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EU-Vietnam FTA, expiry of GSP+ may hit Pakistani exports

Business Recorder - 28 October 2020

EU-Vietnam FTA, expiry of GSP+ may hit Pakistani exports

Pakistani exporters fear that a Free Trade Agreement (FTA) between Vietnam and European Union (EU) and expiry of GSP+ status in 2023 will severely hit Pakistan’s exports to European countries.

The European Union and Vietnam signed a FTA and an Investment Protection Agreement (IPA) on June 30, 2020, which entered into force from August 1, 2020. The pact has liberalized the majority of import duties imposed by the EU and Vietnam for goods originating from other countries. In normal circumstances, concessional agreements are implemented from the start of a calendar year however Vietnam got the incentives after very successful trade diplomacy.

The sources said, renowned international brands buyers have already started negotiations with sourcing in Vietnam to shift their orders from Pakistan fearing that after 2023 duties on Pakistani imports will be affected in case GSP+ status is not extended.

"Buyers negotiate its future plans keeping in view their four or five year projected demand. International buyers are now holding business discussions and sampling," the sources said adding that businesses may divert to Vietnam in 2022 and Pakistan will then bear the brunt even before expiry of GSP status. Buyers will start giving trial orders in 2021.

The EU-Vietnam agreement is the most comprehensive trade agreement that EU has concluded with a developing country.

"If GSP+ plus status is not extended to Pakistan after 2023, Pakistani exports, which are 11 per cent of its total exports will be hit and a decline will start from 2021," said, Ijaz Khokar, Chief Coordinator, PRGMEA.

The European Union will revise all regulations and criterion about Generalized Scheme of Preferences plus (GSP+) in 2023, which will change the scope of existing incentives available to different countries.

In 2020, the EU had extended GSP plus status for Pakistan till 2022. In 2019, the EU-Pakistan trade deficit increased by 1.947 billion Euros (surplus for Pakistan) which implies that Pakistan ’s exports to the EU increased while its imports from the EU registered a decline from 5.652 billion in 2018 to 5.545billion (decline by 1.89 per cent) year on year basis. The overall trade increased by 3.78 percent from 13.562 billion Euros to 13.037 billion Euros in 2018 and 2019 respectively.

The sources said Pakistan’s exports to EU have increased by 65.09 per cent since 2013 whereas imports from Europe posted a growth of 44.43 per cent during this period.

The EU imports from Pakistan continue to surge while the EU exports to Pakistan are witnessing a downward trend due to two key reasons: (i) low demand by the manufacturing sector as Pakistan’s economy is going through sluggish growth since 2018; and (ii) Pakistan’s overall imports are generally decreasing due to government policy to discourage imports in order to address burgeoning trade deficit.

If GSP plus status to Pakistan is not granted after 2023 it should seek Bangladesh model i.e. Least Developed Country (LDC) status, he added.

Pakistan’s exports are down after peaking at $ 25 billion in 2013 whereas Bangladesh exports are around $ 40-50 billion per annum which implies that Pakistan deserves LDC status.

"Next year will be struggling year for Pakistan and if international buyers start giving preference to Vietnam, India or Bangladesh we will be hit severely," Khokhar continued adding that due to Covid, international orders shifted to Pakistan from China, India and Bangladesh and exports posted some growth but the government is not providing a business friendly atmosphere to SMEs which are the backbone of exports.

He further stated that the government should have extended interest free loans to SMEs so that they can stand on their feet.

In recent months, Pakistan received substantial orders of home textiles which have slowed down due to re-emergence of Covid-19. Indian and Bangladesh export orders were diverted to Pakistan due to Covid but both countries have re-established their orders after extensive marketing at international level though neither are getting new orders.

Commerce Advisor, Abdul Razak Dawood confirmed that Bangladesh has managed to maintain slightly positive growth. "This may give rise to increased competition and hence our exporters need to be all the more aggressive," he said, in a tweet, indicating that Pakistan’s export performance in October will not be satisfactory.

 source: Business Recorder