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What GSP Plus offers to Pakistan?

Published on 13th Jan, Edition 2, 2014

 

The European Union (EU) has granted Pakistan GSP plus status despite resistance from India. At the best Pakistan will be able to add another one billion dollars to its exports. Local manufacturers will have to face stiff competition from other countries of the region particularly China, India and Bangladesh. After grant of GSP Plus status, Pakistan will enjoy increased access to the EU market.

Pakistan has been trying to get GSP Plus status for the last several years but finally got this on December 10, 2013, after the EU Parliament passed the resolution. The status will have positive impact on Pakistan’s exports as 6,272 items ‘ mainly textile ‘will have duty free access to 27 EU countries. However, it is necessary to remind the policy planners as well as the exporters that the GSP Plus arrangement is conditional to ratification and implementation of 27 international conventions for the promotion of basic social and governance standards, including cross-border supply chain.

Pakistan’s exports to EU were to the tune of U$8.2 billion during 2012-13 as against total exports of US$24.51 billion. Almost two-third of Pakistan’s exports goes to other countries of the world, which means that Europe is not Pakistan’s largest export destination. Therefore, an estimated increase of one billion dollars due to GSP Plus means an increase of 4% to country’s total export.

According to an exporter this much growth is possible if Pakistan introduces export-friendly policies like its competitors. Meanwhile, the EU has reduced the number of GSP beneficiaries from 177 to 90, which means that Pakistan has been clubbed with 49 least developed countries like Sudan, Afghanistan, Chad, Niger, Somalia, Rwanda etc. The GSP Plus status will improve Pakistan’s exports but at the same time tarnish image of the country; GSP Plus certifies that Pakistan is amongst the least developed countries.
Many non-textile products, such as sports goods, surgical instruments, basmati rice, casings, copper, etc., are already being exported to EU market duty free under either GSP or MFN rates. The GSP Plus tariff preferences will have no positive impact on exports of these products. The impact of GSP Plus would be only on those goods on which import duties are presently charged by the EU member countries and the impact of these items would be nominal.

One of the prime important points to be remembered is that within the EU members Pakistan should closely watch possible reaction of textile lobbies, particularly from Italy, Romania, Greece, and Portugal, besides non-EU competitors like China, India and Bangladesh. To meet the challenge Pakistani manufacturers will have to improve efficiency, invest in modern technology and human resource. Most importantly, the energy crisis needs to be overcome and law and order situation improved. Almost 80 per cent of Pakistan’s exports to the EU come from two sectors i.e. textile and leather. Both are supply driven. The challenges after the GSP Plus status would to overcome inherent weaknesses of local manufacturers and exporters. The key weaknesses include high cost of production, inconsistency in raw materials, low productivity, compliance to certification and mandatory tests, meeting market standards, poor quality control systems, untrained work force, environmental compliances, and meeting other European Standards.

 

While it is mandatory that Pakistani exporters should comply with all the rules and regulations, it is also a fact that Pakistani exporters have the capabilities to boost their exports if prudent policies are introduced and followed. Pakistan exports yarn and fabric worth US$8 billion to countries such as Bangladesh, China, and Turkey, which use these raw materials to produce finished value added goods. These are then sold in the EU in competition with Pakistani goods. If the value added goods are produced at domestic level, it can generate about US$16.00 billion and jobs for half a million people here. Pakistan can put its competitors in trouble because they are dependent on raw material and intermediate products bought from Pakistan. GSP Plus is just the beginning of another era of offering enormous opportunities to boost export and earn extra foreign exchange.

One of the areas needing immediate attention of policy planners, manufacturers and exporters is compliance with the EU rules. Ironically Pakistan does not have sufficient accredited laboratories to issue certification that the goods meet European standards, this is a major bottleneck. The test charges of foreign labs are not only high but testing also takes longer time. Pakistan will have to establish accredited labs. The government deducts 0.25 percent as Export Development Surcharge (EDS) from all export shipments. The EDS is supposed to be spent on development of exports. The incumbent government must adopt the policy of the previous government allowing subsidy on mandatory testing and participation in international fairs.

Pakistan has ratified all 27 conventions. The GSP Plus scheme requires beneficiaries to unconditionally accept monitoring of these conventions by third parties from civil society and NGOs. However, after the 18th amendment, devolution of power has started but provincial governments have so far neither developed the legal framework or legislation for compliance with international compliances. Both industry and the government are not fully ready for compliance of these conventions. For example all effluent treatment plants need uninterrupted electricity and identified landfill sites for dumping of solid waste but Pakistan does not have either of these two. At the moment, TDAP does not have a full time Chief Executive and a full time Federal Commerce Minister. To get the full benefit of GSP Plus, the government must fill these positions without any further delay.

Since textiles and clothing contribute major share in country’s total exports, due attention has to be given to value-addition, particularly to garment, home furnishing items, and other stitched products. These are labor intensive and low on energy consumption as compared to yarn and fabric.

Manufacturers should be encouraged to employ female workforce which is one of the 27 conventions for GSP Plus. Textiles and clothing account for less than 20 percent of global demand but Pakistan’s production of synthetic and man-made fibers is not sufficient to meet it. The country will have to increase production capacity for man-made fiber and synthetic yarn. However, the most important issue is to remove trust deficit between government and the exporter. The government can introduce export friendly policies after consultation with various sectors. Pakistani exporters need level playing field with competing countries. Immediate attention must be given to energy crisis and law and order situation in the country.

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