The European Parliament voted, on December 12, 2013, with an overwhelming majority, to grant GSP Plus (Generalised Scheme of Preferences) status to Pakistan from January 1, 2014. Much awaited GSP Plus market access will enable Pakistan to export goods, at preferential rate, to 27 EU countries till 2017.

Earlier, the EU used to grant GSP Plus facility for five years but Islamabad, along with other 16 countries, has been allowed this incentive for three years. In addition to Pakistan and 11 Latin American states, five other countries which have been allowed GSP Plus status include: Georgia, Moldavia, Mongolia, Bangladesh and Sri Lanka.

According to analysts, Pakistan’s immediate potential gains from the GSP Plus access facility for its 3,500 products, in particular textile and clothing, to the EU countries are likely to be around $500 million to $1,000 million additional export revenues annually and creation of around a million new jobs. However, Finance Minister, Ishaq Dar seems to be more optimistic and believes that Pakistan’s exports might increase by $2 billion per annum.

But, according to the European Commission’s preliminary estimates, Pakistan’s exports to the 27 EU countries will increase by Euro 574 million annually as a result of the reduction of tariffs on over 90 per cent of all product categories exported by Pakistan.

Currently, bulk of Pakistan’s exports to EU countries comprise textile goods and GSP Plus facility will enable Pakistan to export 20 per cent textile goods at zero tariff and 70 per cent at preferential rate to the EU countries. The duty in EU countries ranges between 5.6 per cent and 9.6 per cent, therefore, Pakistan’s textile sector would get benefit in terms of reduction in duty in the range of 2.5 per cent to 5.6 per cent.

However, GSP Plus status would cease to exist if there was an unusual surge in exports of a GSP Plus recipient country. In the case of the textile sector, if the country’s exports go up by 14.5 per cent in the EU market then the GSP Plus facility could be withdrawn. In case of other products, this limit stood at 17.5 per cent increase that could also lead to the withdrawal of GSP Plus.

But, GSP Plus gains will materialise when Pakistan takes appropriate steps to remove supply-side bottlenecks, especially in the context of energy shortages and tough conditions relating to compliance with EU requirements for GSP Plus qualification. Among others, these conditions include granting permission for third party evaluation review to gauge Pakistan’s performance on 27 conventions.

Pakistan has ratified all conventions listed as requirements for GSP Plus qualification. Sources said that similar to the IMF, now there will be another review by the EU to evaluate Islamabad’s performance on the 27 ratified conventions. To retain the GSP Plus status, therefore, Pakistan needs a sustainable development and good governance, including strict monitoring and combined efforts by textile manufacturers, exporters and government agencies.

Another critical aspect relates to the ceding of some powers by the federal government to the provincial governments. Pakistan government has already complied with this requirement by adopting the 18th Constitutional Amendment Bill in 2010. While the federal government is authorised to negotiate foreign treaties and is the authority that will deal with matters such as those related to the reporting and monitoring of the 27 conventions in the light of the EU’s GSP Plus 2014 scheme; on the ground implementation of the corresponding domestic legislation is the preserve of provincial governments.

Though constitutional devolution has occurred, provincial governments have so far neither developed the required legal framework or legislation for compliance with international obligations, nor authorised the federal government to act on their behalf in this matter.

In addition to granting GSP Plus incentive to 16 other countries, the EU has already granted incentives to India and China under its facility called "Everything But Arms" (EBA) so there will be tough competition among GSP Plus and EBA countries to maximise their benefits.

But, still the GSP Plus facility holds the promise of transforming Pakistan’s economy by reviving closed manufacturing facilities, attracting new investment, especially in sectors like value-added made-up textiles. Besides this facility will not only halt the trend of shifting or relocating of industries, especially textiles, to other neighbouring countries, it might bring them back and also encourage them to invest more in Pakistan.

However, to get maximum benefits from GSP Plus facility, Pakistan will have to diversify its exports. The EU consumers will benefit as well from cheaper imports from Pakistan. The EU is Pakistan’s largest trading partner. In 2012, total EU-Pakistan trade amounted to Euro 8.2 billion.

Considered worldwide an important cash crop, cotton has played a significant role in the industrial growth of many countries. According to Australian economist J.A. Schumpeter, England owes its ascendance to a single industry - the textiles. The same can be said of China and the rest of East Asia.

Japan used cheap labour to surpass England to become the leading exporter of cotton garments by 1930. When Washington forced Tokyo to accept ‘voluntary’ quota in 1955, Japanese investors’ instinct to stay in business impelled them to fund garment companies in Hong Kong, Taiwan and South Korea. Japanese intervention in East Asia led to the up-gradation and modernisation of garment industry in the region. In due course, labour-intensive garment factories laid the seeds for broad-based industrialisation in East Asia, working spectacularly in China after its opening up in 1980s.

Traditionally, some 60 countries had been exporting garments to the West. After expiry of the quota regime on January 1st, 2005, exports of several dozen of them had been witnessing a decline as trade and manufacturing consolidated in nations that excelled in skills, machinery, marketing techniques and the ability to cater to the rapidly changing global market trends and fashions.

Initially, China came on the top in efforts for control over $360 billion textile industry due to high quality of its garments, good managerial skills, state-of-the-art factories and rapid strides in communication. China’s garment industry, which stood at US$50 billion in December 2005, annually produced over 40 billion finished garments, roughly four pieces of clothing for every person on the Earth. However, of late, China’s garment industry has been losing orders due to high prices and worldwide demand for cheap clothing.

Meanwhile, Bangladesh and India have been striving hard to boost their textile exports. For Bangladesh, the recent global economic turmoil has proved a boon for its garment industry, which grew rapidly despite recession in some other countries. Following massive diversion of orders from China, Bangladesh’s garment sector has been more than compensated for the initial setback, which had impelled its over 5,000 apparel makers to seek government help when US and European buyers postponed and cut orders in the wake of global financial crisis. Now, Bangladesh has become the top choice for producing low-priced basic items like T-shirts, denim pants, sweaters and shirts.

Accounting for 80 per cent of exports and employing 40 per cent of industrial workforce, Bangladesh’s garment sector specialises in low-end clothing and is the impoverished nation’s main industry. Bangladesh has already emerged as the world’s second largest producer of apparel, according to IMF, and it might continue to dominate in the basic apparel sector if it scales up investment in new factories. To reap the bonanza, even some of Pakistan’s textile tycoons re-located their units to Bangladesh.

Pakistan is the fifth top cotton producing country in the world. In view of cotton sector’s great potential in the development, growth and progress of nations, all stakeholders in the country need to focus on value addition in cotton and production of quality products, keeping in view the demand in each and every region of the world. Increase in exports could bail out the country from its current economic crunch.