Pakistani ethanol loses edge in European market

Printed in Daily Times on October 05, 2005.

By Imran Ayub

KARACHI: Pakistan has lost its privileged position in the European market for its ethanol export, the second largest market of the Pakistani product, since the country was taken out of the EU generalised system of preferences (GSP).

Although Pakistan still benefits from a 15 percent reduction in the import duty, Pakistani ethanol does not appear to be competitive in the European market,” said the Foreign Agricultural Service of the US Department of Agriculture in its latest report. “Exports of ethanol from Pakistan to the European Union are, reportedly, at a standstill after the country lost its preferential status on July 1, 2005.” It said Pakistan was taken out of the EU GSP anti-drug regime because the Special Arrangements for Combating Drug Production and Trafficking no longer existed in the EU GSP system.

After a complaint lodged by India, a WTO panel found that the European Communities violated GATT/WTO obligations in granting tariff preferences to 12 countries under this special arrangement, without properly extending the preferences to other developing countries.”

The US report said in the modified GSP regime, the anti-drug system was replaced by GSP Plus. However, it added Pakistan did not qualify for GSP preferences under the new system.

Pakistan is the largest exporter of ethanol, which is widely used in making alcohol and animal feed besides other industrial and edible goods. The country till a few months ago was the largest exporter of ethanol in the world with an average $150 million exports a year and about 70 percent of the EU demand was met by Pakistani exporters.

However the, the US report says after a provisional form of the GSP Plus regime was implemented in July 1, 2005, from January 2006 Pakistan would lose the benefit of 15 percent reduction in the import duty on ethanol. “Until that time, the existing General Regime will remain in place. Under the general system, Pakistan can continue to benefit from a 15 percent reduction in the import duty on ethanol,” said the report.

However, as of January 1, 2006, ethanol will be withdrawn from the scope of the General Regime, which means that as of that date Pakistan will completely lose all preference on ethanol.”

The report quoted the European Union of Ethanol Producers (UEPA) as saying that Pakistani ethanol could not effectively compete in the European market with only 15 percent reduction of the import duty.

Now the EU importers must pay in the range of euro 86.7 and euro 63.2 per tonne as import duty depending on the quality of the ethanol. In May 2005, the total EU-25 imports of ethanol reached 40 million litres against 28.7 million litres in May 2004. This brings cumulative imports in the first five months of 2005 to 192.7 million litres, a 68 percent increase compared with the 114.5 million litres for the same period in 2004.

Brazil is the largest ethanol exporter to the EU with 55 million litres. Pakistan is the second largest exporter, accounting for almost 50 million litres. Other large ethanol suppliers are Guatemala, Ukraine and Peru. “Now Pakistan reports that this loss of trade has led to the closing of two of the seven operating distilleries, and that another five new distilleries will probably abandon plans to begin operations due to uncertainties of the market situation,” said the US report.

The EU in 2001 had enforced GMP (good management practice) certification for all the upstream suppliers of feed materials under animal feed assurance scheme to ensure that every company in the animal feed chain makes it transparent that safety risks in the production process are controlled.