GSP+ and sustainability of foreign trade

November 12, 2023

The manufacturing sector is facing several challenges

GSP+ and  sustainability of foreign trade


he Generalised Scheme of Preferences, a concessionary scheme to expand international trade in developing countries, is meant to catalyse economic growth via trade with European Union.

The scheme is based on the principles of sustainable development and good governance. This, according to the European Commission, can be achieved through 27 United Nations Conventions related to human rights, labour rights, environmental protection and good governance.

Pakistan, a beneficiary of the GSP Plus, established a Treaty Implementation Cell in 2014 for the monitoring of mandatory United Nations Conventions. The bilateral trade is a win-win situation for Pakistan as well as the EU which has recently extended the arrangement till 2027.

The trade volume reached around €12.2 billion in 2021, signifying a 78 percent increase in country-to-country trade between Pakistan and the European Union. In 2022, Pakistan’s exports and imports of goods accounted for €9.5 billion and €5.4 billion, respectively depicting a trade gain of €4.1 billion.

A major share of goods exported from Pakistan to the EU is composed of apparel, clothing and home textiles. The imports are mostly machinery and chemical goods; iron and steel; and chemical products. Germany, Spain, Netherlands, Italy, France, and Belgium are the top export destinations for Pakistani products.

Under the GSP Plus, 12 European Union countries have made trade gains of up to 100 percent. Poland tops the list, followed by Hungry, Bulgaria, Denmark, Czech Republic, Ireland Cyprus, Romania, Portugal, Spain, Slovenia and the Netherlands.

An increase in trade between the EU and Pakistan has been observed with exports faster growing than imports. There has been an 86 percent growth in exports during the GSP Plus regime. There is a need, however, for export diversification for the sustainability of trade relations.

Under the GSP Plus agreement, the government of Pakistan is committed to ratifying and effectively working in five key areas: labour rights, human rights, narcotics control, corruption and environment protection. The recent rollover of the rules of GSP approved by the EU MEPs is subject to monitoring and evaluation of Pakistan’s progress in meeting the GSP+ obligations.

According to the International Labour Organisation, GSP Plus has improved the decent work standards and strengthened labour rights with major developments for labour rights, child labour and bonded labour, including legislation, amendments in laws and their implementation.

A significant effort through policy and legislative measures has been made in human rights and gender equality. Major interventions comprise the Domestic Violence Protection Bill, the Protection of Journalists Bill 2021, and the anti-rape ordinance.

To monitor compliance with United Nations conventions for GSP Plus, combating corruption is of utmost importance for good governance. Pakistan is committed to ending corruption.

Policy actions include enforcement of the Transgender Person’s Act and the Women’s Property Rights Act. To empower women, the provincial governments have formulated laws at the regional level. However, the failure to achieve full implementation of the new laws has resulted in Pakistan being ranked 51 among 100 countries in the Labour Right Index 2022. This is lower than the regional average of 56.33 observed in South Asia.

A detailed National Anti-Narcotics Policy was adopted by the Anti-Narcotics Force in 2019 with the objective of reducing the demand and supply of drugs with international cooperation.

From one perspective, the policy has been quite effective. It has resulted in reducing drug production and trafficking. However, it focuses more on law enforcement and interdiction, and less on prevention and treatment. Drug abuse in Pakistan therefore remains a serious concern and the NAP is seen as inadequate to address the root causes of drug abuse.

To monitor compliance with UN conventions for GSP Plus, combating corruption is of utmost importance. The government of Pakistan is committed to ending corruption. A significant achievement in this regard has been the removal from the FATF grey list – the list of high-risk countries – through effective policy action for anti-money laundering and terrorism financing.

Weak economic conditions, political instability and regional security can be potential stumbling blocks to sustained implementation of the FATF plan of action.

Remarkable progress has been made in the policy and legislative actions through the Environmental Protection Act; implementation of the Pakistan Trade Control of Flora and Fauna Act 2012, strict actions against illegal wildlife trade, and the development of National Action Plan on Sustainable Production and Consumption.

Pakistan has achieved Sustainable Development Goal 13, which relates to climate action. However, it is among the countries most vulnerable to climate change as is evident from the series of climatic events like floods, droughts and heat waves.

Climate change is a non-traditional security threat. It requires a collective response.

Pakistan is a part of the GSP Plus scheme till 2027, offering exemption on the duty for textile and leather items for export is an opportunity for the manufacturing sector to increase its exports. However, Pakistan needs to show its commitment towards the UN conventions.

After Britain’s exit from the European Union, from 2022 and onwards, Pakistan is trading with the UK under an enhanced framework of the Developing Countries Trading Scheme as a replacement for GSP+ with a preferential rate of tariff on two thirds of the production line.

GSP Plus and similar schemes are optimistic incentives to facilitate international trade. However, the manufacturing sector is facing several challenges that need to be addressed. These include expensive credit, import restrictions, supply chain distortions, quality assurance, power outages and political instability.

The writer is project assistant at the Centre for Private Sector Engagement in Islamabad

GSP+ and sustainability of foreign trade