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Pakistans accession to GSP Plus Status under EU GSP Scheme, Regulation 978/121IntroductionPakistan Textiles Value ChainTextiles Value Chain 3Capacity of Textile SectorThe textiles sector in the country represents a complete value chain. 13-15 million bales of cotton production1200 ginning mills500,000 tons capacity of PTA production650,000 tons of manmade fibres including polyester fibre21 filament yarn units having capacity of 100,000 tons capacity11.3 million spindles, 0.03 million rotors35,000 shuttle-less looms, 350,000 power looms18,000 knitting machinesAround 765 processing units700,000 industrial stitching machines4Importance of Textiles SectorShare in national value added (GDP)8%Share in industrial value added (GDP)23%Share in total exports53%Share in industrial employment40%Share in banking credit (manufacturing) 36%Source: Economic Survey 2012-13/TDAP website, SBPPakistan Standing in World Cotton PercentRankProduction9.54thConsumption10.03rdYarn Production9.03rdYarn Export26.02ndCloth Production7.03rdCloth Export14.03rd Total Textiles Export2.015thSource: ICAC

Value Addition in Textiles Value ChainSub SectorValue addition %US$ Value (per Kg) lower slabsWoven Garments84617.76Knitwear61613.44Bed ware3638.69Processed Fabric3338.13Cotton Fabric (grey)2696.93Towels1434.56Yarn592.98Analysis of UN Comtrade Figures7Export Dynamics of PakistanRecent Export PerformanceTextiles exports during the last six years have failed to reflect the true potential of the sector:US$ BillionSource: TDAPSupply Chain*5% Kg loss on ExportsM&P Diversification of textiles PakistanProduct Wise: 13 products share more than 50% of textile exportsPer Unit Export ValuesEurostat FiguresPakistanIndiaChinaBangladeshTurkey2008201220082012200820122008201220082012610510Cotton Knit Shirts8.8112.8414.4018.1812.9519.507.4811.2525.2128.45620342Denim Trouser8.6911.8016.1320.178.9811.867.0311.1519.6222.54630231Woven Bedsheets4.395.995.387.636.687.813.987.086.808.17630260Towels2.984.454.215.523.555.523.034.596.717.28Regional Competitors US$ MillionSource: UN ComtradeMarket PatternsImport Mix of USAIn 2007 the ratio was 50.63% and 27.65% respectively.Product IdentityCottonMMFTextile Material Not SpecifiedOthersWoolSilkVegetableMetalRubberTotalGarments39.38%22.96%5.60%3.66%2.81%0.52%0.00%0.00%0.00%74.93%Made-ups4.35%2.06%3.47%0.13%0.03%0.00%0.00%0.00%0.00%10.04%Fabric0.97%2.40%0.58%0.01%0.15%0.15%0.15%0.00%0.00%4.41%Other