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Continuing from our last discussion on the GSP Plus, this column will delve further and explore the scheme impact on different sectors of the textile industry.
In our first attempt at decoding the GSP Plus, we arrived at the conclusion that amongst the host of textile product categories which will see tariff reductions, the value-added trio of Chapters 61, 62 and 63 merited further inspection.
Chapter 61 in particular is one category that holds prominent place amongst the three, especially because exporters of apparel under this category already have burgeoning connections with big-name retailers and a rapidly expanding market presence.
Products within this chapter are comprised of made-up knitted or crocheted articles, which include higher margin apparels the likes of overcoats, jackets, trousers, blazers, knitted shirts and knitted hosiery items and as of 2012, Pakistani dispatches make up a meager two percent of EUs total imports.
Now, on to a little overview of the domestic suppliers of apparel falls under this category. Currently, the biggest suppliers of Chapter 61 garments to the EU-27 are concentrated within Punjab and one name in particular stands out: Masood Textiles. The firm has been making waves recently and the potential buy-out by Shandong Ruyi stands to put the group in a position where they will be able to extract the greatest benefits from this development.
Another potential player that will stand to benefit from the tariff reduction will include Shahkam industries from Lahore. Shahkam is an up comer that has a huge market in Northern America and a rapidly expanding clientele in Europe. The company supplies to leading high-street brands in Europe including ZARA, Okaidi and Springfield amongst others. From the Southern region, the two players we identify as potential up and comers are Proline and Eastern garments-the latter of which is a prominent supplier for GAP and Walt Disney.
Now on to the competition: In Chapter 61, the lions share of the products currently entering the European Union are dispatched by China, followed closely by Turkey and Bangladesh-both of which cumulatively make up for 32 percent of the value-added knitted apparel entering the EU-27.
Amongst the countries that are extended the reduced tariffs facility, however, the biggest share is taken up by Bangladesh-with the country having shipped out $6.5 billion worth of Chapter 61 products to the EU during CY12 under the Everything-But-Arms (EBA) agreement.
We might be extrapolating at the moment but it stands to reason that as a result of Pakistans entry into the Annex III, amongst the top three supplier of knitted apparel to Europe, Bangladesh will be the worst hit. Even EUs own Impact Assessment study (based on an earlier extensive CARIS research) on the newly-changed GSP notes that Bangladesh will see a substantial loss of market for existing suppliers and conversely Pakistani suppliers of raw material as a result will see a whittling away of orders over the next 5 years.
Going forward, China would also see a slippage in market share since they will no longer be enjoying the GSP facility in the EU. Similarly, another big player in Chapter 61 textiles, India has graduated out of the GSP facility for textiles altogether and it would have to pay duties-albeit preferential-which will again leave Pakistani textiles with about a 10 percent duty advantage.
On the same note, Sri Lanka might have been considered a threat but the countrys knitted dispatches are comprised mostly of gloves and intimate apparel, so little to no threat emerges to Pakistani players from that front.
All of these fundamentals make for a compelling argument that the sector is on the up. Industry sources, however, tell us that at the back-end there is still some apprehension as most suppliers are taking the GSP Plus status with a grain of salt.
"The biggest players have already been booked solid for the next two years and the smaller ones are considering the development as a double-edged sword. Since we are in un-charted waters, we cannot simply load up on stock like the bigger players because we cannot really forecast the kind of demand that may emerge from a recuperating EU," an industry insider told BR Research on the phone.
However, one indicator of the windfall from the GSP Plus-especially for the mid-sized players in the knitted apparel sector-will be the upcoming Hiemtextil Fair in Germany where the biggest of the apparel sector will be congregating come January 2014. The response that Pakistani exporters get in that fair will help shine a little more clarity on things.


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Notable Chap 61 textile products not qualifying for zero duty access
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Product Pak exports EU imports Market
$ (Mn) $ (Mn) share
=======================================================================
610332 Jackets & Blazers of cotton 12.37 133.3 9%
610791 Vests of cotton 3.53 41.04 9%
61169200 Gloves, mittens & mitts 40 115.31 35%
=======================================================================

Source: UN COMTRADE Database


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Total exports under Chap-61-CY12
=============================================================
Bangladesh Turkey Pakistan Total EU
imports of
Chap 61
=============================================================
($ mn) 6519 6547 654 41268
Share 16% 16% 2% 100%
=============================================================

Source: UN COMTRADE Database

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