A Road Map For Optimizing Pakistan’s GSP Plus Status

The European Union (EU) granted Generalized System of Preferences (GSP) Plus status to Pakistan effective from 1st January, 2014. This Study conducted by the Pakistan Business Council (PBC) reveals that maximum additional increase in imports from Pakistan to the EU after fulfilling all criteria under the GSP Plus scheme is estimated to be of US$ 1 billion over a three year period. The Study estimates maximum potential imports by the EU from Pakistan in 2016 at about US$ 7.7 billion. However, without GSP Plus it is projected that imports by the EU would have reached US$ 6.6 billion by 2016 growing at the average rate of last three years. GSP Plus export projections have been made with the capping mechanism defined under the GSP Plus scheme where maximum annual growth is limited to 17.5% in all sectors (14.5% in Textiles and 13.5% in Ethanol) to avail zero duty. In 2013 imports by EU was worth US$ 6.0 billion out of which imports amounting to US$ 2.96 billion would qualify for zero duty under the GSP Plus scheme since they had a market share of less than 6% of EU’s total imports from the world.

This Study identifies 74 “high potential” export items at 6 digits HS Code. These 74 “high potential” product lines are those which in 2013 had imports from Pakistan to the EU of more than US$ 1 million. In addition Pakistan’s exports in these product lines to the World in 2013 were more than US$ 10 million and they have a market share of less than 6% of EU’s total imports from the world.

¹Ratification and implementation of the 27 conventions.
Products should have a market share of less than 6% of EU’s total imports from the world.

Given the various challenges identified in this Study, PBC proposes a broad based strategy for optimizing the GSP Plus opportunity. However, whether this potential can be fully realized will depend on factors not just limited to a zero tariff access. Other factors such as lower prices, proximity to the EU market, better supply chain integration, and competitiveness of the industry as well as the industry’s ability to rapidly scale up production are important. A compliance review will be held by the EU in 2016, it is important to note that Sri Lanka lost its GSP Plus status in 2010 based on its failure to comply with the conventions related to human and labor rights.

The major components of the proposed optimization strategy include:

• • Government, industry and other stakeholders including the political parties in Pakistan need to ensure that the Country complies with the requirements and the 27 conventions under which GSP Plus has been granted.
  • Each industry in the ‘high potential’ sectors needs to do a competitive analysis and benchmark itself against the industry’s major competitors in the EU markets.
  • Government and industry bodies need a joint strategy to inform exporters of the opportunities that are available to Pakistan under the GSP Plus scheme as well as making them aware of the obstacles.
  • Government needs to facilitate buyers from the EU to visit Pakistan. Face to face interactions between buyers and sellers can potentially help buyers in placing orders according to their requirements as well as follow up on production.
  • Both public and private sector needs to emphasize on education and skills development in workers.
  • Small and Medium Enterprises (SMEs) need to be encouraged to work more effectively and be part of value chains of larger companies.
  • Value added sector needs to have access to raw materials on internationally competitive prices. Government needs to understand that in order to compete at a global level, industry needs to have access to competitively priced inputs including raw materials and utilities especially energy.
  • Since compliance is a major element, Government may consider providing matching grants for industries wanting to put in place infrastructure needed for meeting buyer’s compliance requirements.