GSP+ rollover requires greater attention to sustainability

The GSP+ scheme has been extended for Pakistan for four additional years. However, the threat is not over. It is essential to note that the extended GSP+ is more stringent and failure to the effective implementation of all the mandatory conventions can lead to the withdrawal of the status. Continuation of the GSP+ extension is subject to whether Pakistan will ratify additional conventions and advance its current efforts of compliance with the compulsions.

Background

The EU granted Pakistan the GSP+ in December 2013, which came into effect from January 2014 onwards. This preferential tariff-free status provided a competitive advantage to Pakistan in the global market as the largest GSP+ beneficiary.

Not only Pakistan’s total exports to the EU observed a remarkable gain (more than 60% - around $10 billion in 2021 compared to $6 billion in 2013), but GSP+ also enhanced Pakistan’s capabilities to grow in a sustainable manner, diversify its economy and create employment opportunities. It accelerated the country’s efforts in improving compliance with major human and labour rights and environment and good governance-related international conventions.

Pakistan’s textile industry is the largest beneficiary of the GSP+. More than 80% of total exports to the EU from Pakistan are textiles. In 2021, Pakistan exported more than $7.7 billion worth of textiles to the EU. The top textile export products include trousers, not knitted; bed linen, not knitted and not printed and jerseys, knitted.

There are two special arrangements and one general arrangement under the EU’s GSP scheme. General arrangement applies to lower or lower-middle-income countries that receive duty reductions for 66% of all EU tariff lines.

EBA (Everything but Arms) is a special arrangement that applies to LDCs (Least Developed Countries) that receive full duty-free access to all products except arms and ammunition. GSP+ is the second special arrangement that applies to developing countries that ratify 27 core international conventions on human and labour rights and environment and good governance. These countries receive zero-duty access to the same 66% of all tariff lines covered under the GSP general arrangement.

Areas of improvement

PRIME’s recent study estimates that if GSP+ is revoked, Pakistan will lose more than one-third of its exports to the EU (more than $3 billion in terms of trade loss in 2021). This will pose existential threats to Pakistan’s largest export industry – the textile sector. Other resulting threats such as loss of employment opportunities and decent livelihoods, gender discrimination, and non-compliance to human and labour rights will significantly hinder Pakistan’s advancement to accomplish sustainable development.

The EU’s previous reports on GSP+ monitoring as well as ILO’s recent publication on Pakistan’s compliance with labour standards indicate that significant progress in terms of human and labour rights is crucial for Pakistan to boost its economy sustainably.

Fundamental human and labour rights such as freedom of association and collective bargaining, elimination of forced and bonded labour, abolition of child labour, and elimination of discrimination in occupation must be protected. The global community has serious concerns pertaining to non-compliance to occupational health and safety as well as a lack of tripartite consultations and social dialogue.

The ILO has added two more conventions (the Occupational Safety and Health Convention, 1981 (No. 155) and the Promotional Framework for Occupational Safety and Health Convention, 2006 (No. 187)) to its list of conventions on fundamental workers’ rights. Both conventions have not been ratified by Pakistan. However, the analysis of the current compliance progress indicates that Pakistan may be required to ratify these treaties in addition to other conventions to be added under GSP+.

Pakistan must strive to avoid revocation of GSP+ status by ensuring compliance with the EU requirements and utilizing the status further. There is a greater scope in diversifying export products within the textiles and exploiting untapped trade potential with countries other than the conventional export destinations such as Germany, Spain, and the Netherlands. Further, GSP+ removes tariffs on more than 66% of all tariff lines. However, these tariff lines are not being fully exploited. These untapped tariff lines with no penetration and easy competition should be fully explored.

Moreover, Bangladesh’s graduation from LDC to the developing country in 2029 thus losing its EBA status under the GSP scheme offers a generous opportunity for Pakistan to expand its textile exports.

Upon graduation, Bangladesh will experience major trade losses to the EU due to the removal of the duty-free market access. PRIME’s analysis of trade loss indicates that Bangladesh will suffer market loss in women’s and men’s trousers and jerseys which Pakistan also exports to the EU substantially. A massive potential lies for Pakistani exporters to divert these trade losses in their favour.

Additionally, digital traceability is another crucial obligation to ensure transparency in the supply chain. The textile industry must digitize its supply chain to disclose the data to verify that the manufacturing conditions are healthy and the impacts on the environment are minimal. Significantly low female labour force participation (FLFP), mounting industrial emissions, and lack of textile waste management are other areas requiring enhanced and sustained efforts to meet compliance targets.

Conclusion

A robust consideration of recommendations from the EU, ILO, and WB on compliance with fundamental requirements on human and labour rights and environment and good governance is crucial for Pakistan to avoid GSP+ discontinuation.

So far, the EU has not declared the new conventions under GSP+ for Pakistan to ratify and comply with; however, it is evident from the concerns raised that Pakistan will be expected to make more efforts in areas such as fundamental human and labour rights requirements, traceability, and female labour force participation.

Therefore, all relevant authorities must act together to promote rigorous compliance with the EU requirements and ensure that the Ministry of Commerce’s National Compliance Centre (NCC) is fully operational to guarantee sustainable and fair trade with the EU.

Copyright Business Recorder, 2023