Some might say along the lines: "It is better to have loved and lost, than never to have loved at all." That is, better to have GSP+ than not have it at all. While acquiring GSP+ is being touted as the game changer for Pakistans textile industry, the first quarter export performance lends some credence to the hype!
As per the latest PBS data, textile exports grew by 14.54 percent year on year in February and 8.28 percent year on year in 8M FY14. Meanwhile, overall 9M FY14 exports grew by 6 percent year on year. Against markets high anticipations, these growth numbers may seem small--although the February textile export growth is a good sign--but it must be noted that the GSP+ only went into effect from January this year.
While early signs offer hope, it needs to be stressed that tariffs cuts will not automatically transform into rise in exports. Supply-side bottlenecks have to be removed. Besides, there is the issue of continuously appreciating rupee that is impacting textile industrys margins and competitiveness. Other export-oriented sectors are also feeling the heat.
Improvement in law-and-order situation and the non-stop gas and electricity shortages--which have been hitting the Punjab-based value-added industry particularly hard--are indeed the pre-requisites for a thriving export bases.
Despite the lingering issues, GSP+ is a great opportunity. Before the granting of this status, Pakistani textiles were facing stiff competition from, for example, China, India and Brazil. These countries were also subject to the same preferential tariffs concessions like Pakistan, whose value-added textile exports faced up to 3 to 12 percent tariffs which are now reduced to zero.
Optimism also stems from the fact that new orders from the EU buyers are said to start materialising around the start of 2Q FY14. New orders are usually placed three to five months in advance. Given that the GSP+ status was granted to Pakistan only towards the end of December 2013, any considerable volumetric uptick in sales might be witnessed in 3Q FY14.
The lesson is simple and straight. In order to take advantage of the opportunities created by the GSP+ status, there is a need to overcome supply-side constraints. Zero tariffs alone cannot create competitive advantage. Compliance with standards and certifications, quality control, packaging, and production and delivery efficiencies also matter.