GSP Plus status: what does it imply?

In December 2013, subject to its compliance with 27 UN-ILO conventions, the EU Parliament approved the grant of 10-year GSP Plus status to Pakistan by a huge majority; 409 votes in its favour vs. 182 against. The bill became a law on December 28, and January 1, 2014 onwards, all EU member states began applying concessionary tariffs on goods imported from Pakistan.

The GSP Plus concession is governed by EU’s July 7, 2004 communication, ie, “Developing countries’ international trade & sustainable development: the function of the Community’s generalised system of preferences”, and concessions there under focus on eradicating poverty by fostering sustainable economic, social, and environmental development of the beneficiary countries.

The concessions assist developing countries in adopting good governance, and help generate additional revenue via trade, which can then be invested in development projects that diversify their economies. Pakistan needs to increase its exports to a level where, along with inward remittances, it rapidly cuts its annual trade deficit that is forcing ever-higher external borrowing.

Sustainability of the concessions requires implementing 16 UN and ILO Conventions on human and labour rights, and 11 on environment and governance. The concept requiring their compliance is that businesses in beneficiary countries alone shouldn’t benefit from reduced import tariffs, but must share them fairly with their workers.

Pakistan has benefited from these concessions for a year. On January 1, 2016 the EU will review the level of Pakistan’s compliance with the 27 UN-ILO conventions based whereon EU will decide to continue, or withdraw this status partly or wholly. It is therefore time to re-visit the stipulations of the conventions and assess the level of their implementation.

The EU laws require the beneficiary countries to adopt ‘sustainable development’ as defined by global conventions – the 1986 UN Declaration on the Right to Development, the 1992 Rio Declaration on Environment & Development, the 1998 ILO Declaration on Fundamental Principles & Rights at Work, 2000 UN Millennium Declaration and the 2002 Johannesburg Declaration on Sustainable Development.

Beneficiary countries give a binding undertaking to maintain ratification of the conventions, their effective implementation, unreservedly accepting reporting requirements under each convention, agreeing to convention-specific implementation review every two years, participating in that process, and complying with its monitoring procedures.

GSP Charter’s Article 14 requires the EU observers to report to the EU Commission, the EU Council and its Parliament, on implementation of the conventions. For withdrawal of GSP status, reports from relevant monitoring bodies are supplemented by data provided by reliable sources, ie, social partners including civil society, and EU Parliament and Council members.

Reasons for temporary withdrawal of the GSP Plus status include serious and systematic violations of the principles laid down under the conventions, non-compliance with reporting requirements under each convention, or non-co-operation with the EU monitoring teams and non-implementation of the procedures advised by these teams – tough but necessary compliance commitments.

Article 19 of the GSP Charter provides for temporary withdrawal of concessions due to serious and systematic violations of the principles laid down by the conventions, export of goods made by prison labour, gaps in customs controls on export or transit of illicit substances, non-compliance with global conventions on anti-terrorism and money laundering, and systematic unfair trading practices prohibited or actionable by the WTO.

Article 22 specifies that deterioration of economic and/or financial situation of producers of ‘like products’ in the EU (that may be difficult to repair) would also justify withdrawing the GSP status. ‘Like product’ means an item identical in all respects to the product in question or one that, although not alike in all respects, has characteristics closely resembling the one being produced in an EU member state.

Because retaining the GSP Plus status required monitoring compliance with the ratified conventions, even before availing this concession, government spokespersons promised to implement major administrative reforms to re-regulate Pakistan’s industrial sector for eliminating any violation of these conventions, which reflected a positive beginning.

On December 31, 2013 Minister of State for Commerce & Textiles told media that, to monitor compliance of the 27 conventions, his ministry will form a ‘Textile Facilitation Committee’ which will meet every month to discuss and lessen the hardships of the exporters, and Prime Minister’s Advisor on Foreign Affairs will form a review committee in the Foreign Ministry.

The same day the Secretary Textiles Division confirmed that Secretary Petroleum had assured her about issuing instructions to the Manager Director SNGPL to resolve the issue of load-shedding in gas supply to the export sector. The ECC too discussed the issue in detail, and decided to specify ‘export-oriented industry’ – a category that will be excluded from load-shedding.

FBR was asked to share EU-destined export data with the Textile Ministry to keep pushing the exporters to export more, revise the export rebates and refund them promptly, and issue a consolidated SRO to ease administrative issues concerning exports to the EU – all aimed at ensuring fuller utilisation of Pakistan’s export capacities and their diversion towards value addition.

Minister of State for Commerce & Textiles expressed the hope that, over their existing level, exports to the EU will increase by 29 percent, and share of textile products in exports to the EU will rise to 38 percent. The overall expectation was that exports to the EU will rise by $1.17 billion over their then level of $3.6 billion.

Recently, however, the Joint secretary Overseas Ministry disclosed that ILO has expressed its dissatisfaction over implementation of its conventions on improving safety and health measures in factories. According to him, implementing the ratified core ILO conventions was proving tough after devolution of power to the provinces, and admitted that this failure may deprive Pakistan of the GSP Plus status.

The fact is that, after 1968, no regime paid requisite attention to regulating the industrial sector, nor did trade associations institute self-regulatory codes on their members to ensure good governance in their respective domains. It is time these failures were addressed effectively through a joint government-trade association strategy that is implemented in letter and spirit to establish its credibility beyond doubt.

Although, the EU shall provide Pakistan with every opportunity to cooperate, burden of proof for compliance with its obligations under the GSP Charter lies with Pakistan. Impliedly, to benefit from this concessionary arrangement for its full 10-year term, Pakistan must urgently assess how well it is complying with the conventions forming the GSP Charter.

Next week this column will highlight the compliance failures thus far, and efforts needed to retain the GSP Plus status, more so after the EU’s strong, logic defying reaction to lifting of the moratorium on death penalty, although none of the EU-specified conventions prohibit the death penalty.