Spe­cial Fea­ture GSP Plus: Chal­lenges Ahead

At a time when the Pak­istani econ­omy is in dire straits, the grant of the GSP Plus sta­tus of­fers both op­por­tu­ni­ties and chal­lenges.

Southasia - - CONTENTS - By Jamil Nasir

The real chal­lenge be­fore Pak­istan is to ex­pand the base of its ex­port prod­ucts to be able to com­pete with re­gional ri­vals.

Pak­istan was vy­ing for the GSP Plus sta­tus since 2005 but was un­able to qual­ify as it did not meet cer­tain el­i­gi­bil­ity cri­te­ria. In the lat­est GSP scheme, the el­i­gi­bil­ity cri­te­ria were mod­i­fied, en­abling Pak­istan to ap­ply for this fa­cil­ity. Pak­istan filed an ap­pli­ca­tion for GSP Plus with the Euro­pean Com­mis­sion in March 2013. The process of scru­tiny took around six months. In Au­gust 2013, the Euro­pean Com­mis­sion no­ti­fied the Coun­cil of the Euro­pean Union and the Euro­pean Par­lia­ment through a Del­e­gated Act that Pak­istan, along with nine other ap­pli­cant coun­tries, met the el­i­gi­bil­ity re­quire­ments for GSP Plus.

Dur­ing this pe­riod, Pak­istan un­der­took an in­ten­sive lob­by­ing ef­fort with var­i­ous stake­hold­ers in the Euro­pean Union. The sus­tained ef­forts of al­most eight years came to fruition when 406 out of 588 mem­bers of the Euro­pean Par­lia­ment voted in fa­vor of grant­ing the GSP Plus sta­tus to Pak­istan on De­cem­ber 12, 2013.

What is GSP? The Gen­er­al­ized Sys­tem of Pref­er­ences (GSP) is a fa­cil­ity granted to de­vel­op­ing coun­tries by cer­tain de­vel­oped coun­tries. The sta­tus is largely con­sid­ered non-re­cip­ro­cal but this is not en­tirely cor­rect. Re­ciproc­ity is gen­er­ally in the form of ad­her­ence to cer­tain in­ter­na­tional agree­ments and hu­man rights stan­dards. GSP is given un­der three ar­range­ments. The first is Ev­ery­thing But Arms (EBA). Ac­cord­ing to it, all prod­ucts ex­clud­ing arms are el­i­gi­ble for duty-free ac­cess to the EU with no quan­tity re­stric­tions. Fifty least de­vel­oped coun­tries are el­i­gi­ble to duty-free ex­ports to the EU. The sec­ond is Stan­dard GSP. Un­der this ar­range­ment, tar­iff ben­e­fits are given through a com­bi­na­tion com­pris­ing duty-free ac­cess for non-sen­si­tive items and pref­er­en­tial tar­iffs for sen­si­tive items. The third is GSP Plus un­der which tar­iff ben­e­fits are given to trade-vul­ner­a­ble coun­tries against all el­i­gi­ble items, but sen­si­tive cat­e­gories are sub­ject to quan­tity re­stric­tions. This fa­cil­ity has re­cently been ex­tended to 10 coun­tries, in­clud­ing Pak­istan.

What are the cri­te­ria for grant of the GSP Plus sta­tus? First, the GSP plus ben­e­fi­ciary coun­try should be a ‘vul­ner­a­ble coun­try’. A coun­try is vul­ner­a­ble if it is not a high-in­come coun­try and five largest sec­tions of its GSP-cov­ered ex­ports ac­count for more than 75 per­cent of the to­tal GSP ex­ports to the EU, i.e. ex­ports suf­fer from a lack of di­ver­si­fi­ca­tion. Fur­ther, GSP-cov­ered ex­ports to the EU ac­count for less than two per­cent of the to­tal EU-GSP cov­ered ex­ports i.e. be­low im­port vul­ner­a­bil­ity thresh­old. Sec­ond, a coun­try must have rat­i­fied and im­ple­mented 27 UN Con­ven­tions re­lat­ing to hu­man rights (such as con­ven­tions on the elim­i­na­tion of all forms of dis­crim­i­na­tion against women, rights of the child, abo­li­tion of forced la­bor and pro­hi­bi­tion and im­me­di­ate ac­tion for the elim­i­na­tion of the worst forms of child la­bor, etc. en­vi­ron­ment (con­ven­tions on cli­mate change, in­ter­na­tional trade in en­dan­gered species, bi­o­log­i­cal di­ver­sity and nar­cotics drugs, etc.); and good gov­er­nance (the con­ven­tion against cor­rup­tion).

