Wednesday, February 12, 2014

GSP PLUS: Does Pakistan have critical mass?

Majyd Aziz

Pakistan’s exporters, as well as the Commerce and Foreign Ministries, went through an anxiety mode in the first week of December 2013 and erupted in a sense of euphoria when the European Parliament announced that Pakistan would also be a beneficiary of the GSP Plus status from January 01, 2014 subject to governing regulations as stipulated under Regulation 978/2012 of October 2012.

Pakistan has met the eligibility criteria of vulnerability (less than 2% market share), low diversification (less than seven products constituting more than 75% of its exports to the EU), and sustainable development and good governance commitments (ratification and promised implementation of 16 human rights and labor rights conventions, plus 11 conventions covering environment, anti-terrorism, anti-narcotics etc). The status also boosts the position and image of Pakistan not only in Europe, but more importantly, it sends a positive message to the global marketplace.

Pakistan’s exporters and policymakers must understand that complacency would no more be a cop-out and that strict adherence to the regulations must be the key objective. The initial benefit is only for three years, extendable to ten depending on Pakistan’s performance within the prescribed framework. These could be withdrawn if Pakistan is unsuccessful in pragmatically implementing any of the 27 conventions. It is important to note that the scheme also defines a specific role for third party umpiring to ascertain strict compliance. Pakistani exporters must also keep in focus the fact that unfair trade practices could trigger negative evaluation. Moreover, global requirements of Sanitary and Phyto-Sanitary and Technical Barriers to Trade would weigh heavily in future decisions. All in all, Pakistan must develop the mindset of benefiting from GSP Plus and must ensure that this is not vitiated due to incautious, intentional or inadvertent actions by the stakeholders. The dice is loaded against Pakistan, and to even out the odds, the country must be seriously ready to pluck the ripe fruit.

The ecstatic phase is now over. Everyone who needs to be patted on the back has been given the bear hug and the usual sycophantic plaudits. The media hype, the applause from Stock Exchanges, the self-congratulatory statements of Ministers and party faithful, and the usual bragging and boasting of extra billions to be earned have all been highlighted and projected. This is the time to indulge in introspection and get into the real time mood. Does Pakistan have the critical mass to achieve the national objectives of maximum benefits from GSP Plus?

This is the time to take stock of the ingredients that make the foundation for achieving these formidable benefits. This is the time to spotlight the crucial physical infrastructure. In the textile sector, for example, Pakistan has ample spinning, weaving and stitching capacity but needs to develop the dyeing and printing sector. The deficiencies in textile processing are more a result of shortages of electricity, gas, and in some areas, water. This here, then, hangs the proverbial Damocles Sword on the textile industry. The braggadocio emanating from the portals of the Commerce Ministry or from the offices of some business leaders, who crave every opportunity to make a statement, belies the ground reality. The oft-touted figure of increased exports of $2 billion is, for some years, a pie-in-the-sky projection. Conventional wisdom puts the number within the $500-$550 million range, atleast for 2014, and a promising increase by $750-$800 million in 2015.

There would be many who would term this as pessimism oozing out of the honey pot, but facts are facts. Power is the prime ingredient. According to a report compiled by the Swiss Consulate General in Karachi, Due to a fast growing demand, high system losses, fuel supply limitations and seasonal reduction in the availability of hydropower, the gap between the demand and supply of electricity is resulting in routine load shedding. Inadequate power generation capacity is just one of the factors affecting power supply. The present average short fall in the supply demand gap is between 4,500-6,000 MW.” The installed capacity is around 22,000 MW although generation is less than 60%. Moreover, corruption, theft, and mismanagement are debilitating causes. Heavy reliance on fossil fuels and sluggishness in developing alternate renewable energy further compound the situation. 175 billion tonnes of Thar coal reserves are still years away while Kalabagh Dam continues to be a staple source of war of words among vested provincial interests. New initiatives are announced and umpteen MOUs signed. Net-net, Pakistanis bear loadshedding, more so in the rural areas. 

Pakistan also faces the natural gas crisis. Liberal use of gas, without an eye to the future, is depleting the strategic reserves. Where industry should have been accorded priority, the policymakers allowed CNG filling stations to be set up all over the country. Fortunately, better sense has prevailed and there is now a managed closure of these stations on designated days. Even today, captive power plants installed in various industrial units have to suffer one to two days of closure. Per capita gas consumption has increased from 150 cubic meters per person to 230 cmpp during the last ten years. The proven gas reserves have registered a dip in the last year by about 100 billion cubic meters. Meantime, the Iran-Pakistan Gas Pipeline is still nothing but a pipedream. And, import of LNG has become a political shuttlecock instead of an imperative alternative.

Karachi’s industrial areas suffer from water shortages. This, of course, is manna for the tanker mafia who extract their pound of flesh from the hapless industrialists. Although skilled labor is available, there is a pressing need to impart training to new workers and to re-train the existing workforce to operate the latest machinery and equipment. Another factor that has made life miserable is the law and order situation that just does not allow a peaceful environment. The depreciating Rupee, escalating inflation, pathetic roads network, high-handedness of government bureaucracy, fear of rising discount rate, and ever-changing government policies are other disconcerting factors that ensue into an unbridled upsurge in the cost of doing business. Growth in exports depends on a favorable domestic environment. Exports must have national ownership as is the case in Bangladesh and China. All stakeholders need to be on the same page, especially if the GSP Plus benefits are to be reaped for a decade. Dennis Hastert, former Speaker of US House of Representatives, very correctly stated that “Trade creates jobs and lifts people out of poverty. And when that happens, societies stabilize and grow. And there is nothing like a stable society to fight terrorism and strengthen democracy, freedom and the rule of law.”

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