GSP Plus and creating linkages

This year’s Economic Survey has a brief section on GSP Plus, which highlights some positives on Pakistan’s market access into the EU. The report mentions that Pakistan’s total exports to the EU increased by 38 percent from 2013 to 2016, while textile exports increased by 55 percent in value and 33 percent in terms of quantity. There is little doubt that GSP Plus has benefited Pakistan’s exports, particularly textile. However, there is even less doubt that this benefit is anywhere near its full potential. The real conversation, unfortunately, has not been had in the survey.

This column has discussed the GSP Plus and its ‘benefits’ in the past (Read: “A quick word on GSP Plus,” published September 20, 2016). The story remains the same: Pakistan’s exports – to the EU or otherwise – lack competitiveness, incentives, and diversification. But this column has talked about high energy tariffs, sales tax refunds, protectionism, and trade diversification too many times. We know that these things are hindering the growth in all markets – not just the EU, which has given us a small edge with the GSP Plus. What we need to discuss are the micros.

Over the years, BR Research’s interactions with foreign ambassadors, trade experts, economists, and business intellectuals have reinforced one mantra that comes secondary in the official discourse: business-to-business and people-to-people exchanges. It’s the one major area where the Ministry of Commerce is failing the most: taxes and tariffs are out of its hands, after all.

CDPR, a local think tank, enforces this point in its own analysis of GSP Plus: “Pakistan’s adverse business climate hinders investments in export manufacturing, particularly by new EU-based clients. International buyers prefer suppliers from less risky countries, especially where physical engagement with firms is possible.”

Recall in last Friday’s Brief Recording section, the CEO of renowned textile conglomerate Kamal Limited gave an anecdote of this exact point, saying that Sainsbury’s in UK decided to stop sourcing their goods from Kamal Limited – despite the company’s superb performance – because they did not want to travel to Pakistan. In the same interview, he said that there are some 200 brands in Bangladesh, but around 10 in Pakistan with their buying offices here.

The ease of doing business ranking in Pakistan is miserably low. Although the security situation has improved, the overall risk assessment is still unreasonably high. As this column has stressed time and again, there is a need for a cogent, long-term export policy to attract investment and facilitate exporters. The Commerce Ministry needs to be more proactive in facilitating business-to-business exchanges. This is as important as a steady energy supply, low tariffs, zero-rating, and all other things that the exporters are asking for. Only then can the true benefits of GSP Plus be reaped.