Ready for GSP!

Is Pak­istan ready to ex­ploit the GSP Plus fa­cil­ity to its ad­van­tage?

Southasia - - SPECIAL FEATURE - By Sa­nia Ahmed

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.

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