Products0.09%1.43%1.25%0.11%0.00%0.00%0.07%0.00%0.00%2.94%Special Fabrics0.05%0.79%1.39%0.04%0.01%0.00%0.00%0.00%0.00%2.29%Yarn0.15%1.69%0.00%0.00%0.12%0.01%0.05%0.02%0.00%2.05%Carpets & Carpeting0.00%0.82%0.27%0.28%0.61%0.00%0.02%0.00%0.00%2.00%Raw Material0.01%1.12%0.00%0.00%0.06%0.00%0.03%0.00%0.00%1.21%Thread0.01%0.04%0.00%0.00%0.00%0.00%0.00%0.00%0.03%0.08%Waste0.02%0.02%0.00%0.00%0.00%0.00%0.01%0.00%0.00%0.05%Total45.04%33.33%12.55%4.24%3.78%0.68%0.34%0.02%0%US$ 107 bImport Mix of GermanyIn 2007 the ratio was 41.81% and 33.74% respectively.Product IdentityCottonMMFTextile Material Not SpecifiedWoolOthersSilkVegetableMetalRubberTotalGarments35.57%19.79%5.39%3.87%4.87%0.34%0.00%0.00%0.00%69.83%Fabric1.71%4.52%0.86%0.57%0.01%0.11%0.11%0.00%0.00%7.89%Made-ups2.44%1.60%2.23%0.02%0.14%0.00%0.00%0.00%0.00%6.44%Yarn0.54%2.62%0.00%0.57%0.00%0.06%0.10%0.02%0.00%3.91%Raw Material0.23%2.07%0.00%0.98%0.00%0.02%0.04%0.00%0.00%3.33%Special Fabrics0.11%0.93%2.08%0.01%0.03%0.00%0.00%0.00%0.00%3.16%Carpets & Carpeting0.00%1.46%0.42%0.44%0.19%0.00%0.01%0.00%0.00%2.51%Other Products0.09%1.19%0.90%0.00%0.22%0.00%0.02%0.00%0.00%2.43%Waste0.12%0.10%0.00%0.01%0.00%0.02%0.01%0.00%0.00%0.26%Thread0.02%0.20%0.00%0.00%0.00%0.00%0.00%0.00%0.02%0.24%Total40.83%34.46%11.88%6.47%5.46%0.55%0.29%0.02%0%US $ 46 bImport Mix of JapanIn 2007 the ratio was 37.66% and 37.76% respectively.Product IdentityMMFCottonTextile Material Not SpecifiedWoolOthersSilkVegetableMetalRubberTotalGarments34.52%25.47%5.27%5.78%5.49%0.45%0.00%0.00%0.00%76.98%Made-ups1.83%2.67%3.25%0.02%0.05%0.00%0.00%0.00%0.00%7.82%Fabric2.36%0.83%0.60%0.55%0.01%0.16%0.09%0.00%0.00%4.60%Yarn1.94%0.65%0.00%0.46%0.00%0.19%0.08%0.00%0.00%3.33%Other Products1.71%0.36%0.76%0.00%0.03%0.00%0.01%0.00%0.00%2.87%Carpets & Carpeting1.09%0.00%0.35%0.14%0.17%0.00%0.00%0.00%0.00%1.75%Raw Material0.39%0.38%0.00%0.45%0.00%0.08%0.03%0.00%0.00%1.32%Special Fabrics0.51%0.06%0.54%0.00%0.03%0.00%0.00%0.00%0.00%1.14%Waste0.03%0.04%0.00%0.02%0.00%0.01%0.01%0.00%0.00%0.11%Thread0.06%0.00%0.00%0.00%0.00%0.00%0.00%0.00%0.03%0.09%Total44.43%30.46%10.77%7.41%5.78%0.89%0.23%0.00%0%US$ 41 bIntroduction to the SchemeGSP Plus SchemeArticle 9 and Annexure VII of Regulation 978/12 A GSP beneficiary country may benefit from the tariff preferences provided under the special incentive arrangement for sustainable development and good governance if they have:

