The granting of GSP plus status to Pakistan may not be good news to the country’s economic competitors in the region but a big news it surely is.
The new status to Pakistan is likely to have considerable effect on the scale of exports -- mainly textiles -- to the EU by not just Pakistan but by countries such as India, Bangladesh and Sri Lanka. Until now, India and Bangladesh have been major exporters in the textile sector.
But these countries have their own problems to deal with. India does not enjoy a GSP plus status, and there are no chances it will get it soon in view of the size of its exports. And Bangladesh is currently making its position clear on the issue of workers’ safety and other compliances, despite being declared as a Least Developed Country (LDC).
According to the new status, 75 Pakistani products would have duty-free access to the European markets. The GSP plus status will allow almost 20 per cent of Pakistani exports to enter the EU market at zero tariff and 70 per cent at preferential rates. Only the textile industry is expected to earn profits of more than Rs1 trillion per year.
The EU started considering the GSP plus status for Pakistan in October 2012, after the country was affected by devastating floods in 2010. But that is not the only reason behind this move. According to Governor Punjab, Chaudhry Muhammad Sarwar, the EU officials had to be convinced that Pakistan was serious in resolving problems of labour and minority rights in meetings he had with the EU officials.
Pakistani exports are expected to increase, creating about one million jobs, according to one estimate. That would be a big achievement especially since Pakistan’s textile industry has suffered massively from gas and electricity shortage -- a problem that may nag the textile industry in future too.
But the immediate concern is shown by India. One reason, according to experts, of India’s opposition to the grant of the GSP plus status to Pakistan might be in response to Pakistan’s opposition to India’s food subsidy issue in the WTO.
But the differences over the issue seem to have been somewhat resolved, at least for now.
Having the GSP status, India is yet to receive the GSP plus. Until that happens, it has to pay 12 per cent export duty on its exports to the EU. But it has greatly benefited from the GSP status so far. "India’s GSP exports of products in which the preferential duty was more than zero grew by 72 per cent whereas those products that entered duty free grew by 180 per cent," says a research paper, entitled: "Is the GSP scheme of the EU benefiting India’s exports?" co-authored by Anwarul Hoda and Shravani Prakash, of Indian Council for Research on International Economic Relations in November 2011.
While it gives Pakistan duty-free access into 27 EU markets, it withdraws or minimises concessions for some Indian goods too, including textiles and engineering.
Another reason for India’s lower growth in apparel is competition from Bangladesh, which benefits from duty free treatment as an LCD against the cut of 20 per cent in the MFN duty that India gets.
While the effect of GSP on India’s exports as a whole is good, the same cannot be said about exports of textiles and clothing. Due to benefits given to Bangladesh, the effect of GSP on India’s textile exports seems to be negative.
But Bangladesh is surrounded by the problems of its own. Bangladesh’s garment exports are likely to take a blow if factory safety and compliance standards are not met by June this year, when the European Union reviews Bangladesh’s trade privileges, according to the World Bank.
In this situation, competition will increase for Bangladesh’s apparel sector.
Experts say Pakistan’s exports will see a boost by $1 billion a year to the EU market. At present, Pakistan exports garments worth around $6.1 billion to the European market. Interestingly, the European Union is market to more than $12b of Bangladeshi garments each year.
Bangladesh enjoys complete duty waiver from the EU as a least developed country for all products except arms under this scheme. "A good number of orders, especially knitwear, have already shifted to Pakistan from Bangladesh as retailers knew about the award (of GSP plus status) to Pakistan," says Shahidullah Azim, acting president of Bangladesh Garment Manufacturers and Exporters Association in a recent report published in a Bangladeshi newspaper, The Daily Star on December 29, 2013.
Bangladesh’s garment sector is already affected by the current political deadlock. In addition to that, in June last year, the US suspended the GSP status for Bangladesh in response to dangerous conditions in the garment industry that have cost more than 1,200 lives in the past year. The status allowed duty-free entry of over 5,000 goods to the US market from least developed countries.
While many EU GSP beneficiary economies saw an end to their benefits on January 1, 2014, with the start of the new GSP status, some notables, including Sri Lanka, shall continue to enjoy the status.
Despite the reduction of the number of countries enjoying EU GSP in June 2012, from January 1, 2014, Sri Lanka has got 10 more years. In 2010, there was a temporary suspension of GSP plus benefits for Sri Lanka for not showing improvements in the human rights situation.