What op­por­tu­ni­ties does GSP Plus of­fer to Pak­istan? It may act as a stim­u­lus in kick-start­ing the al­most stalled eco­nomic ac­tiv­ity, cre­at­ing jobs and in­creas­ing ex­ports. Ac­cord­ing to some es­ti­mates, Pak­istan would get an additional one bil­lion US dol­lars af­ter the grant of this sta­tus with an es­ti­mated pro­jec­tion that the coun­try’s ex­port earn­ings from the EU would reg­is­ter a marked in­crease from the ex­ist­ing $13 bil­lion to $26 bil­lion in four years.

Pak­istan’s ma­jor ex­ports, such as value-added tex­tile goods, footwear, leather, plas­tics and non-value added tex­tiles which, re­spec­tively, faced tar­iffs up to 9.6 per­cent, 12 per­cent, 5.5 per­cent, 3 per­cent and 6.4 per­cent, will now be re­duced to zero un­der GSP Plus. Thus, this scheme will pro­vide op­por­tu­ni­ties to Pak­istan in tex­tile, leather and footwear, fruits, ethanol, seafood and gems and jew­ellery. Un­der the stan­dard GSP, these prod­ucts were fac­ing stiff com­pe­ti­tion from China, In­dia and Brazil which en­joyed com­pet­i­tive ad­van­tages as com­pared to Pak­istan due to economies of scale. Even Bangladesh en­joyed an ad­van­tage over Pak­istan in gar­ments as its ex­ports to the EU were duty-free. It was mainly due to this com­par­a­tive ad­van­tage that sev­eral gar­ment man­u­fac­tur­ing units were set up by Pak­istani busi­ness­men in Bangladesh.

How­ever, GSP Plus will not au­to­mat­i­cally trans­late into an in­crease in ex­ports to the EU. In the case of the EU, more than half of MFN tar­iff lines are set at zero and about one-fourth

are be­low the five per­cent ad valorem. Sev­eral ex­port com­modi­ties from Pak­istan – rice, sports goods, sur­gi­cal in­stru­ments, meat prod­ucts and fruits – al­ready en­joyed duty-free ac­cess to the EU as the nor­mal tar­iffs were set at zero. There­fore, GSP Plus will make no pos­i­tive mar­ket ac­cess im­pact in case of these com­modi­ties. Dur­ing the pe­riod be­tween 2002-2004, when Pak­istan en­joyed duty-free GSP spe­cial in­cen­tives, non-tex­tile prod­ucts from the coun­try did not reg­is­ter an in­crease of more than 1.5 per­cent per an­num, im­ply­ing that merely tar­iff con­ces­sions are not enough for in­crease in ex­ports.

What are the chal­lenges at hand? At a time when Pak­istan’s econ­omy is in dire straits with for­eign re­serves touch­ing a record low, ex­ports stag­nat­ing, the dol­lar hit­ting an all­time high against the Pak Ru­pee and var­i­ous in­dus­tries suf­fer­ing due to a com­bi­na­tion of en­ergy short­age and the law and or­der cri­sis, the grant of the GSP Plus sta­tus of­fers both a set of op­por­tu­ni­ties as well as chal­lenges. Pak­istan faces tough com­pe­ti­tion from neigh­bor­ing In­dia, Bangladesh, Sri Lanka and other coun­tries. The trade con­ces­sions that the coun­try has won from the Euro­pean Union can­not be fully ex­ploited as cur­rently Pak­istan ex­ports only 150 – or 2.5 per­cent – of the to­tal 6,000 duty-free prod­uct lines that the bloc of 27 na­tions has of­fered. The real chal­lenge be­fore the govern­ment and the pri­vate sec­tor is to ex­pand the base of ex­port prod­ucts to be able to com­pete with re­gional ri­vals.

