How to retain the GSP+ status

As a beneficiary of the GSP+ since December 2013, Pakistan has enjoyed 10 years of duty-free access to the EU market. GSP+ status has not only supported our exports but has also served as a socio-economic transformational tool as envisaged in GSP+ philosophy.

It has allowed Pakistan preferential access to its largest textile export market while guiding it towards better governance and sustainable development which in turn entails mitigation of concerns relating to environment, sustainability and governance - ESG.

Pakistan textile exports to the EU-27, at USD 3.42 billion for 6 months ending Dec 31, 2022, were 39% of its total textile exports for that period. It is important to note that without this status, Pakistani exports would have to bear import tariffs under most traded chapters.

The EU under GSP+ scheme has allowed Pakistan duty-free access, under certain conditions, to about two-thirds of tariff lines into its market. In return, the beneficiary will enact laws and policies to improve its compliance to the globally accepted standards of corporate and social behavior. It will thus help the beneficiary country up the development ladder and simultaneously improve its performance across certain socio-political metrics.

In addition to higher exports GSP+ mandate has helped the business community identify areas in which progress must be made in compliance with not only the local laws but also with covenants and requirements under the GSP+ scheme, including labor rights and ESG standards. Though Pakistan has some distance to go, the improvements made thus far in the quality of life of workers, safety and dignity of workspace, most especially for the ever increasing women participants, is a story which has yet to be told and appreciated.

Harking back to the last few years, many of the performance upgrades required of our exporters by the EU, read EU customers, now seem natural and inevitable. This is the beauty and challenge of it. Public opinion, read consumers, wants their suppliers to better their game and the sellers respond to their demands, market demands. It is such market-led initiatives, which have improved the number and the lot of ever more women employed with the exporters and not because of some other diktat.

We believe the market is best to set the agenda and expectations from its supply chain and then let the supply chain respond. The supplier universe in Pakistan, however, like other comparable economies, is fractured and the journey down the value chain, in some cases, becomes essentially a journey in time, sometimes spanning many decades. Practically, all our major exporters already at the cutting edge of technology, human resource systems and general management culture, score high on compliances as well, whereas the tail-end of the suppliers’ spectrum may be years behind. The challenge is how to bring all, the entire chain, upto speed without causing disruptions, cost escalations and opt-outs. We are, however, confident that progress down the value chain is only going to accelerate.

Not resting on past laurels, Pakistan’s textile industry and other exporters need to be environmentally responsible and do better regarding labour rights, safety at workplace, documentation, traceability, etc. Implementing safety standards is an important part of the compliance requirements. While Pakistan‘s record in worker safety is better than many, it still requires a systematic approach to take it to the next level.

Any practical solution to the expanding compliance mandates requires responsive and dynamic partnership between the government and the exporters in general and textile entrepreneurs in particular. Private sector’s achievements aside, the mindfulness of the government about actions required from within its exclusive domain have now assumed added importance in trade relations with the EU. The government has miles to go before it can rest.

Compliance, however, to conventions including those which Pakistan is a signatory to, covering labour rights, environment, safety, etc. can morph into a laborious, costly and time-consuming drudgery for the exporter. There is a dire need for close cooperation between the government and the exporters to satisfy compliance demands mandated under GSP+ etc. to the fullest in an efficient and comprehensive manner.

Additional compliance requirements are likely to accrue. The government is already committed to setting up a National Compliance Centre, NCC, to encompass all compliance requirements of our buying countries to ensure that our exporters are compliant and the audit process is comprehensive, smooth and disruption-free.

A federal compliance watchdog, NCC, is also needed to harmonize all such laws and standards including those which are now provincial domain. Once harmonized these laws/standards should be implemented and monitored, preferably, by a private sector-led organization much along the lines as has already been achieved in competitor economies.

Consumers in the EU and elsewhere do not just want a product, the core product, physical product itself, alone. They want the ‘Enhanced Product’, instead, which is not only the physical product itself, but its attributes, like proper compliances to codes covering procurement of its components and production processes, etc. These demands, inspired by conscientious customers, then get baked into compliance deliverables.

Taken together, it seems that these requirements have blurred the lines separating the corporate and the public. Closer cooperation among the governments and private sector players in importing and exporting countries is the need of the hour. Pakistan private sector is deeply engaged with Islamabad, the EU and buyers in the EU for a smooth, effective, disruption-free partnership. The challenge is how to protect the gains made so far and simultaneously build capacity to embrace the new requirements.

Copyright Business Recorder, 2023