Pakistan’s Performance Under the EU GSP Plus Program: 2014-19

The European Union (EU) granted Pakistan GSP Plus status starting in January 2014. The scheme subject to reviews, will expire in December 2023. The GSP Plus status allows Pakistan duty-free access into the EU for more than 6,300 tariff lines. Since Pakistan’s induction into the EU’s GSP Plus scheme, the EU’s imports from Pakistan have grown at a CAGR of 4.3% from 2014 to 2019. Prior to the GSP Plus status, imports from Pakistan to the EU, grew at a rate 3.6% between 2008 & 2013.

The EU’s imports from Pakistan have risen from USD 6.8 Bn in 2013 to USD 9.7 Bn in 2019. However, Pakistan market share has remained stagnated during this period.

In the USD 6.2 Trillion EU import market, Pakistan’s share in 2019 was a mere 0.16%. One of the major reasons for this is that despite having duty-free access for nearly all tariff line for the past 6 – years, Pakistan has not focused on items which are imported by the EU in large quantities, nor has it focused on items which have witnessed high rates of growth in the EU’s import basket. The lack of a focused strategy has meant Pakistan is missing out on an opportunity to increase its market share in EU imports as well as to have a strong presence in items which are seeing large increases in demand in the EU.

As an example, apparel made from man-made fiber is in popular demand in the EU due to its low cost, design opportunities, adaptability and wrinkle-resistance. However, Pakistan’s textile industry has by and large ignored this opportunity for reasons to be listed later.  Apparel and Homes Textiles imported from Pakistan by the EU at best have a cotton-PSF mix of around 80:20.

Textiles is Pakistan’s strength and the sector needs to undergo a paradigm shift and diversify its range of products that it offers to its buyers in the medium to long term. Pakistani manufacturers need to penetrate aggressively in the global synthetics products market as the global market for synthetics has long surpassed that for cotton.

According to Pakistani exporters, high rates of customs duties on polyester fibers have hindered Pakistan’s entry into the synthetics apparel market. In comparison, to Pakistan, Vietnam applies zero duty on import of raw materials including cotton and man-made fiber. As a result of these among other policies, Vietnam’s exports of apparel to the EU have grown from USD 2.4 Bn in 2013 to USD 3.5 Bn in 2019.

Pakistan needs to reduce or eliminate duties on raw materials necessary for the manufacture of synthetic apparel. Import of machinery for manufacture of high thread count garments should also be 0%. In addition, a tax holiday of 5 years may be provided to manufacturers of high-thread count garments to establish the fledgling industry in Pakistan.

Pakistan’s exporters need to focus on items which are in high demand in the EU. Pakistan should seek to secure contracts with a myriad of SME buyers instead of focusing on only a few large buyers. This will increase the overall volume of exports from Pakistan.

Under the Duty and Tax Remission for Exporters (DTRE) scheme for exporters, the amount is refunded after 3 months which creates liquidity problems for businesses. Permissions from the Customs Collectorate takes 2 months for approval which adds to further delays for businesses which makes it undesirable for foreign buyers to order from Pakistan. Faster processing of refunds will alleviate liquidity problems for manufacturers.

Pakistani manufacturers need to be aware of branding and marketing techniques. This will move their products from a commodity-level to a category-level and enable them to fetch a higher price in the EU market.

Lastly, the issue of negative travel advisories needs to be negotiated with relevant foreign governments. Buyers from USA and the EU are not able to visit Pakistan and see samples or monitor production since their insurance policies do not cover travel to Pakistan due to negative travel advisories from these countries. This leads to buyers visiting other countries in search of manufacturers such as Bangladesh, India and Vietnam.

Focusing on post-GSP Plus i.e. after 2023, Pakistan can look to negotiate the inclusion of several items which are exported to the EU but are not covered under the current GSP Plus scheme including basmati rice, brown rice, sugar, molasses and salt.

The Pakistan Business Council is a research-based business advocacy body composed of the most significant local and foreign investors with long-term commitment to Pakistan. The PBC pursues advocacy free of sectoral and investor origin biases, “Make-in-Pakistan” is PBC’s primary thrust aimed at creating jobs, value-added exports and encouraging import substitution. More information on the PBC and its areas of research are available on our website: www.pbc.org.pk.