European Union leaders agreed to grant limited trade concessions to Pakistan to help it overcome the impact of devastating floods and maintain political stability, diplomats said.

Pakistan will receive an “immediate and time-limited reduction” in duties on key exports to the European Union, taking into account industrial sensitivities in the EU, notably on textiles, they said.

One diplomat said the arrangement would be worth around 300 million euros ($390 mln) to Pakistan over a year.

The details will be worked out by the European Commission, the EU executive, in coordination with the World Trade Organisation to avoid the concessions violating international trade rules and aggravating other EU partners such as India, Sri Lanka and Bangladesh.

Pakistan, reeling from floods that have displaced millions, has said it urgently needs greater market access to help stabilise its economy, and has warned that Islamist militants could exploit economic crisis and social instability.

“There is a deal done,” the diplomat said, adding that it included a commitment to grant Pakistan access to the EU’s enhanced trade programme, known as GSP+, by 2014, provided it meets criteria on good governance and human rights.

“The European Council underlines its firm commitment to grant exclusively to Pakistan increased market access to the EU through the immediate and time-limited reduction of duties on key imports,” a statement by the 27 EU leaders said.

“The European Commission is invited to explore options with WTO partners and present finalised proposals in October, taking into account industrial sensitivities in the EU.”

Trade for Security
The European Union has been pressing for weeks to try to agree better trade terms for Pakistan to help it overcome the impact of the floods, over and above the emergency food and other aid it has already sent to the country.

Britain and Germany had pushed hard for a deal, but France, Italy and others EU states with domestic industries that compete with Pakistani imports such as linen, garments and ethanol, were reluctant to give too much ground at a time of economic stress.

The deal would result in a trade “waiver” for Pakistan, similar to the one Islamabad received after the Sept. 11, 2001 attacks on the United States in recognition of its role as a frontline ally in the battle against Islamist militants.

The EU is hoping that by discussing concessions with the WTO and trade partners ahead of time, it will prevent countries such as India filing lawsuits with the WTO against the move.

Since trade disputes take a long time to be settled, time-limited concessions should deter opponents from making legal challenges.

“If you want to stabilise Pakistan in the long run so that it does not drift away to extremism or fundamentalism, you have to make sure that the medium- and long-term consequences of the catastrophe will be countered economically,” German Foreign Minister Guido Westerwelle told reporters this month.

Pakistan has long coveted GSP+ status, but does not qualify as its economy is too large, with exports to the EU worth 3.02 billion euros ($3.84 billion) in 2009, and because it has not met accompanying human rights and governance criteria. (Reuters)