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India Loses Major Market Share to Pakistan Over EU GSP

In the last two years, Pakistan’s Generalized System of Preferences (GSP) Plus trade status with the European Union has cost India market share in 37 textile products.

The EU granted Pakistan duty-free trade privileges for more than 3,500 products under GSP in 2013, and though Pakistan hasn’t been able to fully capitalize on the status for a host of reasons, including a lack of the latest technical and fabric innovations, GSP has still been a boon for exports.

Where Pakistani manufacturers are shipping fabrics and garments to the EU sans tariffs, Indian exporters pay a 9.6% export duty for made-ups and garments, and a 6.5-8 percent duty on fabric, which makes Made in India goods more expensive.

“It is a matter of deep concern that India has already lost market share to Pakistan in 19 textile and 18 clothing products (37 products in all) during calendar year 2014 due to the preferential access extended by the European Union to that country under the Generalized System of Preferences plus scheme,” chairman of Cotton Textiles Export Promotion Council (Texprocil) R.K. Dalmia told Business Standard.

In 2015, the EU took in 2.59 billion euro ($2.92 billion) worth of textiles from India, a 5 percent increase over the previous year, compared to 2.28 billion euro ($2.57 billion) from Pakistan, which was an 11 percent jump from 2014, according to the Textile and Clothing Information Centre (CITH).

The EU imported 5.14 billion euros ($5.79 billion) worth of clothing from India, an 11 percent increase, and 2.28 billion euro ($2.57 billion) in clothing from Pakistan, 25 percent more than the prior year.

If growth continues as it has, it won’t be long before Pakistan gains additional ground on India.

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Pakistan has been having its own struggles with trade—its exports have taken a hit in the face of rising import and commodity costs, an imposed Gas Infrastructure Development tax and some of the region’s highest electricity tariffs—so losing additional business to India could do decent damage to the ailing industry.

“If urgent action is not initiated to address the issue then India would lose its market share in many more items,” Dalmia added. His solution? India and the EU need to sign a free trade agreement.

The two countries launched talks on the topic in 2007 but negotiations, according to the European Commission, are “ongoing.” The FTA would be one of the most significant trade agreements, the Commission said, and it would affect the lives of 1.7 billion people.

Talks have been stalled for a time, and seemingly little progress was made on the FTA negotiations at a summit meeting in Brussels in March. In a joint statement at the end of March, India and the EU said, “Both sides have re-engaged in discussions with a view to considering how to further the EU-India Broad-based Trade and Investment Agreement (BTIA) negotiations.”