Ready for GSP!
Is Pakistan ready to exploit the GSP Plus facility to its advantage?
Hailed by the business community as a positive step towards economic prosperity, the recently acquired GSP Plus status will increase Pakistan’s access to the European Union markets through dutyfree export of GSP-eligible products. The status has become effective from January 1, 2014 and will benefit 2,500 tariff lines, out of which 900 belong to the burgeoning textile and clothing industry.
Currently, Pakistan’s textile and clothing exports to the EU amount to more than half of the country’s total exports to the bloc. This means that Pakistani textiles will finally be able to compete with those of Bangladesh and Sri Lanka – countries which already enjoy duty-free access to European markets. Conservative estimates suggest that as a result of the new status awarded to Pakistan, the textile and clothing industry is expected to earn profits up to $1billion annually. The real question, however, is: can the clothing industry, particularly the fashion industry, be expected to make use of this opportunity?
European nations introduced the GSP concept in 1971 to help developing countries prosper on the export front. Under it, several countries in Europe eliminated or reduced import tariffs on specific products exported by an approved list of developing countries – a list that now includes Pakistan. The tariff preferential regime has been extended and is known as GSP Plus as a result of additional tariff reductions allowed to vulnerable developing countries. The objective of GSP Plus is to assist developing countries reduce poverty, improve governance and promote sustainable development.
While the opportunities available through the facility are limitless for Pakistan’s textile industry, the reality is that the country may be less than equipped to expand and deliver despite GSP Plus. For starters, the seemingly never-ending energy crisis seems to have all but crippled the industry. “This is a high-pressure industry that is extremely deadline-oriented. This means that if we fail to deliver to our clients on time, we are immediately deemed unprofessional,” explains Maria B., a Lahore-based designer. She says that while everyone is aware of the severe gas and electricity shortages, the fact is that buyers expect prompt delivery because they pay a premium for custom-made designs. We can’t tell them their outfit is not ready because there was no power or gas. This is our problem, not theirs. Can you imagine saying this to foreign
buyers?” she says.
Most design houses in the Punjab are faced with this predicament as electricity and gas shortages are particularly acute in that province. The crisis worsens in winter because the government reduces gas supply to the industry to facilitate domestic consumers. So the GSP Plus status is a positive development in theory, but the reality may be completely different if the energy crisis persists.
The energy crisis is just the tip of the iceberg, as per a recent editorial published in a local newspaper. The high credit cost and poor security situation has been detrimental to the textile and clothing industry. “The government’s skewed policies that have discouraged the use of manmade fiber and diversification of textile exports will restrict the industry’s ability to reap the full benefits of the newly acquired status. If the government wants the industry to gain maximum advantage from the concessions, it must help the manufacturers revive capacity by ensuring uninterrupted gas and electricity supply as well as cheap credit for new projects and by easing restrictions on the import of fabric and other raw materials not produced domestically, in order to encourage product diversification,” (Dawn, November 2013).
The law and order situation is particularly damaging to the industry, says a spokesperson for a Karachi- based ready-to-wear clothing brand. “In a city like Karachi, things can change within a matter of minutes which often lead to forced shutdowns of our outlets and workshops,” she explains, adding that this affects sales and causes inevitable delays in production. “Political parties call for a strike almost every other week and the retail industry is the biggest loser in this situation,” she says.
In such a scenario, not many business people are willing to invest in the textile sector which means there is no increase in the production capacity. Hence, exporting to EU countries may not be possible for all design houses.
So what is the solution? How can the textile and clothing industry fully exploit this opportunity to its advantage given these huge challenges? For one thing, the industry could try to improve the quality of products. Many a time, shoddy workmanship and the use of substandard materials, even by some of the more prominent designers, drive buyers away.
Mariam Tariq runs a small clothing business called Desi Designs. She purchases ready-to-wear outfits from labels like Agha Noor, KariGhar and Needle Impressions, to name a few, and sells them at clothing stores abroad. “The quality of the fabric has declined over the years and I often get complaints from my clients abroad about discoloration and poor needle work that unravels just after a few washes,” Mariam says. “Also, there is a lot of competition from Indian designers now and if Pakistani designers do not get their act together, they may lose out on the expatriate market,” she adds.
All said and done, the government must be lauded for its efforts towards achieving the GSP Plus status. But most of our industries appear less than ready for compliance (with respect to the implementation of the 27 UN Conventions as per the EU requirement). If the government wishes to make the best possible use of this status, it must establish a supervisory body to coordinate with provincial governments in this regard.
The Pakistani textile and design industry faces tough competition. It’s time we put our house in order for providing the sector with an environment conducive to doing business. Ultimately, success in accessing the EU market is largely dependent on Pakistan’s ability to meet the EU consumers’ demand with respect to quantity and quality, to create efficient production lines, to invest in technologies that maximize productivity and make better use of skilled manpower and, finally, to deal with competition from other countries effectively.