Pakistan textile exports: Call for wider lifting of U.S. tariffs intensifies

By Nicolas Brulliard
Friday, December 24, 2010; 7:12 PM

FAISALABAD, PAKISTAN - The United States has spent billions of aid dollars on Pakistan, but more than nine years after Islamabad joined the global fight against terrorism, the U.S. government remains unable to provide its strategic ally with one thing it really craves: easier access to the U.S. market for its T-shirts, towels and socks.

Pakistani leaders have long sought trade concessions from their U.S. counterparts in recognition of Pakistan's efforts to root out insurgent groups on its soil, but the calls for lower tariffs have intensified since this summer's floods, which displaced millions and destroyed much of the country's cotton crop.

Lifting tariffs on Pakistan's textile products would undoubtedly boost the country's economy. The textile sector employs nearly 40 percent of Pakistan's industrial labor force and accounts for 60 percent of its exports, and the United States is already one of Pakistan's biggest markets.

But American advocates of trade liberalization with Pakistan say it would also do much to further U.S. strategic interests, by promoting economic activity in hotbeds of Islamist extremism and providing jobs for people who might otherwise be tempted to join the insurgency.

That is why President George W. Bush said during a 2006 visit to Pakistan that products manufactured in designated areas of the country would enjoy duty-free status in the United States, a policy reaffirmed by President Obama when he presented his new strategy for Afghanistan and Pakistan in March 2009.

The House last year passed a narrowly focused bill designed to promote export industries in Afghanistan and specific zones primarily in Pakistan's northwestern border region, but a corresponding bill has been stalled in the Senate. Separately, the U.S. textile industry has made clear it would strongly oppose any legislation that is more ambitious than the bill being considered, saying it would put American jobs at risk.

Pakistani officials and business leaders say they understand that U.S. lawmakers have to answer to their constituencies, but they insist that increased bilateral trade would benefit both countries.

"We do not want aid. We want trade," said Salamat Ali, chairman of Tauseef Enterprises, a garment company based in this Punjab province city that is home to hundreds of thousands of textile workers and 300,000 power looms. "It's better for America and for other allies if Pakistan stabilizes."

Seeking a wider agreement

Pakistan typically exports about $10 billion of textile products each year, with about a quarter of that amount going to U.S. retailers. Waqar Masood Khan, secretary of the Textile Industry Ministry, said that if the United States and Europe lifted trade restrictions, it would result in a $3 billion increase in exports in the short term.

Pakistan succeeded recently in securing trade relief from the European Union, which agreed to waive tariffs on certain textile products from Pakistan for up to three years, starting in January. Pakistanis welcomed the concession but said the waivers, which exclude some finished goods, are unlikely to result in any significant increase in trade.

As a beneficiary of the U.S. Generalized System of Preferences program, Pakistan enjoys duty-free status on about $200 million worth of its exports, but those do not include textile products. Ed Gresser, president of the Democratic Leadership Council and a trade policy analyst, said the United States imposed a $315 million tariff penalty on Pakistani exports last year - or about 10 percent of their total value. Because textile products are taxed heavily, Pakistan pays disproportionate tariff rates in comparison with more diversified economies.

"In general, U.S. trade policy treats Pakistan quite badly," Gresser said. "We should try to promote the Pakistan economy as a whole."

Much of Washington's assistance to Pakistan has been in the form of monetary aid. Last year, Congress authorized a $7.5 billion nonmilitary aid package to be spent over five years. But Gresser said that if Congress can disburse $1.5 billion of aid to Pakistan each year, it should not hesitate to waive less than half a billion dollars in tariffs, given the potential benefit to Pakistan's economy.

Gresser is not the only one advocating a wider trade agreement than the one Congress is weighing.

After the floods, the U.S. Chamber of Commerce urged the Obama administration to push for a bill that would include parts of Pakistan "more likely to attract investment" than those included in the present legislation, mostly in the lawless areas near the Afghan border. Last month, a report issued by the Council on Foreign Relations called on the administration to liberalize tariffs on textile imports from Pakistan, adding that such an agreement "could provide employment opportunities for millions of young Pakistanis, discouraging them from paths leading to militancy."

U.S. opposition

The administration has pledged to help Pakistan diversify its exports and help it enhance its export industries, but so far it has resisted calls for more ambitious tariff cuts.

"The original intent of the legislation was to boost employment of young men in the areas hardest hit by militant extremism, not existing textile factories in Karachi and industrial areas of Punjab," said Alberto Rodriguez, a spokesman for the U.S. Embassy in Islamabad.

American textile manufacturers also sent a letter to U.S. Trade Representative Ron Kirk and Secretary of State Hillary Rodham Clinton warning against legislation broader than the current bill, saying that it would result in significant job losses in the U.S. textile industry when the United States is already coping with unemployment rates of nearly 10 percent.

David Trumbull, vice president for international trade at the Boston-based National Textile Association, also said that too often it is the textile industry that has borne the brunt of U.S. trade concessions.

But Pakistani textile factory owners say substantial trade relief is essential at a time when their industry is facing all sorts of challenges.

Because of security concerns, prospective foreign buyers are reluctant to visit Pakistan. High cotton and polyester prices and general inflation have increased production costs significantly.

More crippling, though, are electricity and gas shortages. Some factory owners use more costly generators and wood furnaces to compensate, but many just choose to leave power looms idle and let workers go.

"The Christmas and New Year orders are coming now, and this is the time to ship them," said Waheed Khaliq Raamay, owner of a weaving factory in Faisalabad. "Because of the gas shortage, we are losing customers - and we are losing our faith as well."

Brulliard is a special correspondent.

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