Pakistan’s GSP+ Status… A Missed Opportunity

The European Union (EU) granted GSP+ status to Pakistan in December 2013. Pakistan qualified for GSP+ by being a low middle-income country, having a non-diversified economy, and by contributing less than 2.0% to EU’s GSP imports from all the GSP beneficiaries. The GSP+ status was only granted once Pakistan agreed to implement 27 international conventions on human rights, the environment and good governance.

Under GSP+ the EU’s imports from Pakistan have risen from US$6.9 billion in 2013 to US$8.1 billion in 2016 – an increase of 17.1%. However, in spite of the tariff advantage, Pakistan’s share in the EU’s global imports market stands at an abysmal 0.2%.

2013 2014
(GSP+ effective)
2015 2016
EU reported imports from Pakistan (USD Billion) 6.9 8.4 7.8 8.1

Moreover, the surge in EU imports from Pakistan has remained concentrated in textiles as well as destination markets. The imports of textiles & leather in 2016 made up nearly 86.0% of EU imports from Pakistan and ‘6’ countries in the EU were responsible for 80.0% of imports from Pakistan.

Product-wise Composition of EU imports from Pakistan,2016 Country-wise Composition of EU imports from Pakistan, 2016

Although textiles made up nearly 80.0% of the EU’s imports from Pakistan, Pakistan’s market share in the EU’s textile imports was only 4.2% which ranks poorly against its regional competitors China at 36.2% (no tariff preference), Turkey at 13.0% (Zero duty), Bangladesh 12.9% (Zero duty) and India 7.1% (no tariff preference).

Country Share in EU Textile Imports
China 36.2%
Turkey 13.0%
Bangladesh 12.9%
India 7.1%
Pakistan 4.2%

Even though textile products make a large share of exports to the EU, Pakistan has been unable to significantly provide those goods that are demanded by the EU.

The top 10 textile products imported by the EU in 2016 had a value of US$72.9 billion, out of which Pakistan’s contribution was a meagre US$2.1 billion! In the leather category, where Pakistan also enjoys the benefits of GSP+, Pakistan’s contribution to the top ten imports of leather and footwear was a dismal US$0.1 billion out of EU imports of US$56.7 billion. Even agriculture, which is an important industry for Pakistan’s economy, was able to contribute only $1.7 million in the EU’s top ten agricultural imports worth $69.6 billion from the world.

EU’s Top 10 Imports (Value in 2016)
Product Category Imports from the world Pakistan’s contribution
Textiles $72.9 Bn $2.1 Bn
Leather and Footwear $56.7 Bn $0.1 Bn
Agriculture $69.6 Bn $1.7 Mn

It is clear that GSP+ alone is not going to improve Pakistan’s trade with the EU. Pakistan needs to venture into high-end textile products imported by the EU, for this Pakistan needs to address issues that are faced by its industries. In textiles, these include lack of access to inputs including cotton & polyester fiber & yarn at international prices, higher labor costs, outdated technology, energy-shortages and a weak innovation backbone in the country. In the leather garment sector, the Pakistani industry has faced a lower duty drawback rebate of 4.5% on its exports, as compared to India (9.6%), China (12.5%) and Bangladesh (12.5%).  Additionally, EU’s stringent Sanitary and Phytosanitary Standard (SPS) requirements have hindered entry of Pakistan’s agricultural goods into the EU market.

To avail the benefits of GSP+, industry and government need to develop a collaborative relationship. Industry will need adopt progressive strategies for upgradation of competitiveness and be more open to JVs in the textile and leather / footwear industry. The government needs to put in place a long-term plan which levels the playing field for Pakistani exporters and allows them to invest in improving competitiveness.

A change in the mindset of both the policy makers and industry is required, and required at a fast-pace, otherwise Pakistan’s GSP+ status will go down as “another missed opportunity” for the country.

The PBC is a private sector not-for-profit advocacy platform set up in 2005 by 14 (now 66) of Pakistan’s largest businesses. PBC’s research based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk

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