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Will Pakistan Partner with Russia?

Still riding high from the news that it was granted duty-free access to European markets under the Generalized System of Preference Plus (GSP), effective January 1, 2014, Pakistan is on the hunt for new trade partnerships. And feeling shunned by the U.S., it has looked north to Russia for potential collaboration.

Yuri Kozlov, head of the office of the Trade Representative of the Russian Federation, recently toured the Faisalabad Chamber of Commerce and Industry in Pakistan, and spoke hopefully about the opportunities for trade between the two nations, especially regarding their garment industries.

While Kozlov did not cite any specific future arrangements, he did mention the potential for reducing regulatory impediments to trade between the two nations. Already, the Russian government has been investing heavily in Pakistan’s energy sector, helping it deal with business-stymieing shortages. Russia’s assistance in this regard has gained it some diplomatic traction with Pakistan since its chronic energy shortages continue to undermine manufacturing across the nation, especially in Punjab, where many of the captive power plants are expected to be deprived of natural gas for the duration of the winter season. And more than 50 percent of the factories in Faisalabad have been shut down due to electricity shortages.

Winning GSP Plus status with the E.U. is a historic victory for Pakistan, one that is widely expected to have an enormous impact on its textile sector. Currently, the E.U. is Pakistan’s primary destination for its textile exports. Overall, Pakistan’s 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 E.U., in particular. The textile industry accounts for more than 50 percent of the nation’s total exports. While 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.

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Thirteen textile products are included on the list of those than can be exported duty-free to the twenty-seven members of the E.U., accountable for $231 million worth of goods last year. Some are predicting this will increase Pakistan’s exports to the E.U. by $1 billion.

Nevertheless, Pakistan has felt stung by the U.S.’s resistance to granting it comparable preferential status. Repeatedly, Sheikh Ilyas Mehmood, chairman of the Pakistan Textiles Exporters Association (PTEA), has urged the U.S. to consider a free trade agreement with the South Asian nation. The U.S. has spurned its advances, leaving tensions in the wake of recent trade discussions. The U.S. is Pakistan’s biggest trading partner, importing nearly $4 billion worth of its goods per year, including textiles. Mehmood believes that number could quickly rise as high as $6 billion if Pakistan had increased access to U.S. markets as well as the friendly transfer of some technologies.

According to some experts, Pakistan is compelled to broaden its search for new trade partnerships beyond the U.S. Russia’s geographical proximity, and its growing textile industry, make it an attractive candidate for such an arrangement.

Russia currently exports about $10.78 billion in clothing and textiles, making those sectors a significant portion of its commerce outside its central energy industry. And recently, its Ministry of Culture has been exploring creative ways to expand its textile and apparel exports, potentially by developing its own cotton, particularly in its Astrakhan, Stavropol and Kalmykia regions. As it stands, garment and textile trade between Russia and Pakistan has been limited. Last year, Muhammad Farooq Afzal, chairman, Pak-Russia Business Council, opined that this was largely due to a lack of official encouragement from Pakistan’s government.