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Pakistan Fears Vietnam-EU FTA Could Further Fuel Export Declines

Pakistani manufacturers have been pleading with the government for months to correct conditions plaguing the industry’s exports, and now many fear the free trade agreement between Vietnam and the European Union will weigh even further on Pakistan’s competitiveness.

Vietnam and the EU reached an agreement to remove nearly all tariffs on goods traded between them in August last year and Pakistan could lose its share of EU garment exports to Vietnam—a fact it can’t afford to face as exports there have been in decline for more than six months.

In October, Pakistan’s exports fell more than 10 percent and the downward trend is expected to continue as manufacturers battle to afford higher import costs, rising commodity costs, the imposed Gas Infrastructure Development tax and electricity tariffs among the highest in the region.

Last month, some mills in Pakistan submitted notices of closure to the government, threatening to shutter if the country didn’t make moves to restore competitiveness.

Pakistan is also suffering from pests that have razed enough of the cotton crop that production levels for the 2015/16 season have fallen by 800,000 bales to 7.2 million—the lowest the country has seen in 18 years.

Even though the EU granted Pakistan GSP Plus status, which affords duty free trade privileges for more than 3,500 different products, Pakistan hasn’t capitalized on the status and stakeholders feel Vietnam will capture Pakistan’s value added textile exports as a result. That Pakistan is lacking the latest technical and innovative fabrics, doesn’t bode well for its competitiveness either.

According to an article in The Nation, Pakistan Readymade Garment Manufacturers and Exporters Association (PRGMEA) chief coordinator Ijaz Khokhar warned the government that failure to address the country’s pressing issues could cause the continuous drop in exports to widen further.

“Vietnam is emerging market of garment and has become a major threat particularly for Pakistan vale added textile sector after striking FTA with EU, as the country is already exporting $23 billion garments against Pakistan’s just $5 billion textile value-added goods,” Khokhar said.

PRGMEA north zone chairman Sohail A. Sheikh added that Pakistan needs sector-wise policies developed with stakeholder consultation to help boost the country’s exports and take advantage of the GSP status, and that the government should take “drastic” steps to correct conditions.