AS Brexit continues to be debated by the UK parliament, questions regarding the future of Pakistan’s trade with the United Kingdom, and opportunities present in the exit, abound. While some exporters are optimistic or indifferent, others see dark clouds looming ahead.
Currently, Brexit is in confusion. Little-loved British Prime Minister Theresa May had gone as far as to offer to step down if her twice rejected Brexit deal was accepted. However, not only was this option not taken up, the parliament also failed to agree on any one of at least eight possible ways forward, which included giving up on Brexit altogether.
As the episode unrolls, it is desirable for Pakistan to keep an eye on proceedings. At $1.7 billion in 2018, as per the International Trade Centre, the UK is the third most important destination for Pakistani exports. Courtesy of the GSP Plus, products of Pakistan’s export interest are entitled to duty free treatment. Given the confusion surrounding Brexit, the impact on the country’s exports is unclear.
Other than a faint silver lining for rice, Pakistan and the UK’s export profiles are diametrically different. There appears to be little chance of Pakistan’s exports receiving a windfall in the form of Brexit
There appear to be mixed emotions amongst exporters regarding continuation of exports and opportunities present. The bulk of Pakistan’s exports to the European Union (including the UK) consist of textiles and rice. While there may be a mild opportunity for an increase in rice exports, textile exporters remain on the fence.
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“Though there is a big market for rice in Europe, we do not expect demand for Pakistani rice to be directly affected,” said Rice Exporters Association of Pakistan (REAP) Chairman Safdar Hussain Mehkri.
Part of the rice milling capacity in the UK is used to export to Europe. Right now it does not face any tariffs but it is likely that post-Brexit, rice going from the United Kingdom to Europe will face some duties.
Meanwhile, Pakistan’s exports to the EU will continue to be given duty free access under GSP Plus. Therefore, if the cost of UK rice goes up, Pakistan’s rice exports may increase marginally to Europe, hoped Mr Mehkri.
On the other hand, the REAP chairman expected that some of the idle milling capacity in Europe may come into play as well since the UK’s share may decline. In that case, the market size will remain the same without any significant impact on rice.
Previously, Pakistan had been able to increase its share of Basmati exports to the EU as the Union had revised the maximum permissible residue level of Tricyclazole from 1mg per kg to 0.01 mg per kg.
As Tricyclazole is the cheapest and most widely used fungicide in India, its Basmati rice was restricted under the revision, allowing the only other Basmati rice producer, Pakistan, to step in. If the UK lowers its food standards post-Brexit, then the additional market share could be lost. However, as yet various ministers have reassured that standards will not be revised.
The opinions of textile exporters vary. Muhammad Abid Chinoy, manufacturer and exporter of fabric and home textiles was wary of the new procedures that may come in place post-Brexit.
“It is going to be a new story with new procedures in place. Previously, if our exports did not find a market in one country in the EU, we could send them to the UK and vice a versa. However, with new procedures, conforming will be an issue. We would have to unpack cartons and change stickers and that is too long and too arduous a process to be carried out,” he said.
However, Chairman Pakistan Hosiery Manufacturers and Exporters Association Muhammad Jawed Bilwani did not share Mr Chinoy’s opinion. While doubting whether Brexit would even take place, Mr Bilwani said that even if procedures change, our exporters are savvy enough to comply with new regulations.
“Bangladesh will lose its GSP status the same as Pakistan, while China does not benefit from GSP, so it is not like Pakistan’s competition will fundamentally change,” he said. Furthermore, trade with the UK is already in pound sterling rather than in euros so there will be no currency change either, he added.
Home textiles exporter Muhammad Ahsan Shah saw little change taking place post-Brexit. While there is central buying for most countries within the EU, the UK does not avail itself of the option. So for example, if Pakistan exports to Carrefour or Makro, orders for their UK outlets are handled separately from those going to other EU countries, he explained. Therefore, it is unlikely to disrupt the current export procedures.
The Brexit confusion persists but the UK government has given repeated assurances that Pakistan will continue to receive the same level of access it did under the GSP plus scheme. This renders null any need of a free trade agreement with the UK for preferential access.
While there are some fears that new, unexpected, regulations may create a learning curve for exporters that could adversely impact the trade balance, Mr Bilwani asserts that changes will take place gradually.
From the date of Brexit to Dec 31, 2020, the UK and the EU have agreed that no major changes will take place so that businesses may adjust. This transition period will allow Pakistani exporters to learn the ropes and adjust protocols accordingly as well.
It could be argued that imposition of tariffs by the EU on the Kingdom, if that is the road that is chosen, could provide an opportunity for Pakistan’s exports. However, other than a faint silver lining for rice, Pakistan and the UK’s export profiles are diametrically different so there appears to be little chance of exports receiving a windfall in the form of Brexit.
Published in Dawn, The Business and Finance Weekly, April 1st, 2019