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Gearing up for freer access to EU markets

November 18, 2012

Opportunities are for those who are prepared. Is our textile industry prepared to grab the opportunity that will emerge by Pakistan’s expected entry into the GSP+ scheme of the European Union in 13 months from now?

The coming into force of limited and temporary trade concessions for 75 Pakistani exports, chiefly textiles, by the EU last week has already generated a debate as to what needs to be done to take full advantage of the complete duty-free access to the large market of 27-nation bloc.

In 2011, imports to the EU that received GSP preferences were worth 87 billion euros, representing around five per cent of total imports of the bloc and 11 per cent of total imports from developing countries.

Pakistan’s GSP covered items, according to the commerce secretary, are less than one per cent of the EU GSP covered imports.

This shows the potential for quantum jump in exports to the EU once duty-free access is granted to Pakistan.

Top French diplomat in Islamabad Philippe Thiebaud was recently quoted by the newspapers as advising Pakistan to prepare itself to get full benefit of the GSP+ scheme and increase production of its exportable items.

The EU is Pakistan’s largest trading partner, receiving 30 per cent of its annual exports. Exports to the Union primarily comprise textiles that are 70 per cent of the total exports followed by leather products making up another 13 per cent.

By the time Pakistan gets the GSP+ status, its exports to the Union are expected to have increased by $537 million or more than 31 per cent under the current EU Autonomous Trade concessions implemented after a lag of two years to help the country recover from devastating flood losses of $10.5 billion in 2010. Pakistan’s exports of textiles and clothing products accounted for 73.7 per cent of its exports to the EU in 2009.

Countries can apply for GSP+ scheme within one year from November 20 but will have to ratify 27 international conventions related to human and labour rights, environment and governance to get admission to the scheme. The scheme is the key EU trade instrument to promote human rights, reduce poverty, encourage sustainable development and governance in the beneficiary countries. Islamabad has already ratified most of the convention.

However, some relating to human rights need to be signed to allow the EU monitor rights conditions here.

The EU has already redesigned GSP+ scheme, which covers 7,200 products, to accommodate Pakistan by amending its rules to raise the threshold of imports from countries applying for trade concessions under this arrangement from one to two per cent.

“Indeed, the GSP+ status for our exports will be a tremendous opportunity coming Pakistan’s way,” agreed a textile manufacturer who did not want to identify himself because of personal reasons. But he was not quite as hopeful of taking full advantage of the duty-free access to the EU market.

“Our textile industry lacks diversification both in product range and fibres used. It is predominantly a cotton-based industry because of the flawed government policies that have impeded the development of textiles made from synthetic fibres, which are more popular and cheaper in Europe. This means that we’re already out of competition for a very, very large segment of textiles,” he said. “But this is not be the only disadvantage we will start with. We are also nowhere in the high end, fashion products. Such orders go to China or India. We are stuck with low end products made from coarser yarn.”

Ahmed Jehangir, executive director of Nishat Mills, agreed with him, but said no other textile producer could compete with Pakistan in textiles and clothing manufactured from coarse counts.

“We have a competitive advantage over our rivals in this segment of textiles. The price increase in China, for example, has shifted a major chunk of international orders for such products in the recent times to Pakistan. Besides, we have beaten even Bangladesh in spite of duty advantage it enjoys in Europe,” he contended.

Ahmed said if the failure of “our growers to develop extra length staple was responsible for lack of development of finer yarn, the government policies hindering the development of man-made fibres had stunted growth of synthetic yarns and products.”

“Why we are (course) cotton-based industry and why we haven’t diversified our textile products is essentially a raw material issue. If we had raw materials needed to diversify ourselves into finer and higher end items we would have moved into that direction just as India has or is moving,” he said.

Mian Mohammad Lateef, chairman of Chenab Group of Companies, doesn’t see any big investment in product diversification or capacity expansion in the next one year in the hope of GSP+ status from the EU.

“No one is going to invest his money unless he is certain of duty-free market access. I think people will consider investing in capacity expansion and product diversification when they see a real opportunity and orders coming their way,” he asserted.

Mian Lateef said the temporary tariff discounts as well as Pakistan’s expected entry into GSP+ scheme afforded a great opportunity for the country and textile exports. But, he added, growing energy shortages had put a big ‘IF’ on our ability to capitalise on this opportunity.

“More than 30 per cent textile industry is lying closed in Punjab due to energy shortages. Our shipments are delayed because of this problem. You cannot sustain by closing down your factories due to gas shortages for six months a year and delaying delivery to your buyers,” he said.

“We haven’t been able to take full advantage of the labour and price issues in China, which has led many buyers to turn to other sources of textiles and clothing like Pakistan and India.”

According to him, Pakistan stood to gain massively from enhanced market access to the EU as well as growing, wealthier middle class in China and India.

“It is time the government helped the textile industry stand back on its feet by addressing its needs for uninterrupted energy and low cost credit. If the government solves these problems we can double our textile exports in no time,” said he.

Ahsan Bashir, chairman of the Aptma, said the industry was ready to invest $2 billion in garmenting provided the government gives its firm commitment of continuous supply of gas and power and agree to subsidise new investment.

He said the country faced shortage of weaving capacity to use all the yarn produced by domestic spinners.

But nobody was investing in this sector because of energy supply gap and high cost of credit.

Adil Butt, a leading knitwear exporter and all-weather optimist, was hopeful of increase in orders from Europe after operationalisation of temporary trade discounts to be followed by free access to the EU markets under GSP+.

This would revive the closed industry and trigger investment in capacity expansion and product diversification “with growth and diversification in demand by the buyers”.

“We are a very talented people and can do anything if given an opportunity. I’m certain the enhanced market access to the EU will see the domestic textile industry grow more rapidly and diversify itself. But then, we have to wait till GSP+ status is actually granted to Pakistan.”