Less than 2% share in imports of EU and seven largest GSP sections of its imports into the Union of products listed in Annex IX and represent more than the threshold of 75 % in value of its total imports of products listed in that Annex, as an average during the last three consecutive years And

Ratified all the conventions listed in Annex VIII of the Regulation, undertaking for maintaining the ratification, accepting of regular monitoring and reporting in accordance to the conventions etc.IncentiveArticle 12 The Common Customs Tariff ad valorem duties on all products listed in Annex IX which originate in a GSP+ beneficiary country shall be suspended

Graduation/Removal of IncentiveArticle 10(5) Where a GSP+ beneficiary country no longer fulfils the conditions referred to in points (a) or (c) of Article 9(1), or withdraws any of its binding undertakings referred to in points (d), (e) and (f) of Article 9(1), the EU may remove the concessions.

Graduated from vulnerability parameter i.e. 2% of EU Imports or 75% product diversificationFailure in implementation of ratified conventionsFailure to maintain ratification of the conventionsReservation in the process of monitoring and review as per ratified contentions Failure to participate and cooperate in monitoring process according to Article 13GSP+ Scheme CoverageArticle 11 and Annex IX, EU Regulation 978/12The products included in the special incentive arrangement for sustainable development and good governance (GSP+) are listed in Annex IX of the Regulation

Annex IX includes complete textiles and clothing value chain i.e. Harmonized commodity description and coding System (HS) chapters 50 to 60 under Section 11a and chapters 61 to 63 under Section 11b

Duration of the SchemeArticle 43(3)

The scheme shall apply until 31st December 2023. However, the expiry date shall neither apply to the special arrangement for the least-developed countries, nor, to the extent that they are applied in conjunction with that arrangement, to any other provisions of this RegulationReporting MechanismArticle 14By 1 January 2016, and every two years thereafter, the Commission shall present to the European Parliament and to the Council a report on the status of ratification of the relevant conventions

That report shall include: the conclusions or recommendations of relevant monitoring bodies in respect of each GSP+ beneficiary country; and the Commissions conclusions on whether each GSP+ beneficiary country respects its binding undertakings to comply with reporting obligations, SafeguardsArticle 29

Under this Article, the Commission can remove tariff preferences in face of certain trade performance criteriaIncrease by at least 13,5 % in quantity (by volume), as compared with the previous calendar year

Those products of a country which exceed 6% of total EU imports of that product referred to in Article 29(1), shall attract the above restriction.

Rules of OriginArticle 33, To benefit from the tariff preferences, the products for which the tariff preferences are claimed shall originate in a beneficiary country

For the purposes of the preferential arrangements referred to in Article 1(2) of this Regulation, the rules of origin concerning the definition of the concept of originating products, the procedures and the methods of administrative cooperation related thereto shall be those laid down in Regulation (EEC) No 2454/93

Products originate in a particular beneficiary country if they are:wholly obtained in that country, orsufficiently worked or processed there

Example of Rules of OriginManufacture of a garment starting from non-originating yarn confers origin. This means that weaving and all subsequent manufacturing stages must be carried out in the beneficiary country. HS HeadingDescription of ProductQualifying Operation (Working or processing, carried out on non-originating materials, which confersoriginating status)For LDCsOther Beneficiary countriesChapter 61 (Knit Garments)Obtained by sewing together or other wise assembling two or more pieces of knitted fabricManufacture from FabricKnitting and Making up (including cutting)Regional Cumulation Groups that may benefit from Regional Cumulation are four:

Group III: Bangladesh , Bhutan , India , Maldives , Nepal , Pakistan, Sri LankaMaterials originating in one country of the group which are further worked or processed in another beneficiary country of the same group are considered to originate in the latter country.

Regional cumulation between countries in the same regional group shall apply only under the condition that the working or processing carried out in the beneficiary country where the materials are further processed or incorporated goes beyond the minimal operations set out in Annex 16Pakistan and the SchemePakistans application for attaining the status of a GSP Plus Beneficiary has cleared all pre-requisites and procedures successfully.

Pakistan has won majority of the votes of MoEP in its favor through well planned and coordinated efforts

The benefit of zero rate duty will be applicable to Pakistani products entering in EU on or after January 01, 2014.

EU MarketTotal EU Imports is around US$ 2.1 t

EU imported US$ 113 b worth of textiles which is around 5% of their total market.

Pakistan total exports to EU is around US$ 5 billion out of which 3.6 is of textiles i.e. 72% share.

Pakistan overall share in EU market is 0.2% while in textiles our share is around 3.2%Keeping all other factors constant, Pakistan can now achieve an increase of around 29% in total exports to EU due to emergence of GSP Plus with in an yearThe increase in textiles and clothing exports can be expected around 38%The tariff advantage is maximum for the apparel sector of Pakistan and hence Pakistan should gear up towards value added market.The experience of ATP has also shown us that we have better chances to capture the apparel sector as our utilization percentage is expected to be more than 93% of quota in apparel product lines in 2013 It is also expected that due to various safeguard provisions in the new GSP Scheme the strong product lines of India and China may go further into disadvantage as an outcome of expulsion from the GSP benefit.