Also tied to the chal­lenge of di­ver­si­fy­ing ex­ports is the up­hill task of over­com­ing the sup­ply-side con­straints. The en­ergy cri­sis has slowed down the pace of eco­nomic de­vel­op­ment, caus­ing a loss of mil­lions of jobs. The tex­tile in­dus­try, a linch­pin of the coun­try’s in­dus­trial base, ap­pears to be worst hit by power and gas short­ages. Many tex­tile units have been closed down due to the en­ergy cri­sis, while some in­dus­tri­al­ists have shifted their businesses to Bangladesh, Turkey and Sri Lanka due to tar­iff con­ces­sions, easy mar­ket ac­cess, a bet­ter law and or­der sit­u­a­tion and an un­in­ter­rupted sup­ply of en­ergy. Thus, over­com­ing the en­ergy chal­lenge ap­pears to be the most daunt­ing task be­fore the govern­ment.

An­other chal­lenge fac­ing the in­dus­trial sec­tor is the ob­so­lete in­fra­struc­ture. With­out re­vamp­ing the sup­port in­fra­struc­ture, the goal of di­ver­si­fy­ing the ex­port base will not be achieved. In­fra­struc­ture de­vel­op­ment, how­ever, is not pos­si­ble with­out at­tract­ing for­eign in­vest­ment in this area. Ac­cord­ing to the Board of In­vest­ment (BoI), FDI in­flows in tex­tiles have de­creased from $29.8 mil­lion (2012) to $10 mil­lion (2013). For­eign Di­rect In­vest­ment (FDI) should there­fore be at­tracted to­wards this sec­tor to help it be­come sus­tain­able in terms of pro­duc­tion ca­pac­ity. When Bangladesh got the GSP Plus sta­tus, it at­tracted mas­sive in­vest­ment in the tex­tile sec­tor. The Board of In­vest­ment (BoI) has a crit­i­cal role to play in for­mu­lat­ing an in­vest­ment pol­icy.

Be­sides chal­lenges at the do­mes­tic level, proper com­pli­ance with the 27 UN Con­ven­tions is also an im­por­tant re­quire­ment. Ar­ti­cle 14 of the New GSP Reg­u­la­tion of the Euro­pean Par­lia­ment and the Coun­cil of the Euro­pean Union stip­u­lates that by Jan­uary 1, 2016, and ev­ery two years there­after, the Euro­pean Com­mis­sion will present a re­port to the Euro­pean Par­lia­ment and the Euro­pean Coun­cil re­gard­ing the im­ple­men­ta­tion of the 27 covenants. Ar­ti­cle 15 fur­ther pro­vides that in case a ben­e­fi­ciary coun­try does not re­spect its bind­ing un­der­tak­ings or for­mu­lates a reser­va­tion, the GSP Plus sta­tus will be with­drawn. Fur­ther, the bur­den of proof re­gard­ing com­pli­ance with the obli­ga­tions re­sult­ing from the bind­ing un­der­tak­ings lies with the GSP Plus ben­e­fi­ciary coun­try.

The Euro­pean Union gives tar­iff con­ces­sions to ex­port­ing coun­tries of the Third World as part of its ef­forts to pro­mote democ­racy, pro­tect hu­man rights and im­prove gov­er­nance. The pre­con­di­tions set for the con­tin­u­a­tion of this fa­cil­ity are tough and broad in na­ture. Pak­istan must ad­here to these con­di­tions through an in­sti­tu­tional mech­a­nism, fail­ing which the fa­cil­ity can be with­drawn as had hap­pened in the case of Sri Lanka. Pak­istan should not ap­pear to have rat­i­fied these con­ven­tions for ex­tract­ing trade con­ces­sions only. In this re­gard, in­sti­tu­tional mech­a­nisms need to be put in place for ac­tive co­or­di­na­tion be­tween the cen­tre and the prov­inces on the im­ple­men­ta­tion of these con­ven­tions in the post-18th Amend­ment sce­nario.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.