Dear Congress: Your tax on Pakistani shirts and pants is hurting America

Dear Congress: Your tax on Pakistani shirts and pants is hurting America

Of all the many foolish, self-defeating, and downright stupid U.S. policies — from the Cuba embargo to agricultural subsidies to the prohibition on talking to Iranian diplomats — tariffs on Pakistani textiles probably rank among the dumbest.

That’s the conclusion I drew from the Council on Foreign Relations’ thoughtful new report on Afghanistan and Pakistan, which was just released this morning.

The 112-page report, whose lead author was the council’s Daniel Markey, a former top State Department official for South Asia, offers a mild-mannered, but unmistakable rebuke to the recent optimistic rumblings coming from U.S. military leaders in Afghanistan.

The bipartisan task force behind the report — headed by former State Department No. 2 Richard Armitage and Clinton-era national security advisor Sandy Berger — lends "conditional" support to the Obama administration’s current strategy in Afghanistan and Pakistan, but recommends the U.S. downgrade its presence in Afghanistan if Obama’s upcoming policy review finds that the current approach is failing. (Note: a number of task force members dissented from that conclusion.)

"We are mindful of the real threat we face," the report reads. "But we are also aware of the costs of the present strategy. We cannot accept these costs unless the strategy begins to show real signs of progress." 

The group makes a number of other recommendations — including a vague call for the U.S. to do something about Lashkar-e-Taiba — but to me, the textile tariffs stand out.

"The textile sector industry accounts for 38 percent of Pakistan’s industrial employment, this agreement could provide employment opportunities for millions of young Pakistanis, discouraging them from paths leading to militancy," the report argues.

Given that additional aid to help Pakistan recover from the horrific floods that devastated the country this summer will probably be a tough sell on Capitol Hill, and the likelihood that China and other low-cost producers, not the remnants of the U.S. textile industry, would probably be hurt by lifting the tariffs, this strikes me as a no-brainer.

Unfortunately, as the Wall Street Journal reported in August that there’s little appetite in Washington (or Brussels) to help the struggling Pakistani textile industry, which is getting creamed by Chinese competition.

The link between unemployment and militancy is controversial, but it doesn’t get any more direct than in Faisalabad, the hard-scrabble town that was home to one of the Mumbai attackers:

The textile crisis has hit Faisalabad-a grimy city of three million named in the 1970s for the late King Faisal of Saudi Arabia-harder than anywhere in Pakistan. Scores of factories have closed recently here, in the heartland of Punjab province’s textile industry.

Umer Apparel Ltd., a Faisalabad company that exports $15 million in goods to the U.S. annually, including brands like American Eagle and Aeropostale, has laid off almost a fifth of its work force of 1,500 and is running at only three-quarters of capacity, says its chief executive, Rana Hassan Sajjad.

Faisalabad officials are concerned about links between unemployment and a wave of Islamic extremism in the city. A number of suicide bombings by the Pakistan Taliban on government and civilian targets in Pakistan this year, including many in Lahore, the capital of Punjab, have been planned from Faisalabad, city police say."There’s a valid link between joblessness and militancy," says Tahir Hussain, the chief federal government official in Faisalabad. "Wherever the militants are getting manpower, that’s where the joblessness is."

About half a million Pakistani textile workers have lost their jobs, mainly due to Chinese competition, according to the Pakistani government. The United States charges a 17 percent tariff on Pakistani-made cotton shirts and pants — lifting it entirely would net Pakistan as much as $4 billion a year, the government estimates. (Compare that to the paltry $150 million the U.S. offered after the floods, or the $7.5 billion Kerry-Lugar aid bill, which is spread over five years.)

Getting rid of the tariffs would not be without its complications. India would likely protest the move as unfair preferential treatment toward Pakistan, as would China. That isn’t the real problem, though: U.S. textile producers would fiercely lobby Congress against the move, though American garment manufacturers and the U.S. Chamber of Commerce would mildly support it. And with a number of existing trade deals looking dead in the water, it’s not clear such legislation would go anywhere.

Last year’s experience is instructive: Congress tried to pass a bill establishing special trading zones in Pakistan to get around the tariffs, but Senate Republicans spiked it in a dispute over the law’s labor provisions. In any case, as the New York Times noted in an editorial back in August, "The trade legislation that finally emerged from the House last year was so hemmed in with protectionist limits that it was almost worthless."

I hope this new report changes some minds, but betting on Congress to do the smart thing is never a good investment strategy.