing countries are calling for major industrialized powers to grant upfront market access on textiles and apparel, ahead of the proposed WTO round, slated for Nov. 9-13.
That is a major sticking point in reaching a consensus on an agenda among WTO members, which must occur before a new round can begin.
“I’m sure that those [developing countries’] positions will only be made stronger,” under these circumstances, said Brainard.
Trade officials claim that any renegotiation of previous agreements should not be addressed before a new round. Textile tariff reductions would be on the table in a new round of talks, which would be negotiated over several years.
Hughes claimed concessions for Pakistan would not have a direct impact on global trade negotiations. She said if the U.S. grants special benefits to Pakistan, it will file a waiver on offering benefits to all WTO members.
Hughes, whose association supports any move to liberalize trade, supports concessions for Pakistan.
“We are not looking at trying to shift new business to Pakistan and are not expecting a huge expansion,” said Hughes. “We are hoping to prevent the wholesale collapse of Pakistan’s export market to the U.S. and other countries.”
She maintained that there wouldn’t be a widespread fallout if Pakistan receives special benefits. Pakistan is somewhat unique in that it produces a large amount of cotton in addition to manufacturing with it.
One trade lobbyist representing importers, who requested anonymity and cited the sensitive nature of the U.S. deal, agreed with Hughes, noting this is not a normal trade situation.
“It is being viewed as a national security issue,” the lobbyist said. The security issue is related to an attempt to prevent economic chaos in Pakistan, according to the lobbyist, who added, “The view is that Pakistan is…on the front line with no comparable situation.”

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