While a much larger discussion on GSP plus is crucial given how fast exports are coming down, and how concentrated Pakistani exports remain in a rapidly changing world of value added and innovated goods; the immediate concern for Pakistan at this point is UK’s exit from the European Union bloc that invoked the very credible fears amongst exporters here at home that GSP plus concessions may no longer apply to Pakistan’s exports to the UK. A Pakistani delegation is now visiting Britain to determine what kind of concessions Pakistan can expect from the UK post brexit.
The Great Britain has been a major trading partner for Pakistan contributing to about 7 percent of Pakistan’s exports well before GSP Plus was granted in 2013 with market access to 70 percent of Pakistan’s exports at preferential rates and 20 percent duty free. Almost a quarter of all exports to the EU go to the UK.
When GSP plus was first granted, many different projections were made—some claiming an addition of a billion dollar to Pakistan’s total exports every year. TDAP’s own projections during a presentation – in 2012 when EU’s imports from Pakistan stood at $5.3 billion—ambitiously forecasted that the GSP plus could take exports up to $8.1 billion and $8.5 billion by 2014 and 2015 respectively. The actual exports however stood far below the potential at $7.2 billion in 2014, coming down to $6.6 billion in 2015.
The outcome of GSP plus on three years impact has been significantly less than the hype the scheme created across the country, and for reasons well known to the government and the business community at large—on top of which is the high cost of production that has largely marred any growth potential.
Even so, EU’s contribution to Pakistan’s exports has remained in the ballpark of 30 percent—going from 29 percent in 2003 down to 25 percent in 2013 and 30 percent in 2015. The competition in the trading bloc is such that the textile products from India and China enjoy more than double of exports of all countries that were granted GSP, GSP plus and other concessions.
As more countries have entered the market with higher competitiveness and similar concessions (Turkey, Bangladesh, Sri Lanka), without the GSP plus, Pakistani exports would not have survived (mainly textile, clothing, cotton and leather). Clearly the GSP plus to Pakistan has given Pakistani products an edge, however small it may be.
In fact, as other countries have grown; channelling their resources to diversifying their base and expanding their industries (India, Vietnam and several Southeast Asian countries come to mind), the only saving grace for Pakistan has been its textile sector—the single export oriented sector that has some degree of value addition—finding market access in European countries, to which UK remains the primary destination.
The sector itself has had its own woes, access to energy being on top and though the provision of LNG has provided some relief, many garment units have shut down in recent history. Even though the sector is not functioning at its full capacity, let alone meeting its potential, the movement for value added textile has remained upward which has helped bolster exports to EU also. But the country cannot rely on textiles more than it already has given how diversified the sector is globally and how many more and better textile exporters currently exist. At this point, the primary concern for Pakistan is to convince the UK to give the same concessions as the bloc has offered under the GSP plus scheme. This may not be as easy as the government would have the public believe since Britain would be negotiating terms and agreements in trade with many other major players other than Pakistan. Some may get better concessions and Pakistan could very well end up with the short end of the stick given Pakistan’s importance to the UK is not as significant as the other way around. And there are many other textile exporters in the game. At some point however, the government would have to direct some focus on the biggest issue it is facing right now—exports have been plummeting for over a year standing at 8 percent of GDP in FY16. For one, Pakistan cannot afford the luxury of a worsening BOP.
This great fall teaches us the most basic lesson— that when a country’s major exports are pegged to global commodity prices, exports end up in fluctuation. On the other hand, value added products have still persevered, which again begs the question why there is little to no focus on broadening the product basket and on value addition. So far, GSP plus has been functioning as the cushion for Pakistan’s falling exports but the ceiling for that is pretty low, and in acute danger too since UK’s exit from the bloc.
While the immediate task is to negotiate the best possible terms with the UK, Pakistan is in dire need for a solid export strategy to reduce reliance on commodity goods, diversify its product base and focus on value addition in sectors other than textile. On the other hand, businesses must double down on areas that they lack in, especially improving efficiency, quality control and innovation.
Right now even post haste is not soon enough.
