EURATEX Raises Concerns about Pakistan’s Membership in the EU GSP+ Program

In a statement released on November 4, 2013, the European Apparel and Textile Confederation (EURATEX) openly expressed their opposition to the proposed “unique delegated act” for the EU Generalized Scheme of Preferences plus (GSP+) program. Specifically, the EURATEX strongly questioned Pakistan’s qualification as a beneficiary of the GSP+ , saying that “Pakistan has a poor record in matters related to Human rights and in particular to the protection of religious minorities, women and children .”

As put by Mr. Alberto Paccanelli, president of the EURATEX: “During the recent GSP revision it was repeatedly stated by the EU Commission that one of the main objectives of the new regime was to ensure that preferences were given to the countries that need them and in the case of GSP+ to countries that are promoting high Human, Social and Environmental standards.”

The GSP system is an EU trade policy tool specifically designed to help developing countries expand exports to the European Union markets. Beneficiaries of the GSP program can enjoy special favorable market access conditions such as tariff reduction and quota elimination.  For example, the EU charges an average 6.2% and 11.2% tariff rate for textile and apparel imports respectively from most sources, but the rates are lowered to 5.0% and 9% respectively for imports from GSP beneficiaries.

As part of the GSP system, the GSP+ program provides additional market access preferences to those economically and socially vulnerable countries under the condition that these countries will “implement core human rights, labor rights and other sustainable development conventions.” For example, textile and apparel imports from beneficiaries of the GSP+ program will be waived for import tariffs in the EU market. This will substantially improve the price competitiveness of products from the GSP+ beneficiary countries when competing with Asian suppliers such as China and India.

Despite the emphasis on Pakistan’s human right practices, the real factor driving EURATEX’s opposition to Pakistan’s membership in the GSP+ program could be market competition.  Pakistan is one of the most competitive textile and apparel exporters among the GSP beneficiaries. Data show that Pakistan’s textile and apparel exports to the EU market enjoyed robust growth over the past decade, causing the EU domestic textile & apparel manufacturers to become nervous about import competition.  The EURATEX, which represents the commercial interests of the EU local textile & apparel industry, has consistently opposed EU’s duty free access to Pakistan’s textile and apparel products.

Moreover, under the EU GSP system, there is a mechanism called “graduation of competitive sector”, under which imports of particular groups of products originating in a given GSP beneficiary country will lose GSP preferences once the average imports of this particular sector exceed 15% of GSP imports of the same products from all GSP beneficiary countries (12.5% for textile and clothing). However, the “graduation of competitive sector” mechanism will not be applied to GSP+ members. This means that if Pakistan becomes a GSP+ member, the EU domestic textile and apparel manufacturers may have to face increasing import competition from Pakistan but can do little about it.  

The most critical yet controversial part of the debate is, to which extent, the GSP system can be built into an effective and balanced development tool. According to a 2012 World Bank study, “the textile and apparel sector is THE most important manufacturing sector of Pakistan, which generated one-fourth of the country’s industrial value-added, recruited more than 40% of industrial labor force, contributed 8% of the country’s overall GDP and accounted for about 60% of Pakistan’s total merchandise exports.”  That being said, allowing Pakistan to export more textiles and apparel to the EU market is one of the very few ways to make the GSP system work and bring actual benefits to the country. Yet, the EU domestic textile and apparel industry can also cite statistics, arguing the necessity of protecting the domestic textile mills and saving the jobs there by resisting as many textile and apparel imports as possible.

On the other hand, the GSP system needs to take into consideration the benefits of all beneficiaries, especially to avoid creating “losers” and “winners” within the group. This is the philosophy behind the introduction of the “graduation of competitive sector” mechanism so that the interests of those “small countries” can be particularly taken care of. For example, when Pakistan is gaining additional market shares in the EU textile and apparel import market because of the GSP+ status, other less competitive developing countries may see decline of their exports. The textile and apparel industry is as important to these “losers” as it is to Pakistan.

Overall, the GSP debate reflects the significance and the complexity of the textile and apparel sector in the 21st century global economy.  Particularly, trade policy will continue playing a key role in improving the situation, yet it calls for courage and wisdom of policymakers.

by Sheng Lu

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Author: Sheng Lu

Professor @ University of Delaware

3 thoughts on “EURATEX Raises Concerns about Pakistan’s Membership in the EU GSP+ Program”

  1. The proposed “unique delegated act” as part of the EU Generalized Scheme of Preferences plus (GSP+) sheds light on a common issue facing the textile industry and trade agreements in the modern world. Here, in order for EURATEX to provide additional market access to Pakistan, the country must be positioned as economically and socially vulnerable (which it is) and must implement core human and labor rights. Pakistan has recently, and on multiple occasions, been accused of not treating their workers with the same social standards as other countries. Earlier this year, the Asian Human Rights Commission published this piece: http://www.humanrights.asia/news/forwarded-news/AHRC-FPR-028-2013 , which explains the conditions of Pakistani factories as being similar to those that we learned about in Bangladesh. On the flip side, trade organizations similar to EURATEX have to find a balance between human rights and opening market access to countries that benefit each other economically. Human rights and other social issues provide incentive for opposition to open trading agreements with countries all over the world and countries have continued to struggle to find a balance between both economic and social issues and since both are on the opposite spectrum, it makes me question if trade agreements will ever be able to find a “fair” balance between the two.

  2. The fact that EURATEX is so openly against the country of Pakistan joining the GSP+ program, raises concerns on why exactly they are so against it. As said in the above blog post, EURATEX believes that “Pakistan has a poor record in matters related to Human rights and in particular to the protection of religious minorities, women and children.” The blog post tells us that the president of EURATEX has stated that the GSP+ system wants “ensure that preferences were given to the countries that need them and in the case of GSP+ to countries that are promoting high Human, Social and Environmental standards.” According to EURATEX, Pakistan has not met these standards and they should not be allowed to participate. I agree with this statement 100%. Pakistan is required to make certain changes to join this group, and these changes will reflect positively on the working conditions for those who work in the Textile and Apparel industry in Pakistan. If Pakistan makes these changes and they are done properly and ethically, then I think Pakistan should be allowed to participate in the GSP+ system. If the changes are not met, then they can continue to work on them and only then should they be allowed.
    The GSP+ system is a great way to persuade countries to change their working conditions so that they are permitted to participate in it, and I think it can be used as a great tool to promote human rights in the workplace.

    1. I completely agree with Molli. Yes, Pakistan is a country that is not economically or socially well but they shouldn’t be allowed to be a part of the GSP+ program when they have such horrible working conditions. This is similar to our first case study about the factory fire in Bangladesh. The reason the fire happened in the first place was because of the horrible conditions of the factory and all of the fire and safety regulations that were being broken. This could easily happen in Pakistan as well so why should they be allowed to get benefits from being in the system when they can’t even treat their employees’ right? The GSP+ program is a great way for countries to gain more access to markets which will overall benefit their own industry. If Pakistan were to fix these conditions I think that they should be allowed to be a part of the system. Another issue mentioned in this article though was the fact that the exclusion of Pakistan from the GSP+ program could also be because of how competitive their market it. This is not a fair reason to exclude them but at the same time, they need to consider everyone under the system when making decisions. Being included into the system would be extremely beneficial for Pakistan but not so beneficial to other countries that cannot compete with Pakistan’s textile and apparel industries.

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