GSP+ for Pak textiles — It’s a $2 billion question

European Union allows duty free entry on export of 6,000 tariff lines

After lobbying for years, Pakistan has finally succeeded in clinching a deal to enter the European Union (EU) market duty free. As starters, it is projected an annual inflow of $2 billion, but can grow fast and multiply.

The EU has just voted to allow entry of a range of Pakistani products duty free under its GSP+ programme, starting from January 1. It will initially continue for four years and extendable further after review at the completion of he original plan. Pakistanis are so upbeat that Prime Minister Nawaz Sharif congratulated the nation and the business community over clinching the deal.

Sharif said: “Award of the GSP+ status shows the confidence of the international markets in the excellent quality of Pakistani products. Gaining access to the European markets was the top-most priority of the government as part of its economic development agenda. It has been achieved due to the continuous and hardwork of the ministers and officials of the ministries of commerce, finance and foreign affairs and friends of Pakistan in Europe.”

“The immediate increase of more than $1 billion a year to start with, will facilitate economic growth and help in generation of millions of additional jobs,” he said. Pakistan will enjoy duty free entry on export of 6,000 tariff lines to the European Union under the GSP+, says Khurram Dastgir Khan, Minister of State for Commerce.

“It’s an opportunity for the country. It’s a challenge for the government as the export basket needs to be diversified and capacity to export has to be increased,” he said. Indeed, the economy and production, which had slowed down over the last six years due to energy crisis, mismanagement and the European financial crisis, has to gear up and roll the wheels of industry faster to break the stagnation of overall exports.

Pakistan’s overall exports to EU totalled $5.2 billion in 2012. It includes textiles, the biggest export item, valued at $3.64 billion. An annual addition of $1 billion is expected immediately as a result of the concessions offered by EU, Khuram said. But, industry and exporters insist it will be closer to the range of $1.75-2 billion.

Pakistan’s overall global exports in FY-2013 were $24.518 billion, up from $23.624 billion in FY-2012. Its imports in FY-2013 were $44.950 billion, compared to $44.912 billion in FY-2012. After US, EU is Pakistan’s biggest trading partner.

Pakistan expects the increase in exports to EU under the new duty-free plan, which will help it create 100,000 jobs in the garment sector alone. This will be a big boom and comes at a time when the industry was curtailing jobs.

As of the existing arrangement, Pakistan is benefiting from lower export duties on 150 tariff lines under the EU General Arrangement.

The latest deal provides Pakistan the facility of exporting on zero duty on its key products. The tariff on home textiles, for instance, now ranges 5.5-9.6 per cent. These include bed linen, towels, table linen, kitchen linen, toilet linen and curtains. The tariff on hosiery and textile garments — ranges from 6.4 to 9.6 per cent — ends. An additional export of $164 million is projected in textile garments. It will add to the present export of $1.639 billion to EU as far as textile garments are concerned.

Ministry of Commerce (MoC) projects that export of leather products, which totalled $457 million in 2012 will substantially rise under the new deal. The existing duty on Pakistani leather products exports to EU ranged from 3.3 to 5.5 per cent, which will go. The items benefiting from it are sports gloves, protective gloves, wallets and handbags among others.

The government has advised the industry to undertake diversification in agro-food processing, leather garments, pharmaceuticals and other products to be able to benefit from exporting more to EU under the new duty-free facilities.

The new GSP pus status has turned Pakistan into an attractive destination for regional investors to establish industries, including those from the UAE and Saudi Arabia to produce a vast rage of products and export to EU duty-free. What the future holds for Pakistan in view of this is indicated by the fact that a Chinese company has just purchased 52 per cent stake in a Pakistani textile mill. It will invest $2 billion in the mill’s expansion to reap big profits by exporting to EU under GSP+.

Azhar Saeed Butt, president, Federation of Pakistan Chambers of Commerce and Industry, said: “The entire business community welcomes the grant of GSP Plus status by the EU Parliament. Currently there are 27 countries in EU and their annual aggregate imports from Pakistan are $6 billion, and their exports to Pakistan are $10 billion. EU remains Pakistan’s biggest foreign trade partner after United States. The deal should expand trade both ways.”

Are there any new takers to invest in Pakistan, benefit its economy and earn high profits for themselves? The potential investors should realise that Pakistan’s investment environment has already been made highly business friendly and profitable under the newly announced investment and tax amnesty plans.

Views expressed by the author are his own and do not reflect the newspaper’s policy