The inessential nature of GSP Plus

Pakistan was jubilant when it received GSP Plus status, and it is happy now to be reassured that UK will continue extending the scheme, despite Brexit. Since nearly a quarter of Pakistan’s exports to Europe find a market in the UK, it comes as no surprise that Brexit caused apprehension among traders who were afraid that their goods will lose preferential status as a consequence.

However, is GSP Plus really what is holding Pakistan’s exports afloat in the UK market? Prior to GSP Plus, Pakistan’s exports to UK were growing at an average rate of 6 percent from FY07 to FY13. Post GSP Plus implementation, exports to UK received a 17 percent bump of $230 million in FY14. FY14 was the happy year in which Pakistan’s exports peaked at $24.8 billion. Thus in the overall picture, increase in UK’s share in Pakistan’s exports due to GSP Plus was 1 percent.

Before GSP Plus and since, share of exports to UK as a percentage of Pakistan’s total exports have fluctuated within a band of 5 to 7 percent. It would appear that though the GSP Plus scheme has increased exports, it is not essential for Pakistan’s goods to find a market in the UK.

Since FY14, Pakistan’s exports to the UK have hovered around $1.6 billion, declining slightly in recent years. Brexit has triggered weaker currency with the pound slumping to three-decade lows against the dollar. This has made imports into UK more expensive but has not significantly impacted Pakistan’s exports; Pakistan’s July and August exports (2MFY18) to UK were 12 percent higher than the comparable period last year.

Brexit may have introduced uncertainty and volatility with some key indicators taking a hit; the UK economy grew at an annualised rate of 1 percent in the first six months rather than its average growth rate of about 2.5 percent in the years running up to the EU referendum. However, it is not a state of brimstone and oblivion that some had forecasted. Hence, it seems that Pakistan’s exports will not be affected by an economy declining due to the EU referendum.

The perception within Pakistan is that without GSP Plus, Pakistan will not be able to export competitively. Pakistan not only exports resource based goods like rice to UK, but also value added commodities such as leather goods and finished products of apparel. And it exported these value added goods a decade ago as well. GSP Plus is a breeze for Pakistan’s sails, not a clutch that is needed to continue exports to the UK.