GSP+ status: are threats of withdrawal real?

There is a lot of talk about the ongoing GSP+ review by the European Union in October 2017 and the impending report to be published by the economic bloc in January 2018 on GSP+ implementation by Pakistan from January 2016 onwards. There are reports that GSP+ status is in jeopardy. It is therefore important to explore GSP+ status, its background and examine whether the threat is real or imagined.

On 1 January 2014, the European Union granted Pakistan the GSP+ status (unilateral trade preference scheme with considerable tariff concessions) which allows tariff-free export of 66% of the EU’s product lines. The Special Incentive Arrangement for Sustainable Development and Good governance, referred to as GSP+, can be availed by a country if it meets vulnerability criteria (its share in EU GSP covered imports is less than a threshold and its exports lack diversification) and sustainable development criteria (ratification and implementation of 27 international conventions on human rights, labour rights, environment protection and good governance).

The attempt to improve human rights through trade negotiations and agreements has a history which dates back to the 19^th and early 20^th centuries when developed countries adopted laws prohibiting the import of goods produced using prison labour. The first labour clause on internationally recognised worker rights was introduced by the US government in 1984 in its GSP scheme.

Pakistan is the beneficiary of both the US’s GSP programme and the EU’s GSP+. Textile products, constituting nearly 60% of the total exports from Pakistan, get preferential treatment under the EU’s GSP+ scheme, while these are excluded from the US’s GSP programme.

The European Union is Pakistan’s main trading partner. More than 25% of Pakistan’s exports enter the European Union. Of these, 76% are covered by GSP+, thus entering the EU market at no tariff at all. Of the current nine beneficiaries of GSP+, Pakistan is the largest.

The country’s total exports to the EU that amounted to $ 6.02 billion in 2013 increased up to $7.3 billion in 2014 but declined again to $6.7 billion in 2015, though a slight increase to $ 6.9 billion was witnessed in 2016. The sharp increase in the first year of GSP, precipitous decline in the second year and a lacklustre growth in the third year alludes to the vulnerability and volatility of Pakistan’s exports to the European market.

In terms of the euro, exports increased from €4.5 billion in 2013 to €6.2 billion in 2016 which represents an increase of 38%. Interestingly, imports from the EU have also increased in this period by 38% from €3.8 billion to €5.2 billion. The difference in euro and dollar figures is explained by the depreciation of the euro against the dollar and rupee appreciation against the dollar since late 2013.

With the plummeting of exports (from $25 billion in calendar year 2013 to $21.7 billion in calendar year 2016), decrease in workers’ remittances and the fewer number of workers finding jobs abroad, GSP+ seems to be an important engine of growth along with CPEC. And it has helped a lot in maintaining exports above $20 billion.

Now, let’s turn to the issue of threat of withdrawal. EU regulations stipulate that a country can benefit from the scheme only if the international monitoring bodies (for the above-mentioned 27 international conventions) do not identify a beneficiary country’s “serious failure” to effectively implement any of these conventions.

GSP plus status can be withdrawn temporarily, in respect of all or of certain products originating in a GSP+ beneficiary country, where in practice that country does not respect its binding undertakings such as maintaining ratification, reporting implementation progress and participating in EU review process.

While the US has withdrawn/suspended trade preferences for 15 countries in relation to labour rights, the withdrawal procedure has been used less often by the EU. All trade preferences were withdrawn in the case of Myanmar and Belarus for labour law violations while Sri Lanka had its GSP+ status downgraded to general arrangement (GSP) for rights violations.

Research, as documented by this scribe in his book titled Tripartism, Trade and Labour, already indicates that the EU withdraws trade preferences on breach of labour standards in cases when the ILO has clearly held that such breaches have not only occurred but have been systematic, serious and persistent. And this happens after sending a Commission of Inquiry by the ILO (a special procedure under the ILO Constitution). In the case of Sri Lanka, the GSP+ status was withdrawn for violation of human rights conventions by state authorities in the war against Tamil Tigers. What is common in all these three cases of withdrawal is that rights violations were perpetrated by the state authorities instead of the private sector.

Using these three cases as a standard, we should check our progress.

There is no serious failure identified by the ILO in implementation of core labour standards. In the so-called pyramid of ILO condemnation, Pakistan is still at level three (while level five is needed for withdrawals). Business representatives (Chambers of Commerce and Employers Federation of Pakistan) must be made part of the Treaty Implementation Cell for ensuring compliance with labour standards at workplace and finding out the best practices within the industry.

What should be taken more seriously are the comments by committees on human rights covenants. The Human Rights Committee on International Covenant on Civil and Political Rights noted the following in its concluding observations of August 2017: “It is particularly concerned that the death penalty is applied to crimes other than the “most serious crimes” such as drug trafficking and blasphemy; that juveniles and persons with psychosocial or intellectual disabilities are reportedly sentenced to death and executed”.

Similar comments were made by the Committee against Torture on Convention against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment regarding criminalisation of torture and custodial deaths. These instances can be categorised as state-led or state-authorised human rights violations and can lead to withdrawal.

With its dwindling exports and competitiveness, Pakistan needs GSP+ more than ever. The benefits from GSP+ can be capitalised in the coming years if GSP+ status is maintained. In order to avoid an untoward situation, the government must take these observations seriously and reform both the legislative and institutional setup accordingly.

Published in The Express Tribune, October 27^th, 2017.

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