EU Imports from PakistanMillion EurosSource: EUROSTAT, * forecasted on the basis of 9 month performance ** forecasted using data of EUROSTAT/WITS and SMART Software, general supply elasticity and substitution elasticity at generic software value of WITS at i.e. 99 and 1.5 respectively The prime products in which Pakistan is expected to do the best includes:printed bed linen of mmf cotton trousers (men and women both) dyed and printed bed linen of cotton mens knit trousersTowelsSockscotton jerseysprinted twill cotton cloth etc

The real challenge for Pakistan will be to ensure 100% utilization of its capacities and resources and its diversion towards value addition.

Opportunities and ChallengesThe GSP+ will act like a catalyst to rejuvenate Pakistans entire export products rangeBenchmarking of products in which we have a competitive edge, rather than comparative edgeModernization of management and processesGreater use of IT, especially for monitoring of T&C exportsEnabling environment must be created at all levels legislation, facilitation and export-friendly policiesProduct diversification will be necessary to avoid saturation 13 tariff lines share more than 50% of our textiles exports mix

Future StrategyIndustry VisionGSP+ Textiles Facilitation CommitteeData sharing with PRAL on a weekly basisFBR to issue single consolidated SRO for apparel sectorRevision of rates of drawbacks by Input Output Coefficient Organisation HS Codes synchronization where necessaryTraining for skill and product developmentStrategy for Product DiversificationMarketing StrategyPursue for proper implementation of 27 Conventions

Future StrategySr. No.IssueProposed MeasureExecuting Department1Awareness of GSP+ Scheme and EU Rules of OriginSeminars and workshops to disseminate information on GSP+ Scheme and Rules of OriginTextile Industry Division, Commerce Division, FBR2Easing the liquidity crunch of SMEsPending liabilities of Textiles Policy Initiatives be paid;Timely refund of Sales Tax and Drawbacks (textile sector may again be declared Zero Rated Sector)Finance Division and FBR3Unskilled LaborRelease of EDF funds for revival of Stitching Machinery Operator Training Scheme (SMOT)Commerce Division, Textile Industry DivisionSr. No.IssueProposed MeasureExecuting Department4Value additionSimplification of SROs and other schemes for import of raw material and accessories for value addition;Awareness Seminar on Temporary Importation schemes

FBR, Commerce Division and Textile Division5Product diversificationMore than 50% of our exports are confined to only 13 products; Funds to be allocated to textiles educational institutes including National Textile University for development of new productsCommerce Division and Textile Industry Division Future Strategy37Sr. No.IssueProposed MeasureExecuting Department6Drawbacks on deemed import basis are warranted to increase share of Blended ProductsNTC recommendations be implementedCommerce Division7Increase in Cotton Production (1 million cotton bales earn $ 1 billion)Availability of Certified SeedEnactment of Plants Breeders Rights ActAmendments in Seed Act 1976Improvement in Extension Services NBC meeting to be held

National Food Security Division, Climate Change Division and Provinces8Cotton Standardization Implementation of Cotton Control Act and introduction of quality based pricing system for seed and lint cotton ProvincesFuture StrategySr. No.IssueProposed MeasureExecuting Department9Cotton Leaf Curl Virus (CLCV), prevailing from last 27 yearsResearch Funds be allocated for not only CLCV control but other cotton related measures such as Extra Long Staple, heat and drought tolerance, water and pesticide efficiency etcFinance Division 10Stringent Regulatory Regime (27 regulations of different kinds) for monitoring and inspecting of operations of units. There are also a variety of local levies which increase cost of doing business

Simplification of procedures and collection of levies; One Window OperationFederal and Provincial GovernmentsFuture StrategySr. No.IssueProposed MeasureExecuting Department11Facilitation to ExportersGSP Plus Cell to monitor performance and to facilitate the exporters Textile Industry Division12MarketingDedicated Textiles and Clothing Events be held in EU countries and in PakistanTextile Industry Division/TDAP/Commerce Division Special Funds to be allocated by Finance Division

Future StrategyThank You