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Spurned By US, Pakistan Looks to EU for GSP Status

For all the talk about Pakistan seeking special trading status with the US under its Generalized System of Preferences (GSP),  successfully cozying up to the EU might be more likely, and maybe just as economically impactful.

In a jointly released press statement, Sheikh Ilyas Mahmood and Adil Tamir, chairman and vice chairman respectively of the Pakistan Textile Exporters Association (PTEA), both expect Pakistan’s textile industry to win long-awaited GSP status from the EU, granting it duty-free access to its markets. 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.

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.

Still, Pakistan maintains a keen eye on the prize of GSP status with the US, as well. Mahmood has been forcefully trying to convince the US to grant it duty-free access to its markets as part of an overarching free trade agreement. The US is Pakistan’s biggest trading partner overall, importing nearly $4 billion worth of its goods to it per year, including textiles. Mehmood believes that number could quickly rise as high as $6 billion if Pakistan had increased access to US markets as well as the friendly transfer of some technologies.

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Mahmood argues that a free trade agreement with Pakistan would redound to the benefit of the US, given the quality and low cost of its textiles. Pakistan aims to position itself as a major exporter in light of the rising costs of China and the political riskiness of Bangladesh.

Nevertheless, there are reasons to believe that the US is reluctant to commit to such an arrangement with Pakistan. This month Pakistani Prime Minister Nawaz Sharif visited the US for three days, advocating, among other things, closer hewn bilateral ties. Despite an aggressive sales pitch, the White House demurred, preferring to remain ambiguous regarding Pakistan’s prospects. Nothing was definitively concluded and US Trade Representative Michael Froman invited his Pakistani counterpart to meet with him in Washington and further discuss future plans. All that was agreed upon was a continuation of the discussion over the next five years, and the staging of a third US-Pakistan Economic Opportunities Conference next year.

Many interpreted the inconclusiveness of the agreement as a failure of commitment on the US’s part to certify a still largely informal partnership, especially regarding trade issues. Many noticed that Sharif made no mention of future GSP status at the press conference before his departure back to Pakistan, a discouraging sign for those recommending stronger ties.

Despite the progressive growth of its textile industry, Pakistan has had its share of economic troubles. A steep rise in gas and electricity prices will likely consume much of the additional revenue textile exportation produces. The gas tariff for captive power plants has risen by 17.4% and electricity rates for industrial units has skyrocketed 57% in recent months. And Pakistan’s stalwart regional competitor, India, is anticipating a big year as well, forecasting $17 billion in textile exports.