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Pakistan’s GSP Status with EU Could Be Worth $1 Billion; Energy Shortages Still Worrisome

Now that Pakistan has been granted duty-free access to European markets under the Generalized System of Preference Plus (GSP), effective January 1 2014, industry analysts are predicting an enormous impact on textile exports.

Currently, the EU is Pakistan’s primary destination for its textile exports. As it stands, overall textile exports topped $13.06 billion last fiscal year, including $2.7 billion worth of yarn and $2.5 billion of fabric to Bangladesh, specifically. Pakistan’s exports have grown by approximately 12.5% per year, with a growth of 10.3% to the EU, in particular. The textile industry accounts for more than 50 percent of the nation’s total exports. While the forecasts regarding the full reverberations of the new status for Pakistan vary widely, many predict growth by as much as 100 percent over the next four years.

The new status for Pakistan was approved by a majority vote by the European Union (EU) and is expected to have an sizable impact on its exports, affecting more than 3,500 different products.

While the new GSP status doesn’t exclusively advantage Pakistan’s textile industry, it should be among the biggest beneficiaries. Bilal Qamar, an analyst at JS Research in Karachi, said, “The domestic textile industry is likely to take the benefit of adding value itself and increase direct exports to the EU after GSP Plus status.” He also anticipated more than 20 percent of Pakistan’s exports would be allowed to enter European markets completely tariff free.

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However, there are still anxieties that growing energy shortages will result in Pakistan squandering its newfound competitive advantages. For example, many of Punjab’s captive power plants are expected to be deprived of natural gas for the whole of the winter season.

Sheikh Mohammad Ilyas, chairman of the Pakistan Textile Exporters Association (PTEA), said, “The EU trade concessions can push our textile exports and generate significant economic activity. But much will depend on regular availability of regular supply of gas and electricity to operate factories.” An estimated 40 percent of Punjab’s textile manufacturing capacity is expected to be stymied by the gas shortages. This is especially worrisome since nearly 80 percent of of the industry’s overall capacity is located in Punjab.

The stakes are unusually high for Pakistan given the great significance of the EU as a trading partner. Thirteen textile products are included on the list of those than can be exported duty-free to the  the 27 members of the EU, accountable for $231 million worth of goods last year. Some are predicting this will increase Pakistan’s EU exports by $1 billion.