According to a recent news item, the government is considering to challenge, in the World Trade Organisation (WTO), Turkey’s refusal to grant GSP Plus treatment to imports originating in Pakistan. How strong is Pakistan’s case?

GSP Plus is part of the European Union’s GSP scheme for developing and least developed countries (LDCs).

The EU-Turkey customs union provides that Turkey shall apply the same import tariffs as done by the EU on imports from a third country. The exception to this rule is agricultural products which are not covered by the customs union.

Import tariffs are either Most Favoured Nation (MFN) or preferential. In either case, Turkey is bound to follow the EU. Thus when the EU enters into a Free Trade Agreement (FTA) with a third country, Turkey also starts FTA negotiations with that country so as to maintain the EU’s level of trade preferences.

How strong is Pakistan’s case?

But what about unilateral preferences like the GSP? Is Turkey required to accord the same level of preferential treatment to the same beneficiary countries as done by the EU? The answer is in the affirmative.

The EU-Turkey customs union does not create any exception with respect to any scheme. Reference may be made to Article 16 of the Customs Union Agreement, 1995, which states in categorical terms:

“With a view to harmonising its commercial policy with that of the Community [EU], Turkey shall align itself progressively with the preferential customs regime of the Community within five years as from the date of entry into force of this Decision. This alignment will concern both the autonomous regimes and preferential agreements with third countries.”

Hence, according to The Handbook on Turkey’s GSP Scheme, issued by the Ministry of Customs and Trade, Turkey initiated its GSP scheme on January 1, 2002 and the scheme was fully harmonised with that of the EU by 2006.

The Handbook further states that preferences would be granted to all the products covered by the EU’s GSP including suspension of tariffs on imports from the countries included in GSP Plus.

In fact, Turkey does normally give the same level of GSP treatment to beneficiary countries as the EU does.

For instance, under a sub arrangement of the GSP meant for LDCs, Turkey, following the EU, gives duty free treatment to import of garments from Bangladesh.

Remember EU’s, as well as Turkey’s, average MFN tariffs for garments are 9.5 per cent. By the same token, Turkey gives duty free treatment to import of garments from Georgia, which is a beneficiary of GSP Plus.

However, Turkey applies 9.5pc tariffs on average on import of garments from Pakistan, whereas the EU imports garments from Pakistan duty free under GSP Plus. The same goes for other products included in the scheme.

Out of the 10 countries which are benefiting from the EU’s GSP Plus, Pakistan and Armenia are the two countries whose GSP Plus status has been withheld by Turkey for no valid reason.

Perhaps Turkey feels that granting a substantial Margin of Preference (MoP) to import of textiles and garments from Pakistan will hurt its domestic industry.

To add insult to injury, Turkey imposed additional duties of some textiles products from Pakistan since 2011. It has maintained this unfair stance despite excellent political relations between the two countries, which is a reminder that political and economic relations have separate dynamics.

Pakistan qualified for GSP Plus on January 1, 2014. The same year, bilateral FTA negotiations with Turkey started.

Previously, Turkey did not concur with Pakistan’s request for an FTA for the perfectly valid reason that an FTA with Pakistan was possible only if Pakistan had such an arrangement with the EU. Instead of sorting out the GSP Plus issue, the two countries engaged in FTA negotiations, which now face bottlenecks mainly because of EU-Turkey customs union.

Under the Dispute Settlement Understanding (DSU) of the WTO, a member can file a complaint against another member on two grounds: One, the respondent country has violated some specific provision of a WTO agreement.

Two, an action by the respondent country has caused nullification or impairment of benefits to the complainant arising out of the multilateral treaty even if no provision of WTO law is violated.

The legal basis of the GSP is “Differential and More Favourable Treatment Reciprocity and Fuller Participation of Developing Countries: Decision of 1979,” commonly known as the Enabling Clause, and which is now part of the WTO family of agreements.

The Enabling Clause does not make it obligatory upon a WTO member to grant unilateral preferences, such as GSP, to other countries. It is for each member to decide whether to grant GSP treatment as well as to decide the MoP, eligibility criteria, and product coverage.

However, the Clause provides that unilateral preferential treatment should be general (or broad-based) in terms of product coverage and non-discriminatory. Hence, a country which is otherwise eligible for GSP Plus cannot be excluded from it.

Since Turkey has granted GSP Plus to eight out of the 10 eligible countries, excluding of Pakistan from the arrangement is prima facie a violation of the Enabling Clause and thus WTO.

The EU-Turkey customs union, which makes it obligatory upon Turkey to adopt EU tariffs, is not part of WTO body of agreements.

However, the customs union, which, like other bilateral preferential trade agreements, runs counter to the WTO’s MFN principle, is allowed under Article XXIV of GATT, which is part of WTO, as an exception to the MFN clause.

Thus Pakistan can take the position that by excluding it from GSP Plus, Turkey has caused nullification or impairment of its benefits, which it might have accrued under Article XXIV of GATT.

It follows that Pakistan has a strong case on GSP Plus against Turkey. However, whether the government actually decides to take Turkey to the WTO is anybody’s guess.

hussainhzaidi@gmail.com

Published in Dawn, The Business and Finance Weekly, April 9th